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Kickbacks And Corruption Undermine African Innovation

As global leaders look to international aid to support the developing world, SOFTtribe’s Herman Chinery-Hesse, argues that aid actually damages technology and innovation by local businesses

I’ll start by clarifying that when I say aid, I don’t mean disaster relief. Instead I am referring to institutional aid, which is big business, but unfortunately detrimental to its intended recipients, particularly those in Africa.

Institutional aid restricts enterprise in Africa

Here is a typical scenario of how aid quashes innovation in developing countries. A local technology business for example, spots a problem in the public sector that it believes could be solved through technology. They head to their labs, spend six months developing a solution and present it to the public sector body.

That public body is bound by an agreement with its aid organisation to approve spending on any projects.

Once the technology company submits a proposal into the system, all lines of communication are almost immediately shut down. It is not uncommon that six months later the government announces that, for example, a French company is being brought in to deliver the project.

[Editor – the links between Ghana and France can be seen in reports that Ghana’s LTE network is likely to be built by Alcatel-Lucent, though this is not a contract Mr Chinery-Hesse referred to]

With the process being funded by the French government, how could the recipient government refuse? The result is that an idea born in national labs is being implemented at a premium by a company most people had never heard of.   National technology companies have learnt a hard lesson – to often avoid the public sector – the biggest contributors to IT spend in the country.

By offering our governments misguided and misaligned objectives, aid allows them not to listen to us, the local technologists. It is a sad fact that, thanks to international aid, our government is more interested in putting a smile on the director of the World Bank’s face than on listening to its millions of local taxpayers.

Despite the popular rhetoric in the developed world, aid causes poverty in many ways, one of which is by causing projects to be overpriced. For example, we once got into trouble for quoting $15,000 (£9 557) for a project. An international competitor was quoting £500,000 and won – so the government agency we were dealing with suddenly had to justify spending the £500,000.

Insiders later informed us they had chosen the half a million pound project to make sure that they could get their significant kickbacks, which amounted to multiples of our entire quote! The organisation was not very happy with us and never again did any business with us.

How can a government generate a sustainable solution under conditions such as these, with aid organisations operating like pimps, constantly offering government the option of ‘take take take’?

Proponents of aid are often unaware of the detrimental effects it has on local businesses. I was recently part of a consortium of Ghanaian companies bidding for a government contract. At first, we were told in no uncertain terms that there was no special preference for local bidders. Then the government department tried to disqualify us on the basis that we didn’t have a big enough turnover. We responded by bringing two more companies into our consortium.

Then it turned out that the contract would be financed by the French government, which meant it would go to a French company. I was outraged and took this to the radio, where I must admit, I caused a bit of a furore. We were ultimately appeased with an insignificant sliver of the original contract in the form of a minor sub-contract from the main contractor, but our fee was squeezed to the point where this was loss-making for the Ghanaian companies involved.

Discussions with donors are not transparent, they happen in closed rooms in Paris and Washington, yet they are incredibly consequential discussions and as a result, local industries die.

The result is constant friction between the business and political class. Politicians are so addicted to aid and the personal benefits it brings them that they are willing to hold their economies back, to ensure the aid taps remain on. It’s a vicious cycle that creates no cash and no true aid.

Our predicament is made even worse by the fact that it is very difficult to get loans and credit for people in our part of the world. The banks realise that local businesses are most vulnerable when it comes to operating in their sector. The easiest way for a foreign company to oust a local one from a contract is through bullying or corrupting recipient governments to act on their behalf. The banks know this.

They know we are vulnerable and often powerless against international competitors backed by whichever international donor is holding the purse strings. The result is that true entrepreneurs, one of the biggest sources of growth and development, leave the country when they see the opportunities dry up. The risks of aid are therefore poverty, negative interest and overpriced contracts, with NGOs allowing special interest groups to get laws pushed through, even if the citizens of that country are not interested.

Overcoming the blight of aid on Africa

We have to lobby to break this axis of evil created by foreign aid. This will then create an environment in which technological innovation flourishes. We are tired of the constant disadvantage of being up against American firms who can use the mandate ‘the government uses us’ to win contracts with local businesses.

Technological innovation within Ghana is plentiful and it is responsive to local needs. Take for example a product we launched recently that addresses the dangers of being burgled or robbed – a reality experienced by many Ghanaian citizens. The platform, charged at $10 (£6) a month, alerts neighbours, the police, a private security company and the local radio station when your house is being attacked, to enable your community to come to your rescue – this taps into the true community spirit of the Ghanaian population. Another project is a pay-as-you go school management software system that enables the management of all aspects of an educational institution.

These are all innovations that offer viable investment opportunities, and that, in a fair competitive landscape would flourish. But they are all companies that have to overcome the obstacles put in their paths by international aid. So, here, I implore you: what we want is a handshake and a business deal, not a handout.

Herman Chinery-Hesse is the founder and Chairman of Ghanaian software house, theSOFTtribe. He recently spoke at the Acton Institute’s conference From Aid to Enterprise: Economic Liberty and Solutions to Poverty.