NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, May 10, 2013

By Tony O. Elumelu

The traditional approach to solving Africa’s problems has been to rely on charity and aid – free money, more or less. And while charity has done much good for millions across the continent in terms of food security, health care, emergency response, and education, its chief weakness is that its results have not proven sustainable.

Africa finds itself continually going back to donors simply to maintain the status quo. What the continent really needs is to create the environment – political, economic, and social – to achieve self-sufficiency.

Experience teaches that connecting the private sector to economic development is the most effective way to build wealth and resources in local economies, and ensure sustainable development. Philanthropists, nonprofits, and nongovernmental organizations can help achieve this self-sufficiency if they harness their resources to create change in the private sector.

Consider my own experience as a founder of Standard Trust Bank (STB), which later became United Bank for Africa. We started with a defunct bank and a $5 million investment in 1997 – partially funded with “development” capital.

By the time I retired in 2010 we had created a pan-African financial institution, now serving nearly 7 million customers, through 750 branches in 18 African countries – and providing direct or indirect employment to 20,000 employees. That business now contributes to employment and skills development, a growing tax base in local economies, and an integrated financial infrastructure to facilitate trade and investment.

Donor funds flowing into Africa annually are many times the $5 million investment that started our bank, but have they created equivalent impact? Philanthropy and development aid can, and should, be components of Africa’s growth strategy. But perhaps it is time to rethink how that capital is deployed and to focus more on sustainable private sector solutions.