Collier begins be stating the fact that investment in Africa had dried up. Investors even more afraid of risk now after the crisis have put their money back into developed countries. Collier says this is where the World Bank and the IMF should step in, instead of investing in middle income countries.
Our snippet of the commentary comes from the UK's Independent.
Why does this matter? It matters because Africa desperately needs more investment. For decades Africa has been investing only around 20 per cent of national income, whereas Asia is investing around 40 per cent. At these rates, almost regardless of returns, Africa will continue to fall further behind the emerging market economies. Yet Africa simply cannot afford to finance a substantial increase in investment from its internal resources. A domestically financed increase in investment could only come at the expense of consumption.
So if international finance is essential and private international finance is fleeing, the only option is international public finance. Indeed, this is the hour for which the international financial institutions were invented. To date, despite the fury of the street protests in Istanbul, they have "had a good war", being well-led and scaling up their provision of finance enormously. But almost all of that finance has been to the emerging market economies and eastern Europe. The poorest countries have been further marginalised by the crisis.
The underlying reason is not reluctance of the World Bank and the IMF to help, but the way that the G20 have structured their increase in finance. Extra aid, which has traditionally been the source of public finance for the poorest countries, has basically been off the table. Money has been found for the IMF through the issue of Special Drawing Rights (SDR), and for the World Bank through the issue of more IBRD loans, but these instruments have traditionally been largely confined to middle-income countries.
If the countries of the bottom billion are to benefit, the criteria for disbursement will need to be changed. The potential is considerable. Surplus SDRs could be reassigned from the many rich countries that do not need them to the poor countries that do: the French government has already led the way. Flows from the International Bank for Reconstruction and Development (IBRD) to middle-income countries are so enormous that even a modest share would be equivalent to a large increase in aid: it is for this that Zoellick rightly seeks a capital increase for the Bank.
Street protesters should be screaming their support. Yet using SDRs and the IBRD would carry serious risks. Unlike aid, both have to be paid back. Unless the money was well used, resorting to them would have the makings of a new debt crisis without an obvious exit strategy.
What does "well used" actually mean? It is not synonymous with the conventional aid concern that the money should "reach poor people". It means using the money only for investment, which poor people would be highly unlikely to do. And it means investing the money productively. Each of these steps would be a new departure for many African governments.