By Joan Oliver and Xavier Sala-i-Martin

The world has made significant economic progress over the last thirty years, and as a result, global poverty rates and headcounts have dramatically fallen. The distribution of this new prosperity, however, has been strikingly uneven. In 1960, the majority of the world's poor citizens lived in Asia, but since then, the region has experienced unprecedented economic growth that has allowed hundreds of millions to escape poverty. Africa, on the other hand, has actually regressed, and today it is the poorest region in the world. According to the World Bank, almost half of the population of Sub-Saharan Africa lives on less than $1 a day.

These economic developments have occurred despite the fact that Asian economies have received much less international development aid than their Sub-Saharan counterparts. In light of this, it is increasingly clear to scholars, analysts, International Finance Institutions and NGOs worldwide that while humanitarian aid is successful in alleviating the effects of natural and economic disasters, conventional development aid has failed. Sending money to African governments has not just been ineffective – it has been detrimental to their economies, as it induces corruption and draws local talent away from productive activities.

One of the primary reasons why development aid does not work is that economists do not really know what drives economic growth. We do not understand why Asian economies have grown while African economies have not – while many hypotheses and theories have been put forth, nobody has a definite answer. But we do know one thing: local and foreign investment over the last few decades has led to the creation of thousands of firms in Asia that have created hundreds of millions of jobs, allowing Asian citizens to achieve tremendous prosperity. This has not happened in most African economies.

Given the right conditions, the potential rate of return on direct private foreign investment in Sub-Saharan African countries is very high. However, the current institutional, legal, and macroeconomic climate has been extremely discouraging to business, and without a developed business fabric, there is no internal demand for reforms that would make the institutional environment more business-friendly. Sub-Saharan African economies are trapped in a vicious cycle in which their existing institutions discourage business, and the lack of business deters the institutional reforms needed for business to flourish.

New targets and actors in the fight against poverty

Development aid usually targets poor health, poor education, malnutrition, and other direct symptoms of poverty. However, while often this soothes the immediate economic and social pains, it does little to cure the underlying problem. It is time to move beyond short-term assistance that brings immediate results but requires the sacrifice of medium- and long-term growth – it is time to fight poverty at its roots through business creation.

Because businesses are the only institutions that can create wealth, economic activity, and jobs, at CWB we believe that the business community should lead the fight against poverty. Successful and experienced businessmen and businesswomen should get involved in the entrepreneurial process in developing countries – not by donating more money to charity, but by using their knowledge, capital, networks, and skills to support and guide entrepreneurs in developing countries and enable them to grow and prosper on their own, and to support the growth of a business community that might eventually generate enough political pressure to bring about the institutional reforms that developing countries need to prosper.