D+C Development and Cooperation (No. 3, May/June 2000, p. 25-26)

Why is Africa still the poorhouse of the world despite massive aid? The author shows by examples that in African countries that have received the greatest development assistance, real per capita income has fallen and the countries today are poorer than they were 30 years ago. He attributes this situation to self-help forces having been suffocated by an excess of aid and to capital flight. He suggests making the allocation of aid more dependent upon the performance of the recipient countries.

The main objective of development policy is to promote countries that are in the pre-industrial stage until they have achieved self-sustaining growth. Several countries have now reached that point. Given the financial difficulties of most donor countries, the question arises of whether international development cooperation should not be limited to those states which still urgently need assistance and use it sensibly.

The author is aware that it is impossible to determine an academically unassailable ceiling for the level of development at which assistance is no longer needed. But what is certain is that the present limit set by the OECD’s Development Assistance Committee (DAC) is too high, and that some countries which lie under this limit do not use their aid sensibly. The following examples will illustrate that.

Mozambique

Take the situation of Mozambique (the assessment was made before the catastrophic floods of this year - note of the editor), which according to World Bank statistics had the world’s lowest per capita income of US$ 90 in 1997. The DAC says that during the last ten years, the country received net Official Development Assistance (ODA) from bilateral donors, the European Union and international finance organisations which at times exceeded its gross national product. The ODA to GNP ratios were: 1988/89 76.1 per cent, 1989/90 156.7 per cent (!), 1991/92 108.7 per cent, 1994/95 95.7 per cent, 1996/97 ‘only’ 41.1 per cent. These figures do not even include the considerable aid from NGOs.

In other words, numerically, ODA covered the entire spending of Mozambique’s economy (investment, consumption and military expenditure) or rather, it could not even be used entirely. Perhaps that is a reason why Mozambique’s military spending, compared to that of the other poorest developing countries, was particularly high.

This bountiful flow of aid funds left no room to spend the country’s own savings inside the own borders. Mozambique’s rich and powerful were really ‘forced’ to invest their money overseas. That made the self-help required for development assistance impossible.

Even though Mozambique was Marxist until 1986, one might have expected that the overabundance of aid from bilateral donors, the well-endowed World Bank and International Monetary Fund structural adjustment programmes which began in 1987, and the many poverty-oriented projects would have got the country moving in both economic and social terms. But that is far from the mark.

According to the World Bank, in 1985, before Western donors began their generous promotion of Mozambique, the country posted an annual per capita income of US$ 160. This then dropped significantly reaching a 1989 level of US$ 80 at which it hovered, with some fluctuations, until 1996. Provisional figures for 1997 showed that per capita income had risen to US$ 90. World Bank statistics indicate that private consumption per capita rose annually between 1980 and 1996 by 1.7 per cent. Life expectancy dropped from 48 years in 1986 to a current 45 years.

Although the massive aid to Mozambique has so far had little economic and social impact, it resulted in the country’s foreign debt doubling from 1986 to 1997. Except for Portugal, the former colonial power, Mozambique’s bilateral donors, including Germany, gave their assistance as grants. The main sources of debt in recent years were Portugal, the International Development Association (IDA) of the World Bank group, foreign commercial banks, and the IMF. In addition, Mozambique still had considerable volumes of debt dating from earlier aid from communist countries.

The DAC says that in servicing its debt, it was not repayment of the foreign commercial banks credits that constituted the greatest burden on Mozambique’s public budget, but rather and by far the IMF’s loans tied to its structural adjustment programmes of recent years. The DAC adds that while outstanding foreign private bank loans totalling US$ 435 million in 1996 required annual payments of only US$ 20 million, IMF credits of US$ 181 million called for repayment of no less than US$ 34 million on capital and interest. Even if Mozambique is counted among the 41 highly-indebted poor countries (HIPCs), in view of the volume of aid it has received and its massive new inflows, from which repayment of ODA capital has already been deducted, it has no debt service problems.

Tanzania

Let’s now turn to Tanzania which over the last decades received relatively the most assistance worldwide when compared with other larger developing countries. When in 1967 it announced the introduction of its Ujamaa socialism, which placed more importance on state-directed social justice than on economic growth, many donors, especially NGOs, were highly enthusiastic. From 1976 to 1986, no other Least Developed Country (LDC) received more consultancy assistance than Tanzania.

The donors’ enthusiasm was stoked again in 1985, when the country’s charismatic President Julius Nyerere resigned and the socialist economic system was abandoned. Not least due to structural adjustment programmes agreed with the World Bank and IMF in 1986 and 1987, and due to the donor community’s general turn of attention to sub-Saharan Africa, Tanzania, like Mozambique, was showered with offers of assistance. The DAC says that while ODA accounted for 10.1 per cent of Tanzania’s GNP in 1985, and thus already far exceeded the average ratio of sub-Saharan African countries, its self-help efforts were greatly impeded by as early as fiscal year 1989/90 because the net ODA proportion of its GNP had soared to 69.3 per cent. Due to higher repayments in the following years, net assistance payments declined. In 1996/97, the ODA-GNP ratio was only 13.4 per cent. By comparison, the figure for sub-Saharan Africa as a whole was 5 per cent, for China 0.3 per cent, and for Bangladesh 7.7 per cent.

Did the donor community’s relatively greatest deployment of tax money worldwide plus the special poverty-oriented aid for Tanzania achieve the results expected of it? And is the country now the showpiece of a successful development policy? Here are some comparative statistics from the World Bank. In 1976, the country had a per capita income of US$ 180. Measured by that benchmark, 24 other countries were poorer. In 1986, Tanzania’s per capita income was US$ 250, and only 13 other countries were less well off. Then far above average assistance began to flow to Tanzania. In 1993, the country’s per capita income dropped to its lowest level of US$ 90, and only one other country was poorer.

In 1996, with a per capita income of US$ 170, Tanzania still had not regained its level of 20 years earlier. According to the World Bank, while life expectancy there in 1977 was 51 years, in 1996 it was one year less. From 1990 to 1996, per capita consumption dropped annually by 0.8 per cent. Compared with other sub-Saharan Africa countries, Tanzania’s school system is still inadequate. Expressed in real values, the country’s level of development is probably now lower than it was in the 1960s.

This is a truly alarming outcome when one considers that Tanzania, with a population of about 30 million, received, a net ODA total of US$ 10 billion plus a large but unknown amount of non-official aid from 1988 to 1997 alone, according to the DAC.

The high volume of assistance from international finance institutions and the poor return on capital deployed have, as in the case of Mozambique, resulted in Tanzania being regarded as highly indebted. Also here, repayment of loans granted in the context of structural adjustment programmes is the country’s relatively greatest financial burden.

A look at the general situation in sub-Saharan Africa confirms the gloomy picture. In 1976, according to the World Bank, 11 of the 20 poorest countries in the world were located in the region, and 20 years later the figure had risen to 17. At the same time, ODA for sub-Saharan Africa has risen markedly during the last 10 years.

Overabundance of aid suffocating
self-help efforts

What are the causes of sub-Saharan Africa still being the world’s poorhouse? Domestic political insecurity must, of course, be mentioned first. But the second most important reason appears to be the development assistance the region has received. There was too much aid, which often suffocated possibilities of self-help. The enormous helpfulness of foreign governments and institutions gave the power elite access to considerable sinecures. Too much aid was perhaps also one of the reasons why armed conflicts in the region were more numerous than in other parts of the Third World.

If one looks at the structure of the inflow of capital to the region, one notes that the bilateral donors decided to fund mainly project assistance. The problem linked with this aid is that up to 60 donors are ‘queuing’ to secure one of the rare good projects. In addition, a very large number of NGOs is involved.

All donors wish in the main to help the poorest countries, and in doing so, they focus on promoting poverty alleviation, education or environmental projects. For that, there are politically motivated target figures by which the ‘efficiency’ of the aid is measured. That raises the danger that projects which promise no economic and social success at all will be promoted, too.

Great expectations were placed in the structural or sectoral adjustment programmes supported by the World Bank and IMF in Africa’s heavily-indebted poor countries. The two organisations assumed that after an adjustment period of about five years the agreed programmes would create better economic and social framework conditions so that these countries’ living standards would also soon improve noticeably. Since these expectations were largely misplaced, further programmes were subsequently agreed, each of which involved major loans. The World Bank and IMF believed that servicing the capital of these loans from macroeconomic yields could be made to deadline, particularly as the even greater bilateral assistance would not be a burden because it was in the form of grants. As we now know, this expectation was wrong as well.

Ghana, which was more prepared to accept the IMF and World Bank reform proposals than any other country in the region, is a striking example of such disappointments. Because of its keenness, the two financing institutions gave the country very extensive promotion. But the results of Ghana’s structural and sectoral adjustment programmes, begun in 1983, were negative. Nominal per capita income fell between 1985 and 1997 from US$ 380 to US$ 370, meaning a much greater drop in real terms. While from 1980 to 1990 gross investment increased annually by 4.5 per cent, it declined by 3.9 per cent per year from 1990 to 1994. Gross foreign debt rose from US$ 1.4 billion in 1980 to more than US$ 6 billion in 1996.

Conclusions

What conclusions can be drawn from these observations? First of all, one must say that the statistics on debt are misleading. The arithmetic has ‘forgotten’ the African countries’ great assets abroad. In the 1980s, the World Bank and IMF estimated that about 90 per cent of the development funds transferred to these countries were leaving them immediately as ‘flight’ money. There are no such estimates today. But one cannot exclude the possibility that a proper calculation according to the law on bankruptcy would find that some of the ostensibly highly-indebted countries were in fact free of debt.

A second conclusion is that by reducing the harmful over-assistance of a number of sub-Saharan Africa countries, considerable funds could be made available for pursuing a poverty alleviation policy oriented on economic principles in countries that need aid and use it sensibly.

In addition, I see the abolishment of the IMF trust fund for structural adjustment programmes as being very important. This money is untied, uncontrolled public budget aid, which at worst can be used entirely for military purposes without the international community hearing of it. It must not come to the situation where the poorer African countries are granted debt relief, but their gross debt burden is subsequently - as presently planned - soon brought back up to its current level due to World Bank and IMF loans. The money already pledged by the German finance ministry to top up an IMF fund should be used instead as a grant in the context of bilateral aid, including via NGOs, for widely effective measures in alleviating poverty, promoting education, and protecting the environment.