D+C Development and Cooperation (No. 3, May/June 2001, p. 8 - 15)

Africa will be able to achieve sustained economic growth only if it invests heavily in its people, both to reduce poverty and enhance the continent’s ability to compete globally, argues a major new report published by the World Bank and co-signed by four other institutions working extensively on Africa. In an unusually candid and self-critical assessment, the report, Can Africa Claim the 21st Century?, lays a share of the blame for Africa’s limited progress so far on the interventions and policies of the donor institutions themselves, which have left Africans “cash poor and project rich.”

Can Africa Claim the 21st Century? states that the Bretton Woods institutions - the World Bank and the International Monetary Fund (IMF) - have undergone a “watershed change” in their thinking on aid policies. It is an assertion that both World Bank President James Wolfensohn and IMF Managing Director Horst Köhler also have been making. Such declarations have met with some scepticism, as Mr. Köhler discovered during a visit to Senegal in July (see end of page).

The study maintains that a “fragile consensus” has emerged between Africa and its donors since the late 1990s. This entails greater African acceptance of the need for macroeconomic stability, market and private-sector promotion, and increased global competitiveness, with the donors in turn agreeing to focus more on social and state institutions, poverty reduction and enhancement of African skills and capacities.

Yet significant differences remain. Many Africans continue to chafe at the conditions the financial institutions impose on their governments in order to receive debt relief or development assistance (see end of page). Recent work on adjustment policies by more than two dozen African economists urges much more attention to promoting industrialization, so that Africa can begin to export a broader range of processed goods and move beyond its current dependence on primary commodities.

‘Sound policies’ pay off,
sometimes in the medium term

Africa must continue on the path of economic and institutional reform, the report states, since without reform its economies will not grow rapidly and without growth poverty will worsen. The reforms undertaken so far “contributed to the resurgence of growth in the second half of the 1990s,” asserts the report, while the creation of wider space for private initiative is gradually transforming Africa into “a viable business address” for both external and domestic entrepreneurs.

However, the report’s claim that policy reform directly spurs higher growth rates is more qualified and nuanced than in the World Bank’s 1994 study Adjustment in Africa, which maintained that “adjustment is working.” In less categorical terms, the new report says that “some recent studies indicate that adherence to sound policies pays off in the medium term.”

Yet even where economic growth is high, there is no evidence that income inequalities have been reduced, the report acknowledges. And if pervasive inequalities are not addressed, “growth will not be sustainable and will not reduce poverty.” In contrast to earlier adjustment approaches that emphasized rigorous austerity, the World Bank and its partners now argue that economic reforms should permit a rapid increase in African’s consumption.

In particularly damning terms, the report also says that so far “short-term reforms have failed to address some difficult underlying institutional problems - and in some cases may have worsened them.” Some countries, including Ghana, Kenya, Malawi, Tanzania and Zimbabwe, have built up high domestic debts, in part because financial markets were hastily liberalized before fiscal deficits were brought under control. Meanwhile, tight fiscal restraints, including on public sector salaries, have demoralized public employees.

In agriculture, the study notes, policy reforms have opened up domestic and external marketing arrangements, yielding some increases in producer prices to small-scale farmers. However, without improved infrastructure, services and rural institutions, price incentives have had a limited impact, especially at a time of declining world market prices for many of Africa’s agricultural exports. Moreover, reductions in government subsidies have doubled or tripled farmers’ costs, especially for inputs like fertilizers and pesticides.

Role for public sector

African countries should do what they can to mobilize private capital, the report repeatedly emphasizes. Yet it also insists that governments and their institutions remain essential players in the continent’s security and development, reflecting the donors’ shift away from the extreme anti-statist stance that some of them previously urged in Africa.

At the most basic level, African states must be able to maintain peace and security. The report notes that one-fifth of all Africans live in countries affected by conflicts, which makes significant improvements in development virtually impossible. Even in countries not at war, crime and violence can be a serious drain on the economy. In South Africa, their costs reach an estimated 6 per cent of gross domestic product (GDP).

Since the early 1990s, the study notes, 42 of 48 sub-Saharan countries have held multiparty elections. Yet more needs to be done to make government institutions more representative of their countries’ ethnic diversity, decentralize power more effectively to people in local areas, strengthen the rule of law, combat corruption, and boost the morale of civil servants.

Beyond providing clear legal norms and regulatory systems to help private sectors develop, African states also need to play direct and active roles in areas essential to development. Infrastructure projects - railways, roads, electricity, telecommunications, and so on - can be enormously expensive and often are not immediately profitable. So in such cases, the report acknowledges, there may be a need for the public sector to take a lead. One obstacle to agricultural growth, the study notes, has been the relatively low level of public investments. By providing essential public goods, such as rural roads, African governments can make it easier for private businesses to enter neglected markets.

Better health and education also are vital public goods that governments must guarantee if their economies are to become more productive and competitive. The report devotes two chapters to “investing in people” and combating poverty, including through “distributional” measures. It asserts that while there may be some opportunities for enlisting private funding for education and health, these sectors require significantly greater public funding.

The report does not address the common criticism that early structural adjustment programmes contributed to cuts in government funding for social sectors, a point that the UN Children’s Fund, among others, began raising sharply in the late 1980s. It does acknowledge that attempts to shift the costs to local communities have been harmful. “Though the poor are willing to pay for human development investments, their resources are limited,” it says. “User fees have deterred primary school enrolment and health centre use.”

Partly for similar reasons, the report cautions that decentralization “is no panacea.” Hasty decentralization has sometimes resulted in underfinanced or corrupt local government administrations unresponsive to people’s needs. While potentially worthwhile for bringing government closer to local communities, decentralization should not be used “as an excuse for central governments to reduce their responsibilities.”

Exporting more primary commodities

As in most adjustment programmes, the World Bank report argues strongly that African economies must open up more fully to international trade and that governments should implement policies designed explicitly to promote exports. It claims that in most African countries an “anti-export bias is still considerable,” compared with other developing regions. It also states that if the continent had maintained the same share of world trade it held in the late 1960s, Africa today would be earning an additional $70 bn a year.

Yet world market prices have not provided Africa with much incentive, the report acknowledges. Between 1970 and 1997, the cumulative losses in terms of trade (the purchasing power of export earnings) were equivalent to a staggering 120 per cent of GDP for non-oil exporting African countries. This was because most African countries depend overwhelmingly on the export of just one or two primary commodities, many of which have seen their world prices plummet.

The solution, the study argues, is for African countries to diversify their economies and the range of goods they export. It goes so far as to chastise Africa for its “failure to diversify exports,” even though many African governments have for years pushed for just such export diversification, often in face of closed Northern markets and donor indifference or outright hostility.

A few African countries so far have succeeded in building up modest manufacturing sectors: Côte d’Ivoire, Ghana, Kenya and Zimbabwe. South Africa has a strong manufacturing base, created through the apartheid regime’s interventionist industrialization policies. But for the bulk of Africa, diversification into manufactured exports will be extremely difficult, the report emphasizes, citing the very high transport, electricity and other infrastructure costs in Africa, compared with other regions.

Therefore, the World Bank and its partner institutions maintain, for most African countries the possibility of diversifying beyond primary commodities will be very limited and their best prospect lies in expanding the number of different primary commodities they export. “Thus the way forward for Africa in the medium term is mainly to raise primary exports, both processed and unprocessed.” In global trade, Africa’s “comparative advantage” will continue to rest in primary commodities, especially since “Africa is richer in natural resources - but poorer in human capital - than any other region.”

Since most African economies currently depend on just one or two key exports, thereby leaving them extremely vulnerable to volatile world market fluctuations, increasing the range of primary commodity exports should help spread the risks. But otherwise, the report does not explain how an export strategy based mainly on primary commodities will bring any long-term improvements in Africa’s basic earning capacity, nor does it explore the environmental consequences of such an approach.

The report does conclude with a strong plea for the industrialized countries to fully open up their own markets to goods from Africa and other developing regions. So far, however, African countries’ demands for greater market access in the North have yielded few results. Making the trade picture even more gloomy, the study reports that for some African least developed countries, “implementing World Trade Organization obligations would cost as much as an entire year’s development budget.”

Lessening aid dependence

Given the limited prospects for higher African export earnings or foreign investment flows, the study acknowledges that most countries will need significant aid if poverty is to be substantially reduced. Paradoxically, aid transfers have been falling in recent years. This trend will need to be reversed to help spur more rapid economic growth, while at the same time permitting consumption to increase sufficiently in order to lessen poverty. Debt relief, by saving budgetary resources, ultimately has a financial impact similar to that of aid inflows, and also should be stepped up, the study says.

Absolute levels of aid and debt relief are not the only important elements, the report continues. So is better targeting. Donor policies have shifted in recent years to give greater priority to education, health and other aspects of human development, while the Heavily Indebted Poor Countries initiative seeks to ensure that resources saved through debt relief are channelled toward poverty-reduction programmes. But major gaps remain, for instance in funding agriculture.

Scathing criticism of donor assistance

The report is scathing in its criticisms of current donor practices. Much aid remains “tied,” that is, it has to be spent on goods and services from the donor countries themselves. Poor coordination among donors sustains “a parallel, multidonor, multiproject economy, obscure to host governments and where donors are sometimes reluctant to share information.” This often makes integrated budget management impossible.

African officials spend much of their time preparing documentation and reports for the different donor agencies. The tight deadlines involved often mean “consultation and ownership may suffer.” Meanwhile, African officials frequently have no access to studies and data produced by the multilateral institutions. World Bank country lending assessments remain confidential, for example. “If partnerships and transparency are to be institutionalized in the aid relationship,” the report recommends, “the Bank’s assessments will need to become more open to public scrutiny.”

Despite much donor talk about strengthening the capacity of African governments and institutions to develop and manage their own policies, current aid policies seem to point in a different direction. Some 100,000 foreign “technical experts” are employed in Africa, tending to displace local experts. The study concludes that “aid programmes have probably weakened capacity in Africa,” in part by making “recipient governments less accountable to their people.”

Changes in the approach of donors could do much to mitigate such outcomes. The report recommends in particular that donors put their funds, on an unrestricted basis, into common pools to complement African countries’ own resources. This, it says, would help put an end to “intrusive conditionality,” a great source of resentment and irritation for many African policymakers. So far, however, there is no evidence that the major donor countries are actually open to such an idea. Conditions, in fact, appear to be proliferating in both aid and debt relief programmes.

As African critics of donor policies often point out, such conditionality undermines any notion of genuine partnership between Africa and its external funders. For real partnership to become possible, the UN Economic Commission for Africa noted in a 1999 study of aid policies, it will be essential “to return spending authority, control and accountability to the country in question.”

‘Africa needs to forge a new dream’

Africans are striving for democracy, but their hopes may be dashed by increasing poverty and a “much greater marginalization of Africa in the process of economic globalization,” warn Ms. Marie Angélique Savané and Mr. Hakim Ben Hammouda, representing the Council for the Development of Social Science Research in Africa (CODESRIA), one of the continent’s foremost academic bodies. To avoid further misery and democracy’s derailment, the International Monetary Fund (IMF) and other multilateral financial institutions must be more open to

African aspirations, they declared in an open letter to IMF Managing Director Horst Köhler, released during his early July visit to Dakar, Senegal, where CODESRIA is headquartered. Africans have “followed to the letter the prescriptions that the Messiahs of your institution have forcefully recommended,” Ms. Savané and Mr. Hammouda said. “Economies have been liberalized, our states’ involvement in economic regulation has been reduced, public enterprises have been privatized, the dynamics of growth have been reoriented toward the international market. Our governments have progressively ceded their economic sovereignty to donors, with your institution and the World Bank in the front ranks.”

The open letter urged Mr. Köhler during his visit to Senegal to walk through the streets and visit schools, health clinics and villages. “Our failures should lead you to reevaluate the policies and development strategies your institution has recommended to our countries, in the sad vocabulary of structural adjustment.” The authors warn that such widespread misery is leading many to question the value of democracy, and to engage in desperate and destructive violence.

“Africa needs to forge a new dream and new plans capable of restoring hope to our populations,” they concluded. The IMF can help by cancelling the continent’s foreign debt, supporting the work of African experts, and permitting African governments “the capacity to master their own destinies.”

World Bank: To fight poverty, empower the poor

In something of a departure from its past approach, the World Bank now argues that effectively combatting poverty is not just a matter of fostering economic growth, but also of tackling the political and social inequities that keep poor people poor. “In a world where political power is unequally distributed and often mimics the distribution of economic power, the way state institutions operate may be particularly unfavourable to poor people,” says the Bank’s World Development Report 2000/2001, devoted to the theme of “Attacking Poverty.” Because of these realities, “facilitating the empowerment of poor people - by making state and social institutions more responsive to them - is also key to reducing poverty.”

The report cites extensive data demonstrating the tenacity of poverty around the world - and significant increases in the numbers of poor people in such regions as sub-Saharan Africa, Eastern Europe, and Central and South Asia. In sub-Saharan Africa, the number of people living on less than $1 per day rose by about a third between 1987 and 1998, from 217 million to 291 million.

Liberalization and economic growth alone are clearly not the answer, the report acknowledges. Some countries with strong economic growth have improved their income distribution and reduced poverty, as in Uganda, but others have seen growth along with rising poverty, as in rural Morocco. Governments, the report emphasizes, have a vital role to play in redistributing wealth and bringing about greater equity, through land reform, progressive taxation and heavy investment in education, among other measures. To ensure that governments do so, civil organizations must be stronger and better organized. The international financial institutions, including the World Bank, also must engage in more extensive policy dialogue with citizens’ groups and non-governmental organizations (NGOs).

Markets remain central, the report adds, but it is important that they provide “expanding opportunities for poor people.” At the same time, programmes to benefit poor people and guarantee their security must be designed “so that they do not undercut competitiveness.”

Reprinted from UN Africa Recovery, October 2000