17/11/2004

Messages posted onto the board so far have revolved around two sorts of questions: first, the domestic policies required to increase growth in Africa, and second the most appropriate level and form of assistance from the West.

As regards the former, diversification away from exports of primary commodities (e.g. sugar) was stressed by one participant. “This needs to be done through national policies…..what could be done would be to make it easier to establish new manufacturing industries by allowing more use of imported inputs (relaxing rules of origin)”. Another participant argues more generally that “the continent should attempt to promote internal capitalist development wherever possible”, and that “an honest reassessment should be undertaken of the viability of import-substitution industrialisation”, because today’s circumstances differ from those prevailing in the 1960s and 1970s: in particular, “the internal market is much larger, through the myriad of free trade bodies”. This is an interesting suggestion: what do other people think? Another participant that governments need to assist with agricultural methods such as irrigation, although developed countries should assist in terms of providing necessary resources.

Another participant links domestic policies to the high levels of foreign debt experienced by many countries in the region. Her view is “that some countries have gone into debt because of poor domestic financial policies, high levels of corruption and overall lack of the rule of law and good governance”. She adds that although the cancellation of debt by the West is advisable, “Africa should also understand that it can not keep asking for outside assistance without dealing with its internal affairs first”.

Africa should understand that it can not keep asking for outside assistance without dealing with its internal affairs first

As regards the most appropriate level and form of assistance from the West, two participants stress the importance of attracting more forign investment to Africa. For one participant, this requires “advertising the improvements in the continent’s economy, particularly among expatriates”. For another, “there needs to be a strenuous campaign to persuade the populations of wealthy western countries that the welfare of Africa matters to them…[and] that a suitable slogan for this campaign would be ‘Every one of us is an African’”. Can other means of attracting more foreign investment to the region be identified?

One participant argues that EU sugar policy, and proposed reforms to it, have adverse effects on exports of sugar from countries in the region, and prevent huge numbers of people from people from being lifted out of poverty via this route. However, another argues that Africa already has high preferential access to developed country markets, and that “improving this only for Africa would disadvantage other poor developing countries”. She argues that the Commission should put most weight on improving infrastructure in the region.

Some participants are critical of past interventions by donors and multilateral organisations in the region. For one participant, “the imposition by the World Bank of its own idea of how economies should be run has, in the past, created disruption of local ways of dealing with local circumstances.” Another, in considering the question of choosing between grants and loans in the deliverty of aid to the region, believes in “assessing individual country needs and working together to find a solution best suited to that country’s situation”. One participant, in a posting under the theme of climate change, criticises the exporting of finance, know-how and technology to Africa for net emission reductions under the label of global warming, arguing that the main benefits of this process will not go to Africans.

the imposition by the World Bank of its own idea of how economies should be run has, in the past, created disruption of local ways of dealing with local circumstances

19/11/2004

First, the issue was raised as to how African countries can diversify away from dependence on primary commodities. One participant argued that there is a lack of clear alternatives to sugar, in terms of other exports which can bring substantial development benefits: “the question needs to be asked, "diversification into what?". What product could replace sugar as a remunerative cash crop? Bananas? Rice? Coffee?” This is an important issue. To what extent is there possibility to expand non-traditional sectors, e.g. tourism? Alternatively, what would enable African countries to ensure more of the processing and packaging of primary commodities such as sugar is done locally?

[T]he issue was raised as to how African countries can diversify away from dependence on primary commodities.

An example of the benefits of preferential access to EU markets was given. Kilombero Sugar Ltd., located in a remote region of Tanzania, provides employment for 6,000 people directly and up to 100,000 other people indirectly, and provides education facilities for 6,000 children. However, “to stay in business, Kilombero Sugar needs protection from the ruinous prices prevailing on the world sugar market, and to foster more socio-economic development, they need increasing preferential access to the EU market at remunerative prices.” Does this thereby support the view expressed in the Commission’s Consultation Document for “continued or enhanced preferential access for Africa to 2015? (Section 8.2)” Or could countries such as Tanzania be compensated in some way for any erosion of their trade preferences, for instance by increased aid?

The issue of remittances was raised once again. It was argued that an important role for OECD is to reduce the costs incurred by people wishing to send money back via formal means (e.g. bank transfers) to their country of origin. Successful policy initiatives in this area were mentioned between the US and Mexico. It would be very useful and interesting to have some more information on this and other types of initiatives, given the particular stress placed on remittances in the Commission’s Consultation Document.

[A]n important role for the OECD is to reduce the costs incurred by people wishing to send money back via formal means (e.g. bank transfers) to their country of origin.

Discussion on the volume and effectiveness of aid also continued. One participant noted the importance of mitigating against corruption in terms of increasing aid effectiveness, and that this is to be achieved through taking “strong stances when corrupt practice is identified – the West have often stood on the sidelines and wished for improvement instead of taking strong action”. Another cautioned against excessive donor involvement in financing small-scale business (other than providing a favourable legislative framework and suitable infrastructures).

However, there has been little comment so far on the suggestion in the Commission’s Consultation Document that levels of aid to Africa be doubled. Tony Killick recently spoke on this issue at a meeting of the Africa All Party Parliamentary Group. Can such an increase be absorbed without having adverse impacts on the macroeconomy, corruption, and the domestic ‘ownership’ of poverty reduction strategies? Or, alternatively, is such an increase sufficient to meet the region’s financing needs?

23/11/2004

Participants argued that the problems of low aid effectiveness are not purely domestic in nature, as is often suggested. According to one posting, “aid agencies often fail to co-ordinate their demands, field untrained, inexperienced and sometimes incompetent staff, and act in an authoritarian manner towards soveriegn governments”. Further problems are caused by “the inadequate co-ordination of procurement and discursement regimes and sloppiness in monitoring the final destination of funds”. According to another posting, “sometimes donors make projects to fail by inappropriate allocation of resources to their ‘home’ consultants, endless missions and visits – with travel costs, hotel bills and per diem taking 60% of the grant”.

aid agencies often fail to co-ordinate their demands, field untrained, inexperienced and sometimes incompetent staff, and act in an authoritarian manner towards sovereign governments

When properly designed, aid can be highly effective: “having worked in Nigeria for the past 15 years, I have seen communities transformed and lives completely changed with the availability of funds to provide water for a community, schools for children and microcredit for women groups” was the view of one participant. As regards delivery mechanisms, “there should be a mix-bag of funds some of which can be directed through the traditional channel of government while another variety could be to a coalition of end users which include civil societies and/or communities”. This may be true, but does the appropriate mix and indeed volume of funds vary across countries, depending for example on the extent of democracy and/or government accountability?

Will increased aid funding erode the domestic ownership of poverty reduction strategies? Opinion on this issue is divided. For one participant, “states which are highly dependent on donor funding risk losing accountability to their own populations. Doubling aid and donor-determined priorities intensify this risk.” As a result, “the Commission should explore ways of delivering aid which build local institutions, rather than bypassing them.” However, another participant was unconvinced: “I take it that every country independently develop their Poverty Reduction Strategy Paper (PRSP) with the support of their development partners….[but] how does influx of funds erode the ownership on the part of the government when the nation begins to harvest the gains of the interventions and indices are showing improvement in the lives of the people?” Have the dangers of increased aid undermining domestic accountability been over-estimated perhaps?

the Commission should explore ways of delivering aid which build local institutions, rather than bypassing them

As regards opportunities for trade, discussion continued on the issue of diversification away from dependence on primary commodities. One participant gave clear examples of countries which have achieved this transition, including Mauritius (initially from sugar into clothing, and now into tourism and financial services), and Swaziland which has diversified into a range of light manufactured products. Are there other examples, and are there any policy lessons we can learn from them?

On issues of trade access, dangers to developing an industry under trade perferences were noted: “it can be precacarious as preference erosion would wipe out LDC producers”, and “countries trying to protect preferences can hinder larger liberalisation goals which is counter-productive from a global development perspective”. Another posting noted that, for the case of sugar, the amount of revenue actually received by countries receiving trade preferences is typically less than might be expected (from the value of exports) because much of the production is not nationally owned. Do these comments imply that trade preferences are an inefficient and ineffective tool for assisting African countries, and that assistance should be channelled only through aid (suitably delivered and made predictable over time) and/or debt relief?

25/11/2004

Some contributors criticised the broad content of the Commission’s Consultative Document. According to one, “it looks like the approach is to do more of what has been tried in the last 20 odd years … doesn’t the issue of why the Washington consensus has failed these countries need to be addressed in a meaningful way in the Report?” For another, “the words ‘environment’ and ‘sustainable development’ do not appear once in the Document”, and “the whole question of Africa’s ability to sustainably utilise and manage its diverse natural ecosystems is missing.”

There has been further discussion on the issue of debt relief. One contributor expressed concern about debt relief reducing incentives for sound fiscal management: “does wiping out debt mean countries can begin with clean slate to begin borrowing again that can possibly lead to similar fate in the future? If so, what are the new measures that can be taken to prevent this?” For another, “blanket calls for total debt forgiveness promote bad governance”. Furthermore, there is an ethical dilemma: “it seems unfair to, in effect, punish the fiscally prudent by rewarding the profligate and the imprudent”.

[for debt forgiveness] it seems unfair to, in effect, punish the fiscally prudent by rewarding the profligate and the imprudent

On a more technical but important matter, one contributor argued that the discount rates used to calculate the ‘net present value’ (NPV) of outstanding debt owed by HIPC countries are too low, meaning that the NPV is significantly over-estimated. This could have dramatic PR
results: “if the western public and elites read reports saying the NPV of HIPC debts is a total of $10-$15bn and not the currently stated $80bn there could be a effect on the political will to cancel debts”. The decline of the US dollar relative to other currencies also “pushes up the headline cost of the debts”. “The Commission should ensure that it adequately investigates the interest rate and FX [foreign exchange] assumptions in any debt reduction initiative”.

There has also been discussion about how to increase investment in Africa. It is recognised that investment is currently limited by a heterogeneous market, coupled with infrastructure and political problems. One contributor advocated setting up “mini-commissions in every country whose primary objective is to create a homogenous market”, although for another “this wouldn’t be efficient” and instead the priority lies in “providing potential borrowers with more information and making easier the access to the source of capital for investment”. For another, there are lessons to be learnt from other developing countries which have increased investment: “we need to learn from the Asian countries!”

On investment priorities, one contributor argued that “there is little point spending on infrastructure if the population is poorly educated and ill, so unable to make use of the capital equipment”, although infrastructure that enables important services to be delivered cheaply are important.

there is little point spending on infrastructure if the population is poorly educated and ill, so unable to make use of the capital equipment

Under the topic of ‘Financing for Development in Africa’, one contributor wished to stress the important role which can be played by the micro-finance movement: “in the interest of the insiders and readers this should be treated as a new topic or at least to be highlighted in the moderator’s report”. In an earlier contribution, it was argued that the “micro-finance is a very appealing tool to tackle both poverty and small enterprise development, on conditional that we know how to use it or to distinguish both interventions”, and that “the banking system should do their best to reach the thousands of micro-business realities through the micro-financial providers (microfinance)”.

There has also been more debate on diversification and trade preferences. It was noted that although Mauritius has diversified into activities such as textiles and financial services, “these activities could not and have not replace sugar in the rural parts of that beautiful island”. Furthermore, “Swaziland’s light industry …. is now facing irresistible competition from South Africa and also from Europe”. It is argued on this basis that “sugar industries in poor countries need a leg up in the form of trade preferences which should last for as long as they remain so abjectly poor”, and that current proposals on the reform of the EU sugar regime will be hugely damaging. Other advantages of sugar industries were mentioned: “all cane sugar industries in Africa participate in the construction and maintenance of roads, bridges, dams, port facilities, etc.” and “sugar industries are nearly always located in rural areas, and this they alleviate the drift towards cities in Africa”.

Finally, under natural resources, “there are many good examples of communities whose income and quality of life has greatly improved as a result of carefully developed eco-tourism ventures, such as the Mwaluganje Community-run Elephant sanctuary near Mombassa, Kenya….and the Dian Fosset Gorilla Fund initiative in eastern DRC”. Tourism can also play a role in terms of presenting a more positive image of the continent among people of the developed world. However, eco-tourist businesses should be “owned and managed by the indigenous population rather than the traditional, wealthy corporations”. One useful suggestion was to channel financing through “secured loans to land-owners with preference given to enterprises where land is owned by co-operatives”.

[eco-tourist businesses should be] owned and managed by the indigenous population rather than the traditional, wealthy corporations

26/11/2004

The view has again been expressed that the Commission’s Consultation Document does not pay sufficient attention to natural resource issues. For example, according to one participant “it is a serious oversight that the CFA’s Consultation Document does not mention the need for improved natural resource management as a condition for economic growth and human development in Africa”. Instead, “the challenge that the CFA should be confronting is how to address the short-term needs of [rural] people while at the same time safeguarding their interests in the longer term by making sure that natural resources are managed sustainably now”. An example of improved natural resource management combined with poverty alleviation is the Zambian COMACO project. On a related topic, another participant expressed the view that “if climate change is not put at the heart of the Commission’s proposals and activities, its effectiveness will be severely limited.”

the challenge ... is how to address the short-term needs of [rural] people while at the same time safeguarding their interests in the longer term by making sure that natural resources are managed sustainably now

if climate change is not put at the heart of the Commission’s proposals and activities, its effectiveness will be severely limited

There has also been more on the sugar debate. One contributor took the view that the relevance of the EU sugar quota has been over-emphasised, citing the case of Zambia where “both the production of sugar and utilisation of the EU market is controlled by a multinational company which has only limited local linkages” and that “local cane producers claim that they are not getting any extra benefit from the higher EU quota prices.” The contributor suggests looking at the matter more closely before coming to a firm conclusion.

Debate has continued on the question of debt relief. One contributor argued that “the Commission should consider lobbying against any Paris-Club creditor selling its debts to commercial concerns, which would probably increase the likelihood of that debt not being relieved.”

There has also been more discussion on infrastructure, with one contributor agreeing with a message posted last week suggesting that the Commission place particular importance on promoting infrastructure development. A seven-country study by CUTS International called ‘Investment for Development’ shows that infrastructure is a key determinant of the amount of foreign direct investment (FDI) which countries receive, and more important than the extent of financial incentives offered by host governments. Investments in new communication technology, including Voice over Internet Protocol (VOIP) and WIFI were considered by one contributor to be particularly relevant for Africa, given that the cost of terrestrial connectivity had become “astronomically expensive in view of the monopoly that national telecommunication services provide.”

Finally, there have been several messages on the topic of the volume and effectiveness of aid. One contributor criticises the Consultation Document for giving “scant attention to agriculture at a time when international support to agriculture is also at an all time low”, and that “this sector requires priority attention at all intervention levels”. Do other people share the view that too much aid in the region is either channelled to ‘social infrastructure’ (e.g. health and education projects), or provided in the form of programme assistance, at the expense of support to agricultural projects?

Another contributor noted the fact that many African countries restrict NGO participation in development projects, and that “unless these laws are changed aid is more likely to be diverted to ‘leaders’ through corruption.” The adverse effects of corruption on aid effectiveness were also noted, and that “donors should make sure that countries enjoying more aid are applying democratic constitutional changes as well as active pursuit of corruption through independent bodies.” Another participant argued however that there is a danger of “aid dependency…which reverses the very idea behind aid as a temporary engine to foster economic development”. This may be true, but at what level of aid, as a proportion of GNP for example, does dependency become an issue? Can case study evidence or statistical evidence help us in this regard? Remember that the Consultation Document proposes doubling aid to Africa, from 2004 levels (section 9.1), and that the final report will "provide evidence that Africa is able to make good use of increased resources of the magnitude suggested".