http://www.indepthnews.info/index.php/global-issues/1239-africa-plea-for-reducing-foreign-aid-dependency
NAIROBI (IDN) - Whether and how African countries could reduce their
dependency on foreign aid - if not do without it altogether - was a major
subject of debate at the African Economic Conference in Rwanda's capital
Kigali. It was the first time since the 2011 Fourth High Level Forum on Aid
Effectiveness<
http://www.oecd.org/dac/aideffectiveness/fourthhighlevelforumonaideffectiveness.htm>in
Busan, South Korea, that the issue was discussed.
Convened by the Economic Commission for Africa, (ECA)<
http://www.uneca.org/>,
the African Development Bank, (AfDB) <
http://www.afdb.org/> and the United
Nations Development Programme (UNDP) <
http://www.undp.org/>, the four-day
conference from October 30 to November 2, 2012 focussed on the theme
'Inclusive and Sustainable Development in an Age of Economic Uncertainty'.
"In an era when economic volatility seems to have become the norm,
achieving inclusive growth is a big challenge," UNDP Administrator Helen
Clark said, and called for greater and sustained transformational
leadership, targeted actions to generate policy solutions that can drive
growth economic growth in Africa.
AfDB President Dr. Donald Kaberuka argued that inclusive growth is both
possible and indeed a good investment for Africa but insisted on the need
for its leaders to believe in the future of the Continent. Contending that
for real development to occur, Africa must chart its course, Kaberuka
pointed out that Africa as a continent actually has more money than India,
but neverheless continues to seek assistance from the Asian country.
The debate on foreign aid was triggered by a paper presented to the
conference by UNDP's Degol Hailu and Admasu Shiferaw of the College of
William and Mary (USA). Discussions shed new light on how much work remains
to be done in terms of defining a viable aid-exit strategy for the
Continent. Far from toeing the fatalistic line, the authors of the paper
refer to empirical evidence that shows that a complete and sudden break
from foreign aid is neither possible in the foreseeable future nor likely
to be accepted by some countries at any time.
Yet, a consensus seemed to emerge suggesting that "Africa could follow the
example of some developing countries that significantly reduced their
initial high degree of reliance on international aid".
The paper investigates the attributes of a group of countries (/such as
South Korea and Mexico) which initially were heavily aid-dependent but
managed to exit from it as compared to countries with persistent
aid-dependence. These are countries that initially had similar and very
high degrees of dependence on international aid but followed dramatically
different trajectories of aid-dependence afterwards.
The paper cites proponents of aid who argue that "while aid may not
significantly promote economic growth in a typical recipient country, it
has a positive effect under 'good policy' conditions". According to authors
of the paper, "analysis shows that the likelihood of exiting from heavy
reliance on aid increases with the rate of investment".
It suggests that strengthening policies and institutions that promote
public and private investment seems to be a reliable path towards exiting
from aid-dependence. It notes that "a declining share of aid is being
allocated to infrastructure development", a practice that the authors
regret.
It contends that "increasing the flow of aid alone does not in itself lead
countries out of aid-dependence if it is not accompanied by aggressive
capital accumulation".
Participants agreed with the authors that a functional and well-developed
financial system that could support high levels of investment is one of the
best ways of reducing aid-dependency.
"…a widening saving–investment gap is more than likely to delay graduation
from aid-dependence", hence, "donors and recipient countries should watch
out for aid flows not to inadvertently stifle domestic savings even when
levels of investment are high", the paper stipulates.
Local manufacturing is also another path that can lead African countries
out of aid-dependency, the paper explains, adding that "even a small
increase in the share of manufacturing in GDP has a potential to facilitate
an exit from aid-dependence".
Participants agreed that the exact nature of policies would differ across
countries but were certain that a clear industrial policy is a key
prerequisite for an aid exit strategy from aid-dependency.
If donors and recipients were to coordinate their aid efforts to support
the above-mentioned policy objectives, aid could still be a development
tool with diminishing importance.
The United Nations Economic Commission for Africa has spearheaded several
studies and initiatives that prepared African countries for the two first
Conference on Aid Effectiveness (Paris 2005) and Accra, Ghana (2008).
These laid the groundwork for the formulation of the African Common
Position that was tabled at the Busan Conference in 2011.
*Economic Reforms*
Participants urged African leaders to put in place bold economic reforms,
aimed at sustaining growth and boosting human development. They highlighted
the need for policy-makers to create diversified economies capable of
generating employment, implementing better social policies and inclusive
growth.
They agreed that good governance and fair competition will help Africa meet
its sustainable development agenda. Carefully calibrated government support
can help fulfill Africa's economic potential, reducing political risks and
bolstering financial accountability to open new markets.
Africa has become the world's second-fastest growing region. Hosting the
seventh Afrcian Economic Conference, Rwandan President Paul Kagame said
that in this era of economic uncertainty, the world has high expectations
for the Continent.
According to the African Economic Outlook 2012, economic growth across the
African continent is expected to rebound from 3.4% in 2011 and accelerate
to 4.5% in 2012 and 4.8% in 2013.
"Some countries have even done better than these statistics depict. And
because some countries from other continents show signs of economic
stagnation, commentators have been inclined to think that this is Africa’s
time," said Kagame.
However the Continent’s poverty rates have remained stubbornly high, and
progress on health, education and job creation have been too slow to
accommodate its fast-growing population. These challenges are likely to
become more difficult to tackle in the current global economic environment.
"Rich countries are very much concentrated on their own immediate problems
to fix" said AfDb President Kaberuka said. "As we can see from the trade
and climate negotiations, there is limited appetite for the multilateral
solutions, so we need to trade our way out of poverty and deal with the
impact of climate change."
During the closing press conference, Mthuli Ncube, Chief Economist and Vice
President of the African Development Bank, said that "Africa can have a
brighter future, and has the potential to become the next emerging market
by the end of this decade if political, social protection, quality
education, private sector and regional integration are implemented."
Ncube urged each and every one "to see inclusive growth in action in
Africa". He also affirmed that the Continent's long-term growth prospects
are strong, propelled by both external trends in the global economy and
internal changes in the continent’s societies and economies.
He said investment in infrastructure will promote regional integration and
trade, creating an environment that is more conducive to economic growth,
the development of markets and paving the way for acceleration in human
development.
"Deliberate policy measures and targeted investments are needed to make
growth not just fast, but also inclusive and sustainable," said UNDP
Administrator Clark. She added that "the rising tide is capable of lifting
every boat."
One of the running threads of the conference was how to use natural
resources to create economic benefits for ordinary citizens. The
discussants said African countries can raise money by negotiating
international contracts from a position of strength, using proceeds from
land and mineral deals to invest in rural infrastructure, diversify the
economy and boost human capital.
"If politically the leadership is right, there is no doubt that leadership
will focus on inclusion in almost everything it does," said the former
President of Nigeria, Olusegun Obasanjo. [IDN-InDepthNews – November 3,
2012]
2012 IDN-InDepthNews | Analysis That
Matters<
http://www.indepthnews.info/index.php/>
Image credit: African Economic Conference
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Received on Thu Nov 08 2012 - 12:22:51 EST
