UNIVERSITY OF PENNSYLVANIA - AFRICAN STUDIES CENTER
Africa: Call for Development Policy Shift Date distributed (ymd): 010916 Document reposted by APIC
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Region: Continent-Wide Issue Areas: +economy/development+
This posting contains a press release and additional brief excerpts from a new report by the United Nations Conference on Trade and Development (UNCTAD), calling for a major policy shift in African development policies promoted by international institutions. The report notes that "Declining aid and terms of trade, mounting debt, and ineffective adjustment policies have left sub-Saharan Africa poorer than two decades ago." The report advocates doubling of international aid flow, a standstill on debt repayment, a review of the effect of all existing international trade agreements on Africa, and a critical review of adjustment and poverty reduction strategies.
The report estimates that for each dollar of net capital flow into sub-Saharan Africa from the rest of the world, $1.06 flows out, 51 cents through terms of trade losses, 25 cents through debt servicing and profit remittances, and 30 cents through leakages into capital outflows - a net transfer of resources from Africa to the rest of the world.
The full report, including tables, is available at: http://www.unctad.org/en/pub/pogdsafricad1.en.htm
United Nations Conference on Trade and Development Press Release
FROM RHETORIC TO REALITY OF AFRICAN DEVELOPMENT: UNCTAD CALLS FOR MAJOR POLICY SHIFT
11 September 2001
Declining aid and terms of trade, mounting debt, and ineffective adjustment policies have left sub-Saharan Africa (SSA) poorer than two decades ago. Bolstering growth and halving poverty in Africa over the next 15 years will require a dramatic increase in aid and trade for the continent, says a new UNCTAD report, released today.
With a projected growth rate of just over 3% for the next decade, Africa's fortunes are unlikely to improve. This figure, marginally above population growth, is only half the 6% target set by the United Nations 10 years ago to tackle the economic and social challenges of the continent.
The UNCTAD report, entitled Economic Development in Africa: Performance, Prospects and Policy Issues (UNCTAD/GDS/AFRICA/1), sketches the main policy measures required to reverse this situation. These include:
* Financing development through a doubling of aid flows; a bolder approach to debt relief, including a standstill on debt repayment; and an independent assessment of debt sustainability;
* Conducting a full review of all current agreements and practices in the international trading system in order to remove any impediments to growth and development in Africa and to enhance Africa's exports; and
* Undertaking a critical review of adjustment and poverty reduction policies for raising growth and bettering income distribution.
What went wrong?
Per capita income in Africa in 2000 was 10% below the level reached in 1980; and despite some improvement in agricultural growth rates in recent years, 28 million Africans are facing severe food shortages this year. Two decades of sub-standard growth have hit the poorest 20% the hardest, their incomes dropping by 2% a year.
More than 80% of the region's exports consist of oil and non-oil commodities whose prices have been declining relative to exports from the rest of the world. This is a major reason for the marginalization of the region. If the terms of trade had stayed at 1980 levels, Africa's share of world exports would be double today's figure. Furthermore, African growth per annum could have been 1.4 percentage points higher, raising per capita income to a level 50% above the current figure.
The secular decline in the terms of trade means that African economies have had insufficient resources to invest in their own people and businesses. It is estimated that for each dollar of net capital inflow to SSA from the rest of the world, a dollar and six cents has flowed out: 51 cents through terms-of-trade losses, 25 cents through debt servicing and profit remittances, and 30 cents through leakages into reserves build-up and capital outflows. These figures point to a net transfer of real resources from SSA to the rest of the world.
Rapid trade liberalization in Africa has not been reciprocated in terms of better access to markets for African producers. Massive subsidies afforded to agricultural producers in advanced countries and other forms of protection have hindered Africa's efforts to upgrade capacities and alleviate poverty. Nor have African exporters been helped by the exchange rate misalignments and instability that have often followed moves towards capital account liberalization.
Exposing low-productivity sectors to international competition has often provoked a wage-cutting response from many African producers, adversely affecting productivity in the longer term.
These trends have occurred even as African policy makers have made great efforts to play by globalization rules. Structural adjustment policies, trade liberalization and capital account openness have been the big policy forces shaping the continent's economic landscape over the past two decades.
The way forward
An upturn in growth after 1995 gave the continent some hope. But this could not be sustained without a recovery in savings and investment. Capital accumulation and savings rates in SSA are currently much lower than the levels reached two decades earlier.
Considerable external financing will be needed to close the resource gap if Africa is to attain a higher growth rate. Higher export volumes and stable prices are part of the answer, but capital inflows must also increase significantly. Today's Report reconfirms UNCTAD's finding that for Africa, an additional $10 billion a year in official flows is needed for reducing aid dependency in the future and for making poverty reduction targets more than empty promises (see TAD/INF/2850 of 14 July 2000). In addition, a bolder approach is required for providing a once-and-for-all exit solution from the debt overhang than is offered under the HIPC initiative. As of mid-2001, of the 33 African countries in the list of HIPCs, only one, Uganda, had reached the completion point. The Report calls for an assessment of the debt sustainability of African countries by an independent body selected by both debtors and creditors, with an agreement by creditors to write off debt deemed unpayable. Pending such an assessment, the Report recommends a standstill on debt repayment without any additional interest accrual.
As to the international trading system, the Report notes that African countries have yet to draw significant benefits from their participation. Action is required to review current arrangements and practices with a view to extending existing provisions for preferential and differential treatment. Further, the Report calls for a review of a host of measures affecting African exports, including agricultural support measures.
If international targets for growth and poverty reduction are to be met, a key shift in domestic policy is also required. The new poverty alleviation focus should be founded on a careful and frank assessment of the effects of macroeconomic and structural adjustment policies on growth and income distribution in the past two decades. The emphasis now seems to be on redirecting public spending to health and education. While useful, such an approach may not have a lasting impact on poverty as long as policies in such areas as agriculture, trade, finance, exchange rates, enterprise, deregulation and privatization do not succeed in raising growth and bettering income distribution.
For more information, please contact:
Yilmaz Akyuz Acting Director Division on Globalization and Development Strategies Tel: +41 22 907 5841 Fax:+ 41 22 907 0045 E-mail: email@example.com
Kamran Kousari Special Coordinator for Africa Tel: +41 22 907 5800 Fax: +41 22 907 0274: E-mail: firstname.lastname@example.org
Erica Meltzer Press Officer Tel: +41 22 907 5365/5828 or Alessandra Vellucci Information Officer Tel: +41 22 907 4641/5828 Fax: +41 22 907 0043 E-mail: email@example.com
Africa as a whole experienced moderate growth from the mid1960s until the end of the 1970s. While the average growth rate was well below the rate achieved by a handful of East Asian economies, it equalled or exceeded the growth rates attained by many developing countries in other regions. In particular there was a notable acceleration of growth in sub-Saharan Africa (SSA) during the 1970s, supported by a boom in commodity prices and foreign aid. Investment in many countries in the region exceeded 25 per cent of GDP, and the savings gap remained relatively moderate.
Economic performance deteriorated rapidly in SSA in the late 1970s and early 1980s, whereas the slowdown of growth was relatively moderate in North Africa. Unlike many countries in other developing regions which managed to restore growth after the lost decade of the 1980s, stagnation and decline continued in SSA during the first half of the 1990s due to a combination of adverse external developments, structural and institutional bottlenecks and policy errors, examined in some detail in earlier work undertaken by the UNCTAD secretariat. As socio-economic conditions deteriorated and spilled over into political and civil unrest, the international community launched various initiatives including UNNADAF, to address the problems faced by the countries in the region. At the same time, more and more African countries came to adopt structural adjustment programmes supported by the Bretton Woods institutions, encompassing rapid and extensive liberalization, deregulation and privatization of economic activity in search for a solution to economic stagnation and decline. However, while structural adjustment programmes have been applied more intensely and frequently in Africa than in any other developing region, barely any African country has exited from such programmes with success, establishing conditions for rapid, sustained economic growth. This is true not only for countries which are said to have slipped in the implementation of stabilization and adjustment programmes (the so-called non-adjusters or bad-adjusters), but also most of the coreand good-adjusters.
The widespread pessimism about African prospects was somewhat dispelled by a fairly broad-based economic upturn which started in the mid 1990s and allowed the average income growth rate to exceed the population growth rate for four consecutive years, thereby resulting in gains in per capita income across the continent for the first time for many years. The performance of SSA was even stronger without Nigeria, where growth remained below the average of the other countries in the region. Similarly the Republic of South Africa (RSA) had a relatively poor performance, particularly towards the end of the decade. Growth in RSA and Nigeria together, which account for about 50 per cent of the total GDP of the continent excluding North Africa, was about 2.2 per cent per annum during 1995- 1999, while the remaining countries in SSA had a moderate growth rate of 4.2 per cent per annum over the same period. Nevertheless, there was a generalized slowdown at the end of the decade throughout the region, including North Africa, which appears to have continued through 2000, when the growth rate of SSA fell to 2.7 per cent, barely matching the growth rate of population.
Despite the recent upturn, per capita income in SSA at the turn of the new century is 10 per cent below the level reached in 1980, and the gap is even larger compared to the level attained three decades earlier. Economic growth remains well below the UNNADAF target of 6 per cent per annum. For the region as a whole, only two countries, i. e. Mozambique and Uganda, met this target during the past decade. Growth rates needed to attain the more recent target of reducing African poverty by half by 2015 are estimated to be even higher than the UN-NADAF target of 6 per cent. On the basis of recent trends, these targets are unlikely to be reached.
The problem of inadequate resources for accumulation and growth is further aggravated in Africa by the adverse terms of trade movements that the continent has been suffering in the past two decades. Declines in real commodity prices, particularly for agricultural commodities, and terms of trade not only syphon off the resources needed for investment and growth, but also constitute disincentives for private capital accumulation, particularly where government intervention in agricultural pricing and marketing boards have been dismantled and producers are left to face constantly falling real prices. Under such conditions, attaining rapid and sustained growth would depend on the provision of external financing, not only to compensate for the resource drain through terms of trade losses but also to supplement domestic savings. Given that private capital flows, including FDI, lag rather than lead economic growth, such financing would have to rely on official sources. On this score too the recent trend is not very encouraging; not only has the region been unable to participate in the recovery of private capital flows to developing countries that began in the early 1990s, but it has also faced stagnant or falling official financing.
Clearly, elimination of the external debt overhang, as well as fresh money, could play a significant role in the provision of resources needed to raise investment and growth, particularly for African low-income countries. SSA's external debt stood at $206 billion in 2000, $10 billion below the level reached in 1999. This decline is explained partly by debt write-offs in the context of HIPC and Paris Club initiatives, and partly by the appreciation of the dollar against other major reserve currencies. The latter effect is particularly important, since almost 50 per cent of SSA's external debt is denominated in currencies other than the US dollar. Furthermore, despite the decline in the absolute nominal level of African debt, the conventional debt indicators of the region (debt/ export and debt/ GNP ratios) remain highly unfavourable in comparison with other developing countries. Indeed, while Africa had a lower debt-export ratio in 1990 than South Asia and Latin America, it had the highest ratio at the end of the decade among all developing regions. Again, while the ratio of debt to GNP fell or remained relatively stable in other regions, it tended to increase in Africa during the 1990s; at the end of the decade it was above the level attained at the beginning.
Africa enjoyed an upturn in its terms of trade during the commodity price booms of the 1970s, but the trend from the early 1980s has been downward. This is true not only for the region as a whole but also for various subregions including SSA and North Africa. Indeed the downturn has been sharper for the latter region in large part because of sharp declines in oil prices in nominal as well as real terms. The levels of terms of trade at the end of the 1990s were 24 and 21 per cent below those attained in the early 1970s for North Africa and SSA respectively. While the overall trend after the early 1980s was downward, there were short- lived surges in commodity prices and terms of trade. The more recent one started after 1993 and made a significant contribution to economic recovery in SSA. This lasted only three years; the terms of trade of SSA in 1998 was 15 per cent below the peak reached in 1996.
The secular decline in African terms of trade is an important reason for the marginalization of the region in world trade. Indeed, a significant part of the decline in the share of SSA in world exports in the past two decades can be explained by declines in the prices of African exports relative to those of the rest of the world. It can be estimated that, if the terms of trade of SSA had stayed at the level of 1980, its share in world exports today would have been almost twice as high.
The foregoing analysis, as well as the earlier work undertaken by the UNCTAD secretariat, clearly indicates that without a major reorientation of international and domestic policies it would be almost impossible to change the fortunes of the region. In this context, it is important to keep in mind that international and domestic actions are complementary rather than being substitutes. Just as greater domestic policy efforts cannot make up for shortcomings in the external trading and financial environment, increased aid and better trading conditions cannot offset the adverse consequences of misguided domestic policies. While the primary responsibility for achieving the conditions for rapid and sustained growth lies with the countries themselves, the international community has also responsibility in securing consistency and coherence between international and domestic policy actions. This is because international actions exert a major influence not only on the external conditions facing Africa, but also on domestic policies through aid conditionality and stabilization and adjustment programmes supported by the Bretton Woods institutions.
Message-Id: <200109161638.MAA06544@server.africapolicy.org> From: "Africa Action" <firstname.lastname@example.org> Date: Sun, 16 Sep 2001 13:21:58 -0500 Subject: Africa: Call for Development Policy Shift
Editor: Ali B. Ali-Dinar
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