28 April 2003

Africa: Dismal Numbers Don't Tell Whole Story, Says World Bank Africa Economist

Washington, DC — Africa's defenders feel exasperated at the way words like 'chronic poverty' and 'disease' have become so strongly associated with the continent. They will find little comfort in this year's "African Development Indicators (ADI) 2003" published this month by the World Bank. And to make matters worse, staff at the Bank say in a discussion paper that "Africa will fall far short" of Millennium Development Goals (MDG) aimed at halving poverty by 2015, add to the bad news this year.

ADI 2003 "sounds a clear warning that the rapid spread of HIV/Aids, anaemic aid and investment flows, and weak commodity prices threaten to undo the hard-won gains of recent years," says the Bank's Chief Economist for the Africa region, Alan Gelb. But he warns that it's important to avoid generalisations. Average per capita incomes in Africa since the mid-1990s have risen by about one percent a year, reversing a 20-year slide. While some countries are still getting poorer - above all, Zimbabwe and the Democratic Republic of Congo - reforms in countries such as Uganda, Sudan and Ethiopia have sparked years of strong growth. There is huge potential for other countries to join them, if domestic reforms and lower debt burdens could be matched by aid flows. Gelb spoke with allAfrica.com's Charles Cobb Jr. Excerpts:

To a non-expert, the just published African Development Indicators give almost no indication that Africa is developing positively - it seems to be moving backwards. Is that view justified?

I would say that if you look at sub-Saharan Africa now you have to distinguish between different countries. Africa is a very big place, it is very differentiated. If you look at the economic performance of sub-Saharan Africa over the last few years you'll see quite a difference between groups of countries. We have one group of countries where income per head has been falling and its fallen over the 1990s and then we have another group of countries which has made quite reasonable progress although much slower than we would like in terms of increasing income per head.

I think it is probably about 15 or so countries, perhaps a dozen where income per head has risen at 1% or more a year, which is not bad at all by developing country standards. The problem is that there is a large number of countries in sub-Saharan Africa where incomes have been falling so when you take the total it turns out that over the last few years there hasn't been any change in income per head; so to some degree, if you take the total, you are right, incomes have not been rising. But you'll see a different picture for different countries.

What accounts for the difference?

First of all it is very clear that if you look at the 20 countries which have had falling income per head over the last decade, at least 16 of these been involved in conflict. The first feature that makes a difference is whether countries have been in conflict or whether they have had very severe problems of political governance. Some countries have had that but overwhelmingly it is conflict.

If you take the countries that are not in conflict that have managed to maintain political stability and are reasonably well-managed then you see that those countries have actually been growing so I would say that the first thing that makes a difference is conflict.

What countries come to mind in either case?

Under conflict for example, some of the big declines in income have been in countries like Sierra Leone and Democratic Republic of Congo. We don't know the numbers but almost certainly incomes will have fallen sharply in Cote d'Ivoire over the last few months. Incomes have fallen sharply in Zimbabwe, which is not formally a conflict situation but in some ways parallels a conflict. Another country, which has had a very difficult situation is the Central African Republic. So those are the countries that have had some difficulties.

On the other side if you look at countries like Mozambique which have reconciled after a civil war, countries like Rwanda since the cessation of hostilities there, countries like Uganda, Tanzania and, in recent years, Ethiopia you'll see quite good growth rates. So those are examples on both sides.

So is it fair to ask, given these differences, in what direction Africa overall is moving?

I think that is a very fair question and let me give you at least my own view of this. I think that if you go back to the beginning of 1990's and you look today, one of things you'll see is a tremendous increase in political participation. This is clear from all the indexes that have been done and it is clear that whereas, for example, there were very few multi-party elections prior to 1990, after 1990 there have been many of them, not always perfect but this change and how it works out in Africa I think is going to be a very important determinant.

On the one hand it opens their way up towards more accountable government and it opens the way towards political processes where there is a succession of leaders, which doesn't take place through crisis or conflict.

On the other hand it is something the countries are having to work through and it is not an easy thing for them to work through. For example, if you take Kenya where you have a very successful transition and you take the other example of Zimbabwe which is a democracy but where the whole political developments have moved in a way that hurts the economy, a lot is going to depend on how Africa moves in those respects.

First of all it is very important that in the countries with natural resources, the transparency of management of these resources is a very critical issue. That's one of things that we are finding that very often the conflicts are actually partly political but also partly conflicts over the allocation of natural resources. That's one very important part that needs to happen, an increasing transparency. Which way it will go - it is very hard to say.

Recently the bank and the fund really have stressed the link between trade and development and one complaint you hear brought up by African ministers is that their efforts at trade in some respects are somewhat handicapped by trade restrictions.

Absolutely right. If you take the countries that have not been involved in conflict and you look at the factors which have influenced their growth, undoubtedly one of the factors that has been important is the world trading environment; except for oil the prices of the primary commodities that Africa exports have been falling in world markets. Sometimes they recover a little but generally the pressure is down and this is for several reasons.

One of them is technical change in commodity production - as rich countries grow they are using less in terms of raw materials but also because many of the products which the countries produce are protected, or producers in rich countries are subsidized.

The most recent example is cotton where we had an increase in subsidies, for example, in the U.S. with the Farm Bill and where, for example, American farmers will be getting twice as much per pound as West African farmers. It extends beyond cotton to a lot of commodities where protectionism is high, whether its in North America, Europe or Japan.

This is a very valid complaint of sub-Saharan countries and protection can come in many forms; subsidies to domestic producers, unnecessarily restrictive standards used as a protectionist device or tariffs, quotas and very complex rules of origin.

And discussions on easing these or eliminating these have pretty much been stalemated at the World Trade Organisation?

During the discussions at Seattle, if you go back some years, I think there was quite a confused discussion over the role of trade in development and I think that since then, the discussion has become much more rational. I think many more people, even those who are opposed to globalization, recognize that poor countries have to be able to export in order to earn money. But against that, I do not think that we are now close to getting an agreement on how to move forward in this area. It will require a pretty coordinated effort on the part of most of the industrialized countries, so it is not clear that we are moving in the right direction.

In fact it seems clear that the industrialized countries, particularly when it comes to subsidies, are not prepared to budge on this issue at all, presumably a political necessity in their various domestic constituencies.

I think it is and the question for industrial countries will be how to shift the mechanisms of their support from payments linked to production, to payments that are progressively de-linked from production but perhaps related to other things such as environmental conservation or preservation of the countryside. You know that discussions of that sort have been going on, it's just that we haven't seen movement in that direction.

Where's the Bank in these discussions, much of which take place with donors and not necessarily the Bretton-Woods dialogue?

The bank has always had a research group in the area of trade and the world economy and what we do, we don't have the power to set the terms of the global system, that's not the power we have. What we can do is that we can carry out research and engage in advocacy; both Mr Wolfensohn and Mr Stern, our chief economist, have been very vocal in this area because we see this as very important for the interests of our poorer countries.

So those are the kinds of roles that we can play and it is very important that the public and the non-government sector in the industrialized countries become aware of the cost of these policies not only for the developing countries but also for consumers in the rich countries themselves.

I don't know if you heard the report, which was on National Public Radio recently about the closure of the last factory that will be making 'Lifesavers', those little round sweets or candies, in the United States; this factory is closing in an area of high unemployment and the jobs are moving to Canada. The reason is that sugar in Canada is much cheaper than sugar in the United States so there was an interesting example of how the protectionist policy in the U.S. is hurting other sections of the U.S. economy as well as consumers.

In a statement when this report was released you called for rich nations to fulfill their promises by development assistance and I have heard that repeated in one way or another by various African ministers when it comes to things like the millennium global challenges. The promises are far ahead of actual fulfillment and I'm wondering whether - with all the money going to reconstruct Iraq and prior commitments to Afghanistan - it is reasonable to expect African nations to get the kind of development assistance that's been promised?

Well, that is a good question and we are concerned that the cost of re-building Iraq and Afghanistan and even more important than the costs, the political attention to these issues should not to divert attention from developmental issues in other parts of the world, which can be very urgent.

So it is not just a question of money, it is also a question of political focus, for example, political focus in looking at trading arrangements. And yes we are concerned about this. I think that if you go back to the Monterey meeting there was a commitment to increasing developmental assistance and if that was followed through, assistance to Africa would go up by 50%, which would get us up to the levels of the 1990's. That would be a start but we would very much like to see more action in that direction.

We hear nothing like that from the Treasury here in the United States and we certainly don't see it in the United States budget.

We are hopeful. As you say there are other things that are distracting the attention in the world right now and this is something that we are concerned about.

I noted during the Spring Meetings with a certain amount of irony that the US Secretary of the Treasury was really pressing for debt relief for Iraq; we are talking about a range from $100-$150 billion which seems to me to be the exact opposite stand when it comes to debt relief for Africa.

African nations, at least the low-income African nations, have had a process of debt relief which actually began a while ago before the HIPC (Heavily Indebted Poor Countries) initiative, the bilateral writing down of bilateral claims and then the HIPC initiative came that is writing down debt relief so there has, in fact, been a process of debt relief for the poorer African countries and I don't think that would be inconsistent with that approach.

That has happened. There were still issues with funding the HIPC initiative. One of the reasons is the fall in primary commodity prices; when the HIPC initiative estimates are made they are made for the amount of relief a country will get at completion point and what we're finding is that in between the so-called decision points and completion points when primary commodity prices fall a great deal, as for example they have done for Ethiopia, it means that the amount of debt relief that you need to reach the same level of indebtedness is much higher than you thought at the beginning.

As you well know, there is certainly a vocal body of opinion that holds that the HIPC initiative has failed and would say why not go for debt forgiveness which is really what the Treasury Department argues for Iraq - that the new regime there should not burdened with debts incurred by a previous regime. That's the same argument that Africans have made without success.

I am not too well up on the arguments for Iraq, specifically, but on the issue of debt forgiveness let me mention two points. The first is that there is a general presumption that states are continuous and that one government takes on the obligation of its predecessors. If that were not the case, you would find a very difficult situation if a new government was able to simply disown the debts of the previous government. I think is a very generally well accepted principle.

Now, in the case of the poor African countries for example there have been arguments for total debt relief, total debt forgiveness but this runs into certain difficulties and maybe I can indicate what they are.

The first is that part of the repayments of the debt are going effectively in being recycled into new lending. If you start reducing the obligations of old resources without putting more money in as overall development assistance you will have an impact on the flow of new resources into countries.

If you take for example, the International Development Association, about half of IDA's financing involves repayment, including repayment from some very large clients like India and China in previous years; if you are going to argue for total debt relief or total debt forgiveness it is very hard to argue for it selectively so you cannot really say let's write off the debt of African countries but we are not going to do anything about India.

Once you get into that, you get into major changes in the flows of resources, which will not necessarily be to the benefit of African countries which may, in fact, be using repayments recycled, say, from China.

I think that the people who argue for total debt relief and forgiveness don't always do these calculations. I am not saying it is a bad idea in the sense that if there are enough resources to do it sure you can write off debt and you increase the level of assistance. But there is no free lunch here.

At least on the first principle of new governments taking responsible for debts incurred by past governments, isn't there a difference between a country disowning or disavowing debt and a country forgiving the debt of another country. South Africa comes to mind, having forgiven Namibia's debt because it accrued during apartheid. The regime was different in Namibia. Can't we distinguish?

There is no reason why debts cannot be forgiven, in fact in the context of HIPC some of the bilateral countries have forgiven more of their own debt than they originally committed to do. So certainly you can forgive debt and that has happened at various stages.

It's just that the principle is that the debt is assumed, so for example in the Democratic Republic of Congo the moves that will be necessary to work out the debt problem there are not simply proceding on the proposition that debt accrued under Mobutu was illegitimate. That doesn't wash.

So there can be a decision to either forgive debt or write down debt or to restructure debt service in ways that have the same effect of reducing the burden of debt; after all it is really the burden of payments that you are talking about and that can be handled in many different ways. But that decision is not simply a unilateral decision of the debtor country.

I am not going to belabour this particular issue but what is your institutional point of view and also as an economist and an individual, what is your response to the complaint that the whole HIPC process has been far too slow.

First of all I would say, let's look at the numbers because there has been quite considerable relief and for the countries that have gone through [getting HIPC status] they are now getting the equivalent of about a billion dollars a year in debt service relief, this is cash relief they otherwise would have been paying which is quite a lot of money.

For a number of them, their payments have been reduced to perhaps a half or even less or a third of what their previous payments were. So they are getting relief.

But there are two or three issues here and the first is that there is a group of countries which has not started the HIPC process, I think it's about a dozen countries, and these are often countries that have come out of conflict or are still in conflict.

The second is that some of the countries are having difficulty in reaching the conditions for the completion point as rapidly as expected. HIPC has faced a certain trade-off and I think we should be clear on what that trade-off has been and it affects the speed. On the one hand people have said 'write off the debt' and on the other hand people have said 'make sure that the resources from debt relief are used well.' Now, this has been quite a difficult trade-off because in some countries the fiscal mechanisms, the budget and financial mechanisms have not really been there to ensure that debt relief has been used well, as opposed to simply being taken out of the country; this is part of the issue with the post-conflict countries.

You can't have it both ways. You can't on the one hand say we want to see rapid and unconditional debt relief and on the other hand say we want to be sure that our debt relief goes towards poverty reduction. What has been happening is trying to phase in the relief as countries have demonstrated the ability to use the relief productively; so, for example ,for the countries that have received relief in Africa we believe that about 80% of that relief has been directed towards pro-poor expenditures, whether this is schools, hospitals, rural roads and similar kinds of activities. But you can't do that unless you have working systems in these countries to track expenditures and this is part of the issue.

In terms of millennium development goals, considering that Africa has fallen far short of the goals, is it at this point realistic to think or expect Africa or any African nation to have achieved any of those goals by 2015?

Let me put it this way - on the actual goals themselves, on the numbers in the millennium development goals were originally conceived as a global goal. They were not a goal that any individual country would be expected to meet.

Having said that, there are very few African countries that will meet more than a few of the goals. Generally in Africa progress towards the education goal has been a bit better, progress towards the health goal has been very poor partly because of HIV/Aids, with some countries going in the wrong direction.

So the health area is one of particular concern especially nutrition, maternal and child mortality. In terms of income poverty, countries in Africa will typically have to grow very fast to meet the goals - around 7%. There are some countries like Uganda where poverty has been brought down very rapidly by growth as far as we can see.

What about their growth rate?

The typical African country would have to double its growth rate and you can ask whether that is realistic. The answer is that many African countries are not going to reach the millennium development goals unless their performance changes in a very surprising way.

So it is not realistic to expect that most African countries are going to reach most of the millennium development goals. That's my view, but that doesn't mean that the millennium development goals are not useful - they are in fact extremely useful because they are focusing attention on results.

I wouldn't be concerned or worried if an African country does not reach the poverty reduction goal by 2015 but does do so by 2020 or even in some cases 2025 which would require a growth rate of about 5%. I would say then that this is showing us that the direction is right and so the goals are very a good way of focusing attention on what needs to be done.

Do the development indicators show Africa making any progress on these goals or is it falling further behind?

For the last G-8 meeting we and the African Development Bank did a Global Poverty Report for Africa and we looked at all of the countries and tried to classify them into countries that were on track for meeting the millennium development goals and countries that were not on track to meet the goals but were moving in right direction. That's how we tend to look at it. The real concern is not that the countries are not on track for the precise targets but there are too many countries going in the wrong directions. That is what I would really worry about.

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