Business Daily (Nairobi)

13 July 2010

Africa: World Bank Seeks to Renew Support Strategy

Last month, the World Bank started a comprehensive programme to restructure its strategy in Africa, hoping to recapture its relevance in the changing economic landscape.

For the World Bank, the realisation that its traditional engagement policy with developing economies, especially Africa, has failed to bring the expected benefits must be a humbling experience.

This has pushed it to ditch its previous Washington-led approach to engaging Africa for a newer approach that will allow its economic policies to be determined through country participation.

The new method is expected to provide the region with an opportunity to prioritise its needs, hence align resources to critical areas such as infrastructural investment - a departure from its previous uniform programmes which were to be implemented across the continent.

"Africa has undergone tremendous changes over the last decade and our engagement needs to be in line with the new realities hence we seize this unprecedented opportunity and adjusts the strategy to best support Africa's development challenges," said Shantayanan Devarajan, the Chief Economist of the World Bank's Africa Region.

The new strategy is expected to be realised through an ongoing continental consultative forums undertaken by the World Bank with participation from the governments, multilateral development institutions, the private sector, scholars, experts from think-tanks and other non-governmental organisations.

In 1990s, the World Bank and its affiliate body, the International Monetary Fund (IMF), introduced the infamous Structural Adjustment Programmes (SAPs) - a set of economic policies which were meant to pry open Africa economies.

The SAPs policies advocated for a free currency exchange regime, free foreign exchange policy and the introduction of cost-sharing in the provision of social services such as education and health.

"The introduction of the SAPs had major challenges to the Sub-Saharan Africa economies as they were not prepared to handle the new open and competitive economic policies of liberalisation," said Prof Njuguna Ndung'u the governor of the Central Bank of Kenya (CBK).

Prof Ndung'u attributes this to the fact that the governments were largely involved in economic activities and limited the presence of a robust private sector.

Whereas the opening up of these economies has allowed foreign direct investment to flourish, the introduction of cost-sharing led to massive disruption of the social fabric as access to services was largely determined by ability to pay.

With a majority of the population living below the poverty line, the policy denied a majority of the people access to services.

The results were increased school dropout, low transmission rates from primary to secondary schools and rising incidence of disease.

By the time the countries ditched the SAPS at the turn of the century, the damage was far-reaching, with high levels of illiteracy and diseases.

Since 2005, the World Bank and its affiliate have engaged Africa on the basis of the African Action Plan (AAP), which largely operated on the basis of aid and grant provision for implementation of its projects.

But the new approach has been faulted for failing to recognise the use of internally-generated resources for the growth of the economies.

A number of African countries are, however, using internally generated resources to finance their national budgets following the resurgence of their economies through rising demand for primary commodities and improved global commodity prices.

For instance, Kenya is financing 95 per cent of its domestic budget from internal revenue and local borrowing, a shift from the past where the budget was largely financed through aid and grants.

"African economies have been growing at over five per cent a year over a decade, with the growth being widespread as 22 non-oil-exporting countries sustained better-than-four-per cent growth leading to the fastest decline in poverty levels, high primary school enrolment and increase usage of mobile telephony for communication and financial transactions," said Obiageli Ezekwesili, World Bank Vice- President for the Africa Region.

In 2002, donors at Monterrey, Mexico, pledged to increase aid levels to Africa significantly, committing to provide 0.25 per cent of their annual revenue as aid to Africa.

The 2005 G-8 Summit at Gleneagles, Scotland, renewed the commitment of the world's richest nations to support Africa's development and signalled the intention to move beyond the Monterrey pledges to more development assistance and debt relief.

At the Gleneagles, G-8 countries agreed to mobilise 100 per cent cancellation of the debt owed to International Development Association (IDA), the International Monetary Fund (IMF), and the African Development Bank (AfDB) by the Heavily Indebted Poor Countries (HIPCs) majority of which are in Africa.

At present, 14 completion point HIPC countries in Africa are eligible for relief under the G-8 proposal, and the number will increase as more of the 32 HIPC countries reach their completion point.

In addition, strong macro-economic policies such as prudent fiscal and monetary policies have strengthened these economies, enabling them to weather the recent global economic and financial crisis.

"While the global crises hit the continent badly through reduced global demand for commodities, falling commodity prices and decline in remittances, African policy makers have continued to pursue prudent macroeconomic policies and growth is expected to rebound to a forecast five per cent this year," said Ms Ezekwesili.

Growing interest by emerging economic power houses such as Brazil, Russia, India and China (BRIC) has also contributed to the soul searching by the World Bank.

The increased accessibility of grants from the BRIC nations, which is being provided with less conditionality compared to the World Bank and the Western countries' bilateral aid, has forced Sub-Saharan Africa nations to re-orient their engagement from the West to the East.

During a recent visit to Africa, World Bank president Robert Zoellick indicated that the involvement of the BRIC nations in Africa growth was a positive development as it would allow the economies to access affordable technological know- how suitable to their needs.

"China has the potential to influence the adoption of appropriate technology as its development mirrors what is happening in Africa, hence the model can be replicated with a lot of success," said Mr Zoellick.

The AAP programme was initiated as aid to Africa increased sharply following the drive to implement the seven Millennium Development Goals (MDGs).

But with less than three years before the target date of 2015, there are huge disparities on the progress across the continent on the seven MDGs.

Ms Ezekwesili reckons that nearly 400 million Africans still live on $1.25 a day, the massive infrastructure deficit leaves only one in four people with access to electricity, and even fewer have access to clean water and sanitation.

According to Mr Devarajan Africa need an estimated $94 billion to address its infrastructural deficits.

However, with donor pledges proving difficult to net, the focus is turning to the use of internal resources and implementation of regional projects through cost -sharing.

The drive to implement regional projects in power such Bujagali in Burundi which will provide power to Rwanda and Dr Congo, roads such as the Great North corridor linking Cairo Egypt to Cape Town through Ethiopia, Kenya and Tanzania and railways such as the Kenya-Uganda railway line is gaining acceptance.

The new engagement is expected to lead to a review of how the World Bank and its affiliates such as the International Finance Corporation (IFC), International Development Association (IDA) will engage Africa.

"Africa is increasingly opting for home grown solutions to its myriad of challenges and the World Bank is cognizant of these new reality hence the need to consider how to be most effective in supporting the progress taking place and the long term development challenges still remaining," said Mr. Devarajan.

By harnessing and scaling up the forces that brought the decade-long growth and poverty reduction--which include external resources (aid, debt relief, private capital flows, remittances), prudent economic policies, and a more open and vibrant civil society that is increasingly holding governments to account, and achieving results, Africa is expected to shed off the tag of 'the hopeless continent' once described by the Economist.

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