Africa: 'Remarkable Turnaround,' but Aid, Trade Lacking - World Bank Economist

8 June 2007

Washington, D.C. — As the 2007 Group of Eight [G8] summit concludes, African countries are still looking for industrialized nations to follow through on aid promises from previous summits. G8 countries have written off debt forgiveness as aid money and African countries are struggling to find funds to build basic infrastructure to participate in the world economy and meet the Millennium Development Goals (MDGs).   

However, "Africa's economy is better than it has been in the past 25 years," John Page, the World Bank's chief economist for Africa told AllAfrica's Katy Gabel. Page also discussed regional trade blocs, China's role in Africa, and corruption. Excerpts:

Many activists are complaining about the lack of follow up on aid promises from previous G8 summits. Are there any mechanisms to help monitor aid commitments? Could there be?

There actually is a quite well-worked-out process for monitoring development assistance that's run by the Development Assistance Committee of the OECD [the Organization for Economic Cooperation and Development] So, with a lag of about one year, we get what are a good set of official statistics with respect to development assistance. From the point of view of civil society, the bad news is that the members of the DAC [the Development Assistance Committee of the OECD] defined what is meant by official development assistance. It takes a fairly careful reading of the statistics to know where that definition is self-serving, and where that definition in fact reflects resource transfers to developing countries…

What the advocacy groups need to do - and what some of them are already doing - is use… data available in the public domain… [to] apply stricter accounting standards that you would think of as being sensible definitions of development assistance, and then try to help the ministries of finance and development in the creditor countries more accountable for what's going on. I don't think we necessarily need a monitoring system; we simply need more intelligent use of the data that the DAC puts out.

Is that something that needs to come from international institutions or can it come from civil society?

It can come from both. We've been quite consistent in the Bank group, including our president, in pointing out the fact that aside from debt relief and emergency assistance, there has been virtually no increase in resource transfers to Africa since the time of the Gleneagles summit. It's something that we both follow carefully, and [we have] been quite forthright on reporting what we think are the implications of the ways in which these various categories of aid are defined.

What do you think about China's approach – supposed "no-strings attached" aid – versus committing cash through the World Bank or other institutions?

Well, I work for an international financial organization, so obviously I would like to see the Chinese be more enthusiastic supporters of multilateral institutions, although one has to say to their credit they are members of the African Development Bank, the World Bank, the Asian Development Bank at least … so they are, in one domain, doing their bit.

When you come to the question of China as an actor in Africa, aid is given by all countries for various purposes, some of them humanitarian or developmentalist, some of them geopolitical, and China is not unique in any sense… I always find it a bit striking when people say to me, "Isn't it terrible that China is giving money with no strings attached?" Well, the history of aid is that every country has at one time or another, in one place or another, given money with no strings attached.

Seen from an African perspective, if I were the president or the minister of finance or the minister of development of an African country - especially faced with the fact that despite the promises, the traditional development partners have not been stepping up and making good on their resource commitments - I would be actively looking elsewhere… to China, to India, to Brazil, to Korea

[African countries] face a real dilemma. They've been told by the international community: "Bring credible development programs to the table. Show us how you use the money you get. Demonstrate that you can achieve results. Tackle corruption; tackle the other impediments to development. If you do, then we'll respond by being more generous and we'll respond by funding credible programs." That was what Tony Blair called the "deal for a deal," that was the basis of Gleneagles. In the last three years, what we've seen is that a substantially larger amount of heavy lifting has gone on in the African countries to try to comply with the deal than has gone on in the OECD. Which means that then, if you have unmet development needs, you have to be looking for development partners.

Regarding U.S. programs, is the MCA (Millennium Challenge Account) program -in which countries that meet a rigorous set of qualifying standards design their own development programs with funds – a useful model for other bilateral aid programs?

It's actually only a variation on what's become a common theme… Beginning in about 1999-2000, the Bank and the Fund [the International Monetary Fund] and the development community as a whole began to change their business model in a very fundamental way. Up to that point, while it was always fashionable to talk about country ownership, the degree to which development partners encouraged and accepted homegrown initiatives to actually carry out programs of economic change varied substantially country by country. In many cases, it was pretty absent. Basically the development partners told the government what they wanted to do. They said, "If you want our money, you'll do this," and countries quite naturally responded by more or less doing what their development partners said.

In 2000, the Bank and the Fund introduced, in connection with the HIPC [Highly Indebted Poor Countries] initiative, these poverty reduction strategies. The idea, when it works well – it doesn't always work well – is that you switch the balance of the relationship and instead what you do is empower countries to come up with programs, much like the second stage of the MCA process. Then the donor community has a dialogue with the government, there's a meeting of the minds, and all of our programs, whether they're multilateral programs or bilateral programs, begin to harmonize and align along the lines of that national strategy…

In that sense, there's no difference between the MCC [the Millennium Challenge Corporation, which manages the United States' Millennium Challenge Account] and what anyone else is doing. In fact, we have situations - Madagascar is a good case in point - where the MCC is quite literally folded into what the rest of the donor community is doing…   It seems to me that there's not such a large difference between the MCC approach and the approach of some of the other development partners as sometimes people try to portray.

What conditions need to exist to prevent corruption or misuse of aid?

In an ideal situation what you would like to have is a legal and institutional framework that, in a sense, both makes corrupt practices difficult to routinely conduct… You need a legal system which does make is possible to prosecute people for corrupt practices. You need accountability mechanisms that allow for some sort of scrutiny, because if the only people who actually have access to information and have access to and understanding of how things are working are the insiders, then it's pretty easy to do [corrupt] stuff.

About 15 years ago the Ugandans put in place a tracking system in their education sector just to see from a dollar that went into the education ministry via the budget how much actually came out in terms of educational services delivered to an elementary school child in a typical village or town. It turned out to be 10 cents on the dollar… One of the things they did was immediately to just begin to publish, for every school in every village, the amount of money and what it had been committed for. So if money had been committed to buy textbooks, there was a way by which that town could wait and see if the textbooks actually arrived. If they didn't arrive, there was a number for them to call and somebody would come out and conduct an investigation.

Something that we often neglect is [that] you can have an extremely transparent, honest administration of resources and make really bad decisions about what you do with those resources. That means that in addition to having a system that allows the fiduciary management of funds, you also have to have in place a public expenditure system that actually helps promote good decision making with respect to what will the state do with its money.

One of the big challenges… is a country may have a very visionary and ambitious national strategy, but if there's no link between the national strategy and the budget process, there's really no way of… making that aspiration real. And since I know of no country, rich or poor, which is completely unconstrained in the amount of resources that its government has, there are always going to be tradeoffs. It's only through the budget process that you can do those kinds of tradeoffs.

Many civil society organizations are talking about their desire to "own" the budget process and worry that their participation is being written off through executive-level decision making that doesn't, in reality, include them. Is there a way to make sure civil society is heard and make decisions efficiently?

I think so, and I think it's neglected, not completely neglected but relatively, speaking to both the public advocacy groups and civil society and the executives. That's the role of parliaments. In Tanzania, for example, you actually have the opportunity to use the budgetary power of the parliament, including its ability to question and analyze the executive's submissions as a part of the public comment process...

When I talk to my colleagues and friends who are parliamentarians in Africa – they feel – and this is a role more for some of the more bilateral aid agencies than for the World Bank obviously – that the more they can strengthen their oversight role in the budget process, the greater ability there is to bring more voice into the dialogue with the executive, and the greater the opportunity to force some more accountability on them.

How would you assess the current state of Africa's economy at the continent level? Which countries are the strong performers, and what can we look forward to in the future?

The current state of Africa's economy is better than it has been in the past 25 years. Beginning in 1995, we have seen a very sustained in the overall rate of growth both in aggregate and per capita terms, to the point now where if you take China and India out of the mix, average incomes per capita in Africa are rising at the same rate as they are in the rest of the developing world. That's certainly something we couldn't have said between 1975 and 1995.

We've seen Africa survive a fairly severe oil shock with relatively minimal disruption in terms of both economic management and growth. There's no doubt about the fact that the terms of trade have lowered incomes, but compared with the preceding oil shock, which was about 10 years before, this one has seemed to be very effectively managed by the vast majority of African economies.

Across the continent, macroeconomic management is quite good – for the most part, inflation is under control, and a lot of the structural reforms that were very controversial in the 80s and 90s look like they're beginning to pay off. Africa is slowly but surely becoming more integrated in the world economy. Its exports are beginning to diversify. Progress towards the Millennium Development Goals, which is a very important indicator of a broader view of development than just income per person, appears to be accelerating. That's all the good news.

If you take three big blocs of countries – first, the oil-rich countries and [those where] we're starting to see new discoveries of metals, minerals, other forms of non-oil natural resources. [In the] increasing number of countries where natural resources dominate in terms of exports and in terms of government revenues, these economies have now grown at least five percent every year, some of them spectacularly more than that, for more than 10 years. And they're about 26-27 percent of the population of sub-Saharan Africa.

From the point of view of broader economic policy, the next group of countries I find very interesting. These are more diversified economies. They don't depend on natural resources. These are countries like Ghana, Tanzania, Uganda, Burkina Faso, Senegal. [They] have grown at an average rate of about five percent – all of them at more than four-and-a-half percent – for the last 10 years.

If you add that up, about two-thirds of Africa's population is now living in countries that have grown at around five percent per year for more than 10 years. That's quite a remarkable turnaround.

The bad news is that the last third of Africa's population continues to live in countries where the rate of economic growth is less than the rate of population growth, for the most part, and where average incomes per person are actually going down.

But there is a concern, which is how do you preserve the growth in the countries that have been doing relatively well over the last decade and at the same time begin to position the countries that have been relatively falling behind and in some cases absolutely declining, to catch up, to be part of the general process of prosperity?

In the oil-rich and mineral-rich countries, a similar concern is how do you make sure that that growth translates into something beyond just increasing incomes for a relatively small number of people who capture the public purse? How do you see that it translates into poverty reduction?

In a way, Africa becomes now – simplifying hugely – a problem of solving three different economic problems: good management of natural resource revenues and natural resources in general for about a third of the continent, sustaining growth and addressing bottlenecks to growth in about a third of the continent, and getting growth going in about a third of the continent. If we had been having this conversation in 1995, or even 1997, we would be talking about how [to] get growth going across the entire set of countries in sub-Saharan Africa. So it's quite a different picture.

What can you tell us about Africa's prospects for trade?

[Since 2005] we've seen very little, almost no progress on [the] Doha [Round of international trade negotiations]. We've seen some progress in the U.S. with Agoa [the African Growth and Opportunity Act] and Europe with Everything but Arms in trying to give additional market access to Africa, in a way to make up for the fact that we don't have a multilateral development round agreement.

Aid alone, without market access, and without an international trading system that makes it possible for Africa not just to enter Europe and America but also enter Asian markets, which are the most rapidly growing market segment for Africa's exports, is never going to be enough to sustain long-term, broadly-based economic growth in Africa.

Africa has to have an export success as well. To have that export success, Africa fundamentally depends on the world trading system… You notice we haven't heard very much at all on the question of trade. The last real initiative to re-start the [Doha] talks was in January, but once again we're not seeing very much. That remains a real concern.

Do you think regional trade blocs and organizations like Comesa [the Common Market for East and Southern Africa], Ecowas [the Economic Community of West African States], and SADC [the Southern African Development Community] are useful for Africa?

Regional integration is essential for Africa. The statistic I always remember is that in Africa, 40 percent of the population lives without effective access to the sea. Most of them are landlocked countries… When you're in a circumstance like that, your prosperity fundamentally depends on both the prosperity and the good will and conduct of your neighbors. Having a regional set of agreements that are durable, that define the rules, that help solve some of the problems of dealing with common property or dealing with infrastructure where the benefits are not necessarily proportionate to the cost, really has to call for regional solutions.

I certainly have a sense, and I even think that there's some sense within the African Union and Nepad [the New Economic Partnership for African Development],   that the current constellation of regional organizations aren't delivering very well on that agenda. The key question is what kinds of initiatives - homegrown, through the AU [the African Union] and Nepad, perhaps with the support of the EU [the Europe Union], or others - could make for more effective regional organizations… It's absolutely fundamental to success in trade, and therefore to growth.

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