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Africa: Call for Development Policy Shift
Africa: Call for Development Policy Shift
Date distributed (ymd): 010916
Document reposted by APIC
Africa Policy Electronic Distribution List: an information
service provided by AFRICA ACTION (incorporating the Africa
Policy Information Center, The Africa Fund, and the American
Committee on Africa). Find more information for action for
Africa at http://www.africapolicy.org
+++++++++++++++++++++Document Profile+++++++++++++++++++++
Region: Continent-Wide
Issue Areas: +economy/development+
SUMMARY CONTENTS:
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
+++++++++++++++++end profile++++++++++++++++++++++++++++++
United Nations Conference on Trade and Development
Press Release
FROM RHETORIC TO REALITY OF AFRICAN DEVELOPMENT:
UNCTAD CALLS FOR MAJOR POLICY SHIFT
TAD/INF/PR20
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 protected]
Kamran Kousari
Special Coordinator for Africa
Tel: +41 22 907 5800 Fax: +41 22 907 0274:
E-mail: [email protected]
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 protected]
Brief Excerpts
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.
This material is being reposted for wider distribution by
Africa Action (incorporating the Africa Policy Information
Center, The Africa Fund, and the American Committee on Africa).
Africa Action's information services provide accessible
information and analysis in order to promote U.S. and
international policies toward Africa that advance economic,
political and social justice and the full spectrum of human rights.
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