Poverty and conflict still dog African countries. But signs of a change of perspective by developed nations, plus reform and new initiatives within Africa could provide reasons for new confidence, James Eedes reports.

It is estimated that between $300bn and $1000bn has been spent on foreign aid to Africa since World War II, a mind-boggling thought given how little there is to show for it. The huge variation between the top and bottom ends of the estimate depends on who is making it: the cynic who thinks that aid is wasted and often ends up in the offshore bank account of a corrupt official, or the campaigner who thinks the developed nations, as one-time colonial powers, were instrumental in Africa’s demise and should do more to help.

In the developed world, there is compassion fatigue. In Africa, there are calls for greater assistance but no longer exclusively on the terms of creditors and donors. The view that the Bretton Woods Institutions have done more harm than good is pervasive. Somewhere in the middle, the message is being lost in translation.

In perspective

Africa has a serious perception problem. Conflict, famine, corruption and HIV/Aids are the mental images that are most commonly associated with the continent. Yet the entire African continent averaged economic growth of 3.6% last year. ChevronTexaco plans to invest $20bn in Africa over the next five years. George L Kirkland, president of ChevronTexaco Overseas Petroleum, describes the continent as “one of the world’s brightest prospects as a source for new oil and gas”.

Africa needs to be viewed from a fresh perspective. If nothing else the terror attacks of September 11, 2001 on the US and the events since have been a sharp lesson that excluding communities or countries from an inclusive model of economic development ultimately leads to insecurity.

“Poverty in itself does not immediately and directly lead to conflict, let alone to terrorism. Rather than responding to deprivation by lashing out at others, the vast majority of poor people worldwide devote their energy to the day-in, day-out struggle to secure income, food and opportunities for their children,” says James Wolfensohn, president of the World Bank Group. “Yet we know that exclusion can breed violent conflict. Careful research tells us that civil wars have often resulted not so much from ethnic diversity – the usual scapegoat – as from a mix of factors, of which, it must be recognised, poverty is a central ingredient. And conflict-ridden countries in turn become safe havens for terrorists.”

If recognising the necessity of addressing Africa’s poverty is one part of the equation, the other is to rethink the conventional outlook for Africa. Despite the problems – and the problems are real – the outlook is perhaps not as bleak as popular media images lead us to believe.

Positive outlook

What are the grounds for optimism? The New Plan for Africa’s Development (Nepad) was hailed as Africa’s route map out of despair but expectations were quickly inflated and it faced a crisis of credibility. Now, however, there are signs (albeit nascent and tentative) of movement and momentum.

Nepad was officially adopted in 2001, promising sustainable growth and development, and the eradication of poverty. It would do this by pressing African governments to adopt the highest standards of political and economic governance, a theme that resonated with donor and investor conditions for increased capital. But then Zimbabwean president Robert Mugabe embarked on his policy of land seizures, driving white commercial farmers off their land in a series of unruly and often violent invasions led by mobs of so-called war veterans.

The widely reported descent into chaos and economic ruin, including curbs on the independent press and pressures on the judiciary, was a jarring juxtaposition to everything that Nepad stood for. The failure of Africa’s leaders to publicly rebuke Mr Mugabe was damning, causing seasoned Africa observers to question aloud whether Nepad was anything more than a hollow, worthless promise. For a continent with an already chequered reputation for governance, the failure to act on Zimbabwe appeared to confirm the worst generalisations.

Yet the architects behind Nepad have persevered. As The Banker went to press, the assessment panel of the African Peer Review Mechanism (APRM) was due to begin its work in Ghana, reviewing the country’s political and economic systems and governance record. The APRM is a central pillar of Nepad, evolving an Africa-centric blueprint for good governance and then using the leverage of pressure from African countries to ensure its adoption.

Significant initiative

The APRM is significant for a number of reasons. First, it is an African-owned and led initiative, which instantly gives it legitimacy on a continent that has a long-standing and increasingly wary attitude towards foreign diktats.

Second, because it is process driven, there is the opportunity to tie development aid to APRM findings. African leaders have long argued that aid should be aligned to poverty reduction priorities and not the arbitrary agenda of the donor. Donors counter this, saying that to disburse aid without conditions can lead to misappropriation or misuse of funding. The APRM potentially presents a credible measurement of recipient countries’ competency to spend aid effectively and transparently. So far, just 18 countries have volunteered to undergo the review – but if aid followed a positive APRM review, this would be a strong incentive for other countries to sign-up (and address governance issues at home).

Third, the APRM is a timely and important response to the vociferous but reasonable criticism that Africa failed to act on Zimbabwe. On one level, it is an opportunity to reaffirm Nepad’s unequivocal commitment to good governance (by avoiding bias and political taint). On another level, it is an opportunity to lend credence to the African decision-making style, favouring discussion and consensus building rather than megaphone diplomacy. South African president Thabo Mbeki has stuck to his policy of quiet diplomacy on Zimbabwe, arguing that shrill condemnation would drive Mr Mugabe away from dialogue and a solution. Part of the APRM’s promise is the sharing of knowledge, the articulation of good governance Africa-style and quiet collective action to impart ideas and solutions that have worked in Africa.

Mr Mbeki’s reluctance to condemn Mr Mugabe is more complex than the alarmist theories ventured by some observers: that criticism is taboo within the fraternity of post-liberation African leaders or that Mr Mbeki harbours sympathy for Mr Mugabe and would cling to power with equally destructive determination. There is a simpler explanation: as Mr Mugabe’s junior, it is taboo in African custom for Mr Mbeki to publicly rebuke his elder.

There is another, more complex explanation: Mr Mbeki has a large constituency of landless people in his own country and populism is an undercurrent ever present in South Africa’s domestic political scene. Mr Mbeki has to tread a thin line between addressing the concerns of the international community while not alienating a large, restless domestic constituency. At the same time, he must be sensitive to international opinion without appearing like a Western lackey to his fellow African leaders.

Within this ideologically charged, polarised environment, the APRM is potentially a powerful mechanism to push better governance across the continent.

Illegal subsidies

The second reason for optimism was the recent World Trade Organization (WTO) ruling that US government subsidies to its own cotton farmers were mostly illegal. The action against the US was brought by Brazil, which argued that the $3bn in subsidies paid to cotton producers in the US depressed world prices. The US has 40% of the cotton export market.

According to the World Bank, US subsidies to cotton growers totalled $3.6bn in 2001-2002 – double the amount of US foreign aid to Africa. These subsidies depress world cotton prices by about 10%. In west Africa, where cotton is a critical cash crop for many small farmers, annual income losses for cotton growers are about $250m a year.

Early indications are that the US intends to fight the decision all the way. That is the impression that the Bush Administration wants to give voters in America’s cotton belt ahead of presidential elections in November. A drawn out legal challenge to the ruling would further stall trade negotiations, dousing hopes for more trade concessions to developing countries in the short term.

But free-trade campaigners see a far greater potential upside than downside. They are cautiously hopeful that the ruling will create a domino effect of rulings against other agriculture subsidies. In these circles, the ruling is the first major breach of the defences of the US, EU and Japan, which have fiercely resisted any challenge to their agricultural subsidies despite the glaring and obvious inequity of the system.

World trade talks, known as the Doha Round, collapsed spectacularly in Cancún, Mexico, last year amid allegations from all sides of intransigence and unrealistic demands. Developing nations had banded together under the G20 umbrella, led by South Africa, Brazil, India and China, strengthening their hand at the high table of trade negotiations. The cotton ruling will embolden this group and there is suddenly real optimism that the $300bn per year subsidy scheme to farming in developed countries may be under threat.

Against the backdrop of a falling share of world exports, Africa stands to benefit significantly from any improvement in its terms of trade, boosting exports and agricultural output, meaning rising employment and incomes. About 75% of Africans live in rural areas and are dependent on agriculture for a livelihood. It is accepted that any poverty alleviation programme in Africa has a strong agricultural sector development component, and improving access to export markets is key to this.

New funding proposal

The third reason for optimism is the proposal by UK prime minister Tony Blair and chancellor Gordon Brown for the International Financing Facility (IFF), a creative solution to raise aid funding by $50bn a year. Official development assistance (ODA) totalled $58.3bn in 2002 and funding under the IFF proposal would be in addition to this. Although no more than a proposal at this stage, crucially the UK holds the presidency of the G8 and the EU in 2005, giving it leverage to influence the agenda and an opportunity to win support for the IFF.

In May, Mr Blair launched his Commission for Africa, promising to make Africa a “focal point”. Despite a jaundiced response in the press, veteran campaigner Sir Bob Geldof struck a chord saying: “All our solutions of the past have failed. We haven’t asked the Africans themselves what has gone wrong.”

Off target

On current trends, Africa looks unlikely to meet any of the Millennium Development Goals (MDGs), the eight poverty reduction goals agreed at the UN Millennium Summit. In terms of halving poverty by 2015, sub-Saharan Africa is seriously off track: only eight countries representing about 15% of the regional population are likely to achieve the goal.

The promotion of stronger economic growth must be at the centre of the strategy to achieve the MDGs and related development outcomes. Growth directly reduces income poverty and expands resources for use toward reaching the non-income goals. Sub-Saharan Africa needs to double its average GDP growth rate, to about 6%. This is an ambitious goal, of course, but some countries in the region achieved it in the 1990s: Cape Verde, Mauritius, Mozambique and Uganda.

There is some evidence that countries in sub-Saharan Africa have turned the corner. Between 1997 and 2002, 24 of 46 countries in sub-Saharan Africa – representing 53% of the region’s population – experienced positive per capita income growth. Reforms undertaken in the past few years, and a shift toward more manufacturing exports, should benefit African economies.

What is needed is accelerated policy and governance reform to improve the enabling climate for growth, which should include macroeconomic stability and openness, the regulatory and institutional environment for private sector activity, physical and financial infrastructure, and public sector governance.

Taking action

In spite of perceptions, key African economies are undertaking the necessary reforms. Nigeria has its National Economic Empowerment Development Strategy, which aims to cut the fiscal deficit, combat corruption and privatise inefficient state enterprises. The country is by no means a model economy yet but the determination to push through liberalisation of the downstream oil sector, for instance, in the face of strident opposition is indicative of a determination to reform. Kenya’s president, Mwai Kibaki, was elected to power on a campaign that promised a rigorous clampdown on corruption.

Uganda is implementing its next wave of reforms following more than a decade of growth. Mozambique is finding its feet with a poverty reduction strategy that has been hailed by creditors and donors alike. Even Angola, which recently emerged from a long civil war and is considered one of Africa’s most corrupt countries, is working with the IMF to clean up.

In some cases where reforms have been implemented, benefits have followed fast. Liberalisation of telecom sectors had a dramatic impact: mobile subscriber numbers in Africa increased by more than 1000% between 1998 and 2003 to reach 51.8 million. Mobile user numbers have long passed those of fixed line users, which stood at 25.1 million at the end of 2003, according to International Telecommunications Union.

In other sectors, reform presents an opportunity. Take electricity. With only 10% of the population having access to electricity, Africa has the lowest annual per capita consumption of power in the world, presenting huge potential to power companies operating on the continent.

In a bid to encourage energy generation, most governments have liberalised their energy policies. Already, partial or complete privatisation of nationalised power companies has occurred in Senegal, Mali, Egypt, Nigeria, Cameroon, Mauritania, Uganda and South Africa.

Natural resources, including oil, gas and hydropower, are abundant. The hydro-potential of Congo alone, if effectively utilised, can provide three times as much power as Africa currently consumes. “On the whole, the market potential in Africa is so immense that whatever the technology employed, chances for success are more or less assured,” say consultants Frost & Sullivan.

There are even encouraging signs that HIV/Aids can be managed. Uganda has led the continent in slashing prevalence and new infection rates. Within the forum of the African Union, other African leaders are also now taking charge of the fight. It is a battle that needs to be won – according to the World Bank, Aids may be costing 24 African nations up to 1.2% of their per capita growth each year. And Aids has increased the number of people living in poverty by up to 5% in some countries.

The long haul

Sorting out Africa will not be easy or quick. And for a while yet, the bad news might outweigh the good. But if Africa’s influential economies consolidate their progress and continue to deepen reform, if Nepad builds its capacity and expands its influence, if the world delivers on aid promises (even some of them), if debt relief is widened and made more sustainable and if global trade rules are made a little fairer, it is conceivable that the progress and momentum will be sustained and accelerate in the right direction. Just a handful of countries will benefit initially but the dividends of good governance will be an incentive to others. A small but influential group of African countries are taking the lead; will the developed world give them the support?

At the spring meetings of the World Bank and IMF, Mr Wolfensohn articulated the broader issue: how important are developing countries on the global agenda? The developed world is caught up with issues of terrorism, Iraq, growth, jobs, elections, budget deficits, the rules of the EU, and so on. These are all legitimate, he said, but tend to overshadow the questions that the World Bank is most concerned about: poverty and equity. “We don’t think these issues are unrelated. We frankly believe that you can’t have peace and stability unless you deal with the question of poverty,” said Mr Wolfensohn.

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