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17112004

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Financing for development and opportunities for economic growth

    Collated moderator summaries

    17/11/2004

    Messages posted onto the board so far have revolved around two sorts of questions: first, the

    domestic policies required to increase growth in Africa, and second the most appropriate level and

    form of assistance from the West.

    As regards the former, diversification away from exports of primary commodities (e.g. sugar) was

    stressed by one participant. “This needs to be done through national policies…..what could be done

    would be to make it easier to establish new manufacturing industries by allowing more use of

    imported inputs (relaxing rules of origin)”. Another participant argues more generally that “the

    continent should attempt to promote internal capitalist development wherever possible”, and that

    “an honest reassessment should be undertaken of the viability of import-substitution

    industrialisation”, because today‟s circumstances differ from those prevailing in the 1960s and 1970s:

    in particular, “the internal market is much larger, through the myriad of free trade bodies”. This is an

    interesting suggestion: what do other people think? Another participant that governments need to

    assist with agricultural methods such as irrigation, although developed countries should assist in terms

    of providing necessary resources.

    Another participant links domestic policies to the high levels of foreign debt experienced by many

    countries in the region. Her view is “that some countries have gone into debt because of poor

    domestic financial policies, high levels of corruption and overall lack of the rule of law and good

    governance”. She adds that although the cancellation of debt by the West is advisable, “Africa should

    also understand that it can not keep asking for outside assistance without dealing with its internal

    affairs first”.

    Africa should understand that it can not keep asking for

    outside assistance without dealing with its internal affairs

    first

    As regards the most appropriate level and form of assistance from the West, two participants stress

    the importance of attracting more foreign investment to Africa. For one participant, this requires

    “advertising the improvements in the continent‟s economy, particularly among expatriates”. For

    another, “there needs to be a strenuous campaign to persuade the populations of wealthy western

    countries that the welfare of Africa matters to them…[and] that a suitable slogan for this campaign

    would be „Every one of us is an African‟”. Can other means of attracting more foreign investment to

    the region be identified?

    One participant argues that EU sugar policy, and proposed reforms to it, have adverse effects on

    exports of sugar from countries in the region, and prevent huge numbers of people from people from

    being lifted out of poverty via this route. However, another argues that Africa already has high

    preferential access to developed country markets, and that “improving this only for Africa would

    disadvantage other poor developing countries”. She argues that the Commission should put most

    weight on improving infrastructure in the region.

    Some participants are critical of past interventions by donors and multilateral organisations in the

    region. For one participant, “the imposition by the World Bank of its own idea of how economies

    should be run has, in the past, created disruption of local ways of dealing with local circumstances.”

    Another, in considering the question of choosing between grants and loans in the deliverty of aid to

    the region, believes in “assessing individual country needs and working together to find a solution

    best suited to that country‟s situation”. One participant, in a posting under the theme of climate

    change, criticises the exporting of finance, know-how and technology to Africa for net emission

    reductions under the label of global warming, arguing that the main benefits of this process will not

    go to Africans.

    the imposition by the World Bank of its own idea of how

    economies should be run has, in the past, created disruption of

    local ways of dealing with local circumstances

    From the Commission for Africa „e-forums‟ hosted by ODI 1 www.odi.org.uk/africaconsultation/

    15 November 3 December 2004

Financing for development and opportunities for economic growth

    Collated moderator summaries

     19/11/2004

    First, the issue was raised as to how African countries can diversify away from dependence on primary

    commodities. One participant argued that there is a lack of clear alternatives to sugar, in terms of

    other exports which can bring substantial development benefits: “the question needs to be asked,

    "diversification into what?". What product could replace sugar as a remunerative cash crop? Bananas?

    Rice? Coffee?” This is an important issue. To what extent is there possibility to expand non-traditional

    sectors, e.g. tourism? Alternatively, what would enable African countries to ensure more of the

    processing and packaging of primary commodities such as sugar is done locally?

    [T]he issue was raised as to how African countries can

    diversify away from dependence on primary commodities

    An example of the benefits of preferential access to EU markets was given. Kilombero Sugar Ltd.,

    located in a remote region of Tanzania, provides employment for 6,000 people directly and up to

    100,000 other people indirectly, and provides education facilities for 6,000 children. However, “to

    stay in business, Kilombero Sugar needs protection from the ruinous prices prevailing on the world

    sugar market, and to foster more socio-economic development, they need increasing preferential

    access to the EU market at remunerative prices.” Does this thereby support the view expressed in the

    Commission‟s Consultation Document for “continued or enhanced preferential access for Africa to

    2015? (Section 8.2)” Or could countries such as Tanzania be compensated in some way for any erosion

    of their trade preferences, for instance by increased aid?

    The issue of remittances was raised once again. It was argued that an important role for OECD is to

    reduce the costs incurred by people wishing to send money back via formal means (e.g. bank transfers)

    to their country of origin. Successful policy initiatives in this area were mentioned between the US

    and Mexico. It would be very useful and interesting to have some more information on this and other

    types of initiatives, given the particular stress placed on remittances in the Commission‟s

    Consultation Document.

    [A]n important role for the OECD is to reduce the costs

    incurred by people wishing to send money back via formal means

    (e.g. bank transfers) to their country of origin

    Discussion on the volume and effectiveness of aid also continued. One participant noted the

    importance of mitigating against corruption in terms of increasing aid effectiveness, and that this is

    to be achieved through taking “strong stances when corrupt practice is identified – the West have

    often stood on the sidelines and wished for improvement instead of taking strong action”. Another

    cautioned against excessive donor involvement in financing small-scale business (other than providing

    a favourable legislative framework and suitable infrastructures).

    However, there has been little comment so far on the suggestion in the Commission‟s Consultation

    Document that levels of aid to Africa be doubled. Tony Killick recently spoke on this issue at a

    meeting of the Africa All Party Parliamentary Group. Can such an increase be absorbed without having

    adverse impacts on the macroeconomy, corruption, and the domestic „ownership‟ of poverty

    reduction strategies? Or, alternatively, is such an increase sufficient to meet the region‟s financing

    needs?

    From the Commission for Africa „e-forums‟ hosted by ODI 2 www.odi.org.uk/africaconsultation/ 15 November 3 December 2004

Financing for development and opportunities for economic growth

    Collated moderator summaries 23/11/2004

    Participants argued that the problems of low aid effectiveness are not purely domestic in nature, as is

    often suggested. According to one posting, “aid agencies often fail to co-ordinate their demands, field untrained, inexperienced and sometimes incompetent staff, and act in an authoritarian manner

    towards sovereign governments”. Further problems are caused by “the inadequate co-ordination of

    procurement and discursement regimes and sloppiness in monitoring the final destination of funds”.

    According to another posting, “sometimes donors make projects to fail by inappropriate allocation of

    resources to their „home‟ consultants, endless missions and visits – with travel costs, hotel bills and per diem taking 60% of the grant”.

    aid agencies often fail to co-ordinate their demands, field

    untrained, inexperienced and sometimes incompetent staff, and

    act in an authoritarian manner towards soveriegn

    governments When properly designed, aid can be highly effective: “having worked in Nigeria for the past 15 years,

    I have seen communities transformed and lives completely changed with the availability of funds to

    provide water for a community, schools for children and microcredit for women groups” was the view

    of one participant. As regards delivery mechanisms, “there should be a mix-bag of funds some of which can be directed through the traditional channel of government while another variety could be

    to a coalition of end users which include civil societies and/or communities”. This may be true, but

    does the appropriate mix and indeed volume of funds vary across countries, depending for example on

    the extent of democracy and/or government accountability?

    Will increased aid funding erode the domestic ownership of poverty reduction strategies? Opinion on

    this issue is divided. For one participant, “states which are highly dependent on donor funding risk

    losing accountability to their own populations. Doubling aid and donor-determined priorities intensify

    this risk.” As a result, “the Commission should explore ways of delivering aid which build local

    institutions, rather than bypassing them.” However, another participant was unconvinced: “I take it

    that every country independently develop their Poverty Reduction Strategy Paper (PRSP) with the

    support of their development partners….[but] how does influx of funds erode the ownership on the part of the government when the nation begins to harvest the gains of the interventions and indices

    are showing improvement in the lives of the people?” Have the dangers of increased aid undermining

    domestic accountability been over-estimated perhaps?

    the Commission should explore ways of delivering aid which

    build local institutions, rather than bypassing them

    As regards opportunities for trade, discussion continued on the issue of diversification away from

    dependence on primary commodities. One participant gave clear examples of countries which have

    achieved this transition, including Mauritius (initially from sugar into clothing, and now into tourism

    and financial services), and Swaziland which has diversified into a range of light manufactured

    products. Are there other examples, and are there any policy lessons we can learn from them?

    On issues of trade access, dangers to developing an industry under trade preferences were noted: “it can be precarious as preference erosion would wipe out LDC producers”, and “countries trying to protect preferences can hinder larger liberalisation goals which is counter-productive from a global

    development perspective”. Another posting noted that, for the case of sugar, the amount of revenue

    actually received by countries receiving trade preferences is typically less than might be expected

    (from the value of exports) because much of the production is not nationally owned. Do these

    comments imply that trade preferences are an inefficient and ineffective tool for assisting African

    countries, and that assistance should be channelled only through aid (suitably delivered and made

    predictable over time) and/or debt relief?

    From the Commission for Africa „e-forums‟ hosted by ODI 3 www.odi.org.uk/africaconsultation/

    15 November 3 December 2004

Financing for development and opportunities for economic growth

    Collated moderator summaries 25/11/2004

    Some contributors criticised the broad content of the Commission‟s Consultative Document. According

    to one, “it looks like the approach is to do more of what has been tried in the last 20 odd years …

    doesn‟t the issue of why the Washington consensus has failed these countries need to be addressed in

    a meaningful way in the Report?” For another, “the words „environment‟ and „sustainable

    development‟ do not appear once in the Document”, and “the whole question of Africa‟s ability to

    sustainably utilise and manage its diverse natural ecosystems is missing.” There has been further discussion on the issue of debt relief. One contributor expressed concern

    about debt relief reducing incentives for sound fiscal management: “does wiping out debt mean

    countries can begin with clean slate to begin borrowing again that can possibly lead to similar fate in

    the future? If so, what are the new measures that can be taken to prevent this?” For another,

    “blanket calls for total debt forgiveness promote bad governance”. Furthermore, there is an ethical

    dilemma: “it seems unfair to, in effect, punish the fiscally prudent by rewarding the profligate and the imprudent”.

    [for debt forgiveness] it seems unfair to, in effect, punish the

    fiscally prudent by rewarding the profligate and the

    imprudent

    On a more technical but important matter, one contributor argued that the discount rates used to

    calculate the „net present value‟ (NPV) of outstanding debt owed by HIPC countries are too low,

    meaning that the NPV is significantly over-estimated. This could have dramatic PR

    results: “if the western public and elites read reports saying the NPV of HIPC debts is a total of $10-

    $15bn and not the currently stated $80bn there could be a effect on the political will to cancel

    debts”. The decline of the US dollar relative to other currencies also “pushes up the headline cost of

    the debts”. “The Commission should ensure that it adequately investigates the interest rate and FX

    [foreign exchange] assumptions in any debt reduction initiative”. There has also been discussion about how to increase investment in Africa. It is recognised that

    investment is currently limited by a heterogeneous market, coupled with infrastructure and political

    problems. One contributor advocated setting up “mini-commissions in every country whose primary objective is to create a homogenous market”, although for another “this wouldn‟t be efficient” and

    instead the priority lies in “providing potential borrowers with more information and making easier the access to the source of capital for investment”. For another, there are lessons to be learnt from

    other developing countries which have increased investment: “we need to learn from the Asian

    countries!”

    On investment priorities, one contributor argued that “there is little point spending on infrastructure

    if the population is poorly educated and ill, so unable to make use of the capital equipment”,

    although infrastructure that enables important services to be delivered cheaply are important.

    there is little point spending on infrastructure if the

    population is poorly educated and ill, so unable to make use of

    the capital equipment

    Under the topic of „Financing for Development in Africa‟, one contributor wished to stress the

    important role which can be played by the micro-finance movement: “in the interest of the insiders

    and readers this should be treated as a new topic or at least to be highlighted in the moderator‟s

    report”. In an earlier contribution, it was argued that the “micro-finance is a very appealing tool to tackle both poverty and small enterprise development, on conditional that we know how to use it or

    to distinguish both interventions”, and that “the banking system should do their best to reach the

    thousands of micro-business realities through the micro-financial providers (microfinance)”.

    From the Commission for Africa „e-forums‟ hosted by ODI 4 www.odi.org.uk/africaconsultation/

    15 November 3 December 2004

Financing for development and opportunities for economic growth

    Collated moderator summaries There has also been more debate on diversification and trade preferences. It was noted that although

    Mauritius has diversified into activities such as textiles and financial services, “these activities could

    not and have not replace sugar in the rural parts of that beautiful island”. Furthermore, “Swaziland‟s light industry …. is now facing irresistible competition from South Africa and also from Europe”. It is

    argued on this basis that “sugar industries in poor countries need a leg up in the form of trade

    preferences which should last for as long as they remain so abjectly poor”, and that current proposals

    on the reform of the EU sugar regime will be hugely damaging. Other advantages of sugar industries

    were mentioned: “all cane sugar industries in Africa participate in the construction and maintenance of roads, bridges, dams, port facilities, etc.” and “sugar industries are nearly always located in rural

    areas, and this they alleviate the drift towards cities in Africa”. Finally, under natural resources, “there are many good examples of communities whose income and quality of life has greatly improved as a result of carefully developed eco-tourism ventures, such as

    the Mwaluganje Community-run Elephant sanctuary near Mombassa, Kenya….and the Dian Fosset

    Gorilla Fund initiative in eastern DRC”. Tourism can also play a role in terms of presenting a more

    positive image of the continent among people of the developed world. However, eco-tourist

    businesses should be “owned and managed by the indigenous population rather than the traditional,

    wealthy corporations”. One useful suggestion was to channel financing through “secured loans to

    land-owners with preference given to enterprises where land is owned by co-operatives”.

    [eco-tourist businesses should be] owned and managed by the

    indigenous population rather than the traditional, wealthy

    corporations

26/11/2004

    The view has again been expressed that the Commission‟s Consultation Document does not pay

    sufficient attention to natural resource issues. For example, according to one participant “it is a

    serious oversight that the CFA‟s Consultation Document does not mention the need for improved

    natural resource management as a condition for economic growth and human development in Africa”.

    Instead, “the challenge that the CFA should be confronting is how to address the short-term needs of

    [rural] people while at the same time safeguarding their interests in the longer term by making sure

    that natural resources are managed sustainably now”. An example of improved natural resource

    management combined with poverty alleviation is the Zambian COMACO project. On a related topic,

    another participant expressed the view that “if climate change is not put at the heart of the

    Commission‟s proposals and activities, its effectiveness will be severely limited.”

    the challenge ... is how to address the short-term needs of

    [rural] people while at the same time safeguarding their

    interests in the longer term by making sure that natural

    resources are managed sustainably now

    if climate change is not put at the heart of the Commission‟s

    proposals and activities, its effectiveness will be severely

    limited

    There has also been more on the sugar debate. One contributor took the view that the relevance of

    the EU sugar quota has been over-emphasised, citing the case of Zambia where “both the production

    of sugar and utilisation of the EU market is controlled by a multinational company which has only

    limited local linkages” and that “local cane producers claim that they are not getting any extra

    benefit from the higher EU quota prices.” The contributor suggests looking at the matter more closely before coming to a firm conclusion.

    From the Commission for Africa „e-forums‟ hosted by ODI 5 www.odi.org.uk/africaconsultation/

    15 November 3 December 2004

Financing for development and opportunities for economic growth

    Collated moderator summaries

    Debate has continued on the question of debt relief. One contributor argued that “the Commission

    should consider lobbying against any Paris-Club creditor selling its debts to commercial concerns,

    which would probably increase the likelihood of that debt not being relieved.”

    There has also been more discussion on infrastructure, with one contributor agreeing with a message

    posted last week suggesting that the Commission place particular importance on promoting

    infrastructure development. A seven-country study by CUTS International called „Investment for

    Development‟ shows that infrastructure is a key determinant of the amount of foreign direct

    investment (FDI) which countries receive, and more important than the extent of financial incentives

    offered by host governments. Investments in new communication technology, including Voice over

    Internet Protocol (VOIP) and WIFI were considered by one contributor to be particularly relevant for

    Africa, given that the cost of terrestrial connectivity had become “astronomically expensive in view

    of the monopoly that national telecommunication services provide.” Finally, there have been several messages on the topic of the volume and effectiveness of aid. One

    contributor criticises the Consultation Document for giving “scant attention to agriculture at a time

    when international support to agriculture is also at an all time low”, and that “this sector requires

    priority attention at all intervention levels”. Do other people share the view that too much aid in the region is either channelled to „social infrastructure‟ (e.g. health and education projects), or provided

    in the form of programme assistance, at the expense of support to agricultural projects?

    Another contributor noted the fact that many African countries restrict NGO participation in

    development projects, and that “unless these laws are changed aid is more likely to be diverted to

    „leaders‟ through corruption.” The adverse effects of corruption on aid effectiveness were also noted,

    and that “donors should make sure that countries enjoying more aid are applying democratic

    constitutional changes as well as active pursuit of corruption through independent bodies.” Another

    participant argued however that there is a danger of “aid dependency…which reverses the very idea

    behind aid as a temporary engine to foster economic development”. This may be true, but at what

    level of aid, as a proportion of GNP for example, does dependency become an issue? Can case study

    evidence or statistical evidence help us in this regard? Remember that the Consultation Document

    proposes doubling aid to Africa, from 2004 levels (section 9.1), and that the final report will "provide

    evidence that Africa is able to make good use of increased resources of the magnitude suggested".

    donors should make sure that countries enjoying more aid are

    applying democratic constitutional changes as well as active

    pursuit of corruption through independent bodies

1/12/2004

    There has been a lot of debate on how increased aid to the region should be spent. According to one

    posting, “the Commission must push agriculture right up the agenda”, which requires “much greater

    budgetary allocations to agriculture by governments and donors, but also new thinking that learns

    from and builds on examples of successes to ensure that budgets are effectively spent”. This view was

    echoed by another participant, who stated that NEPAD has recognised the importance of raising

    investment in African agriculture, and that now “the challenge is how to make best use of the money”.

    They suggest increased public investment in agricultural research, irrigation and service provision”, and “bringing stakeholders (farmer representatives, private sector, NGOs) together to chart ways

    forward”.

    the Commission must push agriculture right up the agenda

    However, an alternative view was also expressed: “I would not recommend funding for agriculture: it

    requires huge investments and the return on the investment is usually low”. Instead, “increased aid should go toward health and education as these are the factors that directly affect the ordinary

    citizen”, and after that physical infrastructure. (Another participant also agreed “with the view that

    From the Commission for Africa „e-forums‟ hosted by ODI 6 www.odi.org.uk/africaconsultation/

    15 November 3 December 2004

Financing for development and opportunities for economic growth

    Collated moderator summaries

    infrastructure should be given priority”, and several postings in previous weeks have made the same

    point).

    But the point about agriculture drew a response from another participant: “we all want to see

    manufacturing growth take hold in Africa”, but the prospects are not great. Moreover, they argued,

    the evidence suggests that linkages between industrial growth and poverty reduction and weak”,

    suggesting that “poverty reduction will remain a predominantly rural challenge”. The previous

    participant then made the suggestion that “investments [in agriculture] should be made at least in

    processing the food products in Africa rather than selling it as raw material”. Another participant

    made the same point: “donor assistance and technical expertise should be more focused in the

    development and establishment of local processing of locally made raw material”, so that “the

    wealth of production remains in the country of origin”.

    donor assistance and technical expertise should be more

    focused in the development and establishment of local

    processing of locally made raw material

    On the issue of aid modalities, views have been expressed against budget support. According to one

    posting, “governments should work their budgets within their available resources, otherwise we are

    encouraging total dependence and fiscal irresponsibility”, and that “no part of aid should go for

    example in paying salaries of government employees”. According to another, “one has to ensure that

    budget support does not act as a disincentive of a country‟s own resources”. As for alternatives, one

    participant was in favour of aid to civil society groups and community-level NGOs to avoid increasing

    the “hegemony” of the state. Another believed that “more local funds could be raised through

    taxation”, citing Uganda and Suriname which have examples of countries which have made serious

    attempts to do so.

    There has again been discussion of how donors contribute to the problem of low aid effectiveness in

    the region. “Existing financial resource flows could be of very much more development value if there

    was excellence in transparency, accounting and accountability, and effective monitoring and

    evaluation”, argued one participant. Another stressed the need to avoid the situation where “at the

    end of the funding phase the project is abandoned leaving infrastructure that cannot be used and

    services that can no longer be provided”. On overall aid volumes, one posting mentioned a need to “examine the likely consequences of rapidly

    increasing the proportion of GNI given as ODA”, but was generally in agreement: “is there a reason in

    principle why we can‟t do it [reach 0.7%] by 2006?” They suggest that the UK have a referendum on the issue.

    On the criteria for allocating aid, one very helpful posting made a number of suggestions as to how

    the criteria given on the Website could be improved: democratically elected governments and

    parliaments as evidenced by internationally-monitored elections; where there is a good record of

    using aid money well and minimal corruption as evidenced by application of Transparency

    International indicators and tools; where there are good plans and strategies for poverty reduction

    that were performed through real public participation and approved by elected parliament; and

    where there is no conflict with neighbouring countries and where no real effort to accept/apply

    international laws/mediation”.

    Finally, there has been more criticism that the Consultation Document does not address natural

    resource issues. According to one, “I too am concerned that the Commission greatly undervalues

    sustainability and the natural environment”, and another “the consultation document did not address

    the links between poverty and environment in Africa”. Another noted the lack of a theme related to

    science and technology, arguing that “everyone knows that the promotion of science and technology

    is essential for any kind of economic progress that Africa needs”.

    From the Commission for Africa „e-forums‟ hosted by ODI 7 www.odi.org.uk/africaconsultation/

    15 November 3 December 2004

Financing for development and opportunities for economic growth

    Collated moderator summaries

    everyone knows that the promotion of science and technology is essential for any kind of economic progress that

    Africa need

3/12/2004

    Debate has continued on the issue of diversification and trade promotion. According to one

    contributor, “Africa should be encouraged to process their products and sell them as finished

    goods….tea, coffee, cocoa and other agricultural produce should be marketed in finished and packed

    form right from Africa”. Another participant stressed the “beneficial linkages [the sugar] industry can

    bring to impoverished regions”, and cited “rapid growth in the number of local support firms such as haulage companies, cane cutters and mechanics”. They came down on the side of continued trade

    preferences: “it is unlikely that [LDCs] will be able to complete with high-output mills in Australia, Brazil and Thailand…so a preferential price to the EU market will remain crucial”. There has been quite a lot of discussion under the topic of natural resources. According to one

    participant, “the biggest problem in sub-Saharan Africa is hunger”, and that organic, no-till,

    permanent bed gardening is “the solution to most of the problems”. According to another, “the

    debate about what to do needs to be simplified, more inclusive joined up. You don‟t address poverty relief by destroying forests for unsustainable timber production”. Moreover, it was agreed by more than one participant that openness, accountability, efficiency and transparency must be

    observed by all actors involved, NGOs as well as governments.

    the biggest problem in sub-Saharan Africa is hunger

    Finally, there have been four postings on the issue of climate change. According to one participant,

    Africa‟s “vast renewable energy potential (wind, solar, biogas etc.) ought to be exploited”, and that

    renewable energy technologies and energy efficiency programs would provide new areas for human

    capital development. They see the choice as one between the knowledge economic and sustainable

    development on the one hand, and the mineral resource curse, ignorance and neglect on the other.

    Another contribution was more qualified: “climate change need not be the highest priority item in the

    list of issues…[but] it is not something to be dismissed with entirely”. It was therefore important to

    “evaluate people‟s resilience to climate change and explore their coping strategies in order to come

    up with appropriate adaptation strategies”.

    However, another participant argued strongly that the most important issue was not climate change

    but desertification: “when people live in poverty, they have little choice but to overexploit the

    land … when the land eventually becomes uneconomic to farm, these people are often forces into

    internal and cross-border migrations, which in turn cause further strain”. They argue that support

    should be given to countries so that they can implement the United Nations Convention to Combat

    Desertification (UNCCD).

    when people live in poverty, they have little choice but to

    overexploit the land

From the Commission for Africa „e-forums‟ hosted by ODI 8 www.odi.org.uk/africaconsultation/

    15 November 3 December 2004

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