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What NEPAD implies for African policy makers
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5. Theme 5: Focusing on transformed partnerships
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A core principle of NEPAD, as a precondition for the renewal of Africa, is the development of more productive partnerships (para. 47). NEPAD calls for transformed partnerships, underpinned by African ownership of the continent's development strategies, joint commitments to shared development goals, and a focus on long-term predictable partnerships accompanied by increased resource flows, particularly to the countries that have a clear commitment to these shared goals.
Partners need to recognize Africa's diversity
African countries are ranged across a wide spectrum in the quality of their governance and the capacity of their institutions, the degree of peace and security, and the existence and scope for civil society. At one extreme are countries with solid policy frameworks, strong governance structures, good institutional capabilities, and less demanding needs for external assistance. At the other extreme are countries in exactly the opposite situation.
Differences also exist in the extent of commitment to poverty reduction and preparation of country-owned poverty reduction strategies, the depth of the knowledge base on the nature and locus of poverty on which poverty reduction strategies can be based, and the availability of good data on poverty, which could be used to measure poverty outcomes. There are also different levels of commitment to improving social indicators and stemming the spread of HIV/AIDS. Also relevant is the representativeness of governments, and their capacity and willingness to engage civil society, the extent to which civil society organizations are representative and active, as well as the extent to which the private sector is allowed to flourish.
Recognition of this diversity requires that a range of donor instruments channel funding to national development strategies-from budget support, poverty reduction strategy credits, sector wide adjustment programmes, sector investment programmes, project financing to technical assistance. The mix will depend on each country's commitment and performance.
NEPAD makes a strong case for channelling resources directly into country budgets. Under the ideal setting of a renewed commitment to good governance and poverty reduction as envisaged by NEPAD, the case for channelling external support to the country through the budget is strong (see Box 6 below). But given the diversity that exists among African countries both in capacity and needs, only a few countries would be in a position to benefit from such partnerships initially.
In some states moving out of conflict, the instruments of partnership may indeed be part of the way forward. Where partnership of any sort is difficult, the donor community is working to identify ways in which development cooperation can be effectively continued at some level, using non-state actors as necessary and possible.
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Box 6
Ghana-blazing a trail towards donor budget support
African leaders have proposed in NEPAD that donor finances should be ploughed into African budgets, returning ownership of resources to the countries themselves. Ghana is blazing a trail in this direction. The government of Ghana has established a multi-donor budgetary support programme. The aim of the program is to support the Ghana Poverty Reduction Strategy (GPRS) by:
- Consolidating high real economic growth by supporting economic reforms and sound economic policies
- Providing financial contributions for increased allocations to priority sectors for poverty reduction
- Creating an enabling environment for sector wide approaches by addressing key issues thus laying the basis for more efficient and effective public service delivery.
This innovative budget support programme requires that donors provide resources through the government budget and in line with the budget cycles. Funds are not earmarked for specific activities. Participating development partners follow common rules for disbursement and commit themselves to firm financing over the forthcoming year with indicative commitments for the following two years.
The Government of Ghana and the development partners participating in this programme have agreed to focus on five key reform areas viewed as being critical for the successful and efficient implementation of GPRS. These areas are public finance - accountability reforms, budget process-especially translation of GPRS into the budget, decentralization, public sector reform and governance. For these areas a number of priority actions and a policy matrix would be designed to provide benchmarks against which progress would be monitored.
Regular dialogue, monitoring, and audits are considered critical for continued development partner commitment to the programme. Dialogue will therefore take place through the quarterly mini-Consultative Group Meetings. Regular monitoring reports from the government will be in a standard format and will include quarterly reports on macroeconomic indicators, on the policy matrix, on expenditures against the budget and releases, and progress in the implementation of GPRS. In turn development partners would provide quarterly reports on disbursements and provide projections of disbursements for the next two quarters.
The programme is open to all development partners but only five have signed on so far - the African Development Bank, Canada, the European Commission, The Netherlands, The United Kingdom, USAID and the World Bank. Denmark hopes to be able to participate in the near future.
Source: Government of Ghana and official sources.
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Indeed, donor countries should be cautious in seeking debt-creating support for African countries with weak policies, governance and institutions. Not only is such assistance almost certain to be ineffective, creating additional debt without creating equal or greater assets, it actually leaves the borrower in a worse position. For countries not yet in a position to use outside investment funds effectively, humanitarian assistance may be quite appropriate. Also, in such countries there may be good opportunities for grant funds to be used for carefully selected purposes. (For example, to support a well designed AIDS programme.)
Partners need to deliver more aid and deliver it more effectively
More aid is needed and it needs to be delivered more efficiently. The cost of achieving the MDG targets-worldwide-has been estimated at around $50 billion of additional development assistance 2001-15. This figure does not take account of the pressing needs for humanitarian assistance ($4 billion extra per year) or for global public goods such as peace-keeping, action to combat HIV/AIDS, agricultural research, measures to reduce greenhouse gases and to preserve biodiversity ($15 billion extra per year). For African countries judged to be in a position to use external assistance effectively, it is estimated that an increase of $25 billion in ODA from the current $13 billion to $38 billion would be required to reach MDGs.
The recent announcements at the Monterrey Conference on Financing for Development of substantial increases in ODA goes some way to closing the resource gap. The European Union announced an increase of $US7 billion a year-as an intermediate target en route to meeting the 0.7 % of GNP target-that all member states should seek by 2006 to meet or exceed current European Union average of 0.33 % of GNP. The United States announced that it would provide-through its Millennium Challenge Accounts-an extra $5 billion of aid per year from 2006 onward, and an extra $10 billion between now and 2006. This amounts to an extra $12 billion per year from 2006, a long way short of the $50 billion per year from 2001 for the MDG targets, but a step in the right direction.
The Canadian commitment at the G-8 Summit in Kanananskis of an additional CAN$6 billion to Africa over five years-including the CAN$500 million Canada Fund for Africa announced earlier-is especially welcome because it is in the December 2001 budget and is therefore built into existing fiscal frameworks. The challenge ahead is to ensure that these commitments actually become available, deployed more effectively than in the past.
For the African countries with reasonably sound polices, institutions, and governance, the aid horizon needs to be lengthened and the conditionality reduced. Many countries in this category-Tanzania and Uganda, for instance-are receiving assistance from several partners in the same economic sectors, with each partner insisting on detailed conditions for their assistance. This presents a significant administrative burden for the recipient country, and the time frame for the partner agreements tends to be short, creating uncertainty for ongoing programmes and requiring considerable time of national leaders to negotiate follow-on agreements.
African countries should insist that development partners emphasize their areas of expertise, draw their areas of comparative advantage. Although each partner is interested in the bottom line of reducing poverty, each partner need not be involved in every facet of a nation's programmes. Some bilateral partners have considerable expertise and experience in programmes, for example, to strengthen civil society, promote NGOs and develop village administrative capacity. The long experience of multilateral organizations in large infrastructure projects and sector programmes should be drawn on.
Several major challenges facing Africa-such as the HIV/AIDs pandemic, resistant malaria and tuberculosis strains, underprovision of agricultural research, and environmental degradation-have global and regional dimensions and therefore require international collective action. These challenges have attributes of global and regional public goods. Knowledge, health, financial stability, peace and environmental sustainability are all global and regional public goods.
Partners need to revisit the continuing debt problems of African countries
For Africa's HIPCs, debt relief is a crucial part of establishing a virtuous circle of poverty reduction and human development. But, there are concerns that HIPC debt relief has not been deep enough to ensure a lasting exit from the debt overhang problem for many countries.
First the process is too slow. After six years of HIPC process only five African countries-Uganda, Mozambique, Tanzania, Burkina Faso and Mauritania-have reached the completion point. Second, the definition of debt sustainability is rather arbitrary, taking little account of the developmental needs of poor countries or the resources needed to reach the MDG targets. Third, many countries are likely to exit the process with unsustainable debt burdens, even using the IMF and World Banks measures of sustainability. This is due in part to the fact that the decisions about the amount of debt relief to be granted were made on the basis of unknown future levels of exports and over-optimistic projections of economic growth, and in part to the fact that many African countries-unsurprisingly-suffered a series of economic shocks which knocked them off (see Box 7 above).
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Box 7
Debt relief has not been misspent-but much more needs to be done
Cynics have always claimed that debt relief rewards "bad behaviour" and will only make the debt problem worse because countries will simply use debt relief to increase military spending or other non--poverty reduction related spending (this is the moral hazard argument against debt relief). However, a recent study by Greenhill and Blackmore (2002) has reached tentative conclusions that show that this is simply not the case. Resources freed up from debt relief have been used productively to promote expenditure on health and education.
Spending on education and health has risen in 10 countries that had already reached the "Decision Point" (reached after three years of structural adjustment) by the end of 2000. These countries are Burkina Faso, Cameroon, The Gambia, Guinea Bissau, Madagascar, Malawi, Mauritania, Niger, Rwanda and Uganda. The study documents a clear and marked upward trend in education spending in the 10 countries from only $929 million in 1998 to $1306 million in 2002. The trend is similar in health spending with an overall increase from $446 in 1998 to $796 million in 2002. The study also finds that military spending remained relatively constant between 1998 and 2001, at approximately 2% of GDP, or $580m.
Despite this good news, much more needs to be done. Only five countries-Burkina Faso, Mozambique, Mauritania, Tanzania and Uganda-have reached the "Completion Point" under HIPC. This is the point at which they receive a reduction in their stock of debt. In total these countries have received only $13.6 billion in debt relief. Of this $1.6 billion is accounted for by "traditional" debt relief by bilateral creditors that would have been granted under the old Paris Club mechanisms anyway. However, Uganda, a star performer and the first to reach Decision Point, already has an unsustainable level of debt once again. Uganda's exports have fallen dramatically because of falling coffee prices.
NEPAD recognizes the limitations of HIPC and argues that for debt relief to be effective it needs to be linked to costed poverty reduction outcomes. Because the costings can take time, in the short run NEPAD calls for the debt service ceiling to be fixed as a proportion of fiscal revenues with different ceilings for IDA only countries-those that are able to borrow from the World Bank at concessionary rates-and non-IDA countries. The NEPAD proposal for using fiscal revenues-rather than the export criteria used under the HIPC initiative is because it is fiscal revenues that really matter for debt sustainability. This is because, while export revenues provide governments with the hard currency from export earnings to repay debt, governments do not own all of the export revenues their country earns. It is government tax revenues that really determine how much a government can afford to pay.
The Greenhill and Blackmore study shows that if implemented the NEPAD proposal of linking debt cancellation to costed poverty reduction goals would require over the long run additional debt cancellation of about $134 billion. If NEPAD's short-term proposal-that debt service payments should be limited to a certain proportion of revenues-were implemented, the total amount of cancellation needed to bring debt service levels down to 5% for IDA countries and 10% for non-IDA would be about $147 billion.
Source: Greenhill and Blackmore (2002) "Relief Works-African proposals for debt relief and why debt relief works".
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NEPAD recognizes the limitations of the initiative, arguing that for debt relief to be effective it needs to be linked to costed poverty reduction outcomes. Because the costings can take time, NEPAD calls in the short run for the debt service ceiling to be fixed as a proportion of fiscal revenues with different ceilings for IDA-only countries (those able to borrow from the World Bank at concessionary rates) and non-IDA countries.
To ensure that the countries that receive debt relief avoid getting themselves into the same problems all over again, there should be greater recourse to grant financing for eligible HIPC countries.
Countries emerging from conflict (Angola, Sierra Leone, Democratic Republic of Congo) face unique problems in rebuilding a peacetime economy. Actions by the international community to provide debt relief is important if the momentum from conflict to peace is to be maintained. Debt relief will yield a "peace dividend" that can yield valuable resources to governments to build physical infrastructure destroyed during the conflict. The peace dividend can be used to deliver services in health and education. The peace dividend can also provide the conditions that will allow the private sector and institutions of civil society to resume commercial and productive activities.
Strong partnerships must be developed within society, not only between governments
There is a growing consensus that the surest foundation for development is social consensus. This requires transformed partnerships between government and civil society, the private sector, trade unions, and faith based organizations. This view is reflected in the NEPAD programme to renew Africa, implying at least three levels of partnership, that of partnership: (within countries, between governments, private sector and civil society), continental (between countries) and global (with development partners).
Key issues for discussion
- How can African policy makers in countries that have not yet made even the most basic reforms identify a highly focused reform agenda likely to result in rapid and substantial payoffs?
- How can African policy makers in countries that have already made first and second generation reforms maintain the momentum by championing additional reforms?
- How can development partners best work strategically to provide the correct balance between financial and knowledge transfers to African countries? A consensus is emerging that knowledge transfers will be more important in countries with weak polices, institutions, and governance, financial transfers will need to be scaled up in countries with solid track records.
- How can development partners ensure that debt relief provides additional real resources to tackle pressing poverty-related problems such as HIV/AIDS, and not at the expense of other ODA flows?
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