Approaches to Poverty Eradication and Economic Development V
The ACP and the philosophy of development
The relations between the African, Caribbean and Pacific (ACP) countries and the European Union (EU) are governed by the 'Cotonou Agreement', which was signed in 2000. In 1996, prior to the conclusion of this Agreement, and in an attempt to set the stage for the negotiations leading to this Agreement, the EU published a "Green Paper on relations between the European Union and the ACP countries."
Among other things this Green Paper said: "Community aid for the ACP economies should promote their integration into the global economy. "(The EU should adopt) a more systematic approach to the causes of low investment in most ACP countries. The EU could play a positive role by supporting administrative and institutional reforms that would encourage the mobilization of private investment, i.e. framing of competition policies, development of capital markets, modernization of business and property law, consumer protection, education, training and development of industrial cooperation. "(It should assist in the) restructuring of public enterprises and privatisation in the wider context of the changing role of the state in the economy. "(It should offer) greater support for an opening-up (of the ACP economies) to international trade and for regional integration. "(The EU should help to) mobilize private-sector resources for the development of infrastructure, especially telecommunications infrastructure, and their operation in economically viable conditions. "(It should achieve) macroeconomic and monetary cooperation (with the ACP countries). (This should) involve support for the establishment of a stable, non-inflationary and growth-generating macroeconomic framework.
"(The EU should) help reduce levels of external debt (of the ACP countries)." Underlying all these observations was an approach to the development challenge explained in the Green Paper in the following words: "Apart from the need to improve results (of aid), development thinking itself has moved on. Global economic changes (liberalisation, technological progress, emerging economies) and the lessons from the success stories of Asia, Latin America, or Africa, have radically modified the philosophy of development. This is especially true of perceptions about the role of the state and relations between public and private actors.
"Another factor contributing to the overhaul of cooperation is the end of the Cold War: the new political openness has allowed the emergence of a wide consensus on the principles of democracy and the market economy. "These processes have already led to important changes in the concepts of aid and its role in development.(which include). "A change in priorities, by reducing interventions in productive sectors. "The creation of an instrument for structural adjustment support at macroeconomic and sectoral levels (and). "A new conception of the economic role of the state, policies to foster private sector development, and support for trade development."
Given the strength of the EU and the relative weakness of the ACP countries, it was inevitable that these countries would have no choice but to accept the new "philosophy of development" to which the EU Green paper referred. To prepare for the negotiations of the Cotonou Agreement, a preparatory Summit Meeting of the ACP countries was held in Libreville, Gabon in November 1997. This meeting, also attended by members of the European Commission, adopted a 'Libreville Declaration' which, inter alia, said: "We acknowledge the need to foster a culture of private enterprise and strengthen the institutions of a market economy. We therefore commit our governments to promote the development of a socially responsible private sector and encourage its participation in the development process. We intend to continue our efforts to create the kind of environment that attracts foreign direct investment including the appropriate incentive measures. To support these efforts we call on the EU to provide the necessary resources and give incentives to their private sector to ensure that investment is directed to ACP countries, especially by guaranteeing foreign investment. We further call on the EU to support the ACP initiatives to develop dynamic private sector institutions."
Developing the private sector
We should therefore not be surprised that the Cotonou Agreement includes an Article 21, which says: "Cooperation shall support the necessary economic and institutional reforms and policies at national and/or regional level, aiming at creating a favourable environment for private investment, and the development of a dynamic, viable and competitive private sector. Cooperation shall further support:
- the promotion of public-private sector dialogue and cooperation;
- the development of entrepreneurial skills and business culture;
- privatisation and enterprise reform; and
- development and modernisation of mediation and arbitration systems."
We should, even at this early stage, also point out that subsequent to the signing of the Cotonou Agreement, in September 2000, the EU concluded its own internal agreement covering its financial obligations to the ACP countries, arising out of the Agreement. This agreement said: "The Partnership Agreement between the African, Caribbean and Pacific States and the European Community and its Member States signed in Cotonou, Benin on 23 June 2000 (hereinafter referred to as "the ACP-EC Agreement") sets the aggregate amount of Community aid to the ACP States for the five-year period 2000-2005 at EUR 15 200 million. "This amount is comprised of, on the one hand, EUR 13 500 million from the 9th European Development Fund (9th EDF) contributed by Member States and, on the other hand, EUR 1 700 million from the European Investment Bank (hereinafter referred to as "the Bank")
"In addition, any balances from previous European Development Funds as of the day of entry into force of the Financial Protocol to the ACP-EC Agreement will be transferred to the 9th EDF and used in accordance with the conditions laid down in the ACP-EC Agreement. The total amount foreseen will cover the period 2000-2007. This period comprises the period of approximately two years required for ratification of the 9th EDF and the two years following the expiry of the 9th EDF." Properly to understand what the foregoing means, we should recall the amounts budgeted for the 2002-2006 EU Regional Policy. The following is the allocation picture we get:
- ACP (2000-2005): EUR 15.2 billion.
- EU Regional Policy (2000-2006): EUR 213 billion.
The top five EU recipient member states will each receive the following amounts, each exceeding the amount allocated to all the ACP countries combined:
- Spain: EUR 38 billion.
- Italy: EUR 22 billion.
- Greece: EUR 20.9 billion.
- Germany: EUR 19.9 billion.
- Portugal: EUR 19 billion
We should also compare these sums with the resource transfers from West to East Germany after unification in 1990. These amounted to about EUR 750 billion during the first decade of unification, responding to the needs of 16 million people.
Figures published by the OECD of Gross Bilateral ODA for 2001-2002 also confirm the less advantaged position of the ACP countries. (Please note that in 2001, bilateral aid constituted 67% of total ODA, rising to 70% in 2002). The top ten ODA recipients were:
- China: $1,847 million.
- India: $1,642 million.
- Indonesia: $1,443 million.
- Egypt: $1,397 million.
- Serbia & Montenegro: $1,277 million.
- Mozambique: $1,244 million.
- Russia: (net OA): $1,062 million
- Pakistan: $960 million.
- Tanzania: $939 million.
- Philippines: $914 million.
Of these, only Mozambique and Tanzania belong to the ACP group, which together present the biggest global development challenge. ODA transfers should, of course, also be compared with the international debt burden of the ODA recipient countries. In this regard, the OECD said that in 2002, these countries had "Total Identified External Debt" amounting to $2,485 trillion. As opposed to the $60 billion in ODA available for the year, these countries had debt due within a year and payable to official donors amounting to $209 billion. We should now give an indication of how some of the EUR 15.2 billion allocated to the ACP countries will be used. The internal EU document to which we have referred says: "Up to EUR 10 000 million (will by given to the ACP countries) in the form of grants (reserved for an envelope for support of long-term development) comprising up to:
"EUR 9 836 million (will be) reserved for support for long-term development to be programmed in accordance with Articles 1 to 5 of Annex IV to the ACP-EC Agreement. These resources may be used to finance short-term emergency actions in accordance with Article 72(3) of the ACP-EC Agreement;" (these Articles refer to equity and loan participation in private and public sector enterprises as well as humanitarian & emergency assistance).
"Up to EUR 1 300 million (will be) reserved for the financing of support for regional cooperation and integration of the ACP States in accordance with Articles 6 to 14 of Annex IV to the ACP-EC Agreement." (these Articles refer to social infrastructure, export earning fluctuations, regulatory matters to protect private companies, financing SMMEs, facilitating private sector growth, foreign currency allocations). "Up to EUR 2 200 million shall be allocated to finance the Investment Facility in accordance with the terms and conditions set out in Annex II ("Terms and conditions of financing") to the ACP-EC Agreement, without prejudice to the financing of the interest rate subsidies provided for in Articles 2 and 4 of Annex II to the Agreement funded from the resources mentioned in Article 3(a) of Annex I thereto." (this refers to European Investment Bank loans, equity participation to eligible enterprises, quasi-capital assistance, interest subsidies, guarantees, and catalysing foreign private investors and lenders)." From all this we can see that the bulk of the EUR 15.2 billion has, indeed, been allocated to actual economic development. Understanding the complexity of the Financing Agreement for the developing ACP countries, which face capacity constraints, the EU decided that some of the EUR 15.2 billion would only be distributed after reports had been submitted indicating proper management of earlier disbursements.
The internal EU financing agreement therefore includes a provision which says: "Out of the EUR 13 500 million referred to in paragraph 1, an amount of EUR 1 000 million may be released only following a performance review undertaken by the Council in 2004, on the basis of a proposal from the Commission. These resources shall, if released, be distributed as appropriate to the envelopes referred to in paragraphs 1(a), (b) and (c)."
Negative view of aid
The Cotonou Agreement was concluded within the context of a negative climate towards aid or foreign development assistance in the EU and other developed countries. The 1996 EU Green Paper explained this in the following terms: "During the 1980s various factors contributed to a general feeling of disillusionment with the actual results of development aid: the budgetary constraints of donor countries; rising unemployment and the worsening of social problems in industrialised countries, with the consequent tendency to turn inwards; the perception that, in comparison to trade and investment, aid had played a marginal role in the economic success of certain Asian and Latin American countries."
With regard to this "disillusionment" and other problems, we should perhaps cite some facts mentioned by a 2002 report of the French Ministry for Employment and Solidarity, entitled "Fighting the New Poverty". One partial summary of the report says: "According to the report, the government spends 28 billion euros per month to support the lowest income families, which comprise approximately six million people. In addition, special payments go to nearly 500,000 unemployed who are no longer eligible for regular assistance. Further financial support goes to 2.8 million workers who are employed either part-time, by temporary employment agencies, or on fixed-term contracts, and who receive less than the legal minimum wage (a net sum of 5.27 euros per hour)."
These are large financial commitments that the French state has to honour before it commits additional resources to the eradication of poverty and underdevelopment in the rest of the world. The then European Commissioner for Development Cooperation and Humanitarian Aid, Poul Nielson, spoke at the signing ceremony in Cotonou, Benin, which concluded the negotiations leading to the adoption of the Cotonou Agreement. Among other things, he said: "Under the LomР№ Convention, trade co-operation largely took the form of preferential tariffs. In future, our economic and trade co-operation will consist of a more comprehensive set of arrangements. The new process approach aiming at establishing new trading arrangements is crucial to improving the ACP countries' capacity to trade and to attract international private investment. It will be accompanied by appropriate support with a view to easing the transition and to prepare for a more dynamic and equitable participation in the international economic system.
"There are many sceptics watching what we are doing. The short version is that it simply doesn't work. This is wrong. I came to Benin a few days early for this meeting in order to see for myself what we are doing here with our partner. I saw road construction in progress, hospitals, new born babies in small clinics, people giving blood in safe and controlled operations and I saw a local market where 47 women are now in control of their own business -and prospering. I am confident that this is also what I could see in other ACP countries. Our partnership works, even if we all know it can be improved and will be improved.
"We must show to the rest of the world that we have a shared vision of the future of this relationship and that we will deliver. One of the necessary conditions to do this is to work in an environment which is politically stable and respectful of human rights, democratic principles, the rule of law and good governance. The Community will be behind you, and together with you, to achieve this objective." Poul Nielson was right in many respects. Through the Cotonou Agreement, the developed North, represented by the EU, has tied the developing South to a development model based on the integration of the South in the global economy, which would be achieved through free trade and private foreign direct investment in the countries of the South.
The developed North is determined to make political stability, respect for human rights and democratic principles, the rule of law and good governance necessary conditions for any capital transfers to, and economic cooperation with the countries of the South. In Cotonou he saw practical examples of successful development projects, funded by the EU, that are helping to address the challenge of poverty and underdevelopment in the countries of the South. The question to ask is whether he was right when he said "our partnership works", when its effectiveness is measured against the strategic objective of achieving the development that was achieved in post-War Western Europe and the Asian Far East, and is currently being realised through the EU Regional Policy!
In its 1996 Green Paper discussing EU-ACP cooperation, the EU said: "Europe cannot claim to be a player on the world stage without a responsible strategy towards the different regions of the South, and in particular those most at risk of poverty and marginalisation. It cannot pride itself on its solidarity with Eastern Europe's fledgling democracies without confirming a partnership with countries feeling their way towards a just society founded on fundamental human rights."
Trade and development
That "responsible strategy" will find expression in the detailed Economic Partnership Agreements (EPAs) that must be concluded between the EU and various ACP regions in terms of the Cotonou Agreement. Of these EPAs, in an April 2004 paper entitled "Why the EU approach to regional trade negotiations with developing countries is bad for development", the non-governmental Concord Cotonou Working Group said: "According to the Cotonou Agreement EPAs would contain, 'new WTO compatible trading arrangements, removing progressively barriers to trade between EU and ACP countries' building on 'the regional integration initiatives of ACP states'. The negotiations are to be concluded by the end of 2007 and then gradually implemented between 2008 and 2020. "EPAs would not only bring an end to the unilateral trade preferences enjoyed by the ACP countries but would establish a trade regime between the EU and the ACP countries that would be 'WTO-plus' in two respects.
"First, for the European Union EPAs can only be based on Free Trade Areas (FTAs) as defined by the WTO, namely by Art.XXIV of GATT. Free Trade Areas imply the elimination (not the reduction, but the elimination) of duties and other restrictive regulations of commerce on essentially all trade within a period of 10 years (which can only be extended in exceptional cases). In addition the EU sticks to a narrow interpretation of this WTO rule insisting that 'essentially all' eventually would mean more than 90% and that extensions would be limited. In other words EPAs would require the ACP countries to almost completely open their markets to EU imports within a short period of time.
"Second, for the EU EPA negotiations should also include investment, competition, government procurement, trade facilitation and data protection. The first four belong to the so-called Singapore issues that many developing countries, including the ACP countries, resisted so much at the WTO-level. Only an investment protection agreement and cooperation on competition policies is foreseen in the Cotonou Agreement. The EU therefore does not only want to go beyond the consensus at WTO level, but also outside the scope of Cotonou. The latter is also the case with regard to trade in services, where the EU pushes for expeditious and ambitious negotiations.
"While EU and the ACP countries agree that EPAs must become 'instruments for development', the EU approach to the EPA negotiations puts this development goal in jeopardy." In 2003, Teresa Thorp delivered a paper at a Conference of the African Studies Association of Australasia and the Pacific entitled "Regional Implications for the ACP-EU: Economic Partnership Agreements". She set the stage for an informed and rational discussion of the EPAs. Commenting on what had preceded the Cotonou Agreement, she said: "All in all the results have not lived up to expectations: trade preferences have not prevented the ACP from being increasingly marginalized in world trade; they have not prevented the continued decrease in the ACP's share in total EU imports nor have they overcome the high dependence of the ACP on a few commodities. "The ebb and flow of multilateralism and universalism of trade has meant, for the most part, that the poorest ACP countries continue to be marginalized, enduring only as spectators to the global stage. This backdrop leads one to ask whether the EPA's will be successful where preceding negotiations and Conventions, principally economic structural reforms, have failed to integrate the ACP states into the global economy.
"Closer economic relationships between the African, Caribbean and Pacific States and the European Union have evolved over a fifty-year period. They were incorporated into the Treaty of Rome in 1957 (Article 131), and cemented by a series of other conventions: Yaounde I & II (1963 and 1969 respectively), and the LomР№ Conventions (1975-1995). The conventions enlarged the ACP pact and focused on progressive market liberalization initiatives. Today, 79 ACP countries are signatories to the ACP-EU Partnership Agreement. Yet, the majority continue to linger on the fringe of global trade." However, and presumably to move the ACP countries out of the "fringe of global trade", according to the Concord Cotonou Working Group, the EPAs are intended to oblige the ACP countries to conform to a "free market" model of development that was never imposed on both Western Europe and the Asian Far East after the Second World War. This was precisely because, at that time, the US understood that this would negate the possibility for these regions to overcome their condition of underdevelopment. The Concord Working Group Report we have cited went on to say that because of this "free market" model of development: "There will also be little incentive for ACP producers to diversify into more 'value-added' products, or for investors to put money in to developing new capacity, given uncertain domestic and regional markets for products competing with EU imports. This could lead to a 'glass-ceiling' being placed on ACP countries' development, an increased dependence on the production and export of primary products and possible deindustrialisation with associated job losses."
Contrary to this perspective, when he addressed the meeting in Windhoek, Namibia, in July 2004, to begin the SADC-EU EPA negotiations, the EU Development Commissioner, Poul Nielson, said: "I would like to explain what we mean by 'integrating the ACP in the world economy'. They have always been there but in a role that is not satisfactory, mainly as providers of raw materials and commodities. What we wish to do is to assist you in playing a more interesting and equitable role in the global economy, to increase the added value, to diversify your economies and, by leaving the long hangover of colonial economic relationships, to become fully equal partners.We are trying to do something new." Speaking at the 1997 Libreville ACP Summit meeting, Poul Nielson's Portuguese predecessor as EU Development Commissioner had also spoken about the ACP countries "leaving the long hangover of colonial economic relationships, to become fully equal partners". He said that "the post-colonial period is over", and that the new (Cotonou) agreement would have to be based on reciprocal and mutually beneficial arrangements between the ACP and EU countries. Feeling no obligation to be as diplomatic as the Danish Poul Nielson, he communicated the unequivocal message that the former European colonial powers felt that they had paid their debt to their former colonies. In future, the former colonies had to relate to their erstwhile colonisers as more or least equal economic partners and competitors. The colonial debt had been paid, in full!
In this regard, a 2003 report prepared for the EU entitled "Sustainability Impact Assessment (SIA) of trade negotiations of the EU-ACP Economic Partnership Agreements" said: "To the extent that the EPAs can encourage enhanced processing, and to the extent that West African countries can improve their own competitiveness and productivity, they may be able to compete effectively in some areas including, inter alia: fruit juices, fruit extracts, prepackaged fresh fruits, pre-cooked vegetables and fish. However, in order to develop potential in nascent processing industries, the countries of the region will have to be able to meet the standards imposed by its trading partners. A failure to make these fundamental gains could lead to the collapse of much of the manufacturing sector, which at the moment constitutes the backbone of the modern economy in the region and is an important employer in urban centres which is a refuge for unemployed populations but does not have the capacity to support viable small and medium-sized enterprises."
So much for the assertion that the EPAs would serve as "instruments for development"! Recognising the problems posed by the EPAs, at its February 2004 meeting in Addis Ababa, the ACP-EU Joint Parliamentary Assembly adopted a resolution on "Economic Partnership Agreements (EPA): problems and prospects". Among other things, this Resolution: "(Called) upon the European Commission to support, in a transitional period, the principle of commercial non-reciprocity which must govern relations between the industrialised and developing countries, and to develop flexibility towards ACP countries during the EPA negotiations in view of their level of development, of the relatively small size of their economies, and of their financial, development and trade needs, and to ensure that, in reality, EPAs become instruments for sustainable development in the ACP countries; calls on the Commission, in this connection, with a view to promoting sustained economic growth in ACP countries and regions, to improve ACP export opportunities to the EU market, inter alia through:
- widening the scope of products, both semi-finished and finished, of interest to them under the EPAs,
- addressing both tariff and non-tariff measures, and
- wherever possible, improving and injecting flexibility into the Cotonou rules of origin, including the acceptance of asymmetric rules of origin to take into account the differences in the level of industrial development between the EU and ACP countries."
The Assembly went on to "(stress) that major investment must be made before the economies of these (ACP) countries enter into competition with EU undertakings; (and observed) that this financial effort must be better evaluated and calls on the EU to explore appropriate measures to address the funding requirements in this regard."
From the foregoing we can draw the following conclusions:
- In the post-Cold War period, the developed countries are ready to respond to the challenge of poverty and underdevelopment in the countries of the South as a moral rather than a strategic imperative that is necessitated by a threat to their survival;
- They believe that the development of these countries should be financed through private capital, rather than public sector funds;
- They work to ensure minimal state intervention in the economies of the South and therefore reliance on "the market" and the private sector to achieve the development goals of these countries;
- They believe that these developing countries must be fully integrated within the global economy, interacting with all other countries through free trade and reliance on the global capital markets and global investors for the investment funds they need;
- Critically, they believe that the developing countries should be obliged to participate in reciprocal "free trade" arrangements, insisting that it is such "free trade" rather than "aid" that will catapult the developing countries to reach their "take off" levels of development;
- They are convinced that such economic assistance as they extend to the developing countries should act as a catalyst towards the achievement of the central goal of creating "investor friendly" conditions that would enable the developing countries to attract the requisite volumes of domestic and foreign private investment, creating the capacity for recipient countries of this investment to expand the space for these investors freely to trade their products;
- They are determined to ensure that except for developing countries with domestic economies so large that their investors cannot ignore them, all others must meet such political and governance standards as they set, to reassure especially the foreign investors;
- They are unwilling to provide sufficient public sector funds to enable the developing countries to reach their takeoff point, and do not pursue this objective, leaving it to the private sector;
- This development model has not produced any success with regard to sustained development that does not require exceptional external intervention, despite all efforts by the developing countries to create the political, policy and other conditions the developed countries set as pre-conditions for the sustained development of the countries of the South.
None of these are natural, God-given results. They reflect the ideological dominance of a development paradigm described as "the Washington Consensus" that represents what has been described as "market fundamentalism".
This paradigm reflects a number of global developments to which there has as yet been no successful concerted response of benefit to the poor of the world.
These are:
- the collapse of the Soviet Union and the prospect of the emergence of socialism as a world socio-economic system, leading to the capitalist system establishing itself as the only viable condition for human existence;
- the elimination of all fears within the capitalist world that failure to reform itself to become responsive to the needs of the ordinary people, it would be replaced by an alternative socio-economic system;
- the growth of the global transnational corporations and financial capital, creating the need for them to operate in global conditions that allow them to operate as freely as possible within the context of a liberalised and deregulated global economy; and,
- the elimination of the fear by the developed capitalist countries that any rebellion by the poor of the world would threaten their stability, growth and continued prosperity.
Responding to all this, the dominant ruling groups in the developed capitalist countries have adopted a development model driven by the imperatives of capitalist development in the post-Cold War period.
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