Declining aid and terms of trade, mounting debt, and ineffective adjustment policies have left sub-Saharan Africa (SSA) poorer than two decades ago. Bolstering growth and halving poverty in Africa over the next 15 years will require a dramatic increase in aid and trade for the continent, says a new UNCTAD report, released today.
With a projected growth rate of just over 3% for the next decade, Africa´s fortunes are unlikely to improve. This figure, marginally above population growth, is only half the 6% target set by the United Nations 10 years ago to tackle the economic and social challenges of the continent.
The UNCTAD report, entitled Economic Development in Africa: Performance, Prospects and Policy Issues (UNCTAD/GDS/AFRICA/1), sketches the main policy measures required to reverse this situation. These include:
- Financing development through a doubling of aid flows; a bolder approach to debt relief, including a standstill on debt repayment; and an independent assessment of debt sustainability;
- Conducting a full review of all current agreements and practices in the international trading system in order to remove any impediments to growth and development in Africa and to enhance Africa´s exports; and
- Undertaking a critical review of adjustment and poverty reduction policies for raising growth and bettering income distribution.
What went wrong?
Per capita income in Africa in 2000 was 10% below the level reached in 1980; and despite some improvement in agricultural growth rates in recent years, 28 million Africans are facing severe food shortages this year. Two decades of sub-standard growth have hit the poorest 20% the hardest, their incomes dropping by 2% a year.
More than 80% of the region´s exports consist of oil and non-oil commodities whose prices have been declining relative to exports from the rest of the world. This is a major reason for the marginalization of the region. If the terms of trade had stayed at 1980 levels, Africa´s share of world exports would be double today´s figure. Furthermore, African growth per annum could have been 1.4 percentage points higher, raising per capita income to a level 50% above the current figure.
The secular decline in the terms of trade means that African economies have had insufficient resources to invest in their own people and businesses. It is estimated that for each dollar of net capital inflow to SSA from the rest of the world, a dollar and six cents has flowed out: 51 cents through terms-of-trade losses, 25 cents through debt servicing and profit remittances, and 30 cents through leakages into reserves build-up and capital outflows. These figures point to a net transfer of real resources from SSA to the rest of the world.
Rapid trade liberalization in Africa has not been reciprocated in terms of better access to markets for African producers. Massive subsidies afforded to agricultural producers in advanced countries and other forms of protection have hindered Africa´s efforts to upgrade capacities and alleviate poverty. Nor have African exporters been helped by the exchange rate misalignments and instability that have often followed moves towards capital account liberalization.
Exposing low-productivity sectors to international competition has often provoked a wage-cutting response from many African producers, adversely affecting productivity in the longer term.
These trends have occurred even as African policy makers have made great efforts to play by globalization rules. Structural adjustment policies, trade liberalization and capital account openness have been the big policy forces shaping the continent´s economic landscape over the past two decades.
The way forward
An upturn in growth after 1995 gave the continent some hope. But this could not be sustained without a recovery in savings and investment. Capital accumulation and savings rates in SSA are currently much lower than the levels reached two decades earlier.
Considerable external financing will be needed to close the resource gap if Africa is to attain a higher growth rate. Higher export volumes and stable prices are part of the answer, but capital inflows must also increase significantly. Today´s Report reconfirms UNCTAD´s finding that for Africa, an additional $10 billion a year in official flows is needed for reducing aid dependency in the future and for making poverty reduction targets more than empty promises (see TAD/INF/2850 of 14 July 2000). In addition, a bolder approach is required for providing a once-and-for-all exit solution from the debt overhang than is offered under the HIPC initiative. As of mid-2001, of the 33 African countries in the list of HIPCs, only one, Uganda, had reached the completion point. The Report calls for an assessment of the debt sustainability of African countries by an independent body selected by both debtors and creditors, with an agreement by creditors to write off debt deemed unpayable. Pending such an assessment, the Report recommends a standstill on debt repayment without any additional interest accrual.
As to the international trading system, the Report notes that African countries have yet to draw significant benefits from their participation. Action is required to review current arrangements and practices with a view to extending existing provisions for preferential and differential treatment. Further, the Report calls for a review of a host of measures affecting African exports, including agricultural support measures.
If international targets for growth and poverty reduction are to be met, a key shift in domestic policy is also required. The new poverty alleviation focus should be founded on a careful and frank assessment of the effects of macroeconomic and structural adjustment policies on growth and income distribution in the past two decades. The emphasis now seems to be on redirecting public spending to health and education. While useful, such an approach may not have a lasting impact on poverty as long as policies in such areas as agriculture, trade, finance, exchange rates, enterprise, deregulation and privatization do not succeed in raising growth and bettering income distribution.