Africa: Needs major reorientation of international and domestic policies

by Chakravarthi Raghavan

Geneva, 11 Sep 2001 - Sustained African recovery and development, and overcoming the problems of marginalisation requires a major re-orientation of international and domestic policies, and without these it would be impossible to change the fortunes of the region, the UN Conference on Trade and Development concludes in a report on Africa.

International and domestic policies, the report underlines, are complementary and not substitutes.

Greater domestic policy efforts cannot make up for shortcomings in the external trading and financial environment; similarly, increased aid and better trading conditions cannot offset adverse consequences of domestic policies. However, international actions exert a major influence not only on the external conditions facing Africa, but also on domestic policies through aid conditionalities, stabilization and adjustment programmes supported by the Bretton Woods institutions.

In terms of external financing, estimates by UNCTAD, World Bank and ECA suggest the need for an annual additional $10 billion for at least a decade to lift the region into a faster growth path. While in a number of countries, government can do a lot to create conditions conducive to inflows of the kind of private capital needed to close the resources gap, nevertheless except for the oil- and mineral-rich economies, it would be unrealistic and even counter-productive to pin hopes on private capital to meet external financing requirements of African development.

Thus, initially at least the additional external financing has to come from official sources and these could play a catalytic role over time for domestic savings and private capital flows.

As for debt, a bolder approach is needed than has been adopted so far under the HIPC initiative. There is a need for comprehensive assessment of sutainability of the African debt, to be carried out by an independent body which would not be unduly influenced by creditors. Such an initiative should not be limited to the HIPC, but incorporate a broader spectrum of countries, including the middle-income debtors in need of special measures to over their debt overhang.

Consideration should also be given to the suspension of debt payments by all African HIPCs without additional consequent interest obligations until final agreement on debt reduction, and also extended subsequently to non-HIPC countries found eligible for debt relief.

A debt relief initiative structured around such principles could make a significant contribution to growth and poverty reduction, provided it is combined with additional official financing to fill the external resource gap.

On the trade front, says the report, there is a need for review of current agreements and practices with a view to assessing their impact on African development, and broaden and deepen existing provisions for S&D in areas that hamper African Development and translate them into explicit obligations. These areas include re-evaluation of concept of transitional periods in the context of TRIPS and TRIMS, review of the Agreement on Subsidies and Countervailing Measures, measures for realization of technology transfer objectives envisaged in the TRIPS and other relevant provisions of the WTO agreements, and effective implementation of Article IV of GATS for building services capacity, access to technology and distribution channels.

Also important is safeguarding the understanding that no provisions of TRIPS should be used to prohibit action to provide access to medicines at affordable prices to promote public health.

Other areas needing action include tariffs, peaks and escalation, non-tariff barriers such as export subsidies and domestic support, review of application of stringent sanitary and phytosanitary measures in industrial countries that restrict African exports, and need for genuine improvement in market access for African agricultural products and in the implementation of the Agreement on Agriculture, including meeting the core development concerns such as food security, poverty reduction and rural development, as well as implementing special measures in favour of LDCs and net food importing countries.

On the domestic policy front, and the failures of the structural adjustment programmes, including in terms of taking account of external policy conditions in policy design, the report says, “as in an earlier period, policies have been founded on excessively optimistic expectations regarding the evolution of the international economic environment.”

A bold vision is now needed, advocates UNCTAD in the report, in policy design and implementation, drawing on the experience of both post-colonial and adjustment periods, as well as drawing on lessons from successful industrialization and development in East Asia and elsewhere.

There is now a consensus on certain objectives, including monetary and fiscal discipline, macro-economic stability, private initiative, good governance and effective institutions, on the role of the state in developing human and physical infrastructure and promoting effective market and regulatory institutions, a competent, professional and autonomous bureaucracy which has seen considerable erosion after two decades of emphasis on a small state.

A key policy issue is the respective roles to be assigned to public and private sectors in economic activity, government intervention and free market forces in generative incentives and guiding private sector behaviour. While there is a need for greater role for markets than allowed under the policy regimes of the post-colonial period, in some respects the pendulum has swung too far and it is important to redress the balance. There is an inconsistency in arguing that governments in Africa are not capable of effective intervention, while at the same time burdening them with a daunting array of measures under adjustment programmes.

Agriculture, international trade and finance are the three principal areas where roles of government intervention have to be reconsidered, with policies designed to animate and guide the private sector to meet development goals, encourage agrarian capital formation and productivity growth with policies that increase profitability of investment and decreases risk by providing a stable environment.

The marginalisation of SSA in world trade is an outcome of interaction of falling terms of trade and inability of the region to expand productive capacity and move to dynamic products, rather than resistance of the region to open trade regimes. For most SSA countries, there is thus a need to focus on growth enhancing policies, including promotion of exports of dynamic products, rather than concentrating on trade liberalization.

On the policies of the Bretton Woods Institutions and their new focus on Poverty Reduction strategies, the report underlines that poverty has risen in the region both because per capita incomes fell and also because share of the poor in national income declined. Due to rising inequalities, poverty has increased even in countries with positive per capital income growth.

For tangible and sustained results, the new emphasis on poverty alleviation should be founded on a careful and frank assessment of effects of structural adjustment policies on growth and income distribution. However, there are as yet no signs of such an exercise.

Rather the emphasis is on redirecting public spending and aid flows towards areas which are expected to yield quick results - including on increased spending on 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, public enterprise, deregulation and privatization do not succeed in raising growth but at the same time exert adverse effects over income distribution.

“Poverty reduction programmes need to be associated not only with greater resources but also with structural adjustment and macro-economic policies conductive to faster growth and better income distribution,” says UNCTAD in the report. – SUNS4964

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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