A ZENIT DAILY DISPATCH

Helping Poorer Countries

Opinions Differ Over Action Needed

GLENEAGLES, Scotland, 9 JULY 2005 (ZENIT)

In the lead-up to this week's Group of Eight meeting in Scotland much ink was spilled over what is the best way to help developing nations, particularly in Africa, overcome poverty. Writing in the British newspaper the Guardian on June 8 African businessman Andrew Rugasira said he seeks what all entrepreneurs desire: "markets and equal opportunities to exploit them."

What Africa needs, he explained, is wealth creation, and this is best done by the private sector. But trade barriers in the richer countries prevent African countries from exporting their goods.

Rugasira argued that if the continent's exports could grow by just 1% this would generate revenue of more than 40 billion pounds ($70 billion) a year, a greater stimulus than could be hoped from the often-broken promises of additional aid.

In a similar vein on June 24 the Guardian published a commentary by Matthew Lockwood, former aid worker and author of a new book on Africa. He argued that Africa needs to imitate the example of the Asian Tiger economies.

He observed that in 1981 there was a call for a doubling aid, and that over the following years it rose by 130%. In those years, however, incomes fell. In some cases, aid did bring economic growth, Lockwood said. But aid alone is not sufficient. Lockwood doubts that relying on agricultural exports will generate sufficient income, even if trade barriers are reduced.

What Africa needs to do, he argued, is to diversify its economies and develop new industries. As well, it is essential to reduce corruption and to improve the functioning of government bureaucracy, making additional aid conditional on these reforms.

Security and health

Nancy Soderberg, the Africa program director of the International Crisis Group, stressed the importance of improving security. Writing in the Financial Times on June 24 she explained that aid or emergency relief cannot be delivered if a country is in chaos, or if the civilian population lives in constant fear.

Congo, for example, has received just $10 million to $20 million to establish and train a national army. But, with the country still riven by conflicts, it is impossible to deliver aid to the population.

In an article published by the Spanish daily El País on July 2, Michel Camdessus and Gro Harlem Brundtland put the emphasis on health issues. The two, respectively former executive directors of the International Monetary Fund and the World Health Organization, pointed out that each year millions of Africans die from diseases that don't kill hardly anybody in rich countries.

These deaths, and the loss of productivity due to people affected by recurrent problems such as malaria, seriously diminish economic production. Some progress has been made, they noted, with vaccination programs, but much remains to be done.

Reforms

Moeletsi Mbeki, the brother of South African President Thabo Mbeki, was skeptical about what can be achieved through additional aid without accompanying political reforms. In an article published July 3 by the newspaper Scotland on Sunday he observed that after some $400 billion of aid during the past 30 years many Africans are poorer than before. "Will doubling aid and channeling it through those selfsame governments change anything?" he asked.

The post-World War II Marshall Plan for rebuilding Europe was driven by the principle of strengthening democratic institutions and free markets, he noted. But in Africa, "Since independence, political elites have suppressed or prevented the development of the civic institutions that strengthen society and provide a balance to the power of the rulers."

In these circumstances, Mbeki said, "The more the African political elites consolidate their power, and the more aid they get, the poorer Africans will become and the more African economies will regress or, at best, stagnate."

And, regarding the economy, Mbeki listed a number of factors hamstringing growth in African countries: Bureaucratic obstacles make it impossible to get a license to establish a business without bribery; few countries have any form of private land rights; most Africans have no access to open and stable financial institutions that could provide loans; and there are too many internal barriers to trade.

"The emphasis in Africa should be placed on strengthening national economies and democratic practice by freeing the private sector," he concluded. And for its part the West needs to remove barriers to African exports.

In a commentary published Tuesday in the Financial Times, Jagdish Bhagwati, professor of economics and law at Columbia University, and Ibrahim Gambari, undersecretary-general at the United Nations and special adviser for Africa, outlined five key policy measures that Africa needs. They are:

Debt relief must be extended to very poor nations.

New aid must be used productively. Additional aid should go to countries with good governments and given only to carefully devised projects and programs.

Aid to Africa must be spent on programs that are really beneficial, such as resolving the shortage of skilled labor and improving health.

African nations need to reduce their own trade barriers while seeking the removal of the subsidies and tariffs of rich countries.

Programs to make the private sector the backbone of development are necessary. This includes establishing micro-credit institutions which enable the poor to borrow without collateral, and establishing clear property rights.

Promoting growth

Keith Marsden, formerly an economist with the World Bank and the United Nations, argued for favoring private-sector loans, in an article June 30 in the Wall Street Journal. In a study he did while at the World Bank he found that growth of income per head was strongly correlated with the growth of domestic credit to the private sector. But lending money to governments failed to raise living standards significantly.

Public-sector projects, he commented, are often approved by people without a personal stake in their long-term success. His case studies of African countries show that economies where the private sector has greater credit access grow faster, leading to higher wages.

Prior to the G-8 meeting the International Monetary Fund warned of the need for moderation in claims about the benefits from increased aid. According to a report June 30 in the Financial Times, the IMF released two research papers that suggest aid flows to poor countries have not led to higher growth rates. This conclusion, however, is in conflict with a World Bank study, published five years ago, which found aid boosted growth in countries with good policy environments.

"The basic message is that it is good that people are talking about increasing aid flows but that we have to find ways to make them more effective," said Raghuram Rajan, the IMF's chief economist and co-author of the reports.

A commentary published Wednesday in the Financial Times also highlighted the importance of not expecting miracles from increased aid. Drawing on his 10-year experience at the World Bank, Martin Wolf noted that it is important not to oversimplify. There is no one magic formula, he said, and we should not think that any one single measure, such as debt relief, aid, or a reliance on the market will solve everything.

Rather, he concluded, what is needed is a package of measures that involves reforms on how the countries are governed and their economies are managed; increased aid; improvements to agriculture and health; and stimulation of the private sector. One positive sign of the intense debate over development issues is that, at least for the moment, the fate of poorer countries is attracting the interest of both world leaders and public opinion.
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