3.2 Financing Development: Economic Report on Africa 2007
3.2 Financing Development: Economic Report on Africa 2007
The availability of finance as well as access to finance are important in accelerating
economic development in Africa and in increasing the likelihood of the region meeting
the MDGs. Since the 2000 United Nations Millennium Declaration, several
studies have shown that Africa faces a serious financing gap and that if this gap is
not filled, it will be unable to meet any of the goals (UNECA 2006a). Sachs et al.
(2004) provide evidence suggesting that SSA would need approximately $25 billion
in additional ODA per year in order to meet the MDGs. In their view, the region
is in a poverty trap and so needs a big push in financial aid in order to achieve sustained
growth and poverty reduction. The March 2005 Report of the Commission
for Africa also provides evidence for similar conclusions.
In recent years, efforts have been directed at finding ways and means to mobilize
the additional funds needed to fill this financing gap through mobilization of both
domestic and external resources.. In this section, trends in the various sources of
development finance in the region are highlighted.
Enhancing domestic savings mobilization can increase investment
The mobilization of domestic savings will provide the much needed resources to
finance investment in economic and social infrastructure in Africa. At the moment,
investment ratios are very low in several countries. Relative to developing countries in Asia and Latin America, SSA has the lowest investment ratios. For example, over
the period 2000-2004, domestic investment as a proportion of GDP was 18 per
cent in SSA and 31 per cent in East Asia and the Pacific. As can be seen from figure
3.2, the domestic investment ratio in SSA is low because the domestic savings ratio
is also low and the region has difficulties attracting sustained private capital flows.
Overcoming this investment and savings constraint is a major challenge for African
policymakers and the way in which it is resolved will to a large extent determine the
region’s ability to achieve sustained economic growth in the medium to long term.
Historically, SSA saves less than 20 per cent of its GDP. Over the period 1990-1994,
the average ratio of domestic savings to GDP was 16 per cent. There was a slight
improvement in this ratio to 17 per cent over the period 2000-2004. However, this
number is considerably below the average for East Asia and the Pacific (35 per cent),
Latin America and the Caribbean (21 per cent), and Middle East and North Africa
(26 per cent). Concerted efforts must be made by African leaders to increase domestic
savings if the region is to experience sustained growth and increased likelihood of
catching up with other developing regions.
The low aggregate savings ratio observed in SSA masks the wide differences in savings
patterns across the countries. There are several countries with savings ratio comparable
to those in East Asia. For example, over the period 2000-2004, five countries,
Algeria, Botswana, Republic of Congo, Gabon and Nigeria, had savings ratios
greater than 30 per cent. The ratios range from 32 per cent in Nigeria to 51 per cent
in the Republic of Congo. These countries are oil-and or diamond-exporting nations
that saw an increase in export revenue due to rises in the prices of these commodities.
As a consequence, they may not be able to sustain the current increase in domestic
savings, especially if there is a decline in the world prices of their exports.
Despite this uncertainty and vulnerability, it is worth noting that the increase in savings
has enabled the five countries to increase their investment ratios, although the
increase in the latter is not as large as in the former. Thus, a key challenge is how to
translate these increases in domestic savings into productive investment, especially
in non-oil and non-mineral activities, to ensure and increase prospects for sustained
economic growth.
Eleven countries had negative savings ratios over the period 2000-2004. Since several
of these are either in political crises or are post-conflict economies, it is not surprising
that they had difficulties mobilizing domestic savings. For example, Liberia
and Sierra Leone are just emerging from very disruptive political conflicts. However,
countries such as Lesotho and Malawi had negative savings ratios although they did
not have any equivalent political crises during the review period. Twenty-eight countries
in the region had positive but low savings ratios, including South Africa, which
has a developed financial system and is thus expected to be more able to mobilize
sustainable domestic savings.
Official flows increasing
Over the past three decades, there has been a shift in the geographic distribution of
official flows. In the 1970s, countries in Asia accounted for a large share of ODA.
However, since the 1979 oil price shock, SSA accounts for a larger share of ODA.
During 1993-1994, about 27 per cent of ODA went to SSA, while the other regions
of the world got less than 25 per cent each. During 2003-2004, SSA received about
36 per cent of ODA (figure 3.3). This increase reflects recent efforts by OECD
countries to scale up the volume of aid to Africa to enhance the prospects for meeting
the MDGs.
Historically, official flows have played an important role in the economic development
of countries. As is obvious from figure 3.4, total ODA to SSA has been on the
increase since the 1970s. It reached a peak of $19 billion in 1992 and declined for
most of the 1990s. The trend in per capita ODA also follows a similar pattern. Since
the 2000 Millennium Declaration, however, ODA to SSA has been on the increase
again, reaching a peak of $26 billion in 2004. That said, it should be noted that
when expressed as a percentage of GDP, ODA to the SSA in 2004 was 5 per cent of
GDP, which is still below the 6 per cent figure recorded in 1990.
Within the African region, the distribution of aid flows is uneven with a few countries
accounting for a significant percentage of the aid flows. In 1990, the big recipients of
the aid flows were: Egypt ($US5.4 billion); Kenya ($1.2 billion); Tanzania ($1.2 billion);
Morocco ($1.1 billion); Ethiopia ($1 billion); and Mozambique ($1 billion).
T
he other African countries received less than 1 billion dollars each. As a result of the new focus and priorities given to the region by G-8 countries, aid flows to several
countries have increased. In 2004, the following ten countries received at least $1
billion dollars of ODA: Angola, Ethiopia, Democratic Republic of Congo, Egypt,
Ghana, Tanzania, Madagascar, Mozambique, Uganda, and Zambia. In per capita
terms, the main recipients of ODA in the region in 2004 were: Cape Verde ($282);
Sao Tome and Principe ($218); Seychelles ($124); Swaziland ($104); Zambia ($94);
and Senegal ($92).
Since the launch of the Enhanced HIPC initiative in 1999, there has been a change
in the composition of SSA aid commitments. The share of project aid in total aid to
the region has decreased while that of debt forgiveness has increased from under 10
per cent in 1990-1994 to about 18 per cent over the period 2000-2003. Nonetheless,
project aid still accounts for more than 60 per cent of SSA aid commitments
(Gupta et al. 2006). Given the relatively low domestic savings ratios of SSA countries,
the region will continue to rely on access to ODA as a major source of financing
development, unless drastic steps are taken to boost private capital flows and
mobilize domestic savings.
Private capital flows
Private capital flows is another key source of external finance in SSA (UNECA
2006a). In the late 1990s, it was a more important source of external finance to the
region. In 1998 and 1999, net private flows to SSA were 13.7 and 16.7 billion dollars
respectively. Over the same period, net official flows to the region were 10.6 and
10.3 billion dollars respectively. Net private capital flows to SSA were low over the
years 2000-2002 due in part to the impact of the Asian financial crises on investor
attitudes towards foreign investment. Private capital flows to the region has increased
fast since 2003 and they exceeded net official flows in 2005 (table 3.2).
A large part of recent private capital flows to SSA is in the form of equity as opposed
to debt. In 2005, net equity flows accounted for 86 per cent of net private capital
flows to the region. Furthermore, between 1998 and 2002, the net debt flows were
negative, reflecting the fact that, during this period several countries in the region
were more interested in servicing existing debt than in accumulating further debt.
The decline in the debt-equity ratio of private capital flows to SSA is a welcome
development as it should limit the incidence of debt overhang in several countries. It
should also be noted that there has been a shift in emphasis from short- to mediumand
long-term debt, which will help to avoid the maturity mismatches that have
been a feature of debt in the region.
Recent equity flows to SSA have also been in the form of FDI inflows (table 3.2), as
opposed to portfolio equity inflows that are highly volatile and often leave countries vulnerable to sudden reversals and investor sentiments. The increasing reliance of
African countries on FDI rather than debt should be encouraged because it will help
to avoid debt accumulation with the associated debt service burden. FDI is also a
good source of financing development because it has a potentially important role
to play in stimulating growth and development. African countries should put more
effective policies in place to attract FDI and increase their share of development
finance from this source. Table 3.3 shows that the region currently attracts less FDI
than most developing countries. In 2005, FDI to SSA represented about 7 per cent
of FDI to all developing countries.
The problem of capital flight
The analysis of capital flows to and from Africa reveals a curious paradox. On the
one hand, African countries have accumulated large volumes of debt, presumably
to fill their resource gap and finance their development needs. On the other hand,
as discussed in-depth in UNECA (2006a), the continent continues to experience
heavy financial haemorrhage in the form of capital flight, some of which is financed
by borrowed funds. This loss of capital deprives Africa of a sizable portion of the very
resources it needs for development financing.
Remittances
In economies with very low domestic savings and poor access to international capital
markets, migrant workers’ remittances can play a vital role in development finance.
In several regions of the world, this is indeed growing at an unprecedented rate. In
2004, it accounted for 1.5 per cent of GDP in SSA, 1.7 per cent in East Asia and
Pacific, 2 per cent in Latin America and the Caribbean, 4.1 per cent in Middle East
and North Africa, and 3.6 per cent in South Asia. In 2005, the total value of remittances
from all regions was $232 billion which is marginally below the total value of
net inward FDI to all developing countries ($237 billion) for the same year. The true
value of remittances may be larger given the fact that some remittances are transmitted
through informal channels and so are not reflected in official statistics.
In SSA, remittances are becoming increasingly important, with remittances in 2004
at about 1.5 per cent of GDP. Although this is lower than the 5 per cent figure
recorded for ODA in the same year, it is clearly not an insignificant source of financing.
UNECA (2006) discusses the advantages and disadvantages of remittances relative
to other flows. In terms of monetary value, the magnitude of remittances to SSA
is still relatively small compared to receipts by other developing regions. Estimates
available for 2005, suggest that SSA received $8.1 billion in remittances compared
to $43 billion and $42 billion for East Asia and the Pacific and Latin America and
the Caribbean respectively. The region also received less from this source than countries
in South Asia and Middle East and North Africa.
That said, it should be noted that the low figure reported for SSA may be due to
the fact that relative to other regions, it transfers more remittances through informal
channels. It is also due to the fact that financial institutions in the region are
less developed than in the other regions and so it is more difficult and costly to
transfers remittances.
Migration is also a source of concern because of the negative impact of brain drain, a
phenomenon that reflects the failure of African economies to absorb human capital. In response, governments need to design strategies not only to build human capital
but also to retain it.20
From Monterrey to Gleneagles
African countries and their development partners have recognized the crucial role
of finance in development and are making serious efforts to mobilize both international
and domestic resources. However, they face serious challenges in their efforts
to use development finance as an effective instrument for development. These challenges
include:
• Finding an effective and sustainable solution to the external debt crises
facing several African countries so as to release resources for development
finance;
• Attracting sustained private capital flows, including remittances, and
ensuring that they are in sectors with high value-added and employment
impact;
• Improving domestic resource mobilization through increased savings, higher
tax revenue, and reduction of capital flight;
• Improving the effectiveness and absorptive capacity of foreign aid; and
• Using international trade as a vehicle for resource mobilization.
The Monterrey Consensus, adopted by Heads of State and Government at the
International Conference on Financing Development in March 2002, was the first
comprehensive and global attempt to address these challenges. It was also the first
time that development finance and related issues became the main focus in international
financial discussions. In the Monterrey Consensus, world leaders noted
with concern the financial gap to be filled in order to attain the MDGs. They called
for a new partnership between developed and developing countries and committed
themselves to mobilizing domestic financial resources, attracting international capital
flows, promoting international trade as an engine for development, increasing
international financial and technical cooperation for development, sustainable debt
financing and external debt relief, and enhancing the coherence and consistency of
international monetary, financial and trading systems for development.
Although the Monterrey Consensus highlighted the importance of aid harmonization
for effective development outcomes in recipient countries, there were no clear
guidelines and commitments from donors to ensure that the objectives would be
achieved, until the High-Level Forum on Harmonization held in Rome in February
2003. In the ensuing Rome Declaration on Harmonization, donors acknowledged
the need to reduce transactions costs of aid delivery in recipient countries. They also
stressed the need for country ownership of aid programmes and for good practices,standards and principles in implementing development cooperation. Against this
background, donors committed to providing development assistance in accordance
with partner country priorities, implementing good practices, standards and principles
in development assistance delivery and management, adapting harmonization
efforts to the country context, and harmonizing donor policies and procedures.
As a follow-up to the Rome Declaration on Harmonization, an international roundtable
on Managing for Development Results was held in Marrakech in February
2004. The outcome of this meeting was the Joint Marrakech Memorandum
on Managing for Development Results endorsed by the the African Development
Bank (AfDB), Asian Development Bank (AsDB), Inter-American Development
Bank (IADB), European Bank for Reconstruction and Development (EBRD), the
World Bank, and the Chairman of the Development Assistance Committee of the
Organization for Economic Cooperation and Development (DAC/OECD). In the
Memorandum, they committed to fostering a global partnership and approach on
managing for development results and aid effectiveness.
While the Monterrey Consensus, the Rome Declaration and the Marrakech Memorandum
defined the main objectives of the aid-effectiveness agenda and led to an
expansion in activities aimed at improving the effectiveness of aid delivery, the Paris
Declaration on Aid Effectiveness of 2005 represents the first bold attempt by donors
and developing countries to take monitorable actions to reform the way aid is delivered
and managed. The latter declaration was the outcome of the High-Level Forum
on Aid Effectiveness held in Paris, 28 February – 2 March 2005.
The 2005 Paris Declaration on Aid Effectiveness focused on five key areas, namely,
ownership, harmonization, alignment, managing for results, and mutual accountability.
Regarding ownership, the Declaration stressed the need for partner countries
to exercise effective leadership over their development policies and coordinate development
actions. On alignment, donors made commitments to base their overall
support on partner countries’ national development strategies, institutions and procedures.
They also made commitments to provide reliable indicative commitments
of aid over a multi-year framework and to disburse aid in a timely and predictable
fashion according to agreed schedules. Reducing the proportion of aid that is tied is
also a key aspect of this area of the Declaration.
In the area of harmonization, donors committed to making their actions more harmonized,
transparent and collectively effective. On managing for results, they made
commitments to manage and implement aid in a way that focuses on the desired
results and uses information to improve decision-making. Finally, regarding mutual
accountability, donors and developing countries made commitments to enhance
mutual accountability and transparency in the use of development resources, as both
parties are accountable for development outcomes. An important feature of the Paris
Declaration was that indicators of progress and targets were set for each of the five areas
to increase transparency in monitoring the implementation of agreed commitments.
The G-8 Summit in Gleneagles in July 2005 added momentum to the commitments
made by world leaders in Monterrey to increase aid flows and reduce the burden of
external debt on developing countries, to enhance their prospects for meeting the
MDGs. The Declaration issued also recognized the need for substantial increase in
ODA to consolidate and build on recent advances in Africa and to stimulate growth
to reduce aid dependency. On aid, the Declaration indicated that the commitments
of G-8 countries and other donors would increase ODA to all developing countries
by $50 billion a year by 2010 compared to 2004. Half of this increase would go to
Africa, representing more than a doubling of aid to Africa compared to 2004. On
debt, the G-8 agreed to a proposal to cancel 100 per cent of the outstanding debts of
eligible HIPC countries to the IMF, International Development Association (IDA)
and African Development Fund, and to provide additional resources to ensure that
the capacity of the international financial institutions was not reduced. They also
re-affirmed their commitments to the Paris Declaration on Aid Effectiveness and
stressed the need for developing countries and their governments to take the lead on
development and to be accountable for their actions.
32 Financing Development Economic Report on Africa 2007 - To learn more about this author, visit United Nations Economic Commission for Africa's Website.
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Trends in financing development
The availability of finance as well as access to finance are important in accelerating
economic development in Africa and in increasing the likelihood of the region meeting
the MDGs. Since the 2000 United Nations Millennium Declaration, several
studies have shown that Africa faces a serious financing gap and that if this gap is
not filled, it will be unable to meet any of the goals (UNECA 2006a). Sachs et al.
(2004) provide evidence suggesting that SSA would need approximately $25 billion
in additional ODA per year in order to meet the MDGs. In their view, the region
is in a poverty trap and so needs a big push in financial aid in order to achieve sustained
growth and poverty reduction. The March 2005 Report of the Commission
for Africa also provides evidence for similar conclusions.
In recent years, efforts have been directed at finding ways and means to mobilize
the additional funds needed to fill this financing gap through mobilization of both
domestic and external resources.. In this section, trends in the various sources of
development finance in the region are highlighted.
Enhancing domestic savings mobilization can increase investment
The mobilization of domestic savings will provide the much needed resources to
finance investment in economic and social infrastructure in Africa. At the moment,
investment ratios are very low in several countries. Relative to developing countries in Asia and Latin America, SSA has the lowest investment ratios. For example, over
the period 2000-2004, domestic investment as a proportion of GDP was 18 per
cent in SSA and 31 per cent in East Asia and the Pacific. As can be seen from figure
3.2, the domestic investment ratio in SSA is low because the domestic savings ratio
is also low and the region has difficulties attracting sustained private capital flows.
Overcoming this investment and savings constraint is a major challenge for African
policymakers and the way in which it is resolved will to a large extent determine the
region’s ability to achieve sustained economic growth in the medium to long term.
Historically, SSA saves less than 20 per cent of its GDP. Over the period 1990-1994,
the average ratio of domestic savings to GDP was 16 per cent. There was a slight
improvement in this ratio to 17 per cent over the period 2000-2004. However, this
number is considerably below the average for East Asia and the Pacific (35 per cent),
Latin America and the Caribbean (21 per cent), and Middle East and North Africa
(26 per cent). Concerted efforts must be made by African leaders to increase domestic
savings if the region is to experience sustained growth and increased likelihood of
catching up with other developing regions.
The low aggregate savings ratio observed in SSA masks the wide differences in savings
patterns across the countries. There are several countries with savings ratio comparable
to those in East Asia. For example, over the period 2000-2004, five countries,
Algeria, Botswana, Republic of Congo, Gabon and Nigeria, had savings ratios
greater than 30 per cent. The ratios range from 32 per cent in Nigeria to 51 per cent
in the Republic of Congo. These countries are oil-and or diamond-exporting nations
that saw an increase in export revenue due to rises in the prices of these commodities.
As a consequence, they may not be able to sustain the current increase in domestic
savings, especially if there is a decline in the world prices of their exports.
Despite this uncertainty and vulnerability, it is worth noting that the increase in savings
has enabled the five countries to increase their investment ratios, although the
increase in the latter is not as large as in the former. Thus, a key challenge is how to
translate these increases in domestic savings into productive investment, especially
in non-oil and non-mineral activities, to ensure and increase prospects for sustained
economic growth.
Eleven countries had negative savings ratios over the period 2000-2004. Since several
of these are either in political crises or are post-conflict economies, it is not surprising
that they had difficulties mobilizing domestic savings. For example, Liberia
and Sierra Leone are just emerging from very disruptive political conflicts. However,
countries such as Lesotho and Malawi had negative savings ratios although they did
not have any equivalent political crises during the review period. Twenty-eight countries
in the region had positive but low savings ratios, including South Africa, which
has a developed financial system and is thus expected to be more able to mobilize
sustainable domestic savings.
Official flows increasing
Over the past three decades, there has been a shift in the geographic distribution of
official flows. In the 1970s, countries in Asia accounted for a large share of ODA.
However, since the 1979 oil price shock, SSA accounts for a larger share of ODA.
During 1993-1994, about 27 per cent of ODA went to SSA, while the other regions
of the world got less than 25 per cent each. During 2003-2004, SSA received about
36 per cent of ODA (figure 3.3). This increase reflects recent efforts by OECD
countries to scale up the volume of aid to Africa to enhance the prospects for meeting
the MDGs.
Historically, official flows have played an important role in the economic development
of countries. As is obvious from figure 3.4, total ODA to SSA has been on the
increase since the 1970s. It reached a peak of $19 billion in 1992 and declined for
most of the 1990s. The trend in per capita ODA also follows a similar pattern. Since
the 2000 Millennium Declaration, however, ODA to SSA has been on the increase
again, reaching a peak of $26 billion in 2004. That said, it should be noted that
when expressed as a percentage of GDP, ODA to the SSA in 2004 was 5 per cent of
GDP, which is still below the 6 per cent figure recorded in 1990.
Within the African region, the distribution of aid flows is uneven with a few countries
accounting for a significant percentage of the aid flows. In 1990, the big recipients of
the aid flows were: Egypt ($US5.4 billion); Kenya ($1.2 billion); Tanzania ($1.2 billion);
Morocco ($1.1 billion); Ethiopia ($1 billion); and Mozambique ($1 billion).
T
he other African countries received less than 1 billion dollars each. As a result of the new focus and priorities given to the region by G-8 countries, aid flows to several
countries have increased. In 2004, the following ten countries received at least $1
billion dollars of ODA: Angola, Ethiopia, Democratic Republic of Congo, Egypt,
Ghana, Tanzania, Madagascar, Mozambique, Uganda, and Zambia. In per capita
terms, the main recipients of ODA in the region in 2004 were: Cape Verde ($282);
Sao Tome and Principe ($218); Seychelles ($124); Swaziland ($104); Zambia ($94);
and Senegal ($92).
Since the launch of the Enhanced HIPC initiative in 1999, there has been a change
in the composition of SSA aid commitments. The share of project aid in total aid to
the region has decreased while that of debt forgiveness has increased from under 10
per cent in 1990-1994 to about 18 per cent over the period 2000-2003. Nonetheless,
project aid still accounts for more than 60 per cent of SSA aid commitments
(Gupta et al. 2006). Given the relatively low domestic savings ratios of SSA countries,
the region will continue to rely on access to ODA as a major source of financing
development, unless drastic steps are taken to boost private capital flows and
mobilize domestic savings.
Private capital flows
Private capital flows is another key source of external finance in SSA (UNECA
2006a). In the late 1990s, it was a more important source of external finance to the
region. In 1998 and 1999, net private flows to SSA were 13.7 and 16.7 billion dollars
respectively. Over the same period, net official flows to the region were 10.6 and
10.3 billion dollars respectively. Net private capital flows to SSA were low over the
years 2000-2002 due in part to the impact of the Asian financial crises on investor
attitudes towards foreign investment. Private capital flows to the region has increased
fast since 2003 and they exceeded net official flows in 2005 (table 3.2).
A large part of recent private capital flows to SSA is in the form of equity as opposed
to debt. In 2005, net equity flows accounted for 86 per cent of net private capital
flows to the region. Furthermore, between 1998 and 2002, the net debt flows were
negative, reflecting the fact that, during this period several countries in the region
were more interested in servicing existing debt than in accumulating further debt.
The decline in the debt-equity ratio of private capital flows to SSA is a welcome
development as it should limit the incidence of debt overhang in several countries. It
should also be noted that there has been a shift in emphasis from short- to mediumand
long-term debt, which will help to avoid the maturity mismatches that have
been a feature of debt in the region.
Recent equity flows to SSA have also been in the form of FDI inflows (table 3.2), as
opposed to portfolio equity inflows that are highly volatile and often leave countries vulnerable to sudden reversals and investor sentiments. The increasing reliance of
African countries on FDI rather than debt should be encouraged because it will help
to avoid debt accumulation with the associated debt service burden. FDI is also a
good source of financing development because it has a potentially important role
to play in stimulating growth and development. African countries should put more
effective policies in place to attract FDI and increase their share of development
finance from this source. Table 3.3 shows that the region currently attracts less FDI
than most developing countries. In 2005, FDI to SSA represented about 7 per cent
of FDI to all developing countries.
The problem of capital flight
The analysis of capital flows to and from Africa reveals a curious paradox. On the
one hand, African countries have accumulated large volumes of debt, presumably
to fill their resource gap and finance their development needs. On the other hand,
as discussed in-depth in UNECA (2006a), the continent continues to experience
heavy financial haemorrhage in the form of capital flight, some of which is financed
by borrowed funds. This loss of capital deprives Africa of a sizable portion of the very
resources it needs for development financing.
Remittances
In economies with very low domestic savings and poor access to international capital
markets, migrant workers’ remittances can play a vital role in development finance.
In several regions of the world, this is indeed growing at an unprecedented rate. In
2004, it accounted for 1.5 per cent of GDP in SSA, 1.7 per cent in East Asia and
Pacific, 2 per cent in Latin America and the Caribbean, 4.1 per cent in Middle East
and North Africa, and 3.6 per cent in South Asia. In 2005, the total value of remittances
from all regions was $232 billion which is marginally below the total value of
net inward FDI to all developing countries ($237 billion) for the same year. The true
value of remittances may be larger given the fact that some remittances are transmitted
through informal channels and so are not reflected in official statistics.
In SSA, remittances are becoming increasingly important, with remittances in 2004
at about 1.5 per cent of GDP. Although this is lower than the 5 per cent figure
recorded for ODA in the same year, it is clearly not an insignificant source of financing.
UNECA (2006) discusses the advantages and disadvantages of remittances relative
to other flows. In terms of monetary value, the magnitude of remittances to SSA
is still relatively small compared to receipts by other developing regions. Estimates
available for 2005, suggest that SSA received $8.1 billion in remittances compared
to $43 billion and $42 billion for East Asia and the Pacific and Latin America and
the Caribbean respectively. The region also received less from this source than countries
in South Asia and Middle East and North Africa.
That said, it should be noted that the low figure reported for SSA may be due to
the fact that relative to other regions, it transfers more remittances through informal
channels. It is also due to the fact that financial institutions in the region are
less developed than in the other regions and so it is more difficult and costly to
transfers remittances.
Migration is also a source of concern because of the negative impact of brain drain, a
phenomenon that reflects the failure of African economies to absorb human capital. In response, governments need to design strategies not only to build human capital
but also to retain it.20
From Monterrey to Gleneagles
African countries and their development partners have recognized the crucial role
of finance in development and are making serious efforts to mobilize both international
and domestic resources. However, they face serious challenges in their efforts
to use development finance as an effective instrument for development. These challenges
include:
• Finding an effective and sustainable solution to the external debt crises
facing several African countries so as to release resources for development
finance;
• Attracting sustained private capital flows, including remittances, and
ensuring that they are in sectors with high value-added and employment
impact;
• Improving domestic resource mobilization through increased savings, higher
tax revenue, and reduction of capital flight;
• Improving the effectiveness and absorptive capacity of foreign aid; and
• Using international trade as a vehicle for resource mobilization.
The Monterrey Consensus, adopted by Heads of State and Government at the
International Conference on Financing Development in March 2002, was the first
comprehensive and global attempt to address these challenges. It was also the first
time that development finance and related issues became the main focus in international
financial discussions. In the Monterrey Consensus, world leaders noted
with concern the financial gap to be filled in order to attain the MDGs. They called
for a new partnership between developed and developing countries and committed
themselves to mobilizing domestic financial resources, attracting international capital
flows, promoting international trade as an engine for development, increasing
international financial and technical cooperation for development, sustainable debt
financing and external debt relief, and enhancing the coherence and consistency of
international monetary, financial and trading systems for development.
Although the Monterrey Consensus highlighted the importance of aid harmonization
for effective development outcomes in recipient countries, there were no clear
guidelines and commitments from donors to ensure that the objectives would be
achieved, until the High-Level Forum on Harmonization held in Rome in February
2003. In the ensuing Rome Declaration on Harmonization, donors acknowledged
the need to reduce transactions costs of aid delivery in recipient countries. They also
stressed the need for country ownership of aid programmes and for good practices,standards and principles in implementing development cooperation. Against this
background, donors committed to providing development assistance in accordance
with partner country priorities, implementing good practices, standards and principles
in development assistance delivery and management, adapting harmonization
efforts to the country context, and harmonizing donor policies and procedures.
As a follow-up to the Rome Declaration on Harmonization, an international roundtable
on Managing for Development Results was held in Marrakech in February
2004. The outcome of this meeting was the Joint Marrakech Memorandum
on Managing for Development Results endorsed by the the African Development
Bank (AfDB), Asian Development Bank (AsDB), Inter-American Development
Bank (IADB), European Bank for Reconstruction and Development (EBRD), the
World Bank, and the Chairman of the Development Assistance Committee of the
Organization for Economic Cooperation and Development (DAC/OECD). In the
Memorandum, they committed to fostering a global partnership and approach on
managing for development results and aid effectiveness.
While the Monterrey Consensus, the Rome Declaration and the Marrakech Memorandum
defined the main objectives of the aid-effectiveness agenda and led to an
expansion in activities aimed at improving the effectiveness of aid delivery, the Paris
Declaration on Aid Effectiveness of 2005 represents the first bold attempt by donors
and developing countries to take monitorable actions to reform the way aid is delivered
and managed. The latter declaration was the outcome of the High-Level Forum
on Aid Effectiveness held in Paris, 28 February – 2 March 2005.
The 2005 Paris Declaration on Aid Effectiveness focused on five key areas, namely,
ownership, harmonization, alignment, managing for results, and mutual accountability.
Regarding ownership, the Declaration stressed the need for partner countries
to exercise effective leadership over their development policies and coordinate development
actions. On alignment, donors made commitments to base their overall
support on partner countries’ national development strategies, institutions and procedures.
They also made commitments to provide reliable indicative commitments
of aid over a multi-year framework and to disburse aid in a timely and predictable
fashion according to agreed schedules. Reducing the proportion of aid that is tied is
also a key aspect of this area of the Declaration.
In the area of harmonization, donors committed to making their actions more harmonized,
transparent and collectively effective. On managing for results, they made
commitments to manage and implement aid in a way that focuses on the desired
results and uses information to improve decision-making. Finally, regarding mutual
accountability, donors and developing countries made commitments to enhance
mutual accountability and transparency in the use of development resources, as both
parties are accountable for development outcomes. An important feature of the Paris
Declaration was that indicators of progress and targets were set for each of the five areas
to increase transparency in monitoring the implementation of agreed commitments.
The G-8 Summit in Gleneagles in July 2005 added momentum to the commitments
made by world leaders in Monterrey to increase aid flows and reduce the burden of
external debt on developing countries, to enhance their prospects for meeting the
MDGs. The Declaration issued also recognized the need for substantial increase in
ODA to consolidate and build on recent advances in Africa and to stimulate growth
to reduce aid dependency. On aid, the Declaration indicated that the commitments
of G-8 countries and other donors would increase ODA to all developing countries
by $50 billion a year by 2010 compared to 2004. Half of this increase would go to
Africa, representing more than a doubling of aid to Africa compared to 2004. On
debt, the G-8 agreed to a proposal to cancel 100 per cent of the outstanding debts of
eligible HIPC countries to the IMF, International Development Association (IDA)
and African Development Fund, and to provide additional resources to ensure that
the capacity of the international financial institutions was not reduced. They also
re-affirmed their commitments to the Paris Declaration on Aid Effectiveness and
stressed the need for developing countries and their governments to take the lead on
development and to be accountable for their actions.
32 Financing Development Economic Report on Africa 2007 - To learn more about this author, visit United Nations Economic Commission for Africa's Website.
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John BrennanJohn Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website |
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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