How to Spend It: Making the Most of Aid

02.06.2005 Africa Economic Summit 2005 Africa can absorb and manage increased aid flows. That was the consensus expressed at the plenary session. In his introductory remarks, Graham Mackay, Chief Executive, SABMiller, United Kingdom; Co Chair of the Africa Economic Summit 2005, made clear his view that there is no realistic alternative to continuing aid, with a doubling of flows needed over the next three to five years. This, though, he warned, runs against the present current of declining flows.

Mackay, however, kept his feet firmly on the ground, posing a number of questions to his fellow panellists: · Do existing financial institutions in recipient countries have the capacity to absorb aid? And, if not, what can be done about it? · If capacity exists, what distorting effects does aid have? · Is there consensus on how best to deliver aid? · What conditions attach or should attach to aid? · What can the private sector do to ensure that aid is applied effectively?

As the session s chair, David White, Editor, Africa, Financial Times, United Kingdom, asked Benjamin William Mkapa, President of Tanzania; Commissioner, Commission for Africa, why aid should work now when it has not in the past. Mkapa replied that the conventional view that aid is siphoned off is not altogether true. His country, Tanzania, has many tangible assets such as infrastructure and utilities to show for previous aid. The problem of their management, Mkapa added, is a different matter. He went on to say that recent annual aid flows of US$ 80 million have allowed Tanzania to expand its educational and health systems.

White then turned to Trevor Manuel, Minister of Finance of South Africa; Commissioner, Commission for Africa, asking what the prospects of the Commission s aid recommendations are for becoming reality. Good, Manuel replied emphatically, if donors who made commitments at the Monterey Conference in 2000 are asked to account for their action or inaction on aid delivery. Manuel continued that greater predictability is a prerequisite of greater aid flows along with adequate reporting by the recipient and donor countries.

White then pointed to what he sees as divergence between Europe and the US, with Europe moving away from conditionality attaching to aid and the US going in the opposite direction. Not correct, replied Paul Applegarth, Chief Executive Officer, Millennium Challenge Corporation, USA. His country s aid is in the form of grants, it is predictable and it is not tied to American procurement.

Also correcting some possible misapprehensions about the continent, Steve Booysen, Group Chief Executive, Absa Group, South Africa, pointed out that Africa s political landscape has changed dramatically in recent years but that business is slow to follow this change. Business, Booysen recommended, should engage with governments to create skills capacity while not compromising the principles of adequate risk:return relationships.

Returning to the theme of Africa s ability to absorb aid, Manuel indicated that recent studies by, for example, the World Bank indicate that the continent s capacity to absorb is double current flows. This presents an opportunity for donors to increase their aid.

The question of debt relief was addressed by Mackay. He said that while SABMiller does not specifically take this into account when planning investments, it pays greater attention to the overall business and governance climate of a country before considering investment. In contrast, Mackay said, the rating agencies do factor the matter of debt relief into their risk ratings of debt of the countries concerned. Booysen supported Mackay. When a country accepts debt relief, he said, it gives up its track record and this affects the grading of its debt by the rating agencies.

Taking up the theme, Applegarth said that the question of how relief is used is crucial. It is better to invest aid than to spend it. And countries only earn the right to receive aid through a demonstrable commitment to reducing poverty among its people, he stated.

White then asked Mkapa if he is happy with Africa s brand image. Mkapa said he is unhappy with perceptions, for example, that all African presidents are butchers or that stability is a chimera. He is saddened by what he sees as the media s failure to report on the realities of a changing political and economic landscape.

Mkapa s view was echoed from the floor by Nicholas Stern, Director, Policy and Research, Commission for Africa; Second Permanent Secretary, HM Treasury, United Kingdom, who wondered how aid sceptics might be persuaded to recognize the evidence of change. Applegarth responded that confidence will be rebuilt, but only as donors see tangible results from the aid they give. It is not something that will occur overnight, Applegarth said, going on to provide a list of African countries whose governments are taking appropriate steps to ensure the effective use of aid.

Chris Kirubi, Chairman, Haco Industries, Kenya, asked how the matter of the brain drain from Africa is being addressed. Manuel estimated that some 70,000 professionals leave the African continent each year and, as part of its efforts to stem the flow, the South African government has reached agreement with the UK government that the British health service will not actively recruit South African medical staff.

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