Aid flows need to increase, but aid also needs to be more effective!
High expectations surround the G8 summit in July this year, where significant action is expected to be taken to provide further debt relief, underpin pro-poor trade liberalisation and generate more aid. Yet the aid system remains highly fragmented. Over the past two years, new initiatives to simplify procedures and practices, to focus on delivery of development results, and to adopt common arrangements for sector-wide approaches and budget support which allow for greater reliance on national systems and improved donor co-ordination have made uneven progress. Projects remain the dominant mode of delivering aid, often channelled through donormanaged parallel structures. Historical ties and strategic interests continue to determine aid allocation, turning some recipients into “donor darlings” or “donor orphans”.
Aid flows should also be made more predictable and thus contribute to effectiveness. Only a minority of bilateral donors now provide future aid commitments. Volatility in aid flows deeply compromises the ability of African governments to plan future public expenditures – and to undertake the strategic incremental investments required to meet long-term development objectives.
In parallel, local ownership of the reform program needs to be fostered, taking into account recipient-country diversity, including their capacity to absorb aid, ability to raise internal or external resources, and special circumstances such as shocks or conflicts.
African competitiveness needs to be enhanced The Doha round of multilateral trade talks started in 2001 with the promise of reducing agricultural subsidies in developed countries and tearing down the trade barriers that hinder market access for African goods. Progress so far has been very limited, especially on agricultural liberalisation. Despite the impressive efforts to reform the cotton sector undertaken by Benin, Burkina Faso, Chad and Mali the persistence of cotton subsidies elsewhere has depressed world prices and damaged their cotton industry.
From January-July 2004 a new agreed framework emerged, which calls for the elimination of export subsidies, in particular in the cotton sector, and the reduction of tradedistorting domestic support and substantial tariff reduction.
A specific timetable for the implementation of these measures, however, has yet to be decided.
The lifting of quota restrictions on trade in textiles and clothing from the beginning of 2005 is likely to pose a problem for textile-exporting countries in Africa. These – North African countries, Mauritius, Madagascar and Lesotho – will face competition from Asian countries, in particular China. African exports are specifically vulnerable since they are concentrated in the US and EU markets and in formerly quota-restrained products where competition is set to intensify following the removal of textile quotas.
Preferential treatment of African textiles on US and EU markets might not make a big difference any more. The elimination of textile quotas on a global scale will make preferential treatment of African textiles by the US (AGOA, Africa Growth and Opportunity Act) and the EU (EBA, Everything but Arms) far less supportive of African competitiveness and the attractiveness of African countries for foreign direct investors in the textile sector should be dented as a result.
Increased competition from Asian countries in the textile sector is an illustration of the broader competitiveness challenge to be taken up by African countries if they are to gain manufacturing global market shares.
African Economic Performance in 2004:
A Promise of Things to Come?
by Nicolas Pinaud and Lucia Wegner Policy Insights No. 6 is derived from the African Economic Outlook 2004/2005, a joint publication of the African Development Bank and the OECD Development Centre
To learn more about this author, visit OECD Development Centre's Website.
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