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Africa and its International Environment: Taking up the Challenges of Aid Quality and Competitiveness

Written by: OECD Development Centre

Article Overview: Aid flows need to increase, but aid also needs to be more effective!

Africa and its International Environment: Taking up the Challenges of Aid Quality and Competitiveness

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

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Article Tags: african governments, agricultural subsidies, aid allocation, aid flows, bilateral donors, budget support, burkina faso, development objectives, dominant mode, external resources, g8 summit in july, market access, multilateral trade, parallel structures, progress projects, public expenditures, recipient country, special circumstances, trade liberalisation, uneven progress



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