G-8 and Africa

Jul 08, 2008 Editorial

As we reported in yesterday’s edition, the club of the richest countries of the world – G-8 — is having its annual meeting, where members pronounce on the world problems and their plans for addressing same.

Once again, the underdevelopment and travails of Africa are on the front burner; and once again, calls for increased “aid” have been trotted out from activists as well as, interestingly, President Bush.

After last year’s meeting, Paul Collier, professor of economics at Oxford University and director of the Centre for the Study of African Economies there, had criticised the focus on aid and pointed out that there needs to be a more nuanced approach based on the needs of Africa. The following is a summary of his position, which is also relevant to our situation in Guyana.

Since the 1960s, countries with around a billion people have been diverging from the rest of the world at an accelerating rate, a trend that will generate unmanageable social pressures.

Most of these countries are in Africa, and so it is appropriate that the region should again have been on the G8 agenda. Unfortunately, the debate on what the G8 should do has been entirely dominated by aid.

More aid for parts of Africa would probably be helpful, but it would not be decisive in reversing divergence. It is, in fact, a sideshow relative to the other policy instruments that G8 governments control.

It is the failure to use these instruments that is the tragic missed opportunity. Africa faces three distinctive economic problems, each amenable to a distinct policy.

The first problem, the trade hurdle, is that the region has failed to diversify into labour-intensive manufactures.

Africa’s coastal cities needed to be pumped-primed over the entry threshold constituted by these agglomerations, and for this they need a temporary advantage over Asia in OECD markets.

Both Europe and the US already provide this through Everything-but-Arms (EBA) and the Africa Growth and Opportunity Act (AGOA): tariffs are imposed on goods from Asia but are duty-free if they are made in Africa. However, with trade deals, the devil is in the detail, and both schemes are flawed in this regard.

The end result is that the supposed benefits have not materialised in practice, and must therefore be corrected.

The second problem, the growth obstacle, is that the resource-rich countries have almost all failed to harness windfalls for sustained growth.

The current high level of commodity prices, together with new discoveries, present Africa with a huge opportunity: it would be a tragedy if history were repeated. But history will be repeated, unless the incentives are changed through institutional reform.

Because these windfalls inevitably accrue to governments, the key to change is better accountability in public spending. Democracy is not enough: the recent Nigerian experience shows how elections can be manipulated.

Accountability depends upon a range of effective checks and balances, which are currently missing because nobody has an incentive to supply them.

The needed policy is new international standards and codes. International standards that recommend appropriate savings strategies for managing windfalls would help, as would procedures for awarding resource concessions.

There are also no recommended guidelines for the transparency of public spending out of resource revenues. The absolute minimum should be clear rules for the competitive tendering of public-investment projects.

The third problem, the insecurity wall, is that much of Africa faces high risks of internal insecurity from rebellions and coups. Partly, this is due to decades of economic failure, and partly because the typical country is too small to reap security economies of scale.

Africa needs a stronger international-security presence: prolonged peacekeeping in the fragile post-conflict situations, and “over-the-horizon” security guarantees elsewhere. Both of these should be conditional upon clear standards of governance, which could be set by the African Union.

Trade preferences, standards and codes, and security may not play as well on the streets of Europe as doubling aid, but they are likely to be more effective on the streets of Africa. However, they are not alternatives but would enhance aid programmes.

Before dismissing them as fantasies, think how Europe was restored after 1945. The Marshall Plan was complemented by trade policy (GATT), by standards and codes (OECD and the E.C), and by security (NATO).