From Africa Recovery, Vol.12#4 (April 1999), page 10

Strategies for funding development

African ministers gather at ECA to discuss domestic and external resource mobilization

By Jacqueline Irving

Senior African policymakers and their development partners will meet in Addis Ababa on 6-8 May to make recommendations on how Africa can attract aid and use it more effectively, increase private capital inflows and mobilize domestic savings. Finding lasting solutions to the debt crisis will also be discussed at this Joint Conference of African Ministers of Finance and Ministers of Economic Development and Planning, organized by the UN Economic Commission for Africa (ECA).

Taking place against a backdrop of declining official development assistance, increasing globalization of financial markets and the aftershocks of the global financial crisis that began in Asia in 1997, the conference will serve as a forum for exchanging ideas on the theme of "Challenges of Financing Development In Africa."

For the foreseeable future, the ECA stresses, African development will continue to rely on significant levels of external assistance. Meanwhile, aid has dipped to the lowest point in its 50-year history and developing countries are being forced to compete for their share of a shrinking pie. Africa's share of official development assistance (ODA), which makes up the vast majority of external resource inflows, declined from $14.2 bn in 1992 to $12.8 bn in 1996. In view of this downtrend, much recent discussion in development circles has turned to how available aid can be used more effectively. This issue becomes critical in the light of the possibility that donors could become increasingly selective in their aid allocations.

A related issue is the need for African countries to take steps to gradually reduce their dependence on aid, whether or not ODA is declining. It has been argued that continued aid dependence risks derailing development progress achieved so far. Some also affirm that the adjustment associated with a gradual reduction in aid dependence need not be painful if the international development community grants more extensive debt relief, uses aid as a reward for policy reform instead of as an incentive for policy reform, and grants more trade-aid packages offering reciprocal benefits. At the same time, it has been argued that the transition will be facilitated if African countries embrace policies that better mobilize domestic savings for development.

Private capital flows to emerging-market countries plunged from $240 bn in 1996 to $70 bn in 1997, largely the fall-out from the Asian financial crisis. Recognizing that the current international financial environment makes it difficult to attract more private capital for development financing, ECA will invite African ministers to share their experiences in this area during the April conference. Other topics include the costs and benefits of different types of foreign direct investment (FDI), and successful policies for attracting FDI.

ECA considers national policies that foster the transition from aid dependence to reliance on private capital as crucial for sustaining development in the long term. The conference will provide an opportunity to discuss strategies for attracting non-speculative private capital from abroad as well as strategies that promote domestic resource mobilization. African policymakers and their development partners will be invited to discuss policies that raise private domestic savings levels by increasing savings incentives and bolstering savings institutions. Anticipating a future of rising private foreign capital inflows to Africa , the conference may also draw on lessons learned from the Asian financial crisis in order to safeguard against the possibility of a similar crisis hitting African financial markets.

Africa's debt burden

Another major conference topic will be debt, long acknowledged as an impediment to development as well as a disincentive to direct investment from domestic and foreign sources. African ministers are likely to review the progress of the Heavily Indebted Poor Countries (HIPC) initiative in reducing Africa's debt burden since they last met in March-April 1997, taking note of the recent call for a comprehensive review of the HIPC initiatives by the governing boards of the World Bank and International Monetary Fund. Ministers are also likely to discuss ways of improving the effectiveness of the HIPC package. ECA, for one, has urged that debt reduction should be more explicitly linked to poverty eradication policies.

ECA says the conference aims to ensure "maximum dialogue and exchange of views" among African finance ministers, ministers of economic development and planning, central bank governors and other key policymakers, together with their development partners. To this end, a meeting of technical experts will be held the week preceding the conference.

Other items on the conference agenda include the presentation of a report on coordination and collaboration among UN agencies at the regional and subregional level in Africa, as well as a progress report on the rationalization of ECA-sponsored institutions.

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