induced technological transformation and built up know-how.
95. Finally, it has demonstrated the crucial role of the private
sector in the diversification process. Clearly, if the structure of
exports is to change and imports of manufactured goods are to be
decreased, the private sector must be supported and encouraged to
exploit entrepreneurial talents so as to take advantage of domestic
and external windows of opportunity. That requires, among other
things, the creation of a conducive environment, improved incentives
structures, access to targeted credit, and training in technological
and marketing skills, as well as exposure to external markets. The
rapid development of African economies
ina free-market world
environment will be difficult to achieve without the active and
dynamic participation of the private sector.
96. African governments have a critical role to play in creating a supportive environment for rapid diversification by providing financial, technical and managerial assistance for the development of non-traditional exports, and the creation of a conducive environment for industrial development. In particular, since diversification is a central objective of SAP, the impact of current SAP policies on the diversification process need to be constantly evaluated, to ensure that this central objective is achieved. But complementary assistance is also required from the donor community.
This was why the UN Secretary-General proposed, in his report to the UN General Assembly in 1993, the establishment of a Diversification Fund for African Commodities. The Fund to be located at the ADB, was to be endowed with a capital outlay of US$ 50 - 75 million for an initial period of three to four years. The donors have, for the most, been reticent about the proposal.
97. Structural transformation should also aim at increasing the participation of African countries in global linkages and interdependence. In this connection, one of the most remarkable developments in recent years has been the success of several developing countries (mostly in Asia and the Far East) in becoming major participants in the growing global network of enterprises linked together by trade in goods and services and by investment flows. Most of these countries have developed the required capacity to provide efficient off-shore production facilities and services for TNCs.
98. It has be~n noted by the united Nations in its World Investment Report that "those developments make i t more important than ever for developing countries to build up their own human and physical infrastructure. In addition to providing the basis for industrialization and development of the domestic economy, i t would allow national enterprises to join up with TNCs on a more equal basis. It would raise the quality and sophistication of FDI that a host country could attract, and would strengthen the prospects for technology acquisition. It would also enable host developing countries to build up supplier capabilities which are sometimes a precondition for the location of TNC activities and which, moreover, add to the economic and technological spillovers from affiliates. The building up of such facilities has been an essential feature in the developing countries, including those in Asia and Latin America, that have succeeded in restructuring both their international and domestic production sectors towards higher-value-added activities."
99. The same source has noted further, with most African countries in mind, that "Other developing countries that do not offer the locational advantages required by regionally or globally integrated firms, such as a skilled labour force, an open trading and investment environment, a developed communication and transport infrastructure and networks of local suppliers on which TNCs can draw, risked being
9 World Investment Report 1993, United Nations, New York, p.177.
further marginalized. Those countries need to consider how to formulate and coordinate policies so as to maximize the benefits from the emerging integrated international production system as well as from FDI in more traditional orgfirizational forms which they may be in a better position to obtain."
100. As part of the implementation of SAPs, many African countries have developed a new and open attitude towards FDI. While improving on infrastructure, they are far behind in developing skills for its maintenance or meeting recurrent costs.
101. The uruguay Round Agreement has added a new urgency to the need for the rapid structural transformation of African economies.
In the long-term, the Agreement poses the urgent need to step up measures for increasing the capacities of African economies to respond quickly to changes in the international market and enhance competitiveness which will enable them take advantage of new market opportunities. This would depend in turn on how quickly the African countries can diversify their economies and their exports, and improve the environment for raising sUbstantially domestic production.
2. Human resource development
102. The whole thrust of technological development the increasing complexity of modern machines, the ever growlng role of electronics and informatics, and the increasing replacement of large machines with miniaturized modules -- has placed a major premium on human resource development. It is important, therefore, to spare efforts to expand programmes for human resources development. The examples of East and South-East Asia have demonstrated that availability of highly skilled labour will certainly provide locational advantages for attracting the manufacturing units of TNCs.
103. Some countries (e.g., Hong Kong and Singapore) have been able to flourish without a sUbstantial agricultural production base since they were able to make up for i t by the skill mix of their labour force, a high productivity in value-added industrial products, and, consequently, a high capacity to produce and export such products in exchange for agricultural products.
104. There must be a three-pronged approach to efforts to increase the availability of high-level manpower and middle-level skilled personnel in Africa: massive investment to improve and expand training facilities; measures to increase the mobility of high level manpower among African countries; and, appropriate inducements and incentives to stem the loss of resources through the brain drain of high level skilled manpower, and to draw on the expertise of expatriate nationals who can make constructive contributions to development in their home countries. So far, programmes in these areas are inadequate, and require more resources and innovative initiatives.
10 Ibid.
3. Improvement of economic and social infrastructure
105. A properly maintained infrastructure is a sine qua non for improved productivity. Therefore, further declines in the already inadequate economic and social infrastructure (due partly to lack of maintenance) have given rise for great concern. In many cases, inadequate infrastructure has lowered the level of productivity of domestic enterprises and made competitiveness in domestic and world markets weak. Indeed, i t may be argued that the call for better and more consistent infrastructural services should substitute for the clamour for greater protection from more competitive imports.
106. Though the state of the economic and social infrastructure in many African countries is partly a consequence of current adjustment measures, the poor repairs and maintenance in many countries have further compounded the situation. It has been suggested that many African countries lack the "maintenance culture" which has to be built into several training and management programmes, in order to raise the overall level of productivity. Be that as i t may, the situation is very serious in many countries and warrants immediate crash programmes to save infrastructure from the total collapse i t is now facing. Although this need has been recognized and built into the recent SAPs, there is still much more to be done, particularly in power, water, transportation, education and health services.
107. In the free trade environment that is now evolving around the world (thanks to economic liberalisation in Eastern Europe and Russia, and the Uruguay Round Agreement) African countries will have great difficulty in resorting to greater protective measures to promote their domestic industries. In addition, there will be great pressure, mostly from the development partners, to maintain liberal policies on Africa's trade and payments. This is perhaps one of the greatest challenges that African countries would have to face in order to improve their competitive position in the world market of manufactured goods.
108. To meet this challenge, i t has been suggested that the African countries should step up the integration of their economies as a means of raising their level of productivity and preparing themselves to face the more fierce competition in the world market. That is no doubt true. However, an equally important measure is a massive investment in economic and social infrastructure -- transport and communications, energy, water resources and, above all, facilities for human resource development -- which will greatly contribute to improved productivity. The willingness of Africa's development partners to support such massive programme should be regarded as an essential counterpart to their pressure on African countries to liberalize their economies. This seems typically the main thrust of their approach to similar situations in Eastern Europe and Russia.
4. Efficient macroeconomic management
109. The need to restore and maintain consistent macroeconomic policies that are adequately competitive and conducive for the maintenance of monetary and price stability, and a realistic exchange rate for the promotion of an enabling environment for domestic and
,
foreign investment is now generally accepted. Many countries have indeed attempted to combine this with adequate incentive and on enabling environment for private sector investment and entrepreneurship so as to increase economic efficiency and promote growth.
110. Few African countries have managed to walk, with varying degrees of assurance, the tight rope between the quest for monetary stability and the urge to maintain a high level of spending on a wide range of domestic economic and social needs. For many, however, it has been a difficult balancing act, with frequent crises and disruptions which have tended to push the economies away from the path of stability, steady job creation and capacity building.
111. In the highly-indebted countries, the debt overhang has made the situation infinitely more difficult. It often creates uncertainties about the sustainability of the balance of payments and macroeconomic stability, thus thwarting the recovery of private investment that is expected to promote the sustainability of growth and development. It cannot be overstressed that debt and debt-service reductions in the context of adjustment programmes will help reduce these uncertainties in the African countries.
112. with the widespread adoption of macroeconomic reforms, the debate has centred on how to ensure that these reforms achieve the ultimate goal of accelerating development and structural change without increasing the level of poverty and the rank of the poor, and without reducing the capacity of adjusting countries to sustain short-term gains over the longer term. The pace and scope of SAPs have in many cases contrasted sharply with the meagre results achieved, especially as constraints on supply capacity and export diversification, and the structural impediments to growth have persisted. Many countries are now worrying about the negative impact of economic liberalization on domestic industries, (particularly small-scale industries); about the deterioration in the public services, and the failure of sufficient procurement of private capital inflows to mitigate fears about future sustainability of the level of investment; and, about a further increase in the debt burden. How carefully these issues are dealt with is crucial for the success of the reform efforts in reversing the trend of marginalization of Africa in the world economy, and in making it possible for African countries to participate effectively in the evolving global linkages and interdependence of production units. In some cases, supplementary programmes to SAPs have been developed to address these issue, but much more remains to be done through wide-ranging socio-economic reforms and adequate external financial support to African countries to ensure the gains of reforms are not negated by the adverse effects of the programmes involved, and, more importantly, that growth and structural transformation reinforce each other.
5. Improved domestic financial markets
113. While African countries should exploit all possible opportunities to increase the volume of external resource inflows,
they should nevertheless be conscious of the limitations and difficulties likely to limit their success.
114.· First, competition for foreign aid resources is likely to intensify, as more countries in Africa and elsewhere in the world persevere in their economic reform programmes. As a result, recipient nations may risk providing more incentives to attract foreign capital than would be justified by the results. In addition, donors have become more selective in granting aids to developing countries, and in the choice of the programmes and projects to be financed from a stagnating or declining ODA.
115. Second, the highly competitive global trading environment resulting from the implementation of the provisions of the Uruguay Round Agreement may impose additional difficulties on African countries in their endeavours to compete effectively in the international commodity markets.
116. Third, the failure of the IMF Board of Governors and the World Bank at their last Annual Meeting, held at Madrid, Spain, to agree on the allocation of Special Drawing Rights (SDRs) and sale of gold to increase international liquidity means that developing countries should not expect an immediate easing of their foreign exchange and balance of payments constraints. More importantly, the situation reflects a divergence of opinion among major developed countries as to whether adequate liquidity exists to support world economic recovery. In the circumstances, therefore, African countries need to mobilize domestic resources more intensively, and ensure that investment resources as a whole are used more efficiently. For this, they need to create a conducive environment by maintaining political stability and pursuing appropriate economic policies.
117. The recent global surge for the flow of private capital (largely by-passing the African region) presents African countries with challenges and opportunities for future mobilization of financial resources for development: (i) more efforts are needed to improve domestic financial markets so as to mobilize, in turn, domestic savings for development; (ii) creation of an enabling environment to attract private foreign capital in the long-run and in a non-speculative form; and, (iii) more effective monitoring arrangements to ensure the most productive use of public and private investment resources. These measures are necessary in order to accelerate the growth of domestic savings, benefit genuinely from the global increase in private financial flows, and ensure that these resources are used for projects that will promote domestic development and diversification.
6. Substantial progress with debt relief
118. The discussion of credible macroeconomic management has shown, so far, that, the challenge of economic reforms cannot be met fUlly without serious efforts to reduce the heavy indebtedness of African countries. Nearly all the countries involved have plunged more deeply into economic distress, to which heavy indebtedness and accumulated arrears have largely contributed. Now that the debt crisis has become the biggest handicap to development, the finding
34
of workable solutions constitute a major challenge to African countries and their development partners. There is need to press more vigorously for debt relief in order to ensure that the debt burden does not continue to clog the wheels of progress. The international community and African countries are now agreed that more needs to be done through more concessional terms for debt rescheduling and debt cancellation in order to bring the debt stocks of most African countries to sustainable levels.
119. However, the persistence of the debt crisis in many African countries shows that the debt relief measures taken so far have fallen short of effectively addressing the African debt problems.
The provisions of the current restructuring agreements remain certainly inadequate in restoring debt burdens to a level that would enable African countries emerge from the vicious circle of repeated rescheduling.
120. The Cairo Agenda for Action has made several proposals to Africa's development partners which, if seriously taken-up, will help to reduce Africa's debt burden to a point where i t ceases to inhibit investing in Africa. These include extending additional relief beyond the Naplas Terms, particularly for severely-indebted low income countries, and considering innovative measures to deal with multilateral debt along the lines proposed by the UK regarding the sale of IMF gold, and to ensure that multilateral debt relief is not achieved at the expense of official grant financing. The Agenda has also proposed a number of mechanisms at the national, sUbregi?pal, regional and continental levels, to follow up these proposals.
7. Efficient management of natural resources and the environment 121. Africa faces major challenges in promoting an efficient management of natural resources, so as to maintain a safe balance between development and the preservation of ecosystems. A series of environmental problems and disasters, including land degradation and soil erosion, drought, deforestation and desertification, have in the last two decades exacerbated the socio-economic difficulties of most African countries and increased the awareness about the critical importance of environmental issues and problems in their development programmes. In particular, African countries have become more conscious of the need to manage environmental resources with greater care to achieve the objectives of sustainable development, given the close interlinkage of environmental degradation, poor economic development performance and increasing poverty in the African region.
This awareness has further increased ever since the united Nations Conference on Environment and Development in 1992. For example, as noted in the "African strategies for the Implementation of the United Nations Conference on Environment and Development (Agenda 21)II adopted by the ECA Conference of Ministers of Economic Planning and Development in May 1993, "one of the major goals of socio-economic
11 Relaunching Afri.ca's Economic and Social Development:
The Cairo Agenda for Action., Council of Ministers, Seventeenth Extra-ordinary Session, 25-28 March, 1995, Cairo, Egypt. Document No. ECM/2 (XVII) Rev.3
development is to improve environmental quality. There can be no development if the benefits of rising incomes are offset b~ the costs imposed on health and 1;he quality of life by pollution."
122. Environmental awareness has found expression in a number of agreements since the coming into force of the two international conventions signed in Itio on climate change and the preservation of biodiversity. within Africa, an OAU-sponsored convention (the Bamako Convention) has been adopted banning the importation of toxic wastes into Africa and the transboundary movement of such wastes generated in Africa. But perhaps the first international convention of particular interest to Africa to be negotiated and adopted since Rio is the convention to combat; desertification signed in Paris on 15 October 1994. If i t comes into force, as expected, following the ratifications by 50 countries, the convention will provide a legal framework for current and future actions to combat desertification and dry lands management in the afflicted countries. Attached to the convention is an African Annex addressing the continent's special needs, and the expected response from African countries and their development partners in combating desertification in the region.
123. Notwi thstanding, the growing awareness of environmental issues and problems in Africa, many countries have yet to adopt and implement national policies, projects, action plans and institutional
123. Notwi thstanding, the growing awareness of environmental issues and problems in Africa, many countries have yet to adopt and implement national policies, projects, action plans and institutional