-70 -50 -30 -10 10 30 50
Least developed… Sub-Saharan Africa World Somalia Liberia Haiti Sierra Leone Gambia Guinea-Bissau Malawi Mali Central African Republic Mozambique Guinea Rwanda Benin Madagascar Togo Senegal Chad Mauritania Uganda Burkina Faso Niger Sudan,the Ethiopia Angola United Republic of Tanzania Burundi Eritrea Lesotho South Sudan Zambia
Gross domestic savings as a percentaage of GDP
2011 2014 2017
Least developed countries Comoros Democratic Republic of the Congo
Source: World Bank.
Capital markets are virtually non-existent in all LDCs. Institutions for credit rating and strong financial stability are prerequisites for such markets to exist. Despite their ambitions, many African LDCs are not at this stage of development with their financial sectors. Although somewhat different from capital markets, Ethiopia’s Commodity Exchange (ECX), the first modern commodity exchange in sub-Saharan Africa (outside South Africa), and subsequently Rwanda’s East Africa Exchange, are interesting developments.
External resources
Historically, large levels of financial resource flows to LDCs came from official development assistance (ODA), as a means to mitigate external debt burden. Total net ODA contribution amounted to $1.16 trillion during the 2006–2017 period. The bulk of ODA ($1.04 trillion, or 90 per cent of total bilateral ODA) came from OECD Development Assistance Committee (DAC) countries. Africa received $329.70 billion in net ODA disbursements from DAC countries, almost a third (31.7 per cent) of DAC disbursements, while Asia received $289.31 billion, or 27.9 per cent. Of the top 10 African recipients, six were LDCs – Ethiopia, the Democratic Republic of the Congo, the United Republic of Tanzania, Mozambique, the Sudan and Uganda – in order of highest disbursement.21 Nevertheless, when looking at net ODA per capita, these equate to per capita amounts of $38.7 to Ethiopia, $28.0 to the Democratic Republic of the Congo, $47.3 to the United Republic of Tanzania, $62.0 to Mozambique, $19.9 to the Sudan, and $48.8 to Uganda.
21 OECD (2018). OECD.Stat. Available at https://stats.oecd.org/#. Accessed on 6 January 2020.
Figure 26 Net official development assistance received per capita (current United States dollars)
Ethiopia Democratic Republic of the Congo United Republic of… Mozambique Sudan Uganda Angola Benin Burkina Faso Burundi Central African Republic Chad Comoros, the Djibouti Eritrea Gambia, the Guinea Guinea-Bissau Haiti Lesotho Liberia Madagascar Malawi Mali Niger,the Rwanda Sao Tome and Principe Senegal Sierra Leone Somalia South Sudan Togo Zambia Sub-Saharan Africa Least developed…
Net ODA received per capita
2011 2014 2017
When specifically assessing aid from DAC countries to LDCs, it is evident that the proportion of ODA that reaches the LDCs has remained less than 30 per cent in the last decade (figure 27) and the GNI/ODA ratio of donors in relation to aid to LDCs has not increased in any significant way over this period.
Figure 27 Aid from Development Assistance Committee countries to least developed countries
26
Average aid from DAC countries to LDCs (percentage of ODA) Average aid from DAC countries (percentage of GNI)
Figure 28 Official development assistance commitments as a proportion of gross national income by Development Assistance Committee members
0
Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Japan Luxembourg Netherlands New Zealand Norway Poland Portugal Slovak Republic Slovenia Spain Sweden Switzerland United Kingdom United States TOTAL DAC DAC-EU countries
ODA from DAC countries to LDCs as percentage of GNI Czechia Slovakia
Democratic Republic of Korea
2005-2006 2015 2016
Source: OECD.
According to OECD, globally ODA in 2018 fell 2.7 per cent from 2017, with aid to Africa falling by 4 per cent and bilateral ODA to the LDCs down by 3 per cent in real terms from 2017. Furthermore, most of the OECD DAC members did not meet their 0.7 per cent ODA/GNI commitments (figure 28), with only 5 of the 30 members meeting their targets in 2018. Hence the ODA provided under DAC was equivalent to 0.31 per cent of the DAC donors’ combined GNI, well below the target ratio.22
The post-2002 period has been characterized by the internationalization of the financial system and the integration of developing economies into it, facilitating strong growth in cross-border private flows globally.23 Consequently, with the decreasing usage of ODA as the major financing tool for development, the Addis Ababa Action Agenda is changing global financial architecture and inspiring countries to take a more integrated approach to managing all types of finance, by improving integration across government, as well as between government and other stakeholders.
Foreign direct investment (FDI) is a major source of finance for the LDCs. It can potentially provide knowledge transfer from foreign firms, although the stability of such flows can be uncertain. Over the last nine years, the net FDI flow into LDCs in Africa and Haiti has fluctuated, with a noticeable increase in 2012 of 34 per cent, followed by a decline in the following year of -27 per cent. FDI flows showed sharp increases in 2014 and 2015, then declined again by 38 per cent then 42 per cent in 2016 and 2017, respectively. In 2018, FDI flows to LDCs in Africa stood at $11.64 billion, which is a peak since the commencement of the Programme of Action.
22 OECD (2019). Development aid drops in 2018, especially to neediest countries. Paris, 10 April. Available at www.oecd.org/dac/financ-ing-sustainable-development/development-finance-data/ODA-2018-detailed-summary.pdf. Accessed on 6 January 2020.
23 ECA (2017). Development Financing in Africa. Addis Ababa.
Figure 29 Foreign direct investment, net inflows by region (current billions of United States dollars)
5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 50.00
2011 2012 2013 2014 2015 2016 2017 2018
Foreign direct investment
Sub-Saharan Africa Least developed countries LDCs in Africa and Haiti
Source: DataBank, World Bank.
Similarly, when looking at FDI inflows as a percentage of GDP to LDCs in Africa and Haiti, with the exception of Chad and Somalia, all countries have had their ratios decline from 2011 to 2018, with Angola being the worst hit, with a decline from -2.7 per cent in 2011 to -5.4 per cent in 2018.
Figure 30 Foreign direct investment, net inflows (percentage of gross domestic product)
-6.00
4.00 14.00 24.00 34.00 44.00 54.00 64.00 74.00 84.00
Sub-Saharan Africa Angola Benin Burkina Faso Burundi Chad Comoros Djibouti Ethiopia Eritrea Gambia Haiti Guinea-Bissau Lesotho Liberia Madagascar Malawi Mali Mauritania Mozambique Niger Rwanda Senegal Somalia South Sudan Sudan Tanzania Togo Uganda Zambia Sierra Leone Guinea
Foreign direct investment as a percentage of GDP
integration across government, as well as between government and other stakeholders. More recently, the Addis Ababa Action Agenda encourages exploring additional innovative mechanisms based on models combining public and private sources of finance for financing the Sustainable Development Goals and Agenda 2063. Continued implementation of the Sustainable Development Goals and of the Programme of Action will require LDCs to further explore integrated financing approaches in order to further stabilize their finances and options for carrying out development policies.