infrastructure for structural transformation
C. International public finance
No African country wants to be dependent on aid. ECA (2013) called on African countries to develop clear and time-bound strategies to exit aid dependence.
At the same time, many African countries lack the financial resources to fund urgently needed investments in infrastructure, and in its people and institutions. While steps can be taken immediately to increase the mobilization of domestic resources and external finance on market terms, in the long run, only economic structural transformation and inclusive growth will ensure that African economies generate the resources needed to finance their own development strategies. International public finance – from highly concessional flows such as grants, to loans on close to market terms from multilateral development banks – is needed to finance the investments required to put Africa on the path to self-reliance. More aid is still urgently needed today, to reduce the need for aid tomorrow.
Official development assistance
There is a strong case for higher volumes of ODA to Africa. A good deal of political attention is paid to the commitment by OECD countries to provide 0.7 per cent of gross national income in the form of ODA, although the current economic and political environment in contributor countries means the prospects for rapid progress on that front are slim.
As part of the Addis Ababa Action Agenda, member States have recommitted to achieve the target of spending 0.7 per cent of gross national income on official development assistance (0.15 to 0.20 per cent for least developed countries). The Agenda also included a package of measures for the poorest
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countries, as developed countries are encouraged to increase aid to least developed countries to 0.2 per cent of gross national income by 2030. Member States also agreed to adopt or strengthen least developed countries investment promotion regimes, including with financial and technical support. Governments also aim to operationalize the technology bank for this group of countries by 2017.
But the quality of aid is as important as its volume. Both the Paris Declaration on Aid Effectiveness (2005) and the Busan Partnership agreement (2011) recognized that the purpose of aid is to help recipient countries achieve their broader development objectives. This requires aligning their aid delivery to the recipient country’s development strategy. Project proliferation and donor coordination remains a problem, as does the unpredictable nature of aid. African countries should take the lead in requiring donors to streamline their interactions with their Government and coordinate their activities in national development strategies.
The gulf between African priorities and the nature of ODA is evident in sector allocations. Not only politicians, but the African people seem to perceive infrastructure and economic development as their top priorities, yet ODA is overwhelmingly allocated to social services in Africa (Pritchett, 2015). To an extent, a focus on social services is appropriate in countries where large numbers of people live in extreme poverty and lack access to basic services, but the bias against service sectors in Africa appears to be excessive.
Figure 17 shows the share of ODA accounted for by three key sectors – the social sector, economic infrastructure, and the production sector. The share of the social sector is highest in sub-Saharan Africa – although north of the Sahara, the sector allocation has changed markedly in recent years. The share of aid allocated to economic infrastructure and production has started to climb recently in sub-Saharan Africa, but only modestly.
The allocation of ODA in Africa is also hard to justify, at least on the basis that the purpose of ODA is to fight poverty. Figure 18 shows the relationship between country programmable aid per person and average income per capita in each country.29 There is no visible correlation, but low income countries, which represent close to half of Africa’s population, received $66 per capita, on average, compared to
$89 in lower-middle income countries (AfDB, OECD, UNDP, 2014).
The trends look even harder to justify when the focus is on extreme poverty. The second chart in figure 8 focuses on countries with GDP per capita below $2,000, in 2012 dollars, and shows country programmable aid per person living in extreme poverty (under $1.25 per day). The correlation runs in the wrong direction – poorer countries receive less aid, in relation to the number of citizens living in extreme poverty, than better-off countries. There is an urgent need to mobilize greater volumes of ODA for Africa’s poorest nations. If OECD countries delivered on their
29 Data are country programmable aid allocations averaged over the period 2013–2015, one outlier (Namibia) is excluded.
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Development financing in Africa
Figure 17: Sector allocations of official development assistance in Africa
Source: https://stats.oecd.org/Index.aspx?DataSetCode=CRS1
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Figure 18: Country programmable aid per capita and country income (above) country programmable aid per person living in extreme poverty and country income (below)
Source: Survey on Donors’ Forward Spending Plans, World Development Indicators (OECD, 2014b).
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0.7 per cent commitment, there would be ample funds to lift allocations to the poorest countries without penalizing other African aid recipients.