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AFRICA ACTION
Africa Policy E-Journal
August 2, 2003 (030802)

Africa: Economic Policy Lessons, 2
(Reposted from sources cited below)

The Economic Commission for Africa (ECA), in its annual
Economic Report on Africa released on July 30, painted a sobering
picture of slowed growth rates for 2002 and "mixed" prospects for
2003, while citing successes in some countries. In addition to a
continent-wide review, the report also contains detailed studies of
Mauritius, Rwanda, Ghana, Gabon, Egypt, Mozambique and Uganda

An earlier E-Journal posting contained summary observations from
the report on the current economic situation. Today's two postings
contain the sections from the report's overview with policy
proposals emerging from the country studies. The full report is
available in PDF format on the ECA website at
 http://www.uneca.org/era2003

+++++++++++++++++end summary/introduction+++++++++++++++++++++++

DISTILLING LESSONS FROM THE SEVEN COUNTRIES

The countries profiled in this year's Report reveal the range of
African policy challenges. Summarized here are four key challenges
in accelerating the pace of development:

I. Escaping poverty--going beyond averages. [see part 1]

II. Achieving fiscal sustainability--exiting aid dependence.[see
part 1]

III. Energizing African bureaucracies--enhancing the capacity to
deliver. [below]

IV. Moving to mutual accountability and coherence--taking the best
route to development effectiveness. [below]

The purpose is to highlight best and worst practices, draw lessons
from the experiences of the seven countries, and provide overall
policy guidance to African countries. The countries profiled this
year are Egypt, Gabon, Ghana, Mauritius, Mozambique, Rwanda, and
Uganda.

III. ENERGIZING AFRICAN BUREAUCRACIES WITH MORE CAPACITY TO DELIVER

The public service bureaucracies will play a critical role in
accelerating the pace of development (figure 1). Yet they play a
contradictory role, at once part of the problem and part of the
cure (Kayiizi-Mugerwa 2003). Economic reforms are matters of public
policy. But policies are no more effective than the bureaucracies
trying to implement them.

Egypt and Ghana demonstrate the predicament. Despite 20 years of
institutional reforms in the public sector, there is little to show
for it.These reforms, like those in many African countries, focused
on quantitative issues--wage and hiring freezes, downsizings, and
retrenchments.They paid little attention to more subtle and
challenging issues of bureaucratic quality. In Egypt, state
capacity needs badly to be reinvigorated to improve export
competitiveness and propel the economy to a higher stage of
development.

But the reform of institutions faces political and administrative
constraints. In Ghana the situation has deteriorated so much that
the current government now faces a crisis in the public service.
Two statements from the Ghana Poverty Reduction Strategy reinforce
this assessment (Ghana 2003, p. 109): It would appear that the
totality of the public sector reform programme might be beyond the
capacity of the available human and financial resources to plan and
implement. However the reform process cannot proceed effectively
without sustained and palpable political commitment, the
enforcement of agreed proposals for reform from a political and
official level and provision of adequate resources.

The key reform in Ghana--the Public Financial Management Reform
Programme, initiated in 1995--introduced an integrated payroll and
personnel database, a medium-term expenditure framework, and a
budget and public expenditure management system. But at the end of
2002 the government was still grappling with the same issues as in
1995. Several factors are responsible. But compensation and
ineffectual management of the public service including the absence
of an overall human resource development, use, and retention
strategy are the prime causes.

Participatory policymaking can be highly effective

In stark contrast, the policy formulation process in Mauritius
"contains a very strong dose of consultation, dialogue, consensus
building, and democratic principles, ensuring that all concerned
stakeholders are actively involved" (Bonaglia and Fukusaku 2002,
pp. 171-73). Public-private partnership is pervasive in Mauritian
policymaking, and nongovernmental organizations have always been an
important part of Mauritian society. As a direct result, public
policies have supported high rates of private investment.

The Joint Economic Council is the private sector's apex
organization.When a private sector position needs to be voiced, the
council expresses it after consulting with members. At least twice
a year the government holds meetings with the council, chaired by
the prime minister and attended by senior ministers. Structured
consultations are also held with private sector organizations,
trade unions, and the minister of finance to prepare the national
budget. Between budget preparations sessions, there is constant
dialogue between the private sector and government through meetings
on specific policy matters. Business, labour unions, and government
are involved in tripartite wage negotiations.

Private sector and union representatives sit on the National
Negotiating Committee on Post-Lome discussions, the World Trade
Organization standing coordination committee, and the Regional
Cooperation Council. They also take part regularly in World Trade
Organization ministerial conferences.

The participatory policymaking in Mauritius enables all
stakeholders to shape the national economic strategy, with private
needs reflected in government policy, in line with the country's
development objectives.

MOVING TO MUTUAL ACCOUNTABILITY AND COHERENCE--THE BEST ROUTE TO
DEVELOPMENT EFFECTIVENESS

There is much dissatisfaction with the state of development
partnerships in Africa (ECA 2001). It stems from a vicious circle
of high expectations, grand promises, and only partial
accomplishment of goals. There is also the frustration of Africans
(that expected benefits were not fully realized) and of development
partners (that implementation was not as expected and the funds
provided were not used effectively). The African side blames
unrealistic project design, excessive conditions (some of which
were just plain wrong), and slow and unpredictable access to
promised funds. The donors blame corruption, inadequate political
will, and poor implementation by the Africans. There is
considerable evidence to support both points of view (Lancaster and
Wangwe 2001).

If the pace of Africa's development is to be accelerated it is
imperative that the relationship between Africa and its partners be
within the context of interdependence, cooperation, and mutual
accountability (ECA and OECD 2002). That is the emerging consensus.
Predictability and accountability should be mutual. National
leaders should carry out their programmes and inform supporting
partners of any changes. Partners should provide the promised
resources in a timely manner or consult on the proposed changes.
Each should be accountable for fulfilling commitments. Agreements
should be clear, stating events and timing, with all to be
monitored.

This consensus is reflected in the pledge by world leaders at the
UN Conference on Financing for Development in Monterrey: A
substantial increase in ODA and other resources will be required if
developing countries are to achieve the internationally agreed
development goals and objectives, including those contained in the
Millennium Declaration. To build support for ODA, we will cooperate
to further improve policies and development strategies, both
nationally and internationally, to enhance aid effectiveness (para
22).

The international community is also committed to intensifying
efforts to lower external debt burdens, improve market access, and
reduce constraints that prevent poor countries from fully realizing
the benefits of globalization. In turn, developing countries
acknowledged that they must take responsibility for good governance
and sound policies, as African leaders are doing under the New
Partnership for Africa's Development (NEPAD). These leaders have
committed to implementing sound economic policies, tackling
corruption, putting in place good governance, investing in people,
and establishing an investment climate to attract private capital.
Mutual accountability requires that pledges by both sides be
monitored. Box 2 describes an indicative "first set" of performance
indicators that could be used to jointly monitor progress by
African countries and external development partners on specific
commitments and related reform efforts.

Increase the predictability of aid flows

Several country profiles underscore the importance of mutual
accountability for development effectiveness. For instance, an
important feature of mutual accountability is that partnership
arrangements should be clear and predictable. It is accepted that
major changes in a recipient country may legitimately require a
revaluation of partnership agreements (for instance, if serious
conflict breaks out in the country that had been peaceful and
secure). This was the case in Uganda, where an unplanned increase
in defense spending of about 0.5% of GDP in 2002/03 budget led to
a reevaluation of multilateral and bilateral relationships. Defense
expenditures are projected to be around 5.6% of GDP in 2002/03
compared with 4.6% in the pervious three years. The rise in the
defense budget, especially the spending over budget, has raised
concerns among several donors, with the government arguing that the
increase in spending is necessary to decisively address the
security situation in the north.

However, the foreign partner too frequently makes unilateral
changes in agreements without consultation. The result: serious
disruption of important national programmes and uncertainty about
how to plan for the future. In Ghana development assistance that
was expected in January 1, 2002 was belatedly received on December
31, 2002. The budget deficit rose to 6.9% of GDP in 2002 (from 4.4%
the year before) partly because only 18% of promised grants had
been received by the third quarter.

Mutual accountability requires clear understanding by both parties
about the timing of release of promised aid funds, and donors
should be held accountable for delivering on their promises.
Consultation should be the rule if changes are thought to be
needed.

To address the unpredictability of aid flows, donors need to
programme their aid over a multiyear timeframe consistent with the
financial planning horizon of recipient governments.

For this to happen:

* Medium-term commitments should be aligned with medium-term
expenditure frameworks, so that the country can plan Poverty
Reduction Strategy activities well in advance.

* Yearly disbursements should be aligned with the fiscal budget so
that countries can deliver services planned in the medium-term
expenditure framework.

* Development partners should provide recipient governments with
full information on aid flows, on a regular and a timely basis.

* Development partners should let the recipient government know in
advance what information should be included in the annual reviews,
streamlining the requests and reducing the number of additional ad
hoc requests for information.

Consider Rwanda, where the British government in 1998 entered a
10-year relationship to improve the predictability of resource
flows and set up an independent body to review donor practices. The
United Kingdom has also led the way in shifting funding towards
budget support, with a new programme of budget support of 76
million pounds for 2000-03 agreed in 2000.

Reduce donor "frenzy"

Partnership based on mutual accountability should reduce the high
transaction costs for recipient countries. Many African countries
receive assistance from several partners in the same economic
sectors, with each partner insisting on detailed conditions for its
assistance. The conditions exacted by the partners often are not
consistent. And the timeframe for the partner agreements tends to
be short, creating uncertainty for ongoing programmes and requiring
the time of national leaders to negotiate follow-on agreements.

Reducing the high transactions cost requires improving donor
coordination and harmonizing development assistance programmes. For
this the partners need to align their policies and programmes with
the Poverty Reduction Strategy or other nationally owned
development plans.

The Uganda profile shows that donors are aligning their programmes
around the PRS. But this is not happening across a wide range of
countries.For example, in Mozambique, where some progress has been
made in this regard, the government is concerned about the burden
presented by project aid that bypasses national systems and
priorities. Aid there is fragmenting ministries, weakening national
and ministerial identity, and undermining authority.

Rwanda has new Guidelines for Productive Aid Coordination, with the
Poverty Reduction Strategy now providing the framework for aid
coordination. It is also considering a lead agency arrangement,
with the largest donor to a sector taking the lead in that sector.
A lot more needs to be done in this area (box 3).

Reducing transaction costs may require that development partners
move away from project aid towards budget support, which for
countries with transparent budget procedures and sound public
expenditure management systems is another critical feature of
mutual accountability, as in Ghana.

The government of Ghana has a multidonor budgetary programme to
support the Poverty Reduction Strategy, requiring donors to provide
resources through the government budget and in line with the budget
cycles. Participating development partners follow common rules for
disbursement and commit themselves to firm financing over the
coming year, with indicative commitments for the following two
years. Funds are not earmarked for specific activities. Instead,
the government and the development partners participating in the
programme have agreed to focus on some key reform areas viewed as
critical for the successful and efficient implementation of the
strategy: public finance accountability reforms, budget processes,
decentralization, civil service reform, and governance. For each
area of priority actions, a policy matrix will provide benchmarks
for monitoring progress. The process is facilitated through regular
quarterly mini-consultative group meetings. Regular monitoring
reports from the government will be in a standard format, including
quarterly reports on macroeconomic indicators, the policy matrix,
expenditures against the budget and releases, and implementation of
the strategy. In turn, development partners are to provide
quarterly reports on disbursements and projections of disbursements
for the next two quarters.

Making development policies coherent

The success of development policy depends on the effects of other
policies, which intentionally or unintentionally may impair
development cooperation. The coherence of development policies has
to do with ensuring that all policies affecting African development
prospects are synergistic and do not conflict or nullify each
other. A lack of coherence has been shown to lead to
ineffectiveness (failure to achieve objectives), inefficiency
(waste of resources), and loss of policy credibility.

Chapter 1 of the report documents several examples of incoherence
in the development policies of Africa's major partners. For
example, the EU advocates African countries' integration into the
world economy, but its trade policy has numerous protectionist
elements, especially in agriculture.An open trade policy and
dismantling of the Common Agricultural Policy would complement EU
development efforts rather than frustrate them.

To improve food security in West Africa, German development
cooperation has promoted beef production in that region, but the
success of these projects has been threatened by subsidized EU beef
exports to the same countries. The 2002 U.S. Farm Bill, scaling up
subsidies, is another example of a policy that conflicts with the
government's pledge to reduce poverty in Africa.

In general, Africa's international partners have not implemented
their commitments, particularly for enhancing market access and
eliminating trade-distorting agricultural subsidies. Abolishing
OECD agricultural subsidies would provide developing countries with
three times their current ODA receipts. The elimination of all
tariff and non-tariff barriers could result in static gains for
developing countries of around $182 billion in services, $162
billion in manufactured goods, and $32 billion in agriculture.

Tariff escalation in the international trade regime makes it
difficult for African countries to diversify their economies
towards high-value-added processed goods. Tariff peaks rates above
15% are often concentrated in products of export interest to
developing countries. Two sectors that matter most for developing
country exporters are textiles and agriculture.Tariff barriers in
textiles remain high, while high tariffs for agricultural
commodities and the continued subsidization of agriculture in many
OECD countries repel agricultural exports.

The success of the Doha Development round of multilateral trade
negotiations is crucial for improving market access for Africa's
exports. But given the apparent breakdown in these crucial talks,
there is a strong case for OECD countries to frontload the benefits
of trade liberalization for the poorest countries by providing
immediate duty-free and quota-free market access.

Because Africa depends more on external trade than do other
developing regions, expanding market access for its exports is a
clear priority.Of developing country GDP in 2001, 34% came from the
exports of goods and services, but for Sub-Saharan Africa, the
figure was 40%.

Mutual accountability--Africa's role

Mutual accountability is a two-way process. Partners have to
fulfill their part of the bargain, and Africans have to fulfill
theirs. For Africans, the commitment to self-monitoring and to peer
learning is the linchpin to accountability. (This is distinct from
the accountability of having recipients report their compliance
with donor requirements, including conditionality.) NEPAD is
implementing an African Peer Review Mechanism (APRM) to encourage
self-monitoring and peer learning (box 4). This systematic
assessment tool will track progress of outcomes, identify and
reinforce best practices, assess capacity gaps, and implement the
required corrective actions.

Several African countries have already agreed to undergo peer
reviews. What is left now is to move forward with implementing APRM
and show that African countries are fulfilling their side of mutual
accountability.

Good governance is the key to mutual accountability

Several country profiles demonstrate the progress African countries
have made in improving governance. In Mozambique the current
president has announced that he will step down in 2004 and refrain
from anointing a successor. This is a potent signal of the
political leadership's commitment to democracy and the rule of law.
Rwanda is also taking positive steps towards deepening democracy
and good governance, announcing that multiparty presidential and
parliamentary elections will be held in mid-2003. Crucial to the
success of this gradual political normalization are attempts to
foster social reconciliation through local tribunals, aimed at
paving the way for the eventual reintegration of genocide suspects
into their communities. Connected to these efforts is a bold
decentralization programme to increase community participation, but
serious capacity constraints are apparent in most localities.

Ghana's smooth political transition in January 2001 brings hope
that the new government will create an atmosphere of transparency
and participation. This has led to more open debates on major
policy reforms, such as the recent increase in fuel prices, the
adoption of the Heavily Indebted Poor Countries Initiative, and
privatization of water.

Mauritius, with a long period of political stability, remains a
sterling example of democracy. The rule of law prevails. Property
rights are respected. And public sector activities have been
transparent and conducive to private sector activities. The result:
the transformation of a poor country with a per capita income of
$260 at the beginning of the 1960s to a middle-income country with
a per capita income of $3,800 in 2003.

+++++++++++++++++++++Document Profile+++++++++++++++++++++

Date distributed (ymd): 030802
Region: Continent-Wide
Issue Areas: +economy/development+

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