Inside how donors are hurting Africa

By Mpho Tebele

Gaborone – Money from wealthy nations is hurting Africa and not helping the continent as it continues to be trapped in slower economic growth and rising unemployment, a new report by Tony Blair’s Institute has warned.

The report titled “Making inclusive growth work in Africa” says a number of African countries, among them,  Ghana, Kenya, Liberia, Malawi, Nigeria and Sierra Leone with great economic potential, have struggled to transform and generate growth that is inclusive for all their citizens. The report says international donors pursuing “piecemeal, unco-ordinated interventions” are to blame for this.

“First, donors often pursue piecemeal, unco-ordinated interventions that fail to coalesce and contribute meaningfully to a country’s growth strategy,” the report says.

It notes that this may be due to the constraints on funding used for sector development (e.g. food security funds to improve agriculture livelihoods are often disconnected from programmes that seek to develop commercial agriculture).

Other constraints , the report found, include flawed problem diagnoses that point to less promising sectors (e.g. low profitability and potential for growth) or less important constraints in those sectors (e.g. not key causes of low returns or high costs); or incompatible analyses and recommendations by different teams of “fly-in, fly-out” consultants.

But it is not just what donors do that matters; it also matters how they do it, the report says.

“Donors’ sector-specific interventions can be too piecemeal in nature to contribute significantly to broad growth objectives.

For instance, agriculture projects that provide inputs and extension training to farmers to promote food security often do not include demand-driven strategies to link these farmers to larger, downstream market opportunities.

As we have seen in Liberia, Malawi and other countries, focusing only on production without linking produce to markets results in warehouses of rotting rice,” the report says.

It says the key issue here was that such projects were planned and executed in isolation of other efforts to develop the agriculture sector, so that many major constraints, such as Liberia’s capacity to process rice paddy and get it to markets, remained unresolved.

Second, the report says, is the fragmentation of government attention and effort due to donors’ disparate agendas in private sector development (PSD).

The report says specialisation among donors may be useful, insofar as it minimises duplication of efforts and enables donors to focus on the areas in which they have helpful comparative expertise.

“However, in pursuing their specific agendas, donors often inadvertently pull governments in different directions. Almost simultaneously, various parts of low capacity governments are being asked to focus on investment climate, trade facilitation, governance reforms, corruption, tax reforms and food security,” it say.

The report says cash-strapped ministries – many of which   get the majority of their budget from development partners – inevitably follow the money offered to them; governments end up doing too many things at the same time with little progress.

In Liberia, the report says as in other donor-dependent countries, the Ministry of Commerce follows the World Trade Organization-led agenda, while the Ministry of Agriculture is driven by the UN and US-led food security agenda, the Ministry of Labour the International Labour Organization-led labour standards agenda and the Ministry of Finance and the Revenue Authority the International Monetary Fund/World Bank agenda focused on public financial management.

“The result is limited policy coherence across ministries on issues that shape the enabling environment for PSD, which directly undermines economic transformation efforts.

One important implication of this fragmentation is that local political leaders who recognise the misaligned political economy – and there are many – often lack the tools, resources and support to do anything substantial about it,” it says.

As a result, it says, meaningful reforms tend to be sidelined, even when political leaders may have the drive to deliver them.

“A few issues underpin this problematic support for market-based sector development from international organisations.

Many partners see market-based sector development as too risky, since it opens the door to elite capture, poor sector prioritisation and mistargeted interventions, and may lead to some groups feeling excluded,” the report says.

The report says development partners have pointed to these risks, as well as to limited government capacity, as justification for favouring the generic enabling environment approach.

“But this does not address the political challenges, and the problem of limited government capacity cannot be circumvented.

In our view, because the central thought process of international partners focuses on the enabling environment approach, they do not contribute as much as they could to supporting workable inclusive growth strategies,” the report says.

Until recently, the report says,  ‘Africa rising’ was the dominant theme in conversations about development in Africa.

The global commodity price shock, however, has tempered this bullish perspective.

It says that during the boom years, many African countries failed to translate high commodity prices into small- and medium-sized enterprise (SME) growth, jobs and improvements in standards of living. As a result, the report suggests that Africa will have a shortfall of 50 million jobs and sustainable livelihoods by 2040.

“Combine that with the fact that the continent’s population will reach 1.7 billion by that year four and the number of extremely poor people is set to rise to 450 million. A decline in extreme poverty is not in sight.

Most economists agree that large-scale poverty reduction in Africa will only happen if economies undergo transformation in a way that promotes inclusive growth,” warns the report.

It says this has reignited the debate about whether governments and partners should focus on picking winners and targeting high potential sectors – a strategy pursued by many emerging Asian countries – or try to make generic improvements to the business environment by addressing market failures.

“Enabling environment efforts include openness to trade, generic infrastructure investment, fairer rules, tackling corruption, improved property rights and financial inclusion.

This approach has been commonly pursued in Africa in recent decades, but it has not delivered the structural transformation needed to secure inclusive growth,” the report says.

As a result, it says there is an increasing recognition of the importance of modern industrial policy: the need to undertake smart, adaptive market-led development of prioritised sectors that can compete in an ever more globalised economy and that can transform the structure of the economy to one that is inclusive.

Drawing from their experience of working in a number of African governments for nearly a decade, the researchers argue that modern industrial policy is essential in Africa as a complement, not a replacement, to generic efforts to improve the enabling environment.

“Choosing one or the other is a false choice; it is a matter of giving enough attention to the former and getting it right,” the researchers said.

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