Us economic policy toward developing countries

U. S. ECONOMIC POLICY TOWARD DEVELOPING NATIONS WITH REFERENCE TO AFRICA

Ike Nnia Mba Sr., Ph. D. Jide Chime, Ph. D.

Introduction Fostering economic growth and prosperity in Africa is important to their national interests. There has been very little improvement in the economic status of the average African since the end of colonial rule. Many African countries are poorer now than they were at the time of their independence. Problems with potential global impact such as failed states, HIV/AIDS, environmental degradation, and endemic poverty and starvation continue to exist. As a nation, the United States is at a critical juncture, where it finds itself without peer, and at times, with a less than desirable image. As a result of improvements in technology, communications, and transportation, many in the Third World realize that they are truly deprived and look to the U.S. for leadership and resolution. To be sure the U.S. cannot be all things to all nations but the continued good fortune will depend on international stability and the continued improvement of the human condition in disadvantaged regions.

Africa is a critical link to international stability, and in turn, our good fortune in the coming years.1 This book will examine current U.S. economic strategy in Africa and attempt to assess its efficacy in improving the conditions in that region.

For too long Africa has been an afterthought in U.S. foreign policy interests.

In World War II, Africa was a strategic stepping stone to the places that mattered in Europe. In the Cold War, Africa was a pawn in East-West struggles. Even as Americans set in place well-intentioned economic development policies, it was too often with the idea of trying to do well for Africa, rather than to do well with Africa.2 This has changed. Instead, the U.S. has implemented a strategy to operate more effectively in a world where non-state actors and illegal trans-border activity can pose as major threat to even the most powerful of countries. The goal is to develop a network of well-governed states capable through responsible sovereignty of protecting themselves and contributing to regional security. By so doing, they also protect the international system. U.S. Secretary of State, Hillary Rodham Clinton, recently reaffirmed the extremely high priority of security. She said that, â€œâ€Śwe all know that there are real threats to the United States and our friends and allies around the world. And the State Department has an important role to play‌to be a 2

good leader and a good partner‌� In a word, this means partnership. This vision supports African leaders as strategic partners and seeks to build up Africa's institutional capacity.3 In other words, doing things with Africans, not for Africans.

We believe these sentiments coincide with Africa's own growing emphasis on the values of freedom, the rule of law, and collective security, as embedded in the African Union's New Partnership for African Development. The New Partnership for African Development (NEPAD) Peer Review mechanism reinforces African leaders' own efforts to promote democracy and good governance among their peers.

The U.S. understands that there are new, rising strategic powers around the world, including Sub-Saharan Africa. Nations such as South Africa and Nigeria have used their diplomatic, economic, and military power to shape the continent for the better. Mali, Mozambique, Liberia, Ghana, Botswana, Benin and many other African countries are leading the way as examples of the power of democratic rule of law.

U.S. is promoting sustainable and broad-based, market-led economic growth.

While Africa has experienced impressive growth rates in recent years, Africa can still be characterized as a rich continent in an impoverished state. The United States aimed to help their African partners raise income levels, promote sustainable growth that benefits all in a society, opens markets for African exports, reduces barriers to investment, and identifies opportunities and comparative advantages.4 Responding to this challenge, the United States implemented the Millennium Challenge Account (MCA), a revolutionary foreign assistance program that seeks to reduce poverty through sustainable economic growth by awarding sizeable grants -not loans -- to countries that practice good governance, seek to take responsibility for their own development, and are committed to achieving results. Of the 18 compacts signed to date, ten totaling over $3.8 billion have been signed with subSaharan African countries. Two other African countries, Senegal and Malawi are in the process of developing compacts.

The United States Government has also enacted the African Growth and Opportunity Act (AGOA), a program that allows responsive and responsible partners in Africa to benefit from preferential access to American markets. With 40 countries presently qualified for this program, AGOA has become a cornerstone of 3

U.S. trade and investment policy in Africa. The United States has been in the forefront of efforts to forgive the debts owed by poor countries – but only if those countries’ governments first demonstrate their commitment to poverty reduction and good economic management. MCC and AGOA are important programs strengthening African economic health and underscore the cardinal interest of the United States in the continent’s economic affairs.5 Even in this tough time of economic recession overtaking the world, the United States does not anticipate any reduction in the support that they have provided to African nations. They want to continue to be a leader in supporting development on the African continent. Related to this effort is their focus promoting enhanced food security and agricultural development. This means reducing poverty and hunger, raising agricultural output and reducing dependence on imported food, raising rural incomes, improving the livelihoods of women, children and families, and improving land management.

Between FY2008 and FY2009, the United States had committed over $1 billion in food assistance worldwide, with much of this assistance focused on Africa.

U.S. efforts in West Africa include programs designed to increase the productivity of staple crops, stimulate supply response, and expand the trade of staple foods. In East Africa, the United States has supported a targeted response to meet urgent food security needs and strengthen staple food markets.6

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The Advancement of U.S. Economic Policy toward Africa As U.S. policy towards Africa becomes increasingly militarized, the U.S. economic agenda and energy concerns follow close behind. During the Cold War, U.S. competition with the Soviet Union led to disastrous policy decisions for the African people; it stunted the development of democracy and undermined economies. U.S.-Africa policy is at risk of repeating this historical mistake as the U.S. and China compete for African resources.

The U.S. will continue to prioritize trade liberalization and development strategies that favor U.S. investments and corporations. U.S.-backed economic restructuring programs coming out of the international financial institutions persist in depleting African economic sovereignty as leaders are forced to comply with budget ceilings and privatization prescriptions in order to be eligible for new loans or the hope of debt cancellation.1 One major impediment to the liberation of African economies from the constraints of the unjust international financial system remains the leadership of the World Bank and the International Monetary Fund (IMF). Both of these institutions got new leaders in 2007, with former U.S. Special Trade Representative Robert Zoellick taking charge of the Bank to replace the disgraced Paul Wolfowitz and former French Finance Minister Dominique Strauss-Kahn becoming IMF Managing Director. Dominique Strauss-Kahn was arrested in connection with charges of sexually assaulting a New York room attendant. Strauss-Kahn subsequently resigned his position on May 18, 2011. On June 28, 2011 Christine Lagarde was confirmed as Managing Director of the IMF for a five-year term starting on July 5, 2011.2 Both institutions continue to suffer from a crisis of international legitimacy. The prior records and official actions so far of their new leaders indicate that each organization intends to continue business as usual, serving the ideologically defined interests of the U.S. and other wealthy member states.

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Because 2008 was an election year in the United States the legislative calendar was short, yet Congress still had opportunities to take major steps that year in living up to the rhetorical commitments of the U.S. government to genuinely promote human development in Africa. Opportunities for effective policy shifts exist in two essential areas: the cancellation of Africa’s illegitimate debt, and U.S. global HIV/AIDS programs.

“All of us share a common vision for the future of Africa. We look to the day when prosperity for Africa is built through trade and markets” – former U.S. President George W. Bush to delegates at the African Growth and Opportunity Forum in Mauritius, January 15, 2003.3 It is very important for the U.S. not to lose sight of the strategic significance of Africa. In today’s environment it is very possible that well intentioned policies in this region may effectively be placed on a back burner as we focus the vast majority of our national attention to the Global War on Terrorism (GWOT) with an emphasis on the Middle East. Admittedly, it is unrealistic to suggest that the U.S. abandon this effort or turn our backs on the Middle East. It may be prudent, however to energize efforts to enable Africa to turn the corner on their socio economic plight. From approximately 1960 to 1973, however, economic growth in sub-Saharan Africa (SSA) was relatively promising. Since 1973 the countries of SSA have grown at rates well below other developing countries. To be successful in the GWOT, we will need strong allies on every continent. Africa will be a key player in this effort. All elements of national power should be brought to bear in this region to ensure that SSA is able to develop into a strong partner in the global economy and an effective and willing ally in our pursuit of our national interests. Priority of effort should involve the economic element of national power. SSA is a largely undeveloped commercial market of more than 800 million potential consumers and is a region that, if properly managed, could feed itself and other parts of the world.4

Historical Overview A large number of Americans have inaccurate perception of Africa. In order to understand the complexities of the African dilemma, it is important to understand 6

what Africa really is, how her present condition has come to be, as well as the significant factors affecting her economic health. The image projected by the media conjures up visions of one monolithic continent with steaming jungles, National Geographic-like settings, starving refugees, and ethnic conflict. Given the media proclivity for negative news, coverage about African initiatives that slowly improve economies, gradually increased literacy, limit the spread of AIDS or battle against corruption are not as newsworthy. Africa is a very diverse continent with 53 independent states and more than 800 languages and regional dialects. Only 10 or so of those languages are spoken by cultural groups of more than one million people and most African languages are used by groups of fewer than 100,000 people.5 The majority of those states (48) lie in what is commonly called Sub-Saharan Africa (SSA).

Slavery and the legacy of colonialism have had a significant impact on the current state of being in Sub Saharan Africa. For over 400 years the institution of slavery altered the normal progression of indigenous social development and relations as Africans turned on other Africans in pursuit of power and money. Some historians estimate that more than 15 million Africans were forced to leave Africa to cross the Atlantic to be sold into slavery. This forced emigration adversely affected economies, politics, societies and cultures in different parts of Africa. These events forever changed what may have been a relatively normal and positive course of growth and development for the continent.

As was the case with much of the third world, Africa was heavily colonized.

Many of the problems that haunt Africa had their origins in a meeting known as the Berlin Conference in 1884. At the time of the conference, most of Africa remained under traditional and local control. The conference was essentially an effort to prevent conflict among the world powers wishing to colonize Africa at the time.

Countries represented at the time included Austria-Hungary, Belgium, Denmark, France, Germany, Great Britain, Italy, the Netherlands, Portugal, Russia, Spain, Sweden-Norway (unified from 1814-1905), Turkey, and the United States of America. The final result was a hodgepodge of geometric boundaries that divided Africa into fifty irregular countries. The new countries lacked rhyme or reason and 7

divided coherent groups of people and merged together disparate groups who really did not get along. The nature of the relationship between the colonized and the colonizer was not a symbiotic one but rather one that, over time, fostered dependency and distrust among the indigenous people.6 The African colonies started wrestling their independence from the European colonial powers beginning in 1951 (Libya) and ending with the transition to majority rule in South Africa (1994). It is important to note that Ethiopia was never a formal European colony and Liberia, which proclaimed independence in 1847, was essentially “colonized” by freed slaves. Ghana, in 1957, was the first SSA country to gain independence. Although each independent African country had unique economic features, most countries inherited similar economic structures from their colonial experience.7 Most were dependent on either mining, settler agriculture, or the small scale production of a single cash crop. Colonial governments did little to promote economic specialization or diversification and did little to provide basic education and health care for the majority of the populations of their colonies. The inability or lack of interest in developing a suitable infrastructure has also been attributed to the economic depression in Europe at the end of the 19th century. The colonial powers felt that they had no money to spend on political administration, social programs, or economic development in their colonies. Most revenue went towards structures crucial to stability and political control like the military and police forces. As a result, the new governments were generally left with under-developed commercial, transportation, communication and educational infrastructures and an unskilled labor force.8 The legacy of colonialism has made it very difficult for most of the African states to enjoy a significant degree of prosperity or stability. Some African experts argue that the current dilemma extends from an unrealistic expectation that institutions created under the various colonial authorities which could provide a firm base for the development of critical infrastructure. During the 1960s, the African states became a “theatre of heroic struggle that mobilized local elites in a quest to overthrow colonial power and install new governments espousing the ideals and aspirations of liberty, economic development, and social justice.”9 Thirty 8

years later, the new African states are far from fulfilling this early promise. The results have been disappointing for both those states that adopted a capitalist mode of development--Cote d’Ivoire, Nigeria, and Zaire --and those that opted for the socialist path of development--Angola, Guinea, and Tanzania.

Major Factors Affecting Economic Prosperity in Africa The AIDS epidemic, ethnic conflict, and internal/external corruption are major factors that affect economic growth in sub Saharan Africa. While AIDS is a relatively new issue, ethnic conflict and corruption have been a part of the African condition for some time. Although these are treated as separate issues below, all three are interrelated and create a significant barrier to economic progress. These conditions also encourage the flow of skilled, entrepreneurial and professional segments away from the continent in search of stability and prosperity elsewhere.1 As awful as this situation is, the fact that Africa must struggle through this crisis may be an impetus for change. Ralph Peters’ makes an interesting observation in an essay in Parameters, The Atlantic Century, where he points out that the effects of catastrophes are rarely linear and people can react unexpectedly. Peters goes on to point out that AIDS could take Africa in several directions, leading to militarized societies based along tribal lines, or to the breakdown of tribal control, to the rise of violent millenarian sects, or to more egalitarian societies, to an opening of markets, or their collapse. This is not to infer that the AIDS epidemic should be left alone to run its course, but rather in the process of vigorously working through its resolution it may yield an opportunity for a new beginning. It may cause states to in effect, take an operational pause to resolve issues of corruption and ethnic conflict.11 Peter Wehrwein, editor of the Harvard Health Letter, noted that one of the paradoxes of the HIV epidemic in SSA is that for most of the 1990’s, it had not made a dent on standard macroeconomic yardsticks such as gross domestic product (GDP), a measure of the total value of goods and services produced by an economy over a period of time.12 In the cold logic of supply and demand, the labor surplus in most African economies meant that workers removed from the workforce by AIDS 9

can be replaced without a loss of productivity. The absence of a clear economic indicator may explain, in part, the relatively luke-warm response by the developed nations and Africa to the potential impact in this region in its early stages. The International Monetary Fund and World Bank policy of structural readjustment programs insisted that African governments cut down their budgets. One of the ways chosen was to reduce social expenditures, health care, and education which resulted in a health care infrastructure that had been systematically weakened over the years.1 Today the economic impact of the AIDS crisis has become much more significant than Wehrwein noted in 1999. A recent World Bank study suggests that AIDS could cause economies in some developing countries to collapse in two generations. AIDS weakens the economies of African countries in three ways, according to the report. First it mainly affects and kills young adults, removing their salaries and wiping out human capital – the person's accumulated job and life skills.

Second, the deaths of young people weaken or destroy families, ruining the mechanism by which a person passes on human capital to succeeding generations and draining the family resources needed to send children to school. Finally, the chance that the children themselves will eventually contract the disease in adulthood makes personal investment in education seem less important.14 Ethnic Conflict The Development Economics Research Group at the World Bank conducted a study that yielded some interesting findings. First, conflict is overwhelmingly a phenomenon of low income countries. Second, the faster the rate of economic growth in a country, the lower the risk of conflict. Third, dependence on primary commodities substantially increases the risk of conflict, unless the primary commodity is extremely desirable, as in the case of oil in Saudi Arabia.15 Most states in Africa have commodity-based economies. The study did not identify a significant correlation among factors such as military expenditure, economic equality, or political rights and concluded that while ethnic conflict is an issue, Africa’s high incidence of civil war is fundamentally due to economics, not its social structure.

The persistent instability and fighting are part of a viscous cycle as they cause 10

countries to divert significant resources away from basic infrastructure, education, and healthcare to purchase weapons and equipment to prosecute conflicts. This seemingly endless cycle of conflict is also a deterrent to foreign investment.

Corruption Corruption also has a negative impact on economic growth. According to the U.S. Agency for International Development (USAID) Handbook for Fighting Corruption, corruption arises from institutional attributes of the state and societal attitudes toward formal political processes.16 Institutional attributes that encourage corruption include wide authority of the state, which offers significant opportunities for corruption; minimal accountability, which reduces the cost of corrupt behavior; and perverse incentives in government employment, which induce self-serving rather than public-serving behavior. Societal attitudes fostering corruption include allegiance to personal loyalties over objective rules, low legitimacy of government, and dominance of a political party or ruling elite over political and economic processes. One could argue that this corruption is not only a vestige of colonial rule but also a result of conditions created by superpower posturing during the Cold War as the U.S. would turn a blind eye to leaders’ corrupt practices in order to keep them in the Western camp. Corruption allows inefficient producers to remain in business, encourages governments to produce flawed economic policies, and provides opportunities for bureaucrats and politicians to enrich themselves by extorting bribes from those seeking government favors. Correcting the situation is and will remain problematic. Cleanup` programs depend primarily on the police, the national judiciary, and the press but few African countries have an independent press free of government manipulation and most police/judicial systems are pervaded by high levels of corruption.

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Trends in U.S. Economic Policy toward Africa The East-West confrontation prior to 1990 appeared to assure the greatest justification for broad based and long term support for an African policy1. The Cold War made Africa an integral part of U.S. containment policies and elevated several countries to preeminent positions in national security bureaucracies2. In the 1970’s, the primary emphasis for aid was placed on meeting the needs of the poor and disadvantaged in the Third World3. This may have been due in part to a growing concern over poverty in America as domestic concerns influenced foreign aid policy4. In the 1980’s, under the Reagan administration, there was a shift from what was generally development oriented aid to aid that was driven by political developments related to the Cold War.5 After the Cold War, Africa was essentially lost in the shuffle as more robust economies moved towards globalization.

Current Strategy A more prosperous, healthy and stable Africa is in America’s best interest, and contributes to U.S. efforts to foster world-wide economic growth and increased trade, and to combat transnational security threats. The Bush administration focused on three interlocking strategies for the region: 6

Countries with major impact on their neighborhood such as South Africa, Nigeria, Kenya, and Ethiopia are anchors for regional engagement and require focused attention

Coordination with allies, friends and international institutions is essential for constructive conflict mediation and successful peace operations; and

Africa’s capable reforming states and sub-regional organizations must be strengthened as the primary means to address transnational threats on a sustained basis.

Key Initiatives In Support Of U.S. Strategy The Africa Growth and Opportunity Act and the Millennium Challenge Account are the two key initiatives that are central to the U.S. economic strategy in 12

Africa. These initiatives and the associated supporting programs provide the basic framework to pursue economic policy in SSA.

Africa Growth and Opportunity Act (AGOA) This is the centerpiece of programs directed at the nations of Africa. The Act offers tangible incentives for African countries to continue their efforts to open their economies and build free markets. Specifically, the Act authorizes the President to designate countries eligible to receive the benefits of AGOA if they have established, or are making continual progress toward establishing market-based economies; the rule of law and political pluralism; elimination of barriers to U.S. trade and investment; protection of intellectual property; efforts to combat corruption; policies to reduce poverty, increasing availability of health care and educational opportunities; protection of human rights and worker rights; and elimination of certain child labor practices.7 Additionally, target countries must not engage in activities that undermine U.S. national security and foreign policy interests, engage in gross human rights violations, or provide support for international terrorism8.

AGOA legislation directs the President to target U.S. government technical assistance and trade capacity building in AGOA beneficiary countries. This mandate includes assistance to both government and non-governmental actors. The Act directs the President to target technical assistance to governments to liberalize trade and exports, to harmonize laws and regulations with World Trade Organization (WTO) membership, to engage in financial and fiscal restructuring, and to promote greater agri-business linkage.

The Act also includes assistance for

developing private sector business associations and networks between U.S. and SSA enterprises. Technical assistance should also be targeted to increasing the number of reverse trade missions, increasing trade in services, addressing critical agricultural policy issues, and building capabilities of African states to participate in the WTO, generally, and particularly in its services. Other programs/agencies that support the goals of the AGOA include:

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United States – Sub-Saharan Africa Trade and Economic Cooperation Forum – Under AGOA, the President was required to establish within a year of enactment, after consultation with Congress and the other governments concerned, a United StatesSub-Saharan Africa Trade and Economic Cooperation Forum. The purpose of the forum is to provide a mechanism to discuss expanding trade and investment relations and facilitate the implementation of the AGOA9.

Trade for African Development and Enterprise (TRADE) program - This program is a USAID initiative. The TRADE initiative is designed to provide technical assistance to help Africans reform their trade and investment policies, promote U.S.-African business linkages, support African regional trade integration, and take full advantage of the provisions of AGOA.10

Three “Regional Hubs for Global

Competitiveness” have been established in Botswana, Ghana, and Kenya to further technical assistance objectives.

Overseas Private Investment Corporation (OPIC) - The OPIC was established as a development agency of the U.S. government in 1971. OPIC helps U.S. businesses invest overseas, fosters economic development in new and emerging markets, complements the private sector in managing the risks associated with foreign direct investment, and supports U.S. foreign policy11. By expanding economic development in host countries, OPIC-supported projects can encourage political stability, free market reforms and U.S. best practices12.

Export Import Bank of the United States (Ex-Im) - The Ex-Im Bank is the official export credit agency of the United States. Ex-Im Bank's mission is to assist in financing the export of U.S. goods and services to international markets. The bank enables large and small U.S. companies to turn export opportunities into real sales that help to maintain and create U.S. jobs and contribute to a stronger national economy. Ex-Im Bank does not compete with private sector lenders but provides export financing products that fill gaps in trade financing, assuming credit and country risks that the 14

private sector is unable or unwilling to accept. They also help to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters 13.

ď€ U.S. Trade and Development Agency - The U.S. Trade and Development Agency (USTDA) advances economic development and U.S. commercial interests in developing and middle income countries. The agency funds various forms of technical assistance, feasibility studies, training, orientation visits and business workshops that support the development of a modern infrastructure and a fair and open trading environment14.

Millennium Challenge Account (MCA) The second key initiative central to the U.S. economic strategy for Africa, the MCA, is a commitment of the United States to raise its grant aid by a factor of 50 percent over the next three years resulting in a $5 billion annual increase over current foreign ai levels.15 Many other countries and multinational development assistance agencies will be asked to help co-finance this new account, and their participation would augment the original proposal from the United States.16 In January 2004, President Bush signed legislation creating a Millennium Challenge Corporation (MCC), authorizing it to administer the MCA and providing $1 billion in initial funding for Financial Year 2004. The general criteria for participating in the MCA include ruling justly, investing in people and encouraging economic freedom.

Other Structures and Organizations Africa has one of the highest numbers of economic groupings in the developing world. There are nine regional organizations: the Economic Community of West African States (ECOWAS), the West African Economic and Monitory Union (WAEMU), the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC), the Southern African Customs Union), the East African Community (EAC), the Inter-Governmental Authority on Development (IGAD), the Indian Ocean Commission (IOC), and the Central African 15

Economic and Monitory Community (CEMAC).17 Many countries have membership in several regional organizations. Unfortunately the overlapping nature of these agreements and participation costs has been cited as an impediment to successful regional integration.18 U.S. strategy continues to encourage and support regional economic integration efforts in Africa as a means of stimulating economic growth by improving economies of scale and reducing transaction costs for the region and international businesses.

The African Perspective Generally, the states in Africa welcome assistance from the U.S. and the international community. The theme among academics and politicians in Africa is that the U.S. should do more to address the AIDS crisis, more to promote free trade, and more to support African efforts to promote peace and stability in the region.

The war on AIDS can be won but it will require a major shift in some aspects of U.S. policy. African efforts to defeat AIDS are hindered by international obstacles such as the Sub Saharan Africa’s overwhelming debt burden which competes with resources that could be allocated to the AIDS fight, difficulties in accessing essential anti-AIDS drugs, and a relatively weak health care infrastructure.19 In many African countries governments respond more to pressure from donor communities than from political pressure their own people.20 The international community continues to rely too heavily on central governments to deliver services and should instead go directly to the civil and private sector.21 There is a significant degree, albeit somewhat disjointed, of private sector support flowing to the region. In the last decade U.S. government aid has been far outstripped by private donations from foundations, private voluntary organizations (PVO), corporations, universities, religious groups, and individuals giving directly to needy family members abroad.22 Cancellation of bilateral and multilateral debt would also allow governments to better resource activities to address the epidemic.

The African Growth and Opportunity Act set a general framework that can provide real opportunities for Africa. Gains under the AGOA could be greater however if there were not so many conditions and exclusions under the act such as 16

rule-of-origin requirements that require exporters to source certain inputs to a particular product from within Africa or the U.S.23 Using apparel as an example, this precludes the producer from obtaining yarn or fabric from a supplier outside of the U.S. or Africa even if it may be more cost effective. Estimates suggest that absence of these conditions could have magnified the impact of AGOA nearly five fold.24 There is widespread support for the extension of AGOA beyond its current expiration in 2008.

A sampling of African views on U.S. trade initiatives by the Africa-America Institute suggests that the U.S. needs to broaden and formalize the process by which it consults with Africans about policies affecting them.25 There is a general perception that Africa and her economic concerns have been marginalized in of the globalization process, essentially delinking Africa from the global economic system.26 There is no longer any requirement for the U.S. to counter Soviet influence in the Africa. The region has lost whatever geostatic advantage it had during the Cold War and has lost the leverage it once enjoyed as a major supplier of rare minerals and cheap labor that fueled the western industrial machine.27 Access to strategic minerals and oil, once constrained due to superpower posturing, are much more accessible.

Inconsistent application of policy in the region over the years is another noted shortcoming. The U.S. has never formulated a coherent economic policy but has relied on an assortment of foreign assistance programs: food aid, disaster relief, development support, and security assistance.28 Former, General Secretary of the United Nations, Boutros Boutros-Ghali points out in an essay on the marginalization of Africa that:

The only strategy proposed by the rich countries is for the indebted, developing countries to adopt stringent reform programs and to reach agreements with the IMF and World Bank. They also advocate a new, miraculous remedy, the introduction of political pluralism along Western European lines. Such a prospect risks being ineffective not only because Africa has no democratic traditions and continues to be 17

dominated by tribalism, but because democracy cannot take root unless certain minimal institutions and an adequate living standard exist. This performance, combined with the rapprochement between East and West, has resulted in less interest in Africa on the part of the rich countries. If there has been any dialogue at all between Africa and the industrialized countries it has been a dialogue of the deaf.29

The historic role the U.S. played in destabilizing many of the African countries currently at war gives the U.S. a unique responsibility to engage with African efforts to achieve peace and stability.30 Groups organized and supported by the U.S. to destabilize pro Soviet regimes during the Cold War still operate creating instability in states like Angola and the Democratic Republic of the Congo. For each of the major conflicts ongoing in Africa there exists a peace process, often a settlement plan, and an African body to guide a peace process.31 What is crucially missing, in many cases, is the international support needed to ensure peace and stability.32

Assessment of Current U.S. Strategy U.S. economic strategy appears to be reasonable. The desired end state in Africa is a stable region that will not foster conditions conducive to terrorism.

Achieving peace and stability through the vigorous and consistent exercise of economic/political power is the best way to get there. Although it could be criticized as favoritism or geopolitical manipulation, the U.S. emphasis on anchor states instead of the entire region is reasonable and realistic. The U.S. does not have the resources to address the ills of an entire continent at once. The amount of aid directed to the all the nations in Africa over the next several years is very small when compared to the amount that will be spent on Iraq alone in one year.

Currently the United States conducts a small share of its total trade with Africa. In 2002, the United States exported $5.9 billion to Africa, or 0.9% of total U.S. exports of $629.6 billion.

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The United States imported $18.2 billion from the region or 1.6% of its total imports of $1,154.8 billion.33 Although U.S. trade with Africa is small compared with major trading partners, it is comparable to U.S. trade with several other developing regions. Most U.S. trade with the region is with a small number of countries.34 Eighty-two percent of U.S. imports from the region were from four countries in 2002: Nigeria (32%), South Africa (23%), Angola (18%), and Gabon (9%).35 Exports were similarly concentrated, with 60% of U.S. exports to two countries: South Africa (42%) and Nigeria (14%).35 All other countries accounted for 6% or less of U.S. exports .Natural resources dominate U.S. imports from Africa. Almost four-fifths of all U.S. imports from the region in 2002 were either energy products (64%), which were almost exclusively petroleum, or minerals and metals (15%).36 Other notable U.S. imports, much less in total value, were trousers, automobiles, sweaters, and cocoa.37 If the U.S. remains on this glide path or perhaps more importantly is able to maintain this glide path through successive administrations, Africa may well become a significant trading partner.

The African Growth and Opportunity Act provide a well reasoned framework for success. There are some challenges inherent in this framework however. Several topics may be important to Congress in the oversight of AGOA and in potential legislation amending the act. These issues concern the expiration of the Act in 2008, rules of origin provisions concerning textile and apparel, facilitating the use of AGOA benefits by more countries and the impact of AIDS epidemic on economic gains under the Act.38 President Bush has pledged to seek extension of the AGOA beyond 2008.39 Convincing private business/industry and the rest of the developed international community to invest and devote even more resources before suitable infrastructure and stability are in place will continue to be challenging. The U.S. cannot, however, allow the situation to continue to fester and provide a springboard or safe haven for terrorism or transnational criminal activity.

The U.S. will have to provide leadership as a global power. Surprisingly, the domestic support appears to exist. An analysis published by the Program on International Policy Attitudes (PIPA) in April 2003 revealed that the general public is generally in favor in of aid to Africa and that this support is higher than for other 19

regions of the world.40 Most Americans see Africa as somewhat important to the war on terrorism and support the U.S. providing money and technical assistance to African anti-terrorism efforts.41 There is modest support for increasing aid for democratization and poverty reduction as a way to address the root cause of terrorism. A strong majority supports U.S. aid to address the problem of HIV/AIDS in Africa, and considers the crisis quite serious and believes that it will affect Americans.42 The U.S. could do more to help but other actors such as the Africans, pharmaceutical companies and the United Nations should do more as well.43 Africa is a potential commercial market of more than 800 million consumers and is a region, if properly managed, could feed itself and significant parts of the world.44 Tapping that potential requires American business, private enterprise, and banking, to aggressively pursue the development of the region.45

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Three

Favourite or Prodigal Son? U.S. Versus Africa Economic Policy Under Obama First Lady Michelle Obama’s recent trip to Africa has rekindled the high hopes that Africans had following the election of President Barack Obama. Obama’s election as president of the United States was received with great pride, joy and high expectations. Many saw this as a major turning point for improved US-Africa relations. There was particular hope that the new president, who has a direct link to Africa, the birthplace of his father, would be more receptive and understanding of the concerns of the African people. The expectations of enhanced relations between the United States and the continent ranged from increased trade and investment to development assistance to support for more African “positions and representation” in global governance.1 Improving the relationship was seen to have salutary benefits such as increased foreign direct investment and tourism from the United States.

Also, implicit in many discussions was the expectation that there would be a significant change in U.S.-Africa policy, with Africa taking a more prominent position. But after two and half years of Obama’s presidency, a sense of disappointment among Africans is building.2 These expectations were misplaced for three reasons: first, President Obama did not start with a clean slate—previous administrations had put in place many important initiatives. In fact, the previous two administrations (Clinton and Bush II) left commendable records in their dealing with Africa. Africans remain particularly fond of President Bill Clinton for his innovative approaches that supported African countries through the African Growth and Opportunity Act (AGOA), the fight against HIV/AIDS, and other economic development programs.3 President George W. Bush also expanded the support for the war on AIDS; however, after the 9/11attacks his administration’s efforts were focused primarily on global terrorism. Second, President Obama inherited a serious economic recession and his administration had to focus on the recovery of the U.S. economy. Therefore, his legislative agenda of 21

economic recovery, health care and banking reform took precedence. Finally, Africa’s high expectations were misplaced because nothing from the 2008 presidential election radically altered the relatively limited U.S. interest in the region in its foreign policy.4 Notwithstanding, President Obama has engaged Africa in a noteworthy manner during his firm term in office. The president presented his plan for U.S. – Africa engagement during his 2009 trip to Ghana, where the president emphasized the need for encouraging good governance, fighting corruption, resolving Africa’s many conflicts, and empowering Africans to solve their own problems. In addition to his trip to Ghana, President Obama has also met with numerous African heads of state, including President Zuma of South Africa, President Jonathan of Nigeria, President Mills of Ghana, and even Prime Minister Tsvangirai of Zimbabwe.5 One of President Obama’s key successes in the region to date has been the way his administration helped to broker a free and fair referendum in South Sudan. The president appointed a full-time special envoy to Sudan and offered various incentives and disincentives to ensure the referendum’s success. These engagements show that the president has taken a keen interest in Africa.

President Obama has also launched several policy initiatives that, while not Africa specific, will benefit the region. In September 2010, he introduced a new U.S. Global Development Policy that -- for the first time -- created an umbrella policy under which the United States will implement its development objectives.6 At the 2009 G-8 Summit, countries pledged to fight global hunger and food insecurity. As part of this commitment, the president launched the Feed the Future program aimed at increasing agricultural sector growth and improving nutrition in developing countries. This country led program is being implemented in 20 countries around the world including: Ghana, Mali, Rwanda, Senegal and Tanzania.

The United States also helped launch the new Global Agriculture and Food Security Program (GAFSP), a World Bank fund that supports agricultural sector development and food security.7 During his 2009 trip to Ghana, President Obama acknowledged that “while Africa gives off less greenhouse gasses than any other part of the world, it will be the most threatened by climate change,” and is now working to support 22

those countries most vulnerable to climate change. In 2010, the president requested around $1 billion to address climate change around the world. Although not specific to the continent, this aid is disbursed through USAID to many countries across subSaharan Africa and is a key part of the administration’s new Global Climate Change Initiative.8 Furthermore, in May 2009, President Obama launched the Global Health Initiative (GHI), a six-year, $63 billion initiative that addresses tropical diseases, improves maternal and child health, treats infectious diseases and strengthens health care systems in developing countries. GHI builds on the Bush administration’s President’s Emergency Plan for AIDS Relief (PEPFAR) and is likely to improve health outcomes in the region.9 Despite these new policies, President Obama has been criticized for not introducing any new policies directed specifically towards Africa. While this criticism holds some truth to it, it also lacks perspective. First, while many of these new initiatives are not specifically targeted towards Africa, as the world’s least developed region, Africa is a major beneficiary of these new initiatives. Second, U.S. presidents historically have passed broad initiatives for Africa in their second term of office. In fact, both President Bush and President Clinton signed their Africa initiatives into law in their last year of office. Thus, any new broad initiatives are likely to be introduced by President Obama during his second term of office. Obama also faces additional political risks when implementing Africa policies. As one who has close blood ties to Africa, the president must be careful not to appear to overly favor the region. Thus, it is possible that President Obama may do less for Africa than his predecessors did in order to avoid such criticism. However, it is sad to say that given his record to date there can be no basis for criticism that the president overly favors Africa.10 Inconsistencies in U.S. military engagement in the continent present an additional challenge. President Obama has been criticized, like his predecessors, for placing too much emphasis on North Africa and not enough on sub-Saharan Africa.

The crux of this criticism is that the United States should respond to human rights abuses in Libya the same way it responds to human rights abuses in Ivory Coast or 23

Zimbabwe. Inconsistencies in this policy have been a major source of frustration for Africans.11 The political returns from the United States supporting African issues have historically been low. This is partially because Africa does not have a political constituency in Washington to advocate for policy on its behalf. However, there needs to be a change in the mindset towards Africa, the region offers good investment opportunities and both the United States and Africa would benefit from increased economic engagement.12 The U.S. business community, as current and prospective stakeholders, could serve as a constituency for Africa. Recognizing the potential that the region has to offer, the U.S. business community can serve as an advocate for increased engagement. More importantly, the rise of China as Africa’s economic partner suggests that a change in U.S. policies is necessary. China is engaging Africa at a deeper level than the U.S. Chinese President Hu Jintao has visited about 20 African countries since he came into office, whereas President Obama has visited only one Sub-Saharan African country. The emergence of new players in Africa requires the United States to re-evaluate its Africa policy away from the traditional unilateral extension of benefits to a more multilateral engagement.13 Beyond the fact that the region is a key source of natural resources, one aspect of the U.S.–Africa relationship that is often overlooked is that Africa, especially sub-Saharan Africa, could serve as a steadfast and true ally for the United States. For all the investment and time spent in the Middle East, the United States has not cultivated the kinds of partnerships that it could engender in sub-Saharan Africa.

While the first lady’s trip to Africa underscores the importance the Obama administration places on Africa, it is time for the U.S. and President Obama to move that relationship further. Increasing global competition necessitates that the United States engage Africa more deeply. While it is hoped that a second term would bring good tidings to Africa, there is still an opportunity for President Obama to make an imprint in the region during the remainder of his first term. We propose that the president make a well coordinated trip to a number of African countries 24

accompanied by business executives and investors.14 The president must send the signal that Africa is a much better place to invest and that he supports policies that provide business incentives to invest in the continent. This approach to supporting Africa that will not only help Africa, but will also contribute to economic growth in the United States, and also position the United States to better compete with China and other countries. Without a focused and creative policy to engage Africa, President Obama may end up Africa’s famous prodigal son.

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Four

The Prospects of African Economies The economy of Africa consists of the trade, industry, agriculture, and human resources and as of 2012, approximately 1070 million people were living in 54 independent countries.1 Africa is a resource-rich continent but many African people are poor. Recent growth has been due to growth in sales in commodities, services, and manufacturing. Africa is by far the world's second poorest inhabited continent, second only to Asia in the number of poor people, though parts of the continent have made significant gains over the last few years. In recent years, African countries consist of the fastest growing economies in the world.2 The continent also possesses about 10% of the world’s petroleum reserves, and it holds about 90% of the world’s cobalt, 90% of the world’s platinum, 50% of the world’s gold, 98% of the world’s chromium, and one-third of the world’s uranium. There are also vast tracts of farmland under cultivation, producing everything from maize and wheat to asparagus and wine grapes.3 The 54 independent countries in Africa today, contain incredible cultural diversity, with more than 3,000 different languages spoken throughout, each one representing a unique cultural tradition. Africa continent also lays claim to the world’s most ancient Christian communities and its oldest Islamic universities.4 Sadly, Africa also possesses a history stained with colonialism and slavery.

This dark period, which lasted well into the 20th century, was traumatic for Africans in many profound ways, both emotional and economic. While countries in Europe, America and Asia focused on building modern global economies after World War II, Africa’s best and brightest struggled to take control of their own destinies.5

A New Beginning The struggle for independence is well behind Africa. African children will only know about it from their history books. Africa is producing 700,000 university graduates every year who are concerned about the future and transforming the continent, integrating it into the global economy. Africa’s nations are moving to the 26

next level and coming together around their common linguistic, social and economic bonds.6 Since 1975, 15 countries have been working together in the Economic Community of West African States. The mission of ECOWAS is to promote economic integration and foster collective self-sufficiency. In the South, the Southern African Development Community was established in 1980 to facilitate socio-economic cooperation and integration among its 15 member states. The Common Market for Eastern and Southern Africa stretches from Libya to Zimbabwe. Formed in 1994, COMESA aims to create a fully integrated, internationally competitive regional economic community. This kind of cooperation bodes well for the future.7 Sure, progress is slow. But, it should not be forgotten that the European Community required more than 50 years to arrive at its present state of social and economic integration, and that ASEAN, founded in 1967, has only recently begun to deliver real economic benefits to its member states. There is every indication that African states will continue cooperate more and more closely for common benefit. It is believed that 50 years from now will emerge four or five well-integrated regional entities seamlessly engaged in trade with one another and with the rest of the world.

Investment is Flowing This accelerating trend toward economic cooperation and integration comes as the populations of Asia and Latin America become more affluent, and there is increasing demand for energy, food, housing and basic consumer goods. As Africans continue to develop their economy, they will be in a good position to supply these commodities to the world, efficiently and at reasonable prices.

Already, trade between Africa and China topped US$100 billion in 2010.

Trade with India was over US$50 billion. In fact, the volume of trade between Africa and Asia was higher in 2010 than the trade between Africa and all the other regions of the world combined.8 Of course, sustaining this growth for the long term will require tremendous investment in infrastructure and production, especially if African businesses are

27

going to emphasize value-added manufacturing over the export of energy and natural resources.

The global economy is really a simple system at heart. Money flows to areas that have the greatest potential to make a profit, and Africa is looking very attractive to both offshore and onshore investors right now.

Unfortunately, this success story is not well known outside of Africa.

Although famines and civil wars generate spectacular images that are prominently reported on the front pages of newspapers around the world, when someone like Nigerian-based billionaire Aliko Dangote invests a billion dollars in an African industrial project, it almost never makes headlines. I guess images of progress just do not sell newspapers.

There are many investors like Mr. Dangote on the continent who are putting their ‘smart’ money behind crucial infrastructure and industrial projects. A recent study conducted by a respected African NGO reported that African countries collectively received about US$50 billion in investment from outside the continent during the most recent year for which statistics are available. But this amount represents only about 30% of the total investment in Africa for that year. The other 70% was generated from sources inside Africa.9 The 2010 World Economic Forum (WEF) on Africa was held recently in Dares-Salaam, Tanzania. The best organized forum was the first one to be held outside South Africa. The forum, which attracted young leaders from 70 countries in the world, showcased Africa very well. It observed that the future is bright for Africa’s growth despite the odds such as the food crisis, swings in international oil prices and the economic downturn.

Zimbabwe, whose economy is facing many challenges, was strongly represented by President Robert Mugabe, Prime Minister Morgan Tsvangirai and Deputy Prime Minister Arthur Mutambara. South Africa, Africa’s economic giant, was also strongly represented as ever. They appreciated that growing regional integration and trade, South-South partnerships, have helped African countries to weather the storm of sharp fall in commodity prices. Rwanda, Egypt and Liberia, were singled out as major business reformers’.

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Rwanda’s Finance Minister, John Rwangomwa, highlighted his country’s strong leadership as the springboard for the improved investment climate.

Tanzania’s President Jakaya Mrisho Kikwete said Tanzania has today attracted various business ventures due to her improved macro-economic and political stability, low inflation and stable labour relations. Tanzania which is ranked fourth in diversity and richness of mineral resources in Africa after South Africa, Democratic Republic of Congo and Nigeria, is endowed with mineral resources, such as gold, nickel, diamonds, gemstones and coal.

The forum agreed to promote business in Africa, unity in diversity, political stability to enhance economic growth, and tackle rising inequality, insecurity and lawlessness. The continent’s leaders and participants in general were in agreement that African economic woes were self-inflicted and home-grown solutions were the best as they pledged to take full responsibility for their destiny.10 Recent Economic Growth In the past ten years, growth in Africa has surpassed that of East Asia, including Japan.11 Data suggest parts of the continent are now experiencing fast growth. The amount of growth that has been occurring is comparable or greater to that of the Asian Tiger, Latin Puma markets, gaining them the new nickname, the Lion Markets.12 The World Bank reports the economy of Sub-Saharan African countries grew at rates that match or surpass global rates.13 The economies of the fastest growing African nations experienced growth significantly above the global average rates. The top nations in 2007 include Mauritania with growth at 19.8%, Angola at 17.6%, Sudan at 9.6%, Mozambique at 7.9% and Malawi at 7.8%.14 Many international agencies are gaining increasing interest in investing emerging African economies, especially as Africa continues to maintain high economic growth despite current global economic recession. The rate of return on investment in Africa is currently the highest in the developing world.14

Africa is now one of the World’s Fastest-Growing Regions Much has been written about the rise of the BRICs and Asia’s impressive economic performance. But an analysis by The Economist finds that over the ten 29

years to 2010, six of the world’s ten fastest-growing economies were in sub-Saharan Africa.15 On IMF forecasts Africa will grab seven of the top ten places over the next five years (our ranking excludes countries with a population of less than 10m as well as Iraq and Afghanistan, which could both rebound strongly in the years ahead). Over the past decade the simple unweighted average of countries’ growth rates was virtually identical in Africa and Asia. Over the next five years Africa is likely to take the lead. In other words, the average African economy will outpace its Asian counterpart.16 The figure one below shows the world ten fastest-growing economics.

Figure 1: World Ten Fastest-Growing Economies

Economic Variants and Indicators While no African nation has joined the ranks of the developed nations in the Organization for Economic Co-operation and Development (OECD) yet, the entire continent is not utterly impoverished and there is considerable variation in its wealth. North Africa has long been closely linked to the economies of Europe and the Middle East. South Africa is by far the continent's wealthiest state in total GDP, accounting for 30% of the continent's GDP in nominal terms and 24% by PPP. The

30

small but oil-rich states of Gabon and Equatorial Guinea round out the list of the ten wealthiest states in Africa.17 The temperate northern and southern ends of the continent are wealthier than tropical sub-Saharan Africa. Within the tropics, East Africa, with its long precolonial history of trade and development, has tended to be wealthier and more stable than elsewhere. Islands such as the Seychelles, Réunion, Mauritius, and Cape Verde have remained wealthier than the continental nations, although the unstable Comoros remains poor. The poorest states are those engaged in or just emerging from civil wars. These include the Democratic Republic of the Congo, Sierra Leone, and Burundi.18 In recent times, the poorest region has been the Horn of Africa, although it had historically been one of the wealthiest regions of sub-Saharan Africa.

Ethiopia in particular had a long and successful history. The poverty of the region, and the associated famines and wars, has been a problem since the 1800s. There is considerable internal variation within countries. Urban areas, especially capital cities, are generally wealthier than rural zones. Inequality is pronounced in most African countries; the upper class has a much higher income than the majority of the population.18 Below is the National GDP per capita of African countries.19 Table 1: National GDP Per Capita of African Countries Total GDP (PPP) in GDP per capita in Country

2010

2005

(billion US$)

(US$)

HDI in 2005

Zimbabwe

5.01

538

0.513

Zambia

10.91

1,175

0.434

Uganda

9.32

991

0.505

Tunisia

30.30

6,461

0.766

Togo

2.21

888

0.512

Tanzania

12.78

1,018

0.467

São Tomé and Príncipe

0.12

1,460

0.654

Swaziland

2.65

4,384

0.547 31

Total GDP (PPP) in GDP per capita in Country

2010

2005

(billion US$)

(US$)

HDI in 2005

Sudan

37.57

2,249

0.526

South Africa

501.00

10,477

0.674

Somalia

0.06

199

0.? N/A

Sierra Leone

1.44

790

0.336

Seychelles

0.75

13,887

0.843

Senegal

8.94

1,676

0.499

RĂŠunion (France)

15.98

8,233 (nominal)

Rwanda

2.49

813

0.452

Nigeria

329.00

2,500

0.470

Niger

3.54

613

0.374

Namibia

6.37

4,547

0.650

Mozambique

7.61

743

0.384

0.850 (in 2003)

Morocco 91.19 4,800 0.646 29/ US Economy Policy Toward Developing Nations with Reference to Africa Mauritius 6.45 10,155 0.804 Mauritania

2.66

1,691

0.550

Mali

5.93

1,027

0.380

Malawi

2.23

691

0.437

Madagascar

5.50

988

0.533

Libya

250.32

14,000

0.918

Liberia

0.63

383

0.? N/A

Lesotho

1.48

1,415

0.549

Kenya

21.19

1,359

0.521

Guinea-Bissau

0.30

569

0.374 32

Total GDP (PPP) in GDP per capita in Country

2010

2005

(billion US$)

(US$)

HDI in 2005

Guinea

3.32

946

0.456

Ghana

12.91

1,225

0.553

Gambia

0.51

726

0.502

Gabon

9.55

14,742

0.677

Ethiopia

13.32

591

0.406

Eritrea

1.09

689

0.483

Equatorial Guinea

8.56

30,999

0.642

Egypt

338.00

5,051

0.708

Djibouti

0.76

1,964

0.516

8.54

264

0.411

C么te d'Ivoire

17.48

1,575

0.432

Congo

7.39

3,621

0.548

Comoros

0.40

1,063

0.561

Chad

6.54

1,749

0.388

Central African Republic 1.49

675

0.384

Cape Verde

1.14

2,831

0.736

Cameroon

18.32

1,995

0.532

Burundi

0.81

699

0.413

Burkina Faso

6.21

1,140

0.370

Botswana

10.33

15,057

0.654

Benin

4.78

1,390

0.437

Angola

44.03

9,100

0.446

Algeria

114.73

5,985

0.733

Democratic Republic of the Congo

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Source: National GDP per capita ranges from wealthier states in the north and south to poorer states in the east Africa. World Bank report, last update was on 27th April 2012.

34

Five

The African Debt Crisis The debt of developing countries is external debt incurred by governments of developing countries, generally in quantities beyond the governments' political ability to repay. "Unpayable debt" is a term used to describe external debt when the interest on the debt exceeds what the country's politicians think they can collect from taxpayers, based on the nation's gross domestic product, thus preventing the debt from ever being repaid.1 The debt crisis, or perhaps more accurately, debt cancer that has spread across Africa in the last decade, needs little introduction. Much has already been said about the causes, consequences and costs - economic, social, human and ecological - of that affliction and about the structural adjustment and economic reform measures which have been taken to cope with it on a continental scale. The reasons which gave rise to excessive African indebtedness in the 1970s and early 1980s, and which caused it to balloon from $140 billion when the crisis emerged in 1982 to over $270 billion in 1990, have been amply documented elsewhere.2 Suffice it to say that Africa's over-indebtedness is not attributable, as many creditors would have it, merely to poor governance, rapacious and corrupt leaderships, protracted civil wars in too many countries on the continent; no democratic checks and balances on government borrowing and spending, excessive population growth, and the stubborn pursuit of economic policies which contributed to the relentless impoverishment of a rich continent for over two decades.3 All of these factors have indubitably played a major part. But Africa's crisis has been severely exacerbated by several other reasons as well, including: (a) Thoughtless and irresponsible over-lending by private and official creditors, during the commodity boom of the 1970s, without which irresponsible overborrowing by African governments on this scale could not possibly have occurred; (b) The persistence of negative real interest rates during most of the 1970s in global financial markets caused by lax monetary and fiscal policies in industrial countries

35

which made it economically rational for developing countries to borrow externally (rather than save or attract equity investment) for development and consumption; (c) The targeting of developing countries in general, and oil-exporting countries in particular, as major export markets to be provided with too-easy credit to facilitate the adjustment of industrial countries to the two oil-shocks (of 1973 and 1979); (d) the global monetary shock of1979-81, which aimed at ridding the world of inflation but had the collateral impact of inducing a deep and long recession, particularly in debt-ridden developing countries where the recession lasted for 70 months instead of 16 in the OECD world, and which caused commodity markets and prices to collapse; (e) Over-reliance on external savings between 1979-83 by African governments' unwillingness to increase domestic savings and cut domestic consumption in the erroneous belief [encouraged in some instances (e.g. Zambia) by the international financial institutions - IFls] that the commodity price collapse would be short-lived; (f) A prolonged and devastating drought between 1981-84 which severely impaired the continent's agricultural and cash crop production and resulted in extensive damage to output and to the financial structure of Africa's fragile economies; (g) The emergence of high, positive real interest rates throughout the 1980s which compounded Africa's debt servicing and debt accumulation burdens; (h) Volatile exchange rate movements throughout the 1980s with US dollar depreciation between 1985-90 resulting in increasing the dollar value of Africa's outstanding debts, over a half of which were denominated in currencies or composites which appreciated against the US dollar; (i) Repeated official and private rescheduling, often on punitive terms in the early years of the debt crisis, which resulted in further increasing the outstanding level of debt while providing temporary, but totally insufficient, cash-flow relief; (j) Poor and impractical advice by IFls and official creditors on the extent of debt relief African governments needed to negotiate and how they might adjust, coupled with poor management by the same governments of external debt records, policies and priorities resulting in several missed opportunities to improve路 their situations;

36

(k) The building up of egregious arrears which creditors have tolerated to a point of doing more damage to restoring disciplined debtor-creditor relationships than if more sensible action to reduce debt and debt service burdens had been taken by them in the first place; and last, but definitely not least, definitely not least, (1) Protectionism in the world's markets for agricultural products and low technology manufactures, which makes it particularly difficult for African countries to diversify and increase exports to hard currency markets, thus making it doubly difficult for them to earn their way out of the debt trap.4

Foreign direct investment set to fall, after record rises Africa experienced record levels of FDI despite the crisis, $88 billion in 2008, although comprehensive monitoring work suggests that FDI plans were being postponed towards end-2008, perhaps falling by as much as a quarter ($16 billion).5 The figure two below shows the inward FDI investment from 1995 – 2008.

Figure 2: Inward FDI investment, 1995-2008 (value and % of gross fixed capital formation)

Source: UNCTAD FDI on-line database (2009).

International Bank Lending Did Fall, After All

37

When the financial crisis broke, several analyses (September 2008) suggested that SSA would not be affected as much because financial systems were not as leveraged as much as in the UK and US. By the end of 2008 it had become clear that SSA was feeling the effects of the crisis, but probably mostly through real channels6. However, recently it has also become clear that SSA was affected by financial contagion. Figure 3 shows that international bank lending increased at unsustainably fast rates until September 2009, but has since decreased significantly, by around 10% in the case of Africa. Developed country banks have been under pressure to hold more capital in their home countries and have therefore withdrawn from other countries.

International Bank Lending Did Fall, After All When the financial crisis broke, several analyses (September 2008) suggested that SSA would not be affected as much because financial systems were not as leveraged as much as in the UK and US. By the end of 2008 it had become clear that SSA was feeling the effects of the crisis, but probably mostly through real channels6. However, recently it has also become clear that SSA was affected by financial contagion. Figure 3 shows that international bank lending increased at unsustainably fast rates until September 2009, but has since decreased significantly, by around 10% in the case of Africa. Developed country banks have been under pressure to hold more capital in their home countries and have therefore withdrawn from other countries.

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Figure 3: International Bank Lending to sub Saharan Africa, Dec 1983-Jun 2009 (US$ mn)

Source: www.bis.org

It is not yet clear to what extent the crisis has led to domestic lending and private sector credit. Growth in private sector credit seems to have slowed growth by 2008.

Solutions to African Debt Crisis The first solution to this African Debt Crisis is to do nothing. The United States as well as other wealthy countries and lending institutions may choose to stay on the course of action with all the same policies in tact. The three possible outcomes to staying the course are as follows: 1.)

Africa remains a poor, indebted region of the world, struggling to fulfill its

requirements and defaulting on loans. This outcome has potential security hazards attached that include retaliation upon citizens (both foreign born and native) and international interest in the region, as well as large scale Anti-Western sentiment7.

39

2.)

The second solution is to reinstitute Structural Adjustment Reform (SAR)

policies. The Third World Debt Crisis of the 1970s prompted organizations, such as the IMF and the World Bank, to reform their policies on lending. Instead of having project/ program based lending these institutions slowly switched over a period of 20 years to a policy based lending program known around the world as Structural Adjustment Reform. These SAR policies were aimed at balancing state budgets and promoting economic growth7.

For Africa SAR policies tackled head on projects that these lending institutions deemed to be draining on African state treasuries. Such policies included privatization of inefficiently run state-enterprise, reduce state staffing and programming, and devaluing over inflated national currencies Unfortunately, there is a question of how effective these SAR policies have actually been. William G. Moseley, a scholar on African Issues, addresses the issue of just how effective SAR policies have been. He presents the view of Thandika Mkandawire, director of the UN Research Institute or social development, and Dr. Gerald Scott, an economist at Florida State University. Mkandawire, and others like him suggest that SAR policies are inefficient8. He argues that these policies do not lead to economic growth and that they sidestep developmental needs that are crucial to making African economies viable9. Others of the same opinion as Mkandawire also argue that by side-stepping these developmental needs, the SAR’s lead to destabilisation of African Nations that are already in crisis. Scott on the other hand would dispute Mkandawire and Mkandawire supporters. He suggests that the economic malaise that has happened has been the result of African governments and not SAR’s. He reiterates that the SAR’s help African governments achieve realistic goals, and help to restore balance within a government. Thereby, allowing these governments to create a budget that will repay loans as well as take care of their nationals10.

3.) A third solution is to cancel partial African debt. While sitting in a Winona State University class completely devoted to African Political Issues, a professor by the name of Ahmed El-Afandi brought up a point that most of Africa’s debt is not paper 40

debt but debt in the name of interest11. It has occurred in relation to the demand of interest by international lending institutions. In an attempt to simplify this principle of interest an example that people are well familiar must be made. In America most persons have credit cards. A lending institution has lent the American a certain number of credits which would have to be paid back plus 20% interest. Said American goes to the store and purchases a blouse for $20.00 with their credit card.

30 days later said American must repay the $20.00 loan plus the 20% interest to the lending institution. Said American pays $22.00 for the blouse. Now let’s say said American bought the house for $80,000. Said American has a mortgage on the house. The principle amount borrowed for the house was $80,000 with a 5.75% interest over the course of 30 years. Said American will pay $466.86 dollars a month for 30 years until the loan is 100% paid off. Over that 30 years said American will pay $14,005.80. Said American will pay $65,994.20 in interest alone12. Like the American in the example African nations also borrowed money. They may not have borrowed money to buy shirts and houses, but they did borrow money for infrastructural purposes. The money that was borrowed incurred interest anywhere from 20-30%. Therefore, much of Africa’s debt lies in paying back interest and not paying back the actual principle (or amt borrowed). By eliminating or reducing this interest debt, it is theorized that poorer indebted countries would have an easier time repaying what was principally owed.

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Six

Restructuring Economies for Political Liberalization In the context of political liberalization in Africa, facilitating the sustainability of economic reform will necessitate donors working at several levels. The traditional approach of policy reform efforts to enhance the influence (through conditionality) and capacity (through technical assistance and training) of key technocrats remains relevant, although it needs to be more realistic about the limits of conditionality and to be refocused on issues of policy implementation and more effective political basebuilding.

But donor-supported economic reform efforts must also go beyond policy change and beyond the traditional focus on technocrats. Within the public sector, the sustainability of reform will remain problematic as long as African governments fail to transform themselves from instruments of neo-patrimonial political control and predation to instruments of development. African governments need a process of deep institutional restructuring, of democratic fortification, to enable them to be transformed into developmental states. This is unlikely to be possible in the absence of direct donor support.

The sustainability of reform will also depend upon donor activities outside of the public sector. The first of these is enhancing civil society, which will at the same time: 1) Hold governments more accountable to their citizens, 2) Provide the basis for, and some of the inputs to, a more sustainable policy process, and 3) hold in check the pressures for political fragmentation and decay.

Sustaining economic reform will necessitate donors working to strengthen the institutional context for markets and for the private sector to emerge and proliferate. Without this, the economic growth response to adjustment will continue to be minimal, and reform efforts will remain politically vulnerable. The essence of strengthening the institutional context for market development is the expansion of public goods1. While these public goods need to be facilitated by government, experience (as well as the limited fiscal and operational capabilities of virtually 42

every African state) suggests that innovative means for providing such public goods will have to be created.

Thus, from the donor perspective, there are four key dimensions for facilitating the sustainability of economic reform in the context of political liberalization: 1) enhancing civil society; 2) establishing the institutional foundations for markets; 3) changing the role of government; and 4) improving technical capacity, especially in the area of policy implementation2. AID can develop support activities on each of these dimensions. In this chapter, each of the dimensions is discussed in turn.

A. Enhancing Civil Society In the new African political context, civil society has a number of crucial roles to play: a key brake on state power, a broker between state interests and nongovernmental concerns, and a facilitator of national consolidation. Nurturing civil society is important both for establishing the foundations for durable democratic government and for countering fissiparous tendencies and the impetus towards institutional breakdown discussed above.

But what is civil society? Is it synonymous with the non-governmental sector with its voluntary wing? Naomi Chazzan 3argues that one should not equate civil society with non-governmental or voluntary organizations in general. Rather, to be considered part of civil society, an organization must at the same time be: 1) autonomous of government, 2) constrain the power of the state, but 3) contribute to the legitimation of overall state authority. Organizations that have these characteristics are critical building blocks for civil society for they help to inculcate specific notions of limited authority, respect for the rule of law, and conflict resolution.

Most non-governmental organizations in Africa do not fit these criteria, although many may have the ability to grow into them. For example, village community groups, informal credit associations and various religious cults are often inward-oriented, pointedly detached from both market and state, and primarily concerned with protecting themselves from outside influence. They thus undermine the authority of government. Other organizations, such as trade unions and women 43

and youth organizations are so dependent upon government support that they have lost any real autonomy. Finally, regionally- or ethnic- based movements, or fundamentalist groups, either oppose secular authority or seek to take over the state. In general, while the demise of effective political control by African governments has spawned a vast number of non-governmental organizations and groups, civil society per se remains weak in most African countries4.

What kinds of groups are likely to facilitate the coalescence of civil society?

Groups that have specific, partial, and limited objectives, be they professional organizations, religious groups, developmental NGOs, credit unions, interestassociations, or human rights and civil liberties organizations. Especially important are “linkage organizations” that bring together networks of individual organizations.

Civil society, thus defined, appears to be strongest in Anglophone African countries with relatively strong state structures and relatively pluralist political institutions and political cultures, i.e. Kenya, Zimbabwe, Nigeria and Ghana. In Francophone Africa, only Senegal and possibly Cameroon appear to have the depth of civil society similar to those in the aforementioned Anglophone countries.

The expansion of civil society appears to be directly related to the strength of both state and market. According to Chazan 5, “Where the reach and capacities of the state diminished dramatically (Liberia, Ethiopia, Mozambique), social groups proliferated but civil society contracted. Where the state attempted to control and exploit productive activity, it indirectly bred associations that rejected its paramountcy (Zaire, Tanzania and Sudan).” Michael Bratton 6 describes the desired relationship between state and civil society as a “love-- hate” one in which neither can be effective without the other.

Within civil society, there is a special niche for organizations representing business interests. Thus far in Africa, where civil society has played any significant role in economic policy debates and decisions, it is because of the role of organized commercial elites. This fact has led one observer to declare that “the business bourgeoisie constitutes the spine of civil society.”

44

The pluralization and fortification of associational life supports both democratization and economic reform efforts in Africa. The critical issues are how to support the autonomy of organizations with civic propensities, how to bolster organizations that are part of civil society at the expense of those with other objectives, and how to strengthen the civic propensities within existing organizations. Supporting civil society involves several dimensions: direct institutional assistance, a general improvement in communications and the free flow of information, and enhancing state capacities to respond to and manage the demands presented upon government by an active civil society. It is important to remember that civil society is a substitute for neither state nor market, but an important facilitator of both.

B. Establishing the Institutional Foundations for Markets Markets involve institutions that must be developed. As discussed earlier, one of the explanations for the limited impacts of policy reform efforts so far undertaken in sub-Saharan Africa are that the legal and institutional foundations for free and efficient markets are weak or absent. At independence, African states inherited a set of fragile market-oriented institutions that had been set up to support colonial trading interests. With very few exceptions, in the course of the post-colonial transition, these institutions failed to survive as instruments promoting economic development. Instead, they were transformed into apparatuses that 1) consumed the surplus they extracted, 2) encouraged private actors to shift from efficient productive activities to unproductive rent-seeking, and 3) failed to provide public goods7.

Because the underlying conditions in Africa are so difficult, many markets do not work well. A 1992 World Bank review of its projects in agricultural marketing decried the lack of attention given to the institutional side of market development, issues such as market news services, regulated weights and measures, credit for small traders and improved market structures8. A defining characteristic of the weak institutional context for markets in Africa is poor information about the quality of goods, services, risks, and people.

45

The lack of an institutional foundation for market-based development has directly constrained the impact of policy reforms undertaken under structural adjustment programs in Africa. The Cornell study

9

cites a number of examples of

this. The lack of access to credit, weak information, and the lack of credibility of government policy largely explain the failure of the private sector to make a market for fertilizer after deregulation in The Gambia. In Guinea, poor infrastructure and the lack of credit and effective information flows similarly constrained the availability of domestic rice despite improvement in producer incentives. These examples highlight the need for the development of market institutions to supplement policy reform and the disengagement of the former structures of state regulation and control. Fair and efficient markets do not occur by accident; they are the products of intelligent laws and public policy, and effective cooperations between government and the private sector.

What are the key elements of the institutional foundation for markets? A number of these are general and apply for all countries; others are especially relevant for underdeveloped countries, while others are especially concerned with the transition to a market-based economy. First and foremost is a well-functioning legal system, with clear and simple procedures for enforcing contracts and for defining and defending property rights. Second are capital markets and systems of banking and credit provision that can intermediate savings and effectively enforce rules of repayment. Generally, the development and deepening of capital markets depends upon a stable, and credible, currency. Third are systems for ensuring ample market information on prices, availability, and quality of goods and services, capital and labor. Finally, an infrastructure that effectively links producers and consumers and provides reasonable transportation and communication costs is needed to facilitate both domestic and international trade.

In African countries, where domestic markets are thin and where international economic fluctuations can wreak havoc with production decisions, effective mechanisms for regulating and guiding non-competitive markets are also needed, as are instruments for some degree of price stabilization. This is despite the 46

fact that most African institutions that were initially designed for these roles have played them very poorly. Oversight of financial and technical standards is an area in which African countries are especially weak.

For countries making the transition to a private sector and market-based economy, as are many in sub-Saharan Africa, there are special institutional needs.

The first is a capacity to both create a level playing field and to implement and monitor the process of privatization and liquidation of hitherto public sector enterprises. The second is an institutional capacity to aggregate and articulate private sector needs and interests. In the absence of such a voice, the public sector is almost invariably going to make large errors, and the private sector will be less likely to shift their own behavior away from seeking special favors and other forms of rent-seeking to attempting to influence the policy and institutional environment.

The transition to a market-based economy also needs the institutional capacity to ensure the fairness of initiatives undertaken in the transition. Especially important here are credible instruments to prevent the politically well-placed from gaining privileged access to assets, and procedures to prevent and punish collusion and other restrictive business practices. Such instruments are expensive and difficult to create. In purely economic terms they might not appear to be worth the effort; but their political impact is likely to be important for sustaining the transition to a market economy.

Finally, one of the institutional foundations for the market is the existence of effective instruments of poverty alleviation and social service provision. Especially in sub-Saharan Africa, where traditional cultures put great emphasis on reciprocity and equity, market-oriented economic reform initiatives are unlikely to be sustained in the absence of explicit institutional mechanisms to address these themes.

C. Changing the Role of Government This discussion of the institutional foundations for markets suggests that creating the environment within which markets and the private sector can grow and multiply necessitates a significant, if limited, continuing role for government. This presents a serious dilemma for those committed to African development. As discussed earlier, one of the lessons of African development is the central role that 47

bad government played in causing developmental failure10. In the 1980s, the pervasiveness of the consensus about bad government stretched across the ideological spectrum, leading conservatives to turn to laissez-faire, “rule-driven� policies, and the private sector as alternatives to government-directed development, while liberals saw the answer in the informal sector and the expansion of the activities of NGOs. The anti-government mentality reigned.

But, like it or not, government remains central to the process of structural change in Africa, including such changes whose central themes are to reduce the role of the state. In every developing country (including in Africa) where economic reform measures have been undertaken, state managers have played a vanguard role in initiating them.

Ironically, the transition to a private sector-led, and politically and institutionallypluralist, economy in Africa will demand a significant and effective government role.

Dismantling the state is not the answer, it must be reconstructed. Transforming the state from a major part of the problem to an important part of the solution must be a central item on the agenda for sustaining the process of economic reform in Africa.

Successful economic reform requires consistent and skilled macroeconomic management, effective public implementation of the privatization process, new efforts to protect the environment, regulations and policies that promote and protect competition, and sophisticated creation and oversight of capital markets and the financial system17. In the past, neo-patrimonial African development dictatorships have been incapable of undertaking these tasks. While political liberalization does not automatically generate an improved context for achieving these aims, it does create the opportunity to seek real changes in the ways that governments operate in Africa.

For free-market reforms to work, state effectiveness must improve. This involves more than articulating the right policies or putting appropriate laws and regulations on the books. A recent Center for International Private Enterprise assessment of the extent of policy reform in developing countries placed many African states on a policy par with a number of Latin American and Asian reforming states. But, in Africa, where good policies exist they are only partially and 48

ineffectually implemented; and where appropriate laws are on the books, they usually coincide with cumbersome and corrupt judicial systems.

Reconstructing government is, both technically and politically, a much more difficult task than paring back the predatory state. As David Sahn 11 writes, “Cutting government expenditures is easier than identifying constraints to growth and bringing about the changes required to ensure their relaxation.� The scope of the challenge is no less than transforming the budget, and indeed the public sector in general, into an instrument to promote development. Arturo Israel

12

of the World

Bank has highlighted the four key positive public sector functions that are crucial for facilitating the transition to a market-driven, private sector-led economy.

The first is the capacity to design, monitor and implement a consistent set of macroeconomic and sectoral policies. As market and financial liberalization progress, this function becomes more important as governments lose the capacity to mask and stretch out the costs of fiscal indiscipline, inappropriate exchange rate management, and monetary expansion. According to Israel, if this capacity is not in place, nothing else will work very well. In Africa, the strengthening of macroeconomic policy analysis has generally not been effectively linked to efforts to strengthen policy reform implementation and management, especially in the area of fiscal and budgetary policy.

The second function is the capacity to provide a conducive enabling context for the private and public sector activities that will operate in competitive environments. This involves three main sub-categories. The first is dismantling the disabling environment, in particular, modifying or eliminating the functions of state agencies that controlled and dominated the private sector. Key areas here are customs, foreign exchange controls, industrial licensing, and financial controls, among others. The second is the effective maintenance of the level playing field by regulating non-competitive markets and enforcing financial and technical standards.

The third is the effective promotion of key sectors, be it export promotion or enhancing domestic food production.

The third function is the capacity to privatize wisely and effectively.

Privatization programs have been too narrowly focused on divestiture.

49

Governments need to be able to develop a broader range of options that reflect the reality of very slim markets and high political costs. This involves the preparation of a strategic plan, as well as the capacity to prepare the units for sale or leasing, to ensure the fairness and transparency of transactions, and to implement a public awareness campaign to manage the inevitable political tensions that privatization entails. Finally, governments need the capacity to operate more effectively the enterprises that will remain in the public sector.

The fourth function is the capacity to conduct an effective dialogue with the private sector. In Africa, even those technocrats who have been at the forefront of economic reform efforts have tended to look skeptically at the private sector. Even worse, key public sector agencies that interact with the private sector have looked at business people with a view to control rather than looking at them as clients with needs and preferences, and with a voice that must be taken into account.

In order to achieve these functions, the structures and procedures of African governments will need to be transformed. The political changes now sweeping Africa create conditions in which fundamental changes may be possible13. In general, civil service reform is a sine qua non for changing the role of government.

The new functions of government require a far smaller number of staff, but a staff with relatively higher skills and training than those that now inhabit most African public services. Some government agencies need to be disbanded while new agencies or units must be created.

A crisis of public incentives plagues African countries. Real wages in the public sector have fallen dramatically. Pay and performance have virtually no connection. As a result public performance atrophies and the fiscal crisis deepen.

The rise in employment opportunities in international agencies, and in local consulting for various donors including USAID, has made remaining in public service financially irrational for honest individuals.

African countries face a classic chicken and egg problem. Public performance cannot be improved until professional and technical staffs have incentives to put their full efforts into their work. Yet, these incentives cannot be created until budgetary resources increase. Those increases can only come from improved 50

revenue capacity and broad-based civil service reform. But the former will be the result of improved performance, while the latter is both technically complex and politically challenging.

This dilemma cannot be resolved without donor assistance and support. But new donor efforts in this area will have to go beyond past efforts to improve public administration. These efforts have stressed training, institution building, foreign advisors and better equipment, but have tended to ignore incentives and the realities of the broader organizational and economic environments within which specific agencies operate.

D. Improving Technical Capacity for Policy Implementation There is a broad consensus that implementation problems are a major weakness in African reform efforts. Obviously, economic reform must be effectively implemented before it can be sustained!! Donors have paid little attention to enhancing technical capacity to actually implement reform programs. This was partially driven from the belief that African governments should take “ownership” of reform programs. But it often created a situation in which government was left to implement activities that they were only peripherally involved in designing. It is not surprising that implementation has been so problematic.

Much recent donor effort, including by USAID, has gone into enhancing the technical capacity of African governments in the area of policy analysis. The rise of structural adjustment created a huge demand for economic policy analysis to inform the specifics of adjustment programs. But, in practice, much of the policy analysis capacity generated in the 1980s was either lost in human capital flight (for instance, 18 out of 24 mid-level technocrats trained under HIID's project in the Kenyan Ministry of Planning have left government for various multi-lateral agencies), became the source of artifacts to be manipulated in the game of conditionality, or reinforced the “top-down” decision-making style and exercise of authority that dominated African states.

51

As discussed earlier, donor strategies often sought to insulate technocrats from their political constituencies and superiors as a tactic to promote more effective policy outputs. Where conditionality was effective, such an approach could work in the short-term. But, the experience in Africa has been that in the longer-run technocratic insulation almost invariably losses out to political considerations.

Recent experience suggests that a very different concept of the political role of technocrats and of policy analysis is needed. Arturo Israel

14,

in his review of

successful cases of policy formulation and implementation, suggested that what facilitated success was not technical insulation but effective communication among policy analysts, between policy analysts and political decision-makers, and discrete organizational linkages between analytical units and relevant bureaucratic apparatuses responsible for implementation. Similarly, Ka and Van de Walle

15,

in

their study of adjustment efforts in Senegal, found that the technical team led by Mamadou Toure was so effectively “insulated” that it lacked any real sense of the organizational consequences and feasibility of what it proposed, and lacked the political linkages into the bureaucracy to leverage effective implementation.

A recent comparative study of the politics of economic adjustment emphasized the theme of “embeddedness” in enabling capacity-building efforts to be successful. Embeddedness refers to the needn for technocrats to be able to understand, and work within, the political constellations of the state. It also refers to the need for technocrats to establish linkages with the private sector. Reflecting on Asian successful reformers, Peter Evans

16

writes, “Embeddedness is necessary

because policies must respond to the perceived problems of private actors and rely in the end on private actors for implementation. A concrete network of external allies allows the state to assess, monitor, and shape private responses to policy initiatives, prospectively and after the fact. It extends the state's intelligence and enlarges the prospect that policies will be implemented... Connections to civil society become part of the solution rather than part of the problem.”

In the recent AID-sponsored Center for Strategic and International Studies (CSIS 1992) study of the politics of economic reform in Africa, one of the conclusions was that donor involvement in the reform process was far too front-end loaded, 52

focusing on analysis and conditionality, while much of the difficulty in economic reform came after analysis was completed and conditionality-based agreements were signed. One of the main recommendations of the study was that much more effort be put into facilitating effective implementation of reform programs.

A central part of donor support for improved implementation must be to build local capacity for implementation. This should address not only to the narrowly technical issues involved, but should enhance the capacity of African governments to strategically manage the process of policy implementation. Skills in political/institutional analysis and interventions should be part of this package.

Capacity-building for improved implementation should be informed by Gerald Meier's recent comment: “Development economics is on the edge of politics and on the edge of management. To be more effective in policymaking, it must venture more into each territory.�

Portfolio Flows Highly Variable Net portfolio flows to Sub-Saharan Africa (SSA) dropped substantially in 2008 and, although they are expected to increase in 2009, they are still expected to be below their 2006 and 2007 levels17. It is noticeable how quickly portfolio flows were withdrawn from SSA (Uganda, South Africa, etc), and also that this was against expectations (SSA was supposed to be a safe haven), suggesting a general breakdown in trust.

53

Figure 4: Capital Inflows to sub-Saharan Africa, 2000-2009 (US$ bn)

Source: IMF Regional Economic Outlook.

54

Seven

Towards A New Foreign Policy A new foreign policy toward Africa must begin by acknowledging efforts Africans are making to reverse the negative legacies. A good first step would be the recognition that many of the failed development projects strewn across the African landscape have “made in the USA”—or at least “not made in Africa”—labels. The U.S. programs should open the door for local leadership, male and female, to design their own development, even though they must still look to outside funds in the short term.

The U.S. and other lenders must give at least 50 percent debt reduction or total debt relief to the poorest countries. According to the World Bank 1, 15 of the 20 countries worldwide caught in the debt trap are in Africa. In fact, the exceptions are easier to list: only Botswana, Libya, and Mauritius can address their debts without assistance.

In 1991 the seven leading developed nations (the G-7 countries) agreed that Africa deserves special attention, including cancellation of debt and new financial flows2. But no comprehensive solution has been implemented. Proposed World Bank and IMF debt rescheduling schemes both continue to be tied to debilitating structural adjustment programs and fall far short of levels needed3. External assistance to Africa—whether investment, trade concessions, or aid—should not be tied to structural adjustment policies. The U.S. and international finance institutions must now balance free market ideology with public investment—in human resources development.

At a time when even the World Bank is reviewing its structural adjustment policies, Washington remains committed to these same failed prescriptions. The Clinton administration’s “Comprehensive Trade and Development Policy for Africa,” unveiled in February 1996, has been widely criticized by investors, diplomats, analysts, and Africa activists4. A coalition of 18 Africa-focused NGOs charged the policy “adopts a one-size-fits-all approach to development” and is based on an

55

“unambiguously favorable depiction of structural adjustment policies...the many flaws of which have repeatedly been identified.”5 The stated objective of Congress to foster “equitable, participatory, sustainable and self-reliant” development that benefits Africa’s “poor majority” is at odds with its mandates to promote the private sector and reduce central governments. Increased inequity never promotes democracy, and women and children suffer the most. While humanitarian and food aid should not be conditioned, some African leaders suggest that development assistance might be linked to reductions in military expenditures or protection of basic human rights.

It is important that U.S. policies foster African efforts to expand food crop production by small farmers. U.S. policy should enhance food self-sufficiency, not dependency on grain imports. The U.S. should also help implement land reforms badly needed in many parts of the continent, especially southern Africa. The U.S. should reverse its opposition to the reasonable suggestion by former UN Secretary General Boutros Boutros-Ghali that developed countries lower tariffs for African products and help finance commodity-diversification programs in Africa.

Further, the U.S. cannot call for globalization of the market while ignoring the credit, technical assistance, and participatory development programs needed by women to sustain their families. Women’s exclusion from decisions and unequal access to education, credit and land is not only an egalitarian or humanitarian question; their inclusion is also central to reducing the numbers living in absolute poverty and to production growth. AID’s micro enterprises, like similar World Bank and IMF programs that are intended to benefit women, must be thoroughly revamped. These programs have been widely criticized by NGOs as wholly inadequate palliatives that often charge exorbitant interest rates and, more fundamentally, ignore the economic dislocation resulting from structural adjustment policies and rapid economic globalization.

The impoverishment of Africa is not simply the result of policy failures, either by African governments or by foreign ones. Much can be attributed to Africa’s position in the international economy. No one African government will be able to “lift itself up by the bootstraps” unless the U.S. and the international community 56

adopt policies that provide the boots. U.S. policy should act more responsibly in its role as a global leader by backing new measures that stop the marginalization of the African continent and back efforts to ensure that African nations achieve a more secure and equitable place in the world economy.

57

Eight

Conclusion The basic framework for success already exists via the AGOA, MCA, and other collateral programs. There are some minor course adjustments that may warrant consideration; unity of effort should be facilitated in the private sector. This includes continuing formal efforts to leverage opportunities to create public-private sector alliances in the U.S. and vigorous pursuit of opportunities to partner with indigenous NGO’s and private enterprise in Africa. Emphasis should be on the health, agriculture, and education sectors. The State Department should engage in some degree of “strategic monitoring” of these activities to facilitate a unity of effort where appropriate.

There should be a search for targets of opportunity. Continue deliberate efforts to “fix” designated anchor countries (South Africa, Nigeria, Kenya, and Ethiopia) identified in the National Security Strategy, but be willing to pull in other nations that may offer window of opportunity for intervention. Recent events in Liberia stand out as one example of an opportunity lost, especially since the rhetoric of the parties in conflict seemed to favor our involvement as an honest broker. In cases where use or show of military force is warranted to boost this process, it should be pursued. All actions should of course have some degree of regional and international support.

Bilateral debt should be forgiven. Debt forgiveness will provide countries an opportunity to allocate funds to improve critical infrastructure and provide a much needed stimulus to investment recovery and economic growth. The U.S. should lead by example in this endeavor. Debt forgiveness should be subject to clear and specific conditions. Recipients should be put on notice that forgiveness would be a one time opportunity based upon bilateral agreement on a plan of action for economic recovery. Future aid should be tied to a good faith effort to institute economic reform.

It is incumbent on the U.S. to provide the global leadership to assist the nations of Africa. The National Security Strategy demands it, and much of the world 58

expects it. There is, however, no quick fix. The quest for political and economic freedom, peaceful relations with other states, and respect for human dignity will take patience and resoluteness of purpose. U.S. interests in preventing terrorism, drug trafficking, the spread of AIDS and environmental degradation are significant in Africa and are best met by providing greater economic opportunity for all Africans. While U.S. short or mid term interests in Africa may not rise to the vital level, one could argue that there are vital interests for many of their key partners in Europe and Asia, partners they rely on for as they pursue other U.S. objectives world wide. Additionally, China, a potential peer competitor in the out years, has pursued significant bilateral trade and investment opportunities since the 1990’s in an effort to increase its economic and political influence in the region. While it is also incumbent on less developed nations to vigorously address their core issues, and wealthy nations to lend a hand, internal efforts and international interventions are less likely to succeed without the forceful leadership of the United States. This is a strategy that must remain consistent through many administrations to come.

59

NOTES Introduction 1. Staying the Course: U.S. – Africa Relations -Melvin Ayogu, The Brookings Institution June 30, 2011, p. 12.

2. The Africa Growth and Opportunities Act: Toward 2015 and Beyond - Mwangi S. Kimenyi and Robert Chutha The Brookings Institution June 02, 2011, p. 33.

3. Improving AGOA: Toward a New Framework for U.S.-Africa Commercial Engagement The Brookings Institution June 01, 2011, p. 41.

4. Pradin Jecob. 2008. Economics of growth. In A survey of contemporary economics, ed. B.F. Haley. Homewood, IL: Richard D. Irwin, p 22.

5. Noghan, Pevro., and K. Howitt. 2006. Endogenous growth theory. Cambridge: MIT Press, p. 8.

6. Sandra, Peras. 2010. Determinants of economic growth: A cross-country empirical study. Cambridge: MIT Press, p. 55, 61.

Chapter 1 1. See in particular JP Morgan Chase Global Economic Research at http://www. jpmorgan.com/pages/jpmorgan/investbk/research/global_economic_research.

2. En.wikipedia.org 3. Peter Wehrwein, “The Economic Impact of AIDS In Africa,” Fall 2003; Conami publishing company, p. 13.

4. Ibid.., p. 15.

5. Ibid.., p. 17.

6. Ibid.., p. 24.

7. Sunday Dare and Akin Jimoh, “Out of the Ashes,” Dollar & Sense, (May 2001): [database on-line]; available from Look Smart Find Articles; accessed 12 December 2003.

8. Ibid 9. Centers for Disease Control and Prevention, “Economic Costs of AIDS,” 23 July 2003; available from http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK: 0120895~menuPK:

34457~

pagePK:34370~piPK:34424~theSitePK:4607,00.html>;

Internet; accessed 12 November 2003.

60

10. Centers for Disease Control and Prevention, “HIV/AIDS Epidemic Hits Food Output in Africa,” 1 July 2003; Menal press LTD, p.4 Bamaco.

11. Ibid 12. Malcolm McPherson, “The Impact on Economic Growth in Africa of Rising Costs and Labor Productivity Losses Associated with HIV/AIDS,” August 2006; p. 17.

13. Ibid 14. Ibid 15. Karen Stanecki, “The AIDS Pandemic in the 21st Century, Draft Report,” Gideon International, p.21 16. Charles H. Cutter, The World Today Series: Africa 2003. (Harpers Ferry, WV: Stricker Post Publications, 2003), 243.

Chapter Two 1. David Newsom, “U.S. and Africa in the Post -Cold War Era,” The Washington Quarterly1 (Winter 1990), 104; quoted in Jeffrey Herbst, U.S. Economic Policy Toward Africa, (New York, NY.: Council on Foreign Relations Press, 1992), 6.

2. Peter Schraeder, United States Foreign Policy Toward Africa: Incrementalism, Crisis, and Change, (Cambridge University Press, 1994), 258 3. Jeffrey Herbst, U.S. Economic Policy Toward Africa, (New York, NY.: Council on Foreign Relations Press, 1992), 7.

4. Ibid, 8.

5. Ibid, 10.

6. George W. Bush, The National Security Strategy of the United States of America.

(Washington,

D.C.:

The

White

House,

September

2002),

available

from

<http://www.whitehouse.gov/nsc/nss.html>; Internet; accessed 13 December 2003.

7. “African Growth and Opportunity Act (AGOA),” available from <http://www.agoa.gov/eligibility/ eligibility.html>; Internet; accessed 13 October 2003.

8. Fergusson 9. Ibid 10. Ibid 11. Overseas Private Investment Corporation, “Mission Statement,” available from 61

<http://www.opic.gov>; Internet; accessed 12 January 2004.

12. Ibid 13. Export-Import Bank of the United States; “2002 Annual Report,” available from <http://www.exim.gov/about/reports/ar/ar2002/index.htm>;

Internet;

accessed

12

December 2003.

14. U.S. Trade and Development Agency, “2002 Annual Report,” available from <http://www.tda.gov/abouttda/report2002/index.html>; Internet; accessed 12 November 2003.

15. The White House, “African Policy,” available from <http://www.whitehouse.gov/ infocus/africa>; Internet; accessed 15 October 2003.

16. Ibid 17. Office of the United States Trade Representative, “2003 Comprehensive Report On U.S. Trade and Investment Policy Toward Sub-Saharan Africa and Implementation of the African Growth and Opportunity Act,” available from <http://www.ustr.gov/reports/ 2002 agoa.PDF>; Internet; accessed 12 January 2004.

18. Ibid 19. Africa Action, “Africa Policy for a New Era: Ending Segregation in U.S. Foreign Relations,”

January

2003.

Available

from

<http://www.africaaction.org/featdocs/afr2003.pdf >; Internet; accessed 15 January 2004.

20. Dare 21. Ibid 22. Carol Adelman, “The Privatization of Foreign Aid: Reassessing National Largesse,” Foreign Affairs 82 (November/December 2003): 9. [database on-line]; available from ProQuest; accessed 9 December 2003.

23. Aaditya Mattoo, Devesh Roy, and Arvind Subramanian, “The Africa Growth and Opportunity Act and its Rules of Origin: Generosity Undermined?,” 11 October 2002; available

from

<http://econ.worldbank.org/view.php?type=5&id=20742>;

Internet;

accessed 12 December 2003.

24. Mattoo

62

25. The Africa-America Institute, “African Perspectives on the Trade Bill,“ available from <http://www.aaionline.org/whatwedo/whatAfricaPerspagoa.asp>; Internet; accessed 14 October 2003.

26. Felix Edoho, Globalization And The New World Order: Promises, Problems, and Prospects For Africa In the 21st Century (Westport, CT; Praeger, 1997), 8 27.

Douglas Tilton, “U.S.-Africa Economic Initiatives,” May 1998; available from

<http://www.fpif.org/briefs/vol3/v3n11af.html>; Internet; accessed 16 October 2003 28. Boutros Boutros-Ghali, “The Marginalization of Africa.” Mediterranean Quarterly. [journal on-line]; available from <http://users.erols.com/mqmq/Ghali.htm>; Internet; accessed 9 December 2003.

29. Ibid 30. Action 31. Action 32. Ibid 33. Fergusson 34. Ibid 35. Ibid 36. Ibid 37. Ibid 38. Ibid 39. Ibid 40. Ibid 41. Program on International Policy Attitudes, “Americans and the World,” 2 April 2003. available from <http://www.americans-world.org>; Internet; accessed 6 November 2003.

42. Ibid 43. Ibid 44. Ibid 45. Ibid

63

Chapter Three 1.

Mwangi

S.

Kimenyi,

Director,

Africa

Growth

Initiative

Nelipher Moyo, Research Analyst, Global Economy and Development, Africa Growth Initiative. The Brookings Institution, July 06, 2011.

2. Ibid 4. Ibid 5. Ibid 6. Staying the Course: U.S. – Africa Relations Melvin Ayogu The Brookings Institution June 30, 2011 7. Ibid 8. Ibid 9. Ibid 10. Ibid 11. The Africa Growth and Opportunities Act: Toward 2015 and Beyond Mwangi S. Kimenyi and Robert Chutha The Brookings Institution June 02, 2011 12. Improving AGOA: Toward a New Framework for U.S.-Africa Commercial Engagement The Brookings Institution June 01, 2011 13. Ibid 14. Ibid Chapter Four 1. “World Population prospects” The 2006 Revision" United Nations (Department of Economic and Social Affairs, population division) 2.”Africa Rising” The Economist. 3 December 2011. http://www.economist.com/node/21541015.

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3. http://www.africaw.com/the-future-of-africa-the-new-africa 4. Ibid 5. Ibid 6. Ibid 7. Ibid 8. In eight of the past ten years, Africa has grown faster than East Asia, including Japan.

9.http://www.mckinsey.com/Insights/MGI/Research/Productivity_Competitiveness_and_ Growth/Lions_on_the_move.

10."Mobile

growth

fastest

in

Africa".

BBC

News.

2005-03-09.

http://news.bbc.co.uk/2/hi/business/4331863.stm. Retrieved 2010-01-03.

11. Rice, Xan (2006-03-04). "Phone revolution makes Africa upwardly mobile". The Times (London). http://www.timesonline.co.uk/article/0,,3-2068420,00.html. Retrieved 2010-05-01.

12. Itano, Nicole (2005-08-25). "Africa's cell phone boom creates a base for low-cost banking". USA Today. http://www.usatoday.com/tech/products/gear/2005-08-28-cellbanks-africa_x.htm. Retrieved 2010-05-01.

13. New operator to improve Namibian phone services 14. Christian K.M. Kingombe 2011. Mapping the new infrastructure financing landscape. London: Overseas Development Institute 15.

FAO.

"AIDS

-

a

threat

to

rural

Africa".

Focus

on

the

issues.

http://www.fao.org/FOCUS/E/aids/aids6-e.htm. Retrieved 26 August 2006.

16. See, for example, Frank, A. G. (1979), Dependent Accumulation and Underdevelopment, New York: Monthly Review Press.; Kรถhler, G. and Tausch, A. (2001), Global Keynesianism: unequal exchange and global exploitation, Nova Publishers; Amin, S. (1976), Unequal Development: An Essay on the Social Formations of Peripheral Capitalism, New York: Monthly Review Press.

17. Shaw, Jane (April 2004). "Overlooking the Obvious in Africa" (PDF). Econ Journal Watch.http://www.econjournalwatch.org/pdf/Shaw%20Comment%20April%202004.pdf.

Retrieved 2008-10-01.

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18. Pasour, E.C. (April 2004). "Intellectual Tyranny of the Status Quo" (PDF). Econ JournalWatch. . Retrieved 2008-10-01.

19. Wrong, Michela (2005-03-14). "When the money goes west". New Statesman. http://www.newstatesman.com/Economy/200503140015. Retrieved 2006-08-28.

Chapter Five 1. Shah, Anup (July 2007). "Structural Adjustment—a Major Cause of Poverty.". Global Issues.

2. International Monetary Fund (2009a) The Implications of the Global Financial Crisis for Low-Income Countries. Washington, DC: International Monetary Fund.

3. International Debt Crisis – curriculum materials from a Latin Americanist geographer.

4. "The Debt Threat: How Debt is Destroying the Developing World" – Author Noreena Hertz talks to Democracy Now! on January 13, 2005.

5. UNCTAD FDI on-line database (2009).

6. www.bis.org 7. Colan, Ann- Louide. Africa’s Debt “Africa Action Position Paper” 2001, p.23 8. Ibid.., p. 28 9. Massa, I. and D.W. te Velde (2008) The Global Financial Crisis: Will Successful African Countries Be Affected? Background Note. London, UK: ODI. 10. Ahemt El-Afandi lectures Political and Social Africa Fall 2007.

11. Moseley, William G. Taking Sides clashing views on African Issues Second Edition William G. Moseley. P. 7.

12. The World Bank website (http:www.worldbank.org)

Chapter Six 1. Evenett, S. (ed.) (2009) ‘Broken Promises: A G-20 Summit Report by Global Trade Alert’. London: CEPR. 2. Fosu., A. and W. Naude (2009), Policy Responses to the Global Economic Crisis in Africa, UNU Policy Brief 3, 2009.

3. Naomi Chizan. (2008), An Economic Vulnerability Index: Its Design and Use for International Development Policy, UNU-WIDER Research Paper No. 2008/09, November 2008.

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4. Newfarmer R. and E. Gamberoni (2009) ‘Trade Protection: Incipient but Worrisome Trends’. Trade Note 37, March. Washington, DC: World Bank.

5. Naomi Chizan. (2008), An Economic Vulnerability Index: Its Design and Use for International Development Policy, UNU-WIDER Research Paper No. 2008/09, November 2008.

6. Michael Bretton (2004). The Strategic Role of Food and Agricultural Systems in Fighting Hunger Through Fostering Sustainable Economic Growth. MSU Department of Agricultural Economics Staff Paper No. 94 - 39. East Lansing: MSU. 7. World Bank. 1994. Adjustment in Africa: Reforms, Results and the Road Ahead. New York: Oxford University Press; World Bank.

8. Ibid 9. Can Africa Claim the Twenty-First Century? Washington, DC.: World Bank; Cornell, N. & Staatz, J. 1999 The Impact of Market Reform on Agricultural Transformation in Mali. Paper presented at the Fourth Agricultural Transformation Workshop, Tegemeo Institute/Egerton University and Eastern and Central Africa Policy for Agricultural Policy Analysis, June 27-30, 1999, Nairobi.

10. Ibid 11. David Reinhart (2008), The aftermath of financial crises, Paper prepared for presentation at the American Economic Association meetings in San Francisco, January 2009.

12. "The Debt Threat: How Debt is Destroying the Developing World" – Author Noreena Hertz talks to Democracy Now! on January 13, 2005.

13. Bates, R. & Krueger A. (eds), 2003. Political and economic interactions in economic policy reform: evidence from eight countries. Oxford, Basil Blackwell.

14. Ibid 15. Ka and Vande (2008) Economic Reform and the Poor in Africa. Oxford, Clarendon Press; Jayne, T.S. & Jones, S. 2007. Food Marketing and Pricing Policy in Eastern and southern Africa: A Survey. World Development 25.9: 1505-1527.

16. Peter Evans (2009) ‘State–Business Relations and Economic Growth in Sub-Saharan Africa’. Journal of Development Studies.

17. International Monetary Fund (2009b) World Economic Outlook Autumn 2009.

Washington, DC: International Monetary Fund.

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Chapter Seven 1. Carol Thompson, "Economic Policy Toward Africa" (Washington, DC: Foreign Policy In Focus, January 1, 1997) 2. Ibid 3. Ibid 4. Ibid 5. Ibid

ABOUT THE AUTHOR(s)

Ike Nnia Mba, Sr., holds a PhD in International Affairs and Development with concentrations in International Business Management, Education and Global Development, and Women and Development and Masters (MPA) in Public Administration, Bachelors in Industrial Relations. Heâ&#x20AC;&#x2122;s currently The Special Adviser to The Governor of Enugu State, Nigeria Attorney Sullivan Iheanacho Chime on Diaspora Matters and Special Projects, and been a college professor for the past 15 years both in United States of America and Nigeria. His research interests are in the areas of Developmental Administration and Management and International Business Management, Corporate Social Responsibility, and Multinational Corporations with much emphases on Nigeria and other developing Nations. He teaches on the PhD, MSc, MBA and BSc Management Studies programme. He is also a supervisor of Doctorate students He has published papers in several academic International and National Academic Journals, and has written and awarded some grants.

Co-author,

Jide Chime PhD, MSc (International Relations, MPA (Public Administration, MILD (masters in International Law and Diplomacy, BSc (political Science), Senior Lecturer at Enugu State University of Science and Technology, married with 3 kids

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