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Africa’s Financing Requirements for Attaining the MDGs: President Kabbaj advocates increased ODA flows to Africa; further debt reduction; and improved access for Africa’s exports

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Mobilizing the resources required for attaining the MDGs would require a number of complementary actions. Domestically, there is a need to deepen financial and banking sector reforms to enhance domestic resource mobilization. In addition, more attractive conditions for the private sector would need to be put in place to encourage greater private investment from both domestic and external investors. In particular, as Africa’s share of global foreign direct investment (FDI) remains very low, much would obviously be gained by pursuing appropriate policies and creating the domestic environment to attract larger volumes of FDI to augment domestic savings and investment.

Such efforts will require the support of the international community, if African countries are to make progress towards the MDGs. Support is critical in three areas: increased ODA flows to Africa; further debt reduction; and improved access for Africa’s exports.

With respect to ODA, there is a general increase that it would need to be scaled-up considerably. The Commission for Africa has, for example, called for an immediate doubling of ODA to Africa to $50 billion a year. In addition, it has called for 100 percent debt cancellation and urges rich nations to drop trade barriers and remove agricultural subsidies that hurt poor countries. These have been echoed by the World Bank and the IMF, with these two institutions also arguing that an increasing number of countries have improved their absorptive capacity to use such resources effectively.The Bank’s own estimate indicates that for the 30 or so African countries in need of additional external assistance, and judged to be in a position to use aid effectively, the requisite increase in assistance is in the order of $20-25 billion per annum.

After declining for much of the 1990s, ODA to Africa has risen substantially over the last three years, although much of the increase is accounted by debt relief. This positive trend will need to be maintained, with the goal of doubling of ODA current levels in the next five years. Towards this end, more attention should be given to recent proposals to find innovative ways of scaling up and front-loading ODA. Two important proposals have been tabled in this regard: the first is the proposal of the French Government to consider various forms of global taxation; the second is the International Finance Facility (IFF) proposed by the United Kingdom and supported by France.

More efforts should also be made to improve the efficiency and effectiveness of ODA. At the March 2005 Paris High Level Forum on Aid Effectiveness a number of proposals were adopted to strengthen country ownership and to harmonize donor policies and align them with systems in place in developing countries. The donor community – in close cooperation with developing countries – would need to take urgent action to implement these proposals.

As well as increase ODA and enhance its effectiveness, there is also a need to reduce further Africa’s external debt burden. Much progress has been made in recent years in part due to the HIPC initiative. Of the 32 African countries that were expected to qualify for HIPC debt relief, 23 have so far become eligible and two – Burundi and Congo are expected to qualify in 2005. It is also noteworthy that six countries -- Ethiopia, Ghana, Madagascar, Niger, Senegal, and Zambia -- reached their completion point in the last two years bringing the total to 13. As most of the remaining seven countries are either in conflict or emerging out of conflict, we urge the international community to assist them re-establish peaceful conditions, as well as help them clear their arrears and commence their reconstruction efforts.

With regards to further debt relief measures, we are encouraged by the initiative taken by the United Kingdom to provide additional debt relief on the debts owed by post-completion HIPC countries to the international financial institutions. We urge other countries to support this initiative, as it would release considerable resources for investments aimed at reducing poverty in the low-income countries. In addition, we welcome the decision of the donor community to base future ODA financing terms on an in-depth analysis of debt sustainability to reduce the risk of debt distress in the future. This is expected to result in a considerable increase in the level of grant financing by the international financial institutions.

With respect to external trade, African counties continue to face major impediments in the form of heavy domestic support and export subsidies for agricultural products provided by the industrial countries to their farmers. These have the effect of reducing considerably the export earnings of African countries. In addition, non-tariff barriers are often imposed and African countries face tariff escalation on the exports of processed and manufactured exports, although the AGOA initiative of the United States and the Everything but Arms (EBA) initiative of the European Union have eased some of these obstacles. We are also gratified by the progress made in the WTO July 2004 Framework, which sets out modalities for the elimination of protectionist measures. In this regard, we urge the industrial countries to throw their weight behind the ‘July Framework’ to expedite the speedy fulfilment of the Doha Development Agenda.

Excerpts from  President Kabbaj's address at the 71st Development Committee Meeting  (Joint Ministerial Meeting of the Boards of Governors of the World Bank and the International Monetary Fund on the Transfer of Resources to Developing Countries), 17 April 2005, Washington, D.C.