AFRICA IN THE 21st CENTURY - An analytical overview 6 December 2004
2 Executive Summary The overview analyses challenges and options facing Sub-Saharan Africa (SSA) at the start of the 21st century. It provides an analytical basis for the formulation of a coherent Danish Africa policy, which includes foreign, development, trade and security policy towards Africa. Recent years  have  witnessed  new  opportunities  and  encouraging  developments  in  Africa,  led  by African  countries’  own  initiatives.  A  new  Danish  policy  is  meant  to  support  these  positive developments.  Despite  the  encouraging  signs,  the  challenges  for  peace,  security,  growth  and poverty reduction remain huge. Africa is the continent furthest from reaching the Millennium Development Goals. The African Economy – the challenge of generating growth Economic  growth  is  crucial  to  poverty  reduction.  In  SSA  the  average  per  capita  income  has declined in the 1980s and 1990s. For the majority of the countries, even the most recent growth rates are still too low to reduce the number of extremely poor men, women and children. Private  sector-led  growth  is  fundamental  for  Africa.  A  few  African  countries  have  so  far managed  to  transform  the  good  political  intentions  into  sustainable  changes  that  create  an enabling environment for the private sector. The informal sector of Africa’s economies is still substantial  (often  equal  to  50%  of  GDP),  and  encompasses  both  a  large  share  of  the agricultural activities, micro-enterprises and self-employment in urban centres.   The agricultural sector constitutes the economic backbone of most African countries, and this sector will remain the mainstay of economic growth benefiting Africa’s poor for years to come. Increased  agricultural  production  is  necessary  to  fight  starvation  and  malnutrition,  and  rapid growth in agricultural production and productivity is a precondition for economic take-off and sustained poverty reduction. The agricultural sectors constitute the largest part of the private sector, with agriculture accounting for more than 50% of GDP, over 50% of export earnings, and employing over 70% of the workforce.   Poverty  and  environmental  degradation  mutually  reinforce  each  other.  The  environmental aspects of growth have to be addressed in order to implement sustainable solutions. The HIV/AIDS pandemic represents a major threat to economic development in Africa. Out of the 38 million people in the world suffering from HIV/AIDS approximately 25 million live in  Africa.  Recent  estimates  of  the  macroeconomic  costs  of  HIV/AIDS  suggest  that  the HIV/AIDS related drops in GDP range between 0,3 and 1,5%. Although this appears modest it will translate into larger effects over time. Globalisation  offers an opportunity to integrate  Africa in the world  economy. Some barriers remain   for   increased   international   trade   of   African   products.   Industrialised   countries’ requirements to meet sanitary and phytosanitary standards and related food safety regulations are probably the most difficult hurdles among the many non-tariff barriers confronting African
3 exporters.  African  countries  and  African  exporters  need  to  develop  capabilities  that  ensure conformity with these standards. Closer coherence between trade policies and development and security policies is still needed at global, regional as well as country levels. While the liberalisation of world trade is expected to generate a large global welfare-improvement, it is less likely to reduce poverty in Africa. Free access  to industrialised  markets is not  sufficient to reduce poverty. Preferential arrangements for the next 10-15 years could provide Africa with the window of opportunity to improve the productivity  and  competitiveness  of  African  businesses.  Job  creation  for  unemployed  and discontent youth is another area to focus on. Peace and stability Violent conflicts in Africa affect the lives of millions, and civilians account for more than 90% of casualties in conflict. Conflicts  seriously affect neighbouring  states  and cause instability as well  as  hamper  economic  development  in  the  affected  country  and  in  the  sub-region.  They furthermore often last for more than a decade. Most of Africa’s conflicts occur in weak states with poor political and economic governance and poor development records. The root causes of most conflicts can be traced decades  back, and they are often result of continued lack of development – politically and economically. Development of democracy, good governance and respect for human rights are key aspects of nation  building  to  prevent  conflicts.  Long-term  political  and  economic  commitment  from international partners to assist a country in addressing social, economic and political needs add substantially to conflict prevention.   Responses to conflicts in Africa have been reinforced in recent years by Africa itself. The role of  AU  and  the  regional  organisations  has  been  strengthened  and  is  expected  to  result  in  an operational African Security Architecture. This promising new activism has led to a significant decrease in the number of new, armed conflicts and to new, if still fragile, peace solutions in two major conflict areas.   It  will  be  important  to  increase  focus  on  the  prevention  of  conflicts,  on  building  a  regional framework for effective crisis management in imminent or on-going conflicts in Africa, and on consolidating peace through post-conflict measures. There  are  currently  4-5  million  refugees  and  an  estimated  12-13  million  internally  displaced people  in  SSA.  Influxes  of  refugees  and  migrants  have  large  social  consequences  for  those affected and for the countries receiving them, and it lead to instability with the risk of further conflict. Special attention to this problem has to be part of the effort of resolving conflict and preventing new conflicts. Living conditions for both internally displaced, refugees and the local population are often insufficient, and the capacity to provide protection for refugees is often inadequate. This places a large humanitarian burden on many African countries, and there is no reason to believe that migration figures will decline dramatically over the next decade.  
4 Denmark will become member of the UN Security Council in 2005-2006. One of the Danish priorities  is  security,  growth  and  development  in  Africa.  Experiences  from  the  new  Danish Africa  Programme  for  Peace,  decades  of  experience  in  development  cooperation  and  recent Danish involvement in peacekeeping missions provide strategic guidance to this work. As part of the Danish membership it could be considered to address some of the factors that fuel or are relevant to conflicts in Africa, including natural resources, regional approaches, unemployed and discontent youth, human rights violations, and illegal trade of small arms. Good governance, human rights and democracy Good governance and democracy is a fundamental prerequisite for effective use of resources for  poverty  reduction  and  a  corner  stone  for  nation  building,  peace  and  stability.  There  are encouraging  signs  that  several  countries  in  Africa,  both  individually  and  collectively,  show commitment hereto.  However, economic,  cultural, and  structural factors  tend  to  prevent  the full  implementation  of  good  intentions.  Corruption  is  a  major  problem,  and  long-term solutions will depend not least on the successful implementation of public service reform and procurement regulations. The  means  to  enforce  human  rights  are  often  not  present.  Institutions  such  as  the  courts, police and prison services, human rights commissions, national administrations and parliament do not have the capacity to deal with human rights issues. A strong civil society voice on this matter  has  in  many  countries  been  instrumental  in  pressing  through  some  of  the  necessary improvements.   Denmark  is  generally  considered  a  consistent  and  qualified  partner  in  supporting  good governance; human rights and democratisation efforts and can contribute through development support as well as the bilateral and multilateral political dialogue with African partners. Development of Human Resources Africa  needs  a  more  well-educated  and  healthy  workforce  to  be  able  to  increase  economic growth  for  the  benefits  of  the  poor.  Health  and  education  indicators  are  generally  lower  for Africa than for any other continent and the indicators have shown only marginal improvements over the last three decades. But even when a country succeeds in creating a well-educated and healthy workforce, this development is often undermined by a number of factors, one being HIV/AIDS. The education systems suffer a number of problems and shortcomings due to understaffing, under-funding,  poor  teacher  training  etc.  The  low  quality  of  primary  schools  leads  to  low enrolments, poor attendance and high dropout rates, especially for girls. The education sector is, moreover, heavily affected by the impact of HIV/AIDS, since teachers is a high-risk group. The  health sector of most African countries faces numerous problems  caused mainly by the combination of declining resources in real terms and an escalating disease burden. HIV/AIDS, drug  resistant  malaria  and  other  mainly  preventable  diseases  have  aggravated  this  burden. Furthermore, countries are now facing a double disease burden due to the arrival of “modern”
5 mainly life-style related diseases. At the same time the health situation for the poor is gravely affected by lack of access to clean water and sanitation. Africa is by far the most severely affected region in terms of HIV/AIDS. In many countries, life expectancy is now 40 years or less. African women are at greater risk of becoming infected at  an  earlier  age  than  men.  This  development,  affecting  all  parts  of  society,  poses  a  serious threat to the development process. Gender  inequalities  impose  large  costs  on  the  well  being  of  women,  men  and  children, profoundly affecting their ability to improve their lives. Gender inequalities reduce productivity in farms and enterprises, thus impeding prospects for reducing poverty and achieving economic progress. Denmark has extensive experience in the field of development of human resources based on long-term sector programmes with eight partner countries in SSA and with South Africa.   A coherent approach A  coherent  and  strategic  approach  to  the  challenges  in  SSA  would  contribute  to  a  more peaceful and prosperous Africa. The broad range of challenges for Africa in the 21st century demands  a  multifaceted  and  coherent  approach,  based  on  Africa’s  own  will.  The  new opportunities  can  be  grasped  with  new  initiatives  to  bring  about  security,  growth  and development. The Danish membership of the UN Security Council provides an opportunity to increase the attention towards Africa in the years to come.      
6 CONTENTS 1.    INTRODUCTION .............................................................................................8 2. DEVELOPMENT TRENDS AND GOALS IN AFRICA ............ 10 2.1 RICH IN RESOURCES BUT AT THE MARGIN OF WORLD ECONOMY ...................................... 10 2.2 THE CHALLENGE OF ADDRESSING POVERTY......................................................................... 11 2.3 THE MILLENNIUM DEVELOPMENT GOALS ........................................................................... 12 2.4 ARE THE MDGS ACHIEVABLE IN AFRICA?............................................................................. 13 2.5 POVERTY REDUCTION STRATEGIES AS A WAY FORWARD?.................................................. 15 2.6 THE DANISH CONTRIBUTION TO POVERTY REDUCTION..................................................... 17 3.    THE AFRICAN ECONOMY – THE CHALLENGE OF GENERATING GROWTH.................................................................................. 19 3.1 ECONOMIC GROWTH................................................................................................................. 20 3.1.1 Agriculture as basis for growth ................................................................................................. 20 3.1.2 Private sector development......................................................................................................... 22 3.1.3 HIV/AIDS as barriers to economic development in Africa...................................................... 23 3.2 TRADE .......................................................................................................................................... 23 3.2.1 The EU: Africa’s largest trading partner.................................................................................. 24 3.2.2 Africa’s trade with the United States........................................................................................ 25 3.2.3 Intra-African Trade................................................................................................................. 25 3.2.4 Africa, the WTO and the Doha Agenda ................................................................................. 26 3.3 INVESTMENT AND CAPITAL FLOWS IN AFRICA ...................................................................... 27 3.3.1 Domestic savings and investments ............................................................................................. 28 3.3.2 Tax revenue............................................................................................................................. 28 3.3.3 Remittances ............................................................................................................................. 29 3.3.4 Foreign Direct Investment......................................................................................................... 29 3.3.5 Official Development Assistance ............................................................................................... 30 3.4 DEBT............................................................................................................................................. 31 3.5 THE ENVIRONMENTAL DIMENSION ........................................................................................ 32 3.5.1 Urban Environment ................................................................................................................ 33 3.5.2 Natural Resource Management ................................................................................................ 33 3.5.3 Renewable Energy.................................................................................................................... 34 3.5.4 Climate change......................................................................................................................... 34 3.6 THE DANISH CONTRIBUTION TO THE STRENGTHENING OF AFRICAN ECONOMIES....... 35 4.    PEACE AND STABILITY ............................................................................36 4.1 THE CONFLICT SCENARIO......................................................................................................... 37 4.2 CAUSES OF CONFLICTS IN AFRICA ........................................................................................... 38
7 4.3 RESPONSES TO CONFLICTS IN AFRICA .................................................................................... 41 4.4 SECURITY SECTOR REFORMS AND AFRICAN SECURITY ARCHITECTURE ........................... 42 4.5 THE LICUS INITIATIVE............................................................................................................. 44 4.6 CONFLICT PREVENTION............................................................................................................ 44 4.7 DANISH CONTRIBUTIONS TO PEACE AND STABILITY IN AFRICA ........................................ 45 5.    GOOD GOVERNANCE, HUMAN RIGHTS AND DEMOCRACY. ..........................................................................................................47 5.1 BRIEF HISTORY AND POLITICAL CULTURE.............................................................................. 47 5.2 AN APPROACH TO ANALYSING GOVERNANCE IN AFRICA ................................................... 50 5.3 PUBLIC SECTOR REFORM ........................................................................................................... 51 5.4 ANTI-CORRUPTION..................................................................................................................... 53 5.5 DECENTRALISATION.................................................................................................................. 54 5.6 DEMOCRATISATION ................................................................................................................... 54 5.6.1 Constitutional reform ............................................................................................................... 54 5.6.2 Elections.................................................................................................................................. 55 5.6.3 Political parties ........................................................................................................................ 55 5.6.4 Parliament............................................................................................................................... 56 5.6.5 Security Sector.......................................................................................................................... 56 5.6.6 Independent institutions............................................................................................................ 57 5.6.7 Civil society.............................................................................................................................. 57 5.7 ACCESS TO JUSTICE AND THE RULE OF LAW........................................................................... 58 5.8 PROMOTION OF HUMAN RIGHTS.............................................................................................. 59 5.9 SUPPORT FOR INDEPENDENT MEDIA...................................................................................... 60 5.10 REGIONAL AND INTERNATIONAL INSTRUMENTS ............................................................... 61 5.11 DANISH EXPERIENCES: MAINTAINING A DIALOGUE ON GOVERNANCE......................... 61 6.    DEVELOPMENT OF HUMAN RESOURCES ..................................64 6.1 EDUCATION................................................................................................................................. 64 6.2 HEALTH........................................................................................................................................ 67 6.3 FACTORS EFFECTING HUMAN RESOURCES ............................................................................. 69 6.3.1 HIV/AIDS .......................................................................................................................... 70 6.3.2 Migration ................................................................................................................................ 71 6.3.3 Gender dimension .................................................................................................................... 73 6.3.4 Vulnerable groups.................................................................................................................... 73 6.4 DANISH CONTRIBUTIONS TO DEVELOPMENT OF HUMAN RESOURCES.............................. 74 7.    A COHERENT APPROACH ......................................................................75 ABBREVIATIONS...................................................................................................77
8 1. Introduction Recent years have seen new opportunities and encouraging developments in Africa. A number of  African  countries  have  initiated  ambitious  reform  programmes  that  clearly  provide  an opportunity for the private sector to thrive and which offer a durable starting point for strong growth.  African  leaders  and  institutions  have  shown  a  new,  collective  will  to  address  the continent’s conflicts and to significantly reduce their number and severity. In a growing number of  African  states,  basic  democratic  principles  are  being  entrenched.  Significant  progress  has been achieved, and the experience has generated new strategies and models to be applied Africa is a continent in the process of change. Led by African countries’ own initiatives, the possibility  now  exists  in  a  majority  of  African  countries  to  reverse  the  downward  spiral  of earlier decades.   Nevertheless,  the  challenges  remain  enormous.  Poverty  remains  profound  and  inequality  is widespread.  Peace  and  stability  are  often  fragile,  as  tensions  persist,  and  political  corruption, violence  and  oppression  are  still  common.  Each  year,  millions  of  Africans  die  from  diseases that  are  curable  by  simple,  well-known  treatments.  Africa  is  the  continent  furthest  from reaching the Millennium Development Goals (MDG’s), and the challenges here are greater than for any other continent. Internationally,  there  has  been  increased  focus  on  the  African  challenges.  Within  the  overall priorities for Danish development assistance 2005-20091, the Danish Government has decided to  launch  a  forward-looking  Danish  Africa  policy  that  addresses  these  opportunities  and challenges. With more than 40 years of development experience in sub-Saharan Africa – and a current focus on eight programme countries - Denmark has an obligation and natural part in assisting  Africa  in  its  pursuit  of  the  MDGs.  There  are  several  instruments  available  for  this purpose,  since  Africa  receives  approximately  60%  of  Danish  bilateral  assistance.  Danish membership of the UN Security Council in 2005-2006 provides another relevant framework for pursuing an agenda for Africa.   In  accordance  with  Government  priorities,  a  broad  coherent  policy  is  necessary  in  order  for Denmark   to   effectively   contribute   to   poverty   reduction   by   supporting   the   many   new possibilities for renewed economic growth and development in Africa and to tackle the difficult challenges that the continent still faces. The purpose of this analytical overview is to provide a solid basis for the formulation of such a coherent policy, which must include instruments of foreign policy, development policy, trade policy and a security policy towards Africa. The geographical area covered by this analysis will be Sub-Saharan Africa (SSA), and statistical data will relate to this group of 48 countries. This demarcation does not ignore the importance of relations between Sub-Saharan countries and North Africa or the role that North African countries play in the regional organisations, and these countries will be drawn into the analysis 1’Security, Growth – Development, Priorities of the Danish Government for Danish Development Assistance 2005-2009’, August 2004
9 where relevant. However, the situation in the countries of North Africa is affected by a number of distinct economic, cultural and political factors that set them apart from the rest of Africa.   At  the  same  time,  selecting  SSA  as  the  area  of  focus  does  not  imply  that  SSA  is  a  uniform group  of  countries  for  which  a  single  social  concept  can  be  assumed  or  a  standard  solution applied.  It  should  be  noted  that  the  term  ‘Sub-Saharan  Africa’  covers  48  highly  different countries with a total population of approximately 700 million. Each of these countries faces their  own  challenges.  Each  African  country  has  its  own  unique  historical  background,  social conditions,  political  structure,  etc.  Lessons  and  conclusions  drawn  from  the  analysis  should therefore be applied in the specific regional and national context. According to Danish Government priorities, Danish Africa policy takes its point of departure in the development plans of the African countries themselves. Within the overall objective of poverty   reduction   the   aim   is   to   create   sustainable   economic   growth,   support   regional cooperation,   assist   the   African   countries   in   resolving   conflicts,   promote   human   rights, democratisation  and  good  governance,  and  improve  social  conditions  –  children’s  schooling, combating HIV/AIDS and other diseases – and enhance the possibilities of African exporters to  sell  their  goods  competitively  on  the  world  market. 2 At  the  same  time  it  is  necessary  to enhance  the  environmental  sustainability  so  as  to  secure  the  desired  global  stability  and development. The chapters deal with key aspects of these development objectives. Chapter  2  of  this  analytical  overview  presents  the  overall  economic  trends  for  Africa  with special emphasis on the poverty issue and on the goals and strategies formulated to address this challenge. Chapter 3 provides an analysis of key issues relating to Africa’s economic potential, including growth, trade, investments, development assistance and the environmental dimension. Chapter 4 analyses the dynamics of conflict in Africa and the challenges posed by conflicts to development. Chapter 5 examines the state of governance in Africa and its importance for pursuing poverty reduction in African countries. Finally,  chapter  6  focuses  on  education  and  health  as  central  factors  in  developing  human resources. 2’Security, Growth – Development, Priorities of the Danish Government for Danish Development Assistance 2005-2009’, August 2004
10 2.   Development trends and goals in Africa Africa  is  in  many  respects  a  rich  continent  –  rich  in  raw  materials,  natural  resources,  and biodiversity. It has a diversity of cultures and a large and young population pursuing a myriad of livelihood strategies. In income terms, however, Africa is not wealthy, and the number of poor people is substantial - and growing.   When assessing the overall situation in Africa, it is important to consider historical and external factors as well as those factors internal to the countries themselves   2.1 Rich in resources but at the margin of world economy Favourable natural conditions for agriculture exist in large parts of the continent, and several African  countries  are  rich  in  natural  resources  such  as  water,  arable  land,  fish  stock,  forest products including timber, diamonds and other precious stones and metals as well as fossil fuels as oil and coal. Some regions contain an abundance of flora, fauna and wild life found nowhere else in the world. Although highly varying precipitation and soil degradation in some countries threaten the conditions for agriculture, and natural disasters in the form of drought and floods occur  regularly,  the  overall  picture  is  not  that  of  a  continent  deprived  of  basic  natural conditions for feeding its population and extracting a development dividend from sustainable management of natural resources. Nevertheless, it is a  general feature of  many  African countries  that  a large  share of  the  total agricultural production is used for consumption, while export earnings depend on a few (often only one or two) unprocessed agricultural commodities or minerals. One of the very few new growth sectors is tourism, often based on sustainable practices. In 2001, manufactured goods accounted for only 33% of total exports (27% if South Africa is excluded), while the remaining exports consisted of  unprocessed commodities. Although  the  share of manufactured exports has nearly doubled since 1990, it is still much lower than that of any other region of the world. The level of processing which takes place also remains very low. For some countries in Sub- Saharan  Africa,  oil  presents  another  window  of  opportunity,  although  the  magnitude  of  oil reserves  is  less  significant  on  a  global  scale3.  Gas  reserves  could  likewise  become  a  greater source of income. The world demand for those commodities traditionally exported from Africa is either growing very  slowly  or  declining.  The  supply  has  exceeded  the  demand  and  this  trend  has  been strengthened as new producers have turned up e.g. in South East Asia. For some commodities, such as coffee, the supply has increased significantly. The stagnant demand and the increasing supply   have   resulted   in   declining   prices.   World   market   prices   for   traditional   African commodities have fallen between 40% and 60% over the three decades 1970-2000 (except for tobacco and petroleum). These historical trends – a structural decline in commodity prices over time  -  are  likely  to  continue  and  leave  little  room  for  export-led  economic  growth  unless 3Sub-Saharan Africa oil reserves account for 35-50 billion barrels of the world’s 1000-1200 billion barrels. Reference: www.eia.doe.gov. Figures may be underestimated.
11 African countries start to both diversify the production and add value. Even with falling terms of trade, countries outside Africa (like Vietnam) have been able to achieve high growth rates in export  revenue  from  traditional  commodity  exports  through  expanded  production,  increased productivity and processing. Falling commodity prices should therefore not be an excuse for not increasing efficiency and better management in export production. Excluding  Nigeria  (a  major  oil  exporter)  and  South  Africa,  SSA  countries  exported around $11 billion worth of commodities in 1999. If the real prices of commodities had remained constant between 1970 and 1999, African export levels in 1999 would have been $30 billion. The $19 billion loss owing to the fall in commodity prices was about twice the amount received by Africa in foreign aid in 1999. Rich countries subsidise their farmers to the tune of $320 billion a year, a sum close to Africa’s annual GDP. A  key  aspect  of  the  international  terms  of  trade  for  Africa  is  the  existence  of  subsidies  on production   in   industrialised   countries   on   products   where   developing   countries   have   a comparative advantage, such as sugar and cotton. The abolition of these production and export subsidies  is  likely  to  result  in  higher  world  market  prices,  providing  African  producers  with higher  prices  for  their  agricultural  exports.  The  removal  of  subsidies  given  to  American  and European cotton farmers for instance is estimated to result in an increase in the world cotton price by 12 cents per pound. This, in turn, could increase revenues from cotton by $250 million a year for West and Central African countries, equal to about 14% of the total development assistance received by these countries annually. In terms of people affected the figures are even more  staggering.  Subsidising  40–50,000  cotton  producers  in  USA  and  Europe  leaves  6-8 million African cotton farmers on the brink of starvation. If un- and underemployed youth in Africa is a significant factor in armed conflicts and maybe in  terror  network’s  recruitment  –  as  discussed  in  chapter  6  –  such  a  trade  policy  is  hardly conducive to Europe’s or USA’s own security agenda. The marginal role of Africa in the global economy is demonstrated by comparing its 10% share of the world’s population to its share of only 1.3% of the world’s exports, 0.6% of the world’s total foreign direct investment, and 1% of the world’s Internet subscribers. 2.2 The challenge of addressing poverty The  economies  of  Sub-Saharan  Africa  have  been  in  decline  for  more  than  a  quarter  of  a century, and an increasing proportion of the world’s poor people are found in Africa (29% in 2002). The number of poor people in Africa (here defined as people living for under USD 1 per
12 day) has increased from 227 million in 1990 (which was 44.6% of the total SSA population) to 314 million in 2001 (46.5%).4 While other low-income countries have on average grown rapidly, Sub-Saharan Africa has not only  failed  to  keep  up  with  other  regions  of  the  world;  it  has  suffered  an  absolute  decline.   Unlike other developing regions, Africa’s average output per capita in constant prices was lower at the end of the 1990s than 30 years before – falling by more than 50% in some countries. In real terms, fiscal resources per capita in many African countries were less than in the late 1960s.   Excluding  South  Africa,  the  region’s  income  per  capita  averaged  just  $315  in  1997  when converted  at  market  exchange  rates.  When  expressed  in  terms  of  purchasing  power  parity (PPP) – which takes into account the higher costs and prices in Africa – real income averaged one-third less than in South Asia, making Africa the world’s poorest region. The total income of all Sub-Saharan African countries is not much more than that of Belgium. A typical African country has a GDP between $2 and $3 billion, equivalent to that of a provincial European town of, say 100,000 inhabitants. Just as the extent and character of poverty vary among the African countries, so do the causes. Key  factors  include  Africa’s  position  in  the  global  economy  and  its  vulnerability  to  external shocks caused by economic trends, the international terms of trade and distorted development processes (initiated during colonialism and aggravated by geo-political interests during the Cold War).  Additional  causes  are  related  to  domestic  factors,  such  as  poor  governance  and  weak institutions,  deficiencies  and  shortages  in  human  and  institutional  capacity,  and  social  and ethnic tensions. Natural disasters, the AIDS pandemic, and violent conflicts within regions or between ethnic groups, are also very significant factors. While the complexity of the poverty problem calls for many different responses at the  same time  (dealing  with  production,  trade,  human  resources,  conflict  prevention,  etc.),  there  is  an emerging international consensus regarding the importance of defining shared objectives and formulating and implementing policies which can address core aspects of poverty and which can prioritise available resources so that benefits reach the poor. 2.3 The Millennium Development Goals In September 2000, 147 heads of State and Government endorsed the Millennium Declaration at the UN Millennium Summit. The declaration defines a limited number of achievable goals to be reached by the year 2015, with the overall objective of halving the proportion of the world’s population who live in absolute poverty. Accordingly, the entire group of UN member states, international  organisations,  funds,  programmes  and  specialised  agencies  have  committed themselves to fighting poverty and improving people’s lives. 4Development Committee, joint WB and IMF: Global Monitoring Report 2004; policies and actions for achieving the MDGs and related outcomes.
13 The consensus behind the MDGs was further strengthened at the WTO Meeting in Doha in November 2001, where agreement was reached on a new round of talks with a focus on the requirements of the developing countries. At the Monterrey Conference in March 2002, ODA and good governance were targeted as preconditions for sustainable development. This positive trend continued at the World Summit on Sustainable Development (WSSD) in Johannesburg in September  2002,  where  the  global  support  for  the  MDGs  was  underlined.    WSSD  further emphasised  Goal  7  (Ensure  environmental  sustainability),  adding  further  goals  such  as  the provision   of   basic   sanitation,   implementation   of   national   strategies   for    sustainable development, maintenance or restoration of the stocks of fish to achieve sustainable fisheries, decoupling of economic growth and deterioration of the environment and of natural resources and increased use of sustainable energy. These crosscutting environmental issues are especially important  in  the  African  context,  as  the  African  economies  are  heavily  dependent  on  access and utilisation of natural resources.   2.4 Are the MDGs achievable in Africa? Despite  various  differences  in  assessments  of  the  situation,  most  analysts  agree  that  Africa’s prospects for reaching the MDGs by 2015 are far bleaker than the average trend for the world as a whole, as this goal is predicated on reversing the economic decline. Whereas MDG no. 1, eradicating extreme poverty and hunger5, is likely to be met on a global scale, this is due mainly because of a foreseen reduction in absolute poverty in China and India.   For  Sub-Saharan  Africa,  projected  dates  for  reaching  three  key  targets  –  eliminating  hunger, reducing poverty and improving sanitation - cannot be established, because the situation in the region is not just stagnant but worsening.6 Calculations show that in order to achieve the income MDG, GNI growth must increase to 7% or more in most African countries7 On the basis of current trends, only a handful of countries 5Measured by halving, between 1990 and 2015, the proportion of people whose income is less than $1 a day. 6Human Development Report, 2004, UNDP   The Millennium Development Goals MDGs are a framework of 8 goals, 18 targets and 48 indicators to measure progress towards the goals: Goal 1: Eradicate extreme poverty and hunger Goal 2: Achieve universal primary education Goal 3: Promote gender equality and empower women Goal 4: Reduce child mortality Goal 5: Improve maternal health Goal 6: Combat HIV/AIDS, malaria, TB and other diseases Goal 7: Ensure environmental sustainability Goal 8: Develop a global partnership for development
14 in sub-Saharan African are likely to achieve their income poverty MDG, though with marked differences  among  the  countries.  Hence,  Guinea-Bissau  requires  an  annual  growth  rate  per capita of 11.7%, while the figure for Benin is only 0.8% In addition to Benin, the required per capita  growth  rate  is  less  than  2%  for  Botswana,  Malawi,  Mozambique  and  Uganda  and between 2% and 2.5% for South Africa, Côte d’Ivoire and Namibia. Finally, among countries requiring growth rates of more than 8% are Liberia, Sierra Leone and the Democratic Republic of Congo. The figures indicate that while all the African states may not reach the MDGs, some countries may reach some of them. With the current policies, institutions, and external resources, only 3- 4 countries may reach some or all the targets under the poverty reduction goal. With improved policies, institutions and additional external resources, however, a limited number of countries - - representing approx. 15 percent of Africa’s population - may reach not only the poverty goal, but also one or more of the targets within the education, health and environment goals.8 Experts insist that much better results can be ensured with increased and improved assistance. On the question of MDG 8 – Establishing a Global Partnership - some scholars9 argue that an additional  transfer  of  official  development  assistance  (ODA),  combined  with  placing  the MDGs at the centre of all national and international poverty reduction strategies would make it possible for Africa to reach the MDGs by 2015. The required level of ODA geared towards the MDGs and assuming a particular focus on Africa would thus be around USD 125-140 billion (equivalent  to  0.5-0.6%  of  donor  countries’  GNP),  about  twice  that  of  the  present  USD  58 billion (0.23%) This figure is well within the UN target of 0.7%, but still well above the EU countries 2002 collective target of 0.39% in 2006.   It  is  undoubtedly  true  that  the  prospects  of  achieving  some  of  the  MDGs  in  Africa  will improve  with  increased  ODA.  However,  increased  funds  in  itself  is  not  sufficient.  Equally important are the quality of aid and a co-ordinated and harmonised approach to aid, improved relevance   of   short-   and   long-term   national   policies   and   enhanced   effectiveness   in implementation.  Violent  conflicts  are  major  constraints  in  the  pursuit  of  MDGs.  Conflicts inevitably lead to destruction of infrastructure, and decline in economic growth and in social infrastructure. Many of those countries that have the bleakest prospects have been affected by armed conflict in recent years (e.g. Sudan10, Liberia, Somalia and Sierra Leone). The burdens due to large numbers of refugees or internally displaced people also make it more difficult to reach the MDGs.   7Based on UNIDO Industrial Development Report 2004, p. 40 (the calculation of the required growth rate is based on poverty head count in 1999 assuming unchanged income distribution). Considering the high increase in population in most countries this will be equivalent to annual per capita growth rates of 4-5%. 8Development Committee, joint WB and IMF; Global Monitoring Report 2004. 9For example Jeffrey Sachs in Draft versions of “Millennium Project, Summary of a Global Plan to achieve the MDGs”, OECD-DAC, July 2004 10 Sudan is understood to have untapped oil reserves of a magnitude that could provide the economic development needed to lift the country out of poverty (Bannon, Ian & Collier, Paul (2003): Natural Resources and Violent Conflict, The World Bank).
15 MDGs are  but  goals or targets to be  met. They do not offer strategies to achieve  the  goals. Poverty  Reductions  Strategies  and  national  sector  policies  represent  attempts  to  formulate specific strategies. 2.5 Poverty Reduction Strategies as a way forward?   In most African countries, a comprehensive reform process took place during the 1980s and early 1990s, strongly directed by the World Bank and IMF. The reform had a unilateral focus on  liberalisation,  privatisation  and  macro-economic  stability.  After  an  intense  dialogue  in  the mid-1990s with major donors, including the Nordic countries, the World Bank responded to criticism of the structural adjustments policies by adopting a much stronger emphasis on social aspects of development and governance, leading to a stronger focus on poverty reduction. It was  also  recognised  that  imposing  the  same  global  formula  on  countries  with  very  different conditions and possibilities did not lead to the expected results in terms of reduced poverty. This  refocusing  process  led  to  the  introduction  of  the  Poverty  Reduction  Strategy  Paper concept, which emphasise national ownership and diversified strategies, as well as on means of achieving measurable impact on poverty and social development.    Poverty Reduction Strategy Papers (PRSP) has become central to the provision of development assistance. They were introduced by the World Bank and IMF as a condition for obtaining debt relief  under  HIPC  II 11(1999)  and  were  based  on  the  idea  of  linking  aid  flows  to  the development   of   comprehensive   poverty   reduction   strategies   by   the   recipient   countries themselves. Despite the fact that PRSPs were originally donor-driven, the intention has been to establish nationally-formulated strategies where ownership of the national planning and budget priorities and subsequent monitoring is vested in  the  national  government, in close consultations with civil society and the private sector. The PRSP concept evolved as a response to lessons learnt with previous (World Bank and IMF) experiences and mistakes. Evaluations had pointed to a tendency  to  undermine national capacity  by creating parallel  systems  and by imposing policy conditionalities; however, conditionalities did not succeed in generating more effective use of resources.  Furthermore,  the  PRSP  approach  was  guided  by  the  recognised  need  to  refocus development  assistance  more  firmly  towards  poverty  reduction  rather  than  focusing  only  on macro-economic stability, privatisation and conditions for economic growth. 11 The Heavily Indebted Poor Countries (HIPC) Initiative, launched by the World Bank and the IMF in 1996, is the most comprehensive international response to provide debt relief to the world’s poorest, most heavily indebted countries. It seeks to cut external debt to a sustainable level. HIPC II was an expanded initiative.    
16 While the PRSPs and the MDGs have much in common and are mutually reinforcing, they are conceptually  different  entities.  The  importance  of  country  ownership  in  PRSPs  is  crucial.  The ownership approach allows for strategic choices that fit the specific national situation, whereas the MDGs have the character of globalised and aggregated goals and targets, which have to be met with whatever means or strategies are available. Typical elements in PRSPs include infrastructure development, improving governance, and an enabling environment for private sector development and diversification of production. These elements may not themselves impact directly on the MDGs in the short run, but they may set the stage for long-term development, reaching further than 2015 and the MDGs.   By May 2004, a total of 19 countries in Africa had produced first-generation PRSPs, and some are already refining them into second-generation PRSPs based on the experiences from the first three years.   While it is still too early to draw definite conclusions about the PRSP experience, two recent evaluations12 indicate that a considerable challenge remains for many countries to link PRSPs to the rolling national Medium-Term Expenditure Frameworks (MTEF) and budgets. PRPSs are criticised for not adequately addressing the need for macro-economic planning and for lacking feasible policies to implement. Related to this is the need for  greater prioritisation of gender equality in PRSPs, not least the need for increasing the allocation of resources to interventions promoting gender equality in national budgets. Mainstreaming of gender equality has potential for  improving  the  efficiency  of  poverty  reduction.  Screening  of  first  generation  PRSPs  also revealed  general  weak  information  of  environment13  and  environmental  health  issues14.  The strong links between poverty, environment and health justify a stronger focus on the need for 12 The Poverty Reduction Strategy Initiative, An Independent Evaluation of the World Bank support through 2003; World Bank 2004 and Report on the Evaluation of Poverty Reduction Strategy Papers (PRSPs) and the Poverty Reduction and growth Facility (PRGF), IMF, 2004. 13 Bojö and Reddy 2001, 2003 14 WHO 2004 The core principles for the PRSP approach are:   - results orientation,  with monitoring targets for poverty reduction; - comprehensiveness,  via  integration  of  macroeconomic,  sectoral,  social  and  structural elements; - country-driven process; - participatory   process,   including  all  major  stakeholders  in  planning  as  well  as  in monitoring; - partnerships between government and other actors/donors; - long term perspective, with focus on reforming institutions and building capacity.  
17 better  integration  of  environment  and  health  concerns  in  pro-poor  development  planning. Consultation  processes  prior  to  the  formalisation  or  revision  of  PRSPs  reveal  that  there  is scope for improvement, and that not all interested parties have ownership of the strategies. On the  positive  side,  however,  the  evaluation  points  out  that  most  donors  have  agreed  that  the PRSPs  should  be  the  focal  point  around  which  they  will  administer  their  development cooperation, based on the principles of partnership, ownership, harmonisation and alignment. While implementation of the strategies may take some time, they are expected to improve the effectiveness and impact of government policies on long-term development, increase value for money, and contribute to poverty reduction.   2.6 The Danish contribution to poverty reduction Danish development cooperation has always had a strong emphasis on poverty alleviation, but the modalities and criteria for cooperation  have changed with  the lessons learned during the past 40 years. In bilateral cooperation activities, focus on poverty reduction has been enhanced within  the  broader  approaches  to  development,  and  isolated,  short-term  projects  have  now given way to a more comprehensive, long-term commitment to sector support with focus on policy  and  institutional  development.  In  its  multilateral  cooperation,  Denmark  has  played  an active role in placing poverty reduction on the international agenda, including more recently in the  dialogue  with  the  World  Bank  on  PRSP.  The  donor-recipient  relation  has  changed  to partnership  cooperation  based  on  principles  of  national  ownership  of  and  responsibility  for development  plans.  Focus  has  moved  to  supporting  effective  policies,  good  governance  and creating  conducive  environments  for  development.  Efforts  have  been  made  to  achieve improved  quality  of  development  assistance  through  better  coordination  and  harmonisation between  donors  and  alignment  of  the  cooperation  with  the  national  development  plans, priorities and systems.   Danish  development  cooperation  now  concentrates  on  a  limited  number  of  programme countries instead of the previous approach of spreading project assistance to a large number of countries.  In  order  to  improve  effectiveness  and  efficiency,  the  60  ‘recipient  countries’  for Danish bilateral assistance was reduced in the mid-1990s to 20 ‘main recipient countries’, 11 of which  were  in  Sub-Saharan  Africa.  Subsequently,  the  number  of  ‘programme  countries’  has been further reduced to 15. Presently, Denmark cooperates with eight programme countries in Sub-Saharan Africa (Benin, Burkina Faso, Ghana, Kenya, Mozambique, Tanzania, Uganda and Zambia)  and  has  some  development  activities  with  another  two  countries  (South  Africa  and Niger). A main purpose of concentrating bilateral development assistance on a limited number of partner countries is to achieve “critical mass” as a donor, allowing Denmark to play a major role in local donor coordination and harmonisation effects. A basic characteristic of the programme countries is that they (seen in the African context) are relatively  good  performers  in  terms  of  sound  sector  policies,  a  more  or  less  holistic  poverty approach and in their movement towards stable macro-economic and political frameworks.15 15 The selection of programme countries was based on seven criteria adopted by the Danish Parliament in 1989 with broad political backing. The criteria that still remain are: 1) Assessment of the level of economic and social development,
18 The 1990s saw the emergence of the concepts of Sector Programme Support (SPS) and Sector Wide Approach (SWAp). Denmark was among the first donors to adopt this approach, which remains  the  basis  for  Danish  bilateral  development  cooperation.  The  cooperation  builds  on partnerships focusing on three pillars: cooperation in social sectors/human capital; investment in conditions for equitable, economic growth; and interventions to achieve good governance. During  this  period,  the  understanding  of  the  gender  dimension  also  developed,  and  the approach   changed   from      ‘remember   to   help   the   women’   to   an   appreciation   that   the development   process   would   fail   without   proper   understanding   of   gender   relations   and involvement of both men and women. The  goals  for  Danish  development  assistance  are  set  out  in  ’Partnership  2000’,  a  policy document endorsed in October 2000 by a broad majority of the Danish Parliament. PARTNERSHIP 2000 Poverty  reduction  is  the  overriding  objective  of  Danish  development  policy.  Denmark  will contribute to reducing poverty in the world through long-term and binding partnerships with developing  countries.  The  objective  of  these  partnerships  is  to  strengthen  the  ability  of  the developing  countries  to  create  sustainable  development  processes  that  will  benefit  the  poor. Denmark will base its development cooperation on partners whose policies and activities create the necessary conditions for poverty reduction for the many rather than prosperity for a narrow elite. Partnership  2000  establishes  the  political  foundation  for  Denmark’s  development  policy, emphasising that reduction of poverty through long-term and binding partnerships remains the focus of Danish development cooperation.   In  recent  years,  the  importance  of  harmonisation  of  donor  procedures  and  alignment  of interventions  with  national  strategic  frameworks  and  procedures  has  gained  momentum. Several partner countries have developed first- or second-generation PRSPs, and alignment and donor   harmonisation   now   constitute   core   pillars   of   Danish   bilateral   and   multilateral development cooperation. The experience with this approach has so far been very positive in several countries, including Tanzania, Uganda, Ghana, Mozambique and Zambia. In Zambia, for  instance,  a  common  framework  with  explicit  commitments  is  changing  the  relationship between the Zambia government and its development partners. One initiative – on the donor development needs and the country’s own development plans; 2) Assessment of the total donor assistance and the capacity to absorb and make good use of the assistance; 3) Possibility of improving sustainable development through dialogue with the country; 4) Possibility of cooperating with the country with a view to enhancing respect for human rights in accordance with the international standards and conventions; 5) Possibility of cooperating with the country in ensuring that gender aspects are fully integrated and centrally placed in the development process; 6) Assessment of previous experience from bilateral development cooperation between Denmark and the country; and 7) Provided the six foregoing criteria are positively met – the possibility for Danish private sector participation in the development cooperation.      
19 side lead by Denmark - is the preparation of a joint assistance strategy, which will be completed in 2005. Under Zambia guidance, cooperation between partners is thus expected to make aid more effective and cut transaction costs. While many so-called ‘like-minded’ donors (including the UK, the Netherlands, Sweden, and Norway) have moved very rapidly towards the provision of general budget support, Denmark has so far been more hesitant, particularly regarding general budget support (not earmarked to a particular  sector).  Budget  support  implies  the  provision  of  funds  channelled  through  and administered as part of the national budget, in accordance with the national poverty reduction policy  and  usually  based  on  well-defined  conditions.  Budget  support  facilitates  economic management and reduces partner transaction costs. Apart from increasing national ownership, budget support enhances the  predictability of  funds, being that clear  benchmarks ‘trigger’ an agreed  (and  usually  significant)  amount  of  funds  within  specified  time  frames.  Being  that external  funding  is  very  important  when  African  countries  plan  and  budget,  predictability  is most vital, not least in terms of enhancing poverty-reducing efforts. Budget support, however, also  entails  a  reduction  of  the  control  formerly  possessed  by  donors  and  the  ability  to  track individual donor’s funds, thus minimising the possibility of documenting the direct outcome of individual  donors’  support.  Danish  assistance  acknowledges  the  many  benefits  of  budget support, but in order to keep risks (especially ‘fiduciary risks’) at an acceptable level, the extent of  Danish  development  assistance  provided  in  the  form  of  budget  support  does  not  usually exceed 20-25% of the country programme. The level of budget support is generally determined based  on  the  country’s  financial  management,  track  record  of  implementing  ‘good  policies’, reliability in meeting targets and so forth. It  remains  a  challenge  for  Danish  development  cooperation  to  improve  alignment  and harmonisation by ensuring that all assistance is reflected in the national budget, is managed by partners and not by  Danish-controlled parallel or  semi-parallel  structures, and is coordinated with other donors based on national strategic frameworks.   Because  of  the  multifaceted  nature  of  the  challenges  in  sub-Saharan  Africa,  a  holistic  and coherent  approach  is  required  that  combines  foreign  and  development  policies,  multi-  and bilateral  assistance,  trade  policy  and  security  policy,  and  also  emphasis  on  the  environmental dimension. 3. The African economy – the challenge of generating growth Despite the variety of their situations, the economies of African countries share many structural features:  they  depend  on   the   production  and  export  of  a  limited  number  of  primary commodities  while  being  compelled  to  import  most  manufactured  goods.  Their  agricultural sectors constitute  the largest  part of  the private  sector, with agriculture accounting for more than 50% of GDP, over 50% of export earnings, and employing over 70% of the workforce. The  informal  sector  of  Africa’s  economies  is  substantial  (often  about  or  more  than  50%  of registered  GDP),  and  encompasses  both  a  large  share  of  the  agricultural  activities,  micro- enterprises and self-employment in urban centres.
20 Economic policies have changed markedly since the initiation of structural adjustment policies in  the  mid-1980s.  The  attempts  to  ‘roll  back  the  state’  through  liberalisation  of  prices, abolishing  many  government  parastatals  and  reduction  of  the  public  sector  have  had  both positive  and  negative  impact  on  conditions  for  production  and  trade:  while  the  reduction  of bureaucratic obstacles to agricultural production and marketing has benefited the majority of agricultural  smallholders,  the  public  sector  in  many  countries  has  at  the  same  time  been weakened to such an extent that it is unable to provide even the most basic services.     Around  three-fourths  of  Africans  live  in  the  countryside.  The  urban  areas  are  home  to  the African elite, the middle class, and the urban poor. The latter group is by far the largest and fastest growing due to significant and accelerated migration from the rural areas. 3.1 Economic Growth Economic  growth  is  crucial  to  the  reduction  of  poverty  in  Africa.  The  existing  empirical evidence confirms that economic growth generally leads to a decrease in the number of people living on less than one dollar per day. In this sense “growth is good for the poor”. However, the  pattern  of  growth  also  matters  a  great  deal,  and  the  actual  impact  on  the  poor  varies considerably depending on circumstances and context. Well-designed pro-poor policies can do a lot to ensure that social and economic indicators for the most disadvantaged groups improve more rapidly than for the rest of the population.16 In Sub-Saharan  Africa,  the average per capita income declined by 1.9% in  the 1980s and by 0.2%  in  the  1990s.  The  early  2000s  show  a  slight  improvement,  but  as  indicated  in  the discussion of the MDGs in Chapter 2, for the majority of the countries, even the most recent growth rates are still too low to reduce the number of extremely poor. 3.1.1 Agriculture as basis for growth The agricultural sector constitutes the economic backbone of most African countries, and this sector  will  remain  the  mainstay  of  pro-poor  economic  growth  benefiting  Africa’s  poor.17 Smallholders with land sizes usually not exceeding 1 hectare dominate the sector, which also includes livestock holders, small-scale agricultural processing enterprises and marketing actors.   Increased agricultural production is necessary to fight starvation and malnutrition. Most poor people  live  in  the  countryside,  and  experience  from  high-performing  economies  shows  that rapid growth in agricultural production and productivity is a precondition for economic take- 16 Hunberto Lopez, ’Pro-Growth, pro-poor: Is there a trade off?’, World Bank, draft manuscript. Lopez argues that in the long run, pro-growth policies, regardless of their impact on inequality, are likely to be pro-poor.   17 Recent research and policy initiatives have identified pro-poor growth as the most important ingredient to achieve sustainable poverty reduction. The MDGs emphasize the importance of pro-poor growth. However, it is often unclear what pro-poor growth means and how it should be monitored. One definition is that the poor should benefit disproportionately from economic growth, such that social and economic indicators should improve faster for the poorer relative to the rest of a country’s citizen. It should also have a focus on both agriculture and non-farm rural growth, since the majority of the poor live in rural areas.  
21 off  and  sustained  poverty  reduction.  Agricultural  production  is  also  critical  since  agricultural progress  generates  local  demand  for  other  goods  and  services.  It  is  generally  agreed  that  for every dollar income goes up in the agriculture sector total income in society goes up by around 2.5 US$, and agriculture will have to underpin the export performance of African countries for years to come. Historically,  agricultural  policies  in  Africa  have  tended  to  encourage  the  production  of  cash crops for export, while local food crop prices have been kept low to avoid protests from the urban  population.  At  times,  conditions  for  marketing  agricultural  products  have  been  so difficult that farmers have tended to produce mainly for their own consumption. Although this has changed with the economic reforms in the 1980s, serious obstacles to increased agricultural production remain. Free trade can give many advantages, but free trade in itself cannot solve the  many  problems  faced  by  poor  farmers.  These  problems  include  insufficient  access  to agricultural   inputs,   poorly   developed   physical   and   marketing   infrastructure,   the   virtual abolishment of agricultural extension services in many countries, poorly developed agricultural research,  limited  access  to  agricultural  credits,  limited  access  to  information  on  national  and international  commodity  prices,  and  competition  from  subsidised  products  exported  by  rich countries.  Low  productivity  levels  are  a  further  impediment  to  higher  growth.  In  some countries, land tenure issues, soil degradation, deficiency of water for irrigation, drought, and increasing lack of fuel wood add to the problems. Increasing production is therefore not simply a matter of liberalisation and free trade. It is as well about overcoming a myriad of supply side constraints. Moreover, many African governments are challenged to consider agriculture part of the  business  sector  and  to  see  farmers  as  potential  investors,  who  –  like  any  other  business sector actor – have to balance their goal of increasing income with that of spreading the risks.   A  particular  problem  is  faced  by  the  livestock  sector,  which  has  a  substantial  development potential  in  Africa.  Agricultural  development  policies  (both  national  policies  and  donor approaches) tend to focus on crop production – even in arid and semi-arid areas, where crop production is difficult, expensive and unsustainable. The economic development potential of traditional African pastoralism is even more neglected. While pastoralism suffers from negative stereotyping   and   is   often   perceived   as   primitive,   non-productive   and   environmentally destructive, research shows that pastoralism is in fact productive and contributes significantly to national economies. In   addition   to   increasing   the   volume   of   agricultural   production,   it   is   important   that opportunities   exist   for   diversification   of   incomes   for   the   rural   population.   Small-scale manufacturing  activities,  in  agro-processing  for  example,  may  contribute  to  raising  rural incomes,  while  the  existence  of  various  forms  of  wage  labour  (e.g.  related  to  marketing  and transport  activities)  is  important.  Even  small  amounts  of  purchasing  power  among  the  poor will, as already highlighted, create the markets necessary to attract investments and improve the service sector. This could contribute to a reversal of the vicious circle of indebtedness in which many African farmers are presently trapped.    Improved  organisation  of  farmers  is  necessary  in  order  to  strengthen  their  influence  on  the conditions for their livelihood. Although the rural population make up about three-quarters of
22 the population in most African countries, only few examples exist of farmers (or pastoralists) able to mount an effective lobby. They have been too scattered, badly organised and too poor to  place  the  important  challenges  to  the  agricultural  sector  on  the  national  political  agenda. Attempts  to  organise  themselves  into  co-operatives  have  often  been  frustrated  by  excessive government controls. 3.1.2 Private sector development Although agriculture is part of  the  private  sector,  the concept is often used to refer to non- agricultural  activities  in  urban  areas  only.  This  is  unfortunate.  It  is  encouraging  that  African leaders now agree that private sector-led growth is fundamental for improving the welfare of the people. These leaders are making serious efforts to create an enabling environment for the private  sector.  However,  few  African  countries  have  so  far  managed  to  transform  the  good political  intentions  into  sustainable  changes  on  the  ground.  Authoritarian  and  centralist traditions  are  difficult  to  break,  and  poor  governance,  lack  of  effective  property  rights; ineffective  judicial  systems;  high  interest  rates;  red  tape  and  corruption  all  pose  serious obstacles to the development of a vibrant private sector in Africa.   Lack of effective property rights and registration means that very few individuals can prove that they  actually  own  their  land  and  houses  –  they  do  not  have  a  title  deed.  Without  a  reliable system for ascertaining who owns what, assets cannot be used as collateral. Ineffective judicial systems  make  it  both  expensive  and  time  consuming  to  enforce  even  simple  commercial contracts. Commercial laws are rudimentary and not geared to a modern market economy and even less so to an international business environment. Employees are often subject to adverse working conditions such as low salaries, unhealthy or dangerous  working  environments,  oppression  of  labour  organisation  and  the  like.  Labour market  organisations and branch and producer associations are still relatively weak, and  thus limited in raising political attention for these issues, although  their influence is increasing. In South  Africa,  Ghana,  Kenya,  Tanzania,  and  Zimbabwe,  e.g.,  they  are  active  in  raising  issues politically. Poor physical infrastructure and transport logistics create high costs and uncertainties for both domestic and export oriented economic entities. Transport and insurance costs are in general very high in Africa compared to other areas of the world. Africa has lower labour productivity even compared to other developing countries. Poor physical infrastructure and heavy burden of disease among the workforce lead to high real labour costs for companies, thereby eroding their comparative  advantage  in  cheap  labour.  Inadequate  skills  lead  to  a  pervasive  need  for expatriates in technical and administrative positions. Other areas such as vocational training and internet access also pose a challenge. Africa’s  private  sector  also  faces  a  number  of  challenges  from  beyond  Africa’s  borders.  The international environment for business has become more volatile, more competitive, and more complex as  globalisation proceeds. Success is  more difficult  to achieve, and failure harder to avoid  for  companies  from  all  over  the  world,  but  most  companies  outside  Africa  have  the benefit of better conditions in their home markets. Africa’s private sector must confront the
23 same  hurdles,  often  without  the  benefit  of  a  stable  and  supportive  business  environment  at home.  A  successful  outcome  of  the  Doha  development  round  of  trade  negotiations  and  a global reduction in trade barriers will mean an erosion of the trade preferences of many African countries, thus actually increasing their competition on the world market (cf. 3.2.4). The informal sector, accounting for about than 50% of registered GDP in African economies, constitutes a particular challenge to private sector development. Characterised by an abundance of micro-enterprises and extensive self-employment in the cities, the informal sector has been robust  because  of  the  high  costs  of  formalisation  associated  with  taxes  and  regulatory compliance  and  because  of  the  relative  ease  of  operating  informally.  Although  the  informal sector has served as a safety valve for African countries in terms of employment and income generation,  these  countries  need  the  efficiencies  and  institutional  capacity  of  formal  sector companies to bring their private sector into the global economy. 3.1.3 HIV/AIDS as barriers to economic development in Africa The   HIV/AIDS   pandemic   (ref.   Section   5.3)   represents   a   major   threat   to   economic development in Africa. Early estimates of the macroeconomic effect of HIV/AIDS18 asserted that  African  economies  would  sustain  the  initial  loss  from  HIV/AIDS  due  to  the  perceived ready  supply  of  surplus  labour  and  an  assumption  that  AIDS  mortality  was  concentrated among the low-productive poorer segments of the populations. Although no agreed method of modelling the macroeconomic costs of HIV/AIDS exists, recent attempts to calculate the costs have estimated the HIV/AIDS related reduction in the growth rate of GDP to range between 0,3 and 1,5 percent. Although this appears modest it will translate into larger effects over time. One   analysis   (Arndt19)   finds   that   the   GDP   of   Mozambique   in   the   absence   of   policy interventions will be 23% smaller in 2010 due to HIV/AIDS, while another (Cuddington and Hancock20) estimate that the AIDS related cumulative loss of GDP in Malawi would be around 10% in 2010. This type of analysis does not, however, take into account the above-mentioned long-term  cumulative  effects,  leading  Bell  et  al.21to  predict  that  the  long-run  effects  of HIV/AIDS will be much larger – possibly ending in economic collapse. 3.2 Trade As discussed in relation to the MDGs (Chapter 2), the position of most African countries vis-à- vis  non-African  countries,  measured  by  the  size  of  their  economy,  share  of  world  trade, investment, power and influence, continues to decline – at least in the formal sector.   18 Bloom, D.E and Mahal, A.S (1997) Does the AIDS Epidemic Threaten Economic Growth? Journal of Econometrics, 77: 105-124 19 Arndt, C. (2002) HIV/AIDS and Macroeconomic Prospects for Mozambique, An Initial Assessment, TMD Discussion Paper no. 88 Trade and Macroeconomic Division, International Food Policy Research Institute, Washington D.C. 20 Cudddington, J.T and Hancock, J.D (1994) Assessing the Impact of AIDS on the growth pat of the Malawian economy, Journal of Development Economics vol. 43, no. 2, pp 363-368. 21 Bell, C., Devarakan, S. and Gersbach. H (2003) The long-run economic costs of AIDS: theory and an application to South Africa, World Bank Policy Research Working Paper Series no. 3152, World Bank, Washington D.C.
24 Many observers believe, however, that globalisation offers African states and their citizens an important opportunity to undertake the economic and political reforms necessary for economic growth, democratic development and improvement in overall living and working conditions of the people. To seize this opportunity requires effective leadership, additional input of resources and management by both the private and public sector working together at all levels of society; international assistance to develop capacity; and improved access for African products to the markets of the developed countries.   International  experience  suggests  that  outward-looking  countries  tend  to  grow  faster  than countries  with  more  closed  economies.  Although  it  is  difficult  to  compare  conditions  for export-oriented  countries  in  Asia  to  those  of  African  countries  trying  to  increase  their integration  into  the  global  economy,  it  is  notable  that  the  Asian  countries  in  question  have achieved  higher  growth  rates,  longer  life  expectancy  and  better  schooling.  They  have  also experienced rising wages and declining numbers of people in poverty, thereby improving their position to achieve the MDGs. Countries unable to integrate into the world economy face a serious risk of being left behind. However, it is equally true that free trade is not sufficient to turn present trends around, and in some cases can even make things worse. Outward oriented policies  require  good  and  well-designed  supplementary  actions  on  the  supply  side,  and improved coherence in the trade and aid policies of the international donor community. 3.2.1 The EU: Africa’s largest trading partner Europe counts for about half of Africa’s exports (see figure 1). Exports to North America are below 20%, roughly the same as to Asia.   Fig. 1: Destination of Africa's Exports (2002) 0 10 20 30 40 50 60 N/America W/Europe Asia LA&Carib. M/East Africa Region % The  Cotonou  Agreement,  signed  in  Cotonou  in  2000,  regulates  trade  between  the  EU  and Africa22. The main objective of the Agreement is to promote the progressive integration of the African  countries  into  the  global  economy  by  enhancing  production  and  capacity  to  attract investment and by ensuring conformity with WTO rules. In March 2001, the trade regulations 22 The Cotonou Agreement replaced the Lomé Conventions (I-IV, 1975-1999).