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THE ROLE OF U.S. ASSISTANCE
IN AFRICA'S ECONOMIC DEVELOPMENT by
IW91-3 October 1991
INTERNATIONAL WORKING PAPER SERIES
FOOD AND RESOURCE ECONOMICS DEPARTMENT
Institute of Food and Agricultural Sciences University of Florida Gainesville, Florida 32611
THE ROLE OF U.S. ASSISTANCE
IN AFRICA'S ECONOMIC DEVELOPMENT
Graduate Research Professor
University of Florida Gainesville, Florida
A paper prepared for the Board for International Food and Agricultural Development and Economic Cooperation (BIFADEC) Task Force on U.S. Development Assistance and Cooperation and presented at the National Conference "A Development Policy for the 1990s: Reducing Poverty Through Education and Agricultural Science and Technology", June 17-18, 1991, sponsored by BIFADEC and The Citizens Network for Foreign Affairs, Washington, D.C.
TABLE OF CONTENTS
W hy Focus on Africa9 ............................................... 3
Factors Influencing US Assistance ...................................... 6
Role of Agriculture in Africa's Development .............................. 8
Why Should Matters of Economic Development Strategy Assume a Center Stage in
Future US Assistance Strategies? ................................. 12
What Effect Have Structural Adjustment Programs Had on the Pace and Pattern of
Economic Growth in Africa? .................................... 17
What Does the Future Hold for Africa's Economic and Political Prospects? ...... 20 How Has External Assistance in General, and US Assistance in Particular, Fared in
Dealing With Africa's Problems? ................................. 21
R eferences ....................................................... 29
THE ROLE OF U.S. ASSISTANCE
IN AFRICA'S ECONOMIC DEVELOPMENT* By
Graduate Research Professor
University of Florida
Nearly 50 billion dollars are committed annually in the form of foreign aid by developed to developing countries. Another $100 billion used to be committed annually by private commercial banks before the debt crisis began in 1982. There is over 40 years of experience with foreign aid. Yet, much of the discussion on effectiveness of aid has tended to be polemical.' A few scholarly studies exist but they are formalistic cross-country econometric efforts.2 Others have focused on evaluations of individual donor-funded projects3, and still others were undertaken especially to mobilize more aid, or to reform individual aid agencies Few well-researched studies exist that take a broad or indepth view of the actions of donors and recipients. They do not take advantage of the long period of the experience to derive policy lessons. Prompted by these concerns, the World Bank launched a program of research on the effectiveness of external assistance in the mid-1980s. As part of this program, two major cross-country research projects were initiated: a sectoral study on Managing Agricultural Development in Africa (MADIA);5 and, a macroeconomic
* A paper prepared for the Board for International Food and Agricultural Development and Economic Cooperation (BIFADEC) Task Force on U.S. Development Assistance and Cooperation and presented at the National Conference "A Development Policy for the 1990's: Reducing Poverty Through Education and Agricultural Science and Technology", sponsored by BIFADEC and The Citizens Network for Foreign Affairs, June 17-18, 1991, Washington, D.C.
study on Transitions in Development: the Role of External Aid and Commercial Flows.6 Both studies covered development experience in the post-World War II period. Both involved senior policy analysts from donor and recipient countries with hands-on experience to carry out the analysis. The MADIA study was a joint venture between the World Bank and seven other donors (USAID, UKODA, DANIDA, SIDA, France, Germany and the EEC). Governments of six African countries (Kenya, Tanzania, Malawi, Nigeria, Senegal and Cameroon) participated in the study, to analyze the impact of macroeconomic and sectoral policies, including the role of historical and political factors, resource endowments, and external assistance on these policies as they affected agricultural and overall economic development of countries. The study also involved a detailed comparative analysis of the impact of the eight participating donors on the agriculture of the six African countries. It addressed the extent to which external assistance responded to the development needs of the recipients, and involved learning by doing by donors and recipients. The study on Transitions analyzed the impact of official assistance and commercial capital flows on the economic development of 11 countries in Latin America, Asia and Africa. Apart from exploring the implications of the stages of development for content of aid, the study analyzed the role of bilateral and multilateral aid, food aid, and issues related to the transition of countries from being recipients of concessional assistance to relying instead on commercial capital. Because the size and content of development assistance are but a few of the many variables that determine economic development outcomes, both studies focused on the economic policies, human, institutional and organizational capacity and the technology deployed by the aid-receiving countries, and explored the way external capital influenced these variables. This paper is based on the results of the two studies, with a
particular focus on Africa, and with an objective to derive lessons for US bilateral assistance.
The paper is divided into several section:
Section 1 Outlines the need for focus on Africa.
Section 2 Describes the factors influencing US assistance.
Section 3 Spells out the central importance of agricultural development in Africa.
Section 4 Explains why it needs to be the focus of US strategy.
Section 5 Explores the impact of structural adjustment on economic performance.
Section 6 Explores prospects for Africa.
Section 7 Explores the extent to which US assistance, and donor assistance more generally, has been responsive to Africa's needs.
Section 8 Explores why the US has not pursued its comparative advantage.
The paper concludes with a few recommendations.
Why Focus on Africa?:
Sub-Saharan Africa is the only continent that has not yet joined a sustained long-term economic growth path. Its development is the greatest challenge to the international development community. Africa contains the largest number of least developed countries. Its prolonged economic crisis is widely recognized to be centered on the failure of its agricultural and rural sectors. That is where a large proportion of the African population still resides even though urban bias in policies has caused the rate of urbanization to be far
more rapid in Africa than elsewhere. The rural sector contains the most poor although declining employment opportunities and real wages resulting from rising food and other prices, in the decade of the 1980s, has drawn attention mostly to the growing poverty of the vocal urban populations. Africa was a model of development in the 1960s to then fledgling Asia, but rapid population growth for nearly three decades has been accompanied in Africa by a declining per capita food production. What little growth in production has occurred, has been largely due to expansion of cultivation to marginal lands rather than from any increase in factor productivity. The environmental consequences of the declining agricultural productivity and the movements of populations on forests and pastures have led to a growing concern about the sustainability of agriculture. With growing population, shifting cultivation is giving way to a decline in the fallow period, reducing soil fertility and land productivity and causing a shortage of fuelwood and grazing areas. Financing of growing food imports to make up for an increasing food gap have been made difficult by stagnant export volumes and a large debt burden which takes up a major share of the limited export earnings. This situation has led to increased food aid and other forms of financial and technical assistance. Sub-Saharan Africa currently receives nearly 4 billion dollars worth of external technical assistance.
In a variety of ways, Africa's problems are typical of the problems faced by least developed countries generally, i.e. Nepal and Bhutan in South Asia, Haiti in the Caribbean, and Bolivia in South America. These countries receive a large amount of per capita aid ranging between $35 to $50 compared to $2 or less per capita for large countries such as China or India. Aid constitutes over 10Oo to 15% of their Gross National Products and
between 50% to 70% of their public expenditures. Their low level of human capital and institutional development means that their dependence on external aid extends beyond financial to the management and uses of aid. Donors who play an important role in policy dialogue and choices of investment must therefore examine how their assistance strategies could help turn around the economic situation in Africa, and other least developed parts of the world.
Without a turn around, the number of poor living in Africa is expected to increase from the 185 million estimated in 1985 to over 265 million by year 2000, according to the World Bank's 1990 World Development Report. With little or no growth in per capita incomes, the proportion of the poor in the total population is expected to increase as well, while such proportion is projected to decline in Asia, although Asia still contains the largest number of the world's poor. As a late developer, Africa has a major task to catch up on matters related to economic policy, social political and commercial organization, and science and technology. The ability to "borrow" ideas and knowledge most relevant to its own quite unique diverse historical and physical circumstances, however requires considerable human and institutional capital, as the examples of the more successful countries such as Japan, Thailand or Korea show. Notwithstanding the contribution that the US and other donor assistance has made in the past, due to its initial conditions Africa still woefully lacks the necessary capacity to plan feasible economic development strategies and even more important, to implement them. This contributes to the vicious circle of underdevelopment in contrast to the situation in much of Asia and Latin America where policy planning and implementing capacity to achieve sustained development largely exists, and where much
economic progress has occurred notwithstanding the "lost decade" of the 1980s. Yet Africa's problems have tended to move into the background except in the cases of droughts, wars and famines. Political conflicts have increased and contributed to a growing refugee population. Radical political and economic reforms in the Eastern block countries with whom the US and other aid giving countries have greater ethnic and cultural affinity, have begun to take center stage.
Factors Influencing US Assistance:
The US was once a major donor whose large external assistance prompted by a broad vision of a democratic world and humanitarian considerations made a major impact on the economic prospects of many countries in Asia and Latin America. However, the size of US assistance and consequently the US's role has declined greatly. Whereas the US contributed nearly half of OECD countries' bilateral assistance, it's share now constitutes only a third. Other OECD countries have expanded their aid more rapidly. The US contributes less than 0.25% of its GNP in assistance compared to between 0.5 and 1% by most Western European donors, and over 1% of GNP by Japan. Strategic interests have also driven the allocation of US bilateral development assistance to become increasingly concentrated. Whereas India and Brazil, with then a population of over 1/2 billion, were the top two recipients in the 1960s, Egypt and Israel with a population of 55 million received 37% of US assistance in the 1980s.' Aid allocations of other OECD countries are more broadly distributed, as they are based primarily on commercial interests and historical ties. Humanitarian lobbies play a role, both in the US and other OECD countries, but that is mainly in influencing food aid, famine relief and aid to private voluntary organizations
(PVOS). Such aid constitutes only 10% of the total, and the US share of aid to PVOS has also diminished as other OECD countries have expanded aid to PVOS. Commercial considerations have resulted in the tying of aid to personnel, equipment, shipping lines and other services in all OECD countries including the US. The US makes contributions to several international agencies, such as the World Bank, the IMF, the Regional Banks, and various UN agencies and its share in those, while large, has declined as well. This paper focuses mainly on US bilateral assistance to Africa.
Africa has not been as important to the US strategic or security interests as other parts of the developing world. Consequently, the US share in the total economic assistance of African countries has been minuscule (10% or less) in most countries. This is in sharp contrast to the situation earlier in Latin America or Asia where the US was the most important donor. It is now one of the several, and often not a major player.
In Africa as well, the share of US assistance has depended on strategic interests. Consequently, those countries who are the larger recipients of US assistance are not necessarily those with the greatest commitment to economic development. For instance, Zaire and Somalia- both poorly performing countries- have been large recipients, 8 whereas Zimbabwe has run into difficulties because of its policy towards Southern Africa.
Even with the relatively minor role the US plays financially in Africa and notwithstanding the rather limited positive role foreign assistance as a whole has played in Africa relative to other parts of the world,9 Johnston et al document in the MADIA study
that the US has made an important contribution to the development of human and educational institutional capital in Africa, e.g. in Nigeria, Kenya, Tanzania and Cameroon. In Asia, however, the science and technology capacity the US created played a major role in generating a Green Revolution thereby alleviating hunger, reducing susceptibility to recurring droughts and improving the food and economic prospects of countries." This has not been the case in Africa. There has often been inadequate follow through in Africa on an effective development strategy which would enable the full utilization of the human capital and the institutional infrastructure the US assistance has helped to create. We therefore, first outline the type of a development strategy important for Africa. We then outline which countries have performed well and why and finally return to addressing issues of external aid to Africa again.
Role of Agriculture in Africa's Development:
Agriculture- defined in the broadest sense to include in addition to cropping, livestock, forestry and fisheries- provides the most important source of income and employment for a large proportion of the population in Africa. Since nearly 25% to 35% of GNP originates in agriculture, overall economic growth is closely related to the growth of the agricultural sector. Trade plays an important role in many African economies, and in virtually all countries, agriculture and agro-based products form an important share of trade, amounting to as much as 80% in some countries (e.g., Malawi). Agricultural exports have traditionally been an important source of government revenues through implicit (e.g. via the overvaluation of the exchange rate) or explicit taxation. Agricultural households have provided a major portion of the public and private savings in the economy, and
constitute an important market for consumer goods (e.g. textiles, shoes, umbrellas, hurricane lamps, and building material for homes), investment goods (e.g. seed, fertilizers, and agricultural implements) and services (transport) produced in the non-agricultural sector. Increased incomes of rural households generate productive employment in the non-agricultural sector through a strong stimulus to non-agricultural growth.
The size and distribution of agricultural exports are thus a better barometer of the health of African economies than their mineral exports (e.g. the petroleum which has been important in Nigeria and Cameroon or phosphate in Senegal). The latter tend to originate in a small enclave sector. Agricultural exports, on the other hand, have traditionally been derived from a large number of small farmers. Production, transport, processing and exports from agriculture are highly labor intensive. Thriving agricultural exports require a sophisticated organizational and management structure that serves the interests of a number of rural households and increases their productivity. Productivity growth not only creates employment and incomes in the nonagricultural sector, but reduces poverty, arrests urban migration and population growth, while simultaneously increasing the quality of the population.
The link between the size and welfare of the population on the one hand and the development of the agricultural and the rural sector on the other is brought about through the investment in health, education, rural water supply, food and nutrition of rura: households. Lack of investment in these activities affects health and nutrition, in turn affecting infant and child mortality and increasing the desire for large families as a cushion
against social insecurity and old age. A low level of investment in social services also affects cognitive ability of infants and children which in turn adversely affects their school performance and limits labor productivity. Low labor productivity is, however, also determined by a low level of technology, including an extreme reliance on the handhoe cultivation prevalent in Africa. Whereas, in Asia only about half the value-added in agriculture comes from labor, as much as 80% comes from labor in Africa, reflecting the low level of capitalization of the smallholder agricultural sectors. Low labor productivity reinforces the demand for children as a means of increasing labor input into farming, fetching water and fuel wood, minding cattle and transporting farm surplus to the market. Thus, the benefits of raising children to the rural households are large, but costs tend to be low in a situation of few schools and other social amenities. In contrast, in the more advanced countries the cost of schooling, health care and other activities often outweighs the benefits of additional children.
The arguments presented in the paper about the importance of the development of export crops should not be interpreted to mean that export agriculture should be promoted at the cost of food crops. Both donors and recipients in Africa have tended to draw far too much of a dichotomy between food and export crop production instead of focusing on a broadbased agricultural development strategy. Emphasis on food self-sufficiency in the 1970s through integrated rural development programs funded by donors neglected export crops. The donor studies carried out under MADLA document the extent to which virtually all donors shifted assistance away from export crops in the mid 1970s. As the macroeconomic crises deepened by the end of the 1970s, donors shifted attention to export 10
promotion and as the criticism of structural adjustment programs mounted that the programs were neglecting the poor, the emphasis shifted once again to food security. This swinging pendulum has resulted in a lack of consistency and continuity in the design of policies and investments in support of both food and export crops, and indeed livestock and forestry as well, as part of a systematic long-term agricultural development strategy. Food and export crop production are highly complementary. Farmers concerned with food security devote a significant portion of their resources to nonfood activities as a diversification strategy to spread risks of food crop failures, and to increase incomes. An increase in the productivity of either food crops or other productive rural activities, i.e. export cropping, livestock, fisheries or forestry thus releases land and labor for the production of the other. Most importantly, increasing incomes of rural households increases their command over food. This is an important consideration in Africa. With increased poverty, a larger proportion of the rural households in countries such as Malawi and Kenya are becoming reliant on the market for food. Since low income households spend a major share of their income on food, increased food prices (often being encouraged in the course of structural adjustment as an incentive to increase food production) have an adverse effect on a large portion of the urban as well as rural households." Greater reliance needs to be placed on productivity enhancing nonprice factors relative to the emphasis placed on price incentives alone, especially in the context of structural adjustment.
Many of the nonprice factors needed to increase the productivity of food crop production, e.g. access to technology, transportation and information networks, credit, inputs and assured markets require that governments play an important. role by providing a
conducive macroeconomic and sector policy framework and a long-term investment program. Public investment is necessary in transport, communications and information, education, village water supply, agricultural research and extension to develop factor and product markets and to establish the necessary institutional, human capital and physical infrastructure, so that private individuals can respond to economic incentives.
Why Should Matters of Economic Development Strategy Assume a Center Stage in Future US Assistance StrategigLsZ
Both the MADIA study and the study of Transitions show that country policies and the strategy of economic development countries pursued made the major difference to the economic development outcomes, i.e. the rate of growth of per capita GNP and the distribution of the benefits of economic growth. Quite surprisingly the "luck factor", meaning the extent to which natural resource endowments or external events such as external terms of trade or the levels of aid were favorable, made relatively little difference if economic policies were unfavorable. For instance, in Africa among the countries selected for the MADIA study Nigeria, Cameroon and Senegal in West Africa experienced favorable terms of trade of their major export commodities; oil in the case of Nigeria and Cameroon; and, phosphates in the case of Senegal. In contrast Kenya, Tanzania and Malawi in east Africa all of which depend on agricultural rather than mineral exports, experienced deterioration in their real external terms of trade with a temporary boom in the prices of tea and coffee in the mid 1970s. The terms of trade shocks were more severe in the case of Kenya and Malawi relative to Tanzania which had a more diversified export base. And yet Kenya and Malawi were two of the better performing countries when the rate of growth
of GNP is considered. Both countries pursued outward oriented policies in which the development of the agricultural sector played a major role. They were two of only a handful of countries in Africa that gained shares in the relatively stagnant world markets for traditional exports while much of the rest of Africa lost shares. When the distribution of benefits is considered together with the rate of overall economic growth, however, Kenya performed better. Malawi fared poorly in involving large numbers of small farmers involved in the growth process.
Kenya increased export volumes of tea and coffee as well as other high value crops leading to an increased share of small farmers in the production process, whereas large European farmers had dominated production in the colonial period. Through a land registration program, small farmers were given titles to land. They were paid international parity prices for their tea and coffee by enabling them to sell their produce in the same markets in which large estates sold theirs. Together with development of feeder roads, agricultural research, extension, credit and marketing facilities, small farmer production took off in Kenya.'2 In contrast, in Malawi much of the increase in export volumes came from large farms and estates owned and operated by Malawi's new African elite. Malawi reserved the right to grow certain high value crops such as burley and flue-cured tobacco, sugar, tea and coffee, to the estate sector, and allowed the estates to sell their produce in auctions at close to international parity prices. Small farmers on the other hand are required in Malawi to sell the produce they are allowed to grow to the marketing board (ADMARC) at half to a third of the prices received by estates.
Kenya's Lpproach has resulted in rapid growth in income and employment both in the agricultural as well as the nonagricultural sectors by increasing savings, investment and consumption by a large number of rural households. Agricultural growth in turn has led to the growth of small towns and investment by entrepreneurs in small scale manufacturing and the service sectors, including transport. Despite having one of the highest rates of growth of population, the real wage for unskilled workers in Kenya has not declined as much as had been predicted in the 1970s by the World Bank and the ILO. In comparison, real wage in Malawi has declined significantly. The rate of investment in primary and secondary education is part of the explanation for the differences in the behavior of the real wage in the two countries. Education has expanded much more rapidly in Kenya than in Malawi. Increased educational access has resulted in keeping young children in the school and increasing the reservation price of labor. In contrast, in Malawi the low access to primary schooling and lack of employment opportunities in the smallholder sector has increased the supply of labor, including children, to the estates thereby depressing the real wage. Since labor constitutes the most important source of income in African agriculture and economies, clearly changes in wage rates and employment are a major determinant of living standards.
The relatively greater success in smallholder agriculture in Kenya does not mean of course that there is no growth in the absolute number of people living in poverty, nor that there is political development; i.e., freedom of the press, full political participation by all ethnic groups, etc.
Nigeria, Senegal, Tanzania and to some extent Cameroon, pursued import 14
substitution policies and neglected their agriculture. Nigeria's agriculture declined rapidly in the wake of the oil boom, due in part to the high degree of implicit taxation of the agricultural sector, and to changing thrusts in the policy initiatives encouraged by the oil boom. In Senegal, despite favorable prices for phosphates in the 70s, neglect of the critical groundnut sector and the import substitution of rice through high-cost irrigation resulted in a failure to diversify the economy. By the end of the 1970s, Tanzania's agricultural exports had stagnated as well, although Tanzania was (and continues to be) one of the largest recipients of foreign aid. The reasons for neglect of agriculture and an emphasis on industry include the desire to get out of the colonial dependency associated with past international trade, to avert the decline and year to year instability in real international prices of primary commodities by shifting to industrialization, and not the least important, to meet the expectations of the largelyurban and socialistically-dominated independence movements that considered export agriculture as backward and primitive. The ideas of export pessimism and import substituting industrialization were reinforced by the intellectual support lent by Africa's western economic advisors in countries such as Tanzania and Senegal. The role of policy advice increased with the rise of external assistance in the 1970s. External advice became even more dominant in the 1980s, as the financial dependence of African countries increased.
Much debate ensued in the early 1980s about the extent to which internal policies, rather than the adverse external environment (i.e., terms of trade shocks, stagnant demand for exports, instability in commodity prices, wars or famines), were the cause of Africa's economic problems. The question of the behavior of the external terms of trade is of course 15
complex as answers depend on the choice of the base and end periods, and commodities under consideration. The extent of decline in real terms, as well as the volatility of the terms of trade varies by countries. The MADIA study shows, however, that the same international price environment was interpreted differently by African countries and Africa's main competitors. As stated earlier, while most African countries lost shares in the world market, their non-African competitors gained shares rapidly.
Second, and belatedly, governments of countries expanded their public expenditures rapidly. Increased government revenues, resulting from peaks in terms of trade or foreign aid, were permanent, rather than temporary. Ile IMF estimates that the proportion of African government expenditures to GNP increased from a fifth in the early 70s to a quarter in the mid 80s, and African budget deficits increased from 4% to 6% of the GNPs in the same period, at a time when external aid also rose sharply. Nigeria's public expenditures increased sevenfold in less than a decade in the 1970s. Other oil exporting countries, such as Indonesia, pursued a more cautious policy and performed better.
The primary problem in Africa has nonetheless been the quality and allocation, rather than the high share of government expenditures in GNP. Several European countries have much larger shares of government expenditures in GNP than do African countries. A rising and a high share of public expenditures went to salaries and wages leaving little for operating expenditures and maintenance. The high wage component was a result of a tendency of governments to use public and parapublic entities as the source of assured employment to the school and university-leaving graduates. Also, a lion's share of public 16
expenditures went for the benefit of the urban populations, leaving few resources for rural health, education, farm to market roads etc. According to the 1990 World Development Report, subsidy of education in Africa increased sharply from $48 per primary pupil to $233 per secondary student, and to $2710 at the university level. Similarly, expenditures on hospitals in the capital cities expanded rapidly relative to those on rural clinics. Even Tanzania, which has had a strong rhetorical commitment to broad-based development, allocated only 6% of the 1988-89 budget to preventive health services. Redistributive policies of governments entailed discrimination against the relatively more resource rich regions, (e.g. in Tanzania, Arusha and Kilimanjaro which produced coffee, the Sukumaland which produced cotton, and Tobora which produced tobacco, suffered relative to the poorer regions, e.g., Dodoma or Mara),
African governments need to maintain overall levels of public expenditures which are consistent with the levels of domestic resources, external aid and capital which they can realistically expect to receive on a consistent, long-term basis. They also need to improve the balance of expenditures:
1. away from the urban to the rural sectors,
2. away from salaries and wages towards operating and maintenance expenses, and
3. away from protected industrial sectors towards rural social sectors.
What Effect Have Structural Adjustment Programs Had on the Pace and Pattern of Economic Growth in Africa?
To correct the problems discussed above, well over 30 Sub-Saharan countries have been under structural adjustment since the early 1980s. Adjustment has involved reductions in public expenditures; devaluations of the exchange rates and other price adjustments as a way of reducing overall demand and budget deficits, and to increase the supply of tradeable goods vis-a-vis nontradeable goods. Price incentives are complemented by nonprice measures including such things as divestiture of the public sector activities to provide incentives to private enterprise.
The structural adjustment process has certainly challenged the basic premises on which governments and donors operated in Africa. Resistance by African governments to the adjustment measures is understandable, given that few African governments represent (and are accountable to) *the majority of their populations. Moreover, controls have been pervasive in African economies. Therefore, even under the best of circumstances in which governments undertake all the necessary reforms, considerable lag in supply response should be expected. Physical and social infrastructure has been depleted. It needs to be restored and developed further for individuals to be able to respond to new economic opportunities, but pervasive shortage of human and institutional capital limits the ability to reverse the physical decline.
Adjusting countries are performing better than nonadjusting countries in terms of agricultur. production, exports and GDP growth, according to the World Bank.13 Critics have argued that public services have declined with retrenchment of government expenditures, loss of employment in the public sector, and increase in prices, resulting from 18
a combination of removal of subsidies and adjustment of the exchange rate. As a result, the poor have suffered.
It is difficult to judge the extent to which increases in production and exports observed by the World Bank studies are a result of general improvement in policies and institutions, as distinct from simply the additional finance from donors. Donor assistance has been directed exclusively towards the adjusting countries, making increased imports possible. Improved economic indicators may also simply reflect a shift in volumes traded from informal (or parallel) to official markets with the removal of controls and price adjustments. In the long run, absence of parallel markets should reduce risks, increase incentives, and result in increased production. But it is difficult to know how soon production will respond on a sustained basis. Exogenous factors such as the weather have also played a role. Part of the recovery in agricultural production in the later half of the 1980s in the Sahelian countries was a result of improved rainfall rather than any noticeable increase in the use of fertilizers and other purchased inputs needed to intensify production. On the contrary, in many countries abolition of the public sector monopoly distribution systems has resulted in the collapse of the input distribution and output marketing systems. I-acking finance, accessible roads or market information, and experiencing continued harassment from governments, the weak private sector has often been unable to respond to the reforms at the speed expected earlier.
Increased cost of imported inputs and transport as a result of the devaluations has also eroded the benefits of devaluations and of the removal of taxes on exports. The cost 19
of food imports, which the poor consume, has increased. Moreover, while liberalization of internal food markets has made marketing of food more open, the reduced role of the governments in grain purchases has reduced an assurance of a market for some of the cereals, causing collapse in market prices with even a modest increase in production.
Finally, the private sector has not only faced physical and institutional constraints, but it has at times been less than competitive, dominated as trade tends to be by a handful of individuals with access to working capital and political power. They tend to replace the operations of the public and parapublic agencies, essentially transferring the rents previously accruing to public sector employees to themselves, without reforms necessarily benefitting either the consumers or the producers.
To gauge the net effect of these various economic and political factors, objective and empirically-based assessment of adjustment programs is needed on a country-by-country basis. To date, too few resources have been committed by donors and governments to empirical evaluation.
What Does the Future Hold for Africa's Economic arnd Political Prospects?
It is clear from the analysis presented in this paper that Africa's problems are deep rooted and wide-ranging. Political and economic conditions vary substantially from country to country, but require fundamental changes in the systems. Adjustment programs have made an important beginning in stimulating changes, but the programs are unable to address all the deep-rooted political problems of African states and the way they influence the 20
content of economic policy. In some areas, donors have made an important beginning. For instance, Africa urgently needs to build its human and institutional capacity in order to formulate and implement effective economic policies. This means giving high priority to utilizing the large number of educated Africans who are currently under-utilized for political and ethnic reasons, as well as a systematic reduction in the dependence on external technical assistance. There is also a need to assign the highest priority to the education and training of African personnel and to the development of private as well as governmental, social and political institutions. The Capacity Building Initiative (ACBI), undertaken by The World Bank, the African Development Bank and USDP, is beginning to address that problem, albeit in a small way.
How Has External Assistance in General. and US Assistance in Particular. Fared in Dealing With Africa's Problems?
Strategic considerations have tended to make US assistance more sporadic and less predictable than is true for several bilateral aid programs. These bilateral aid programs tend to be influenced by commercial considerations which require developing long term relationships. The study on Transitions shows how in Pakistan, India, Sri Lanka and Egypt strategic factors made levels of U.S. assistance unpredictable and reduced its effectiveness .14 With unstable aid levels, recipients could not plan on long-term uses of aid. Even in Africa where, as pointed out earlier, strategic factors have been less important but nevertheless operative, Johnston, et al. in their study of USAID show the sporadic nature of U.S. assistance.
However, not all variation of U.S. assistance is by any means related to strategic considerations. Changes in the directions of aid, e.g. between poverty orientation, policy reform and more recently the sustainable environmental concerns, have caused revisions of views about development strategy. For instance, however well intentioned the focus on poverty in the mid 1970s, Johnston, et al., shows that it led USAID to discontinue the support it had been providing for higher education in Tanzania as "Washington preferred projects that would benefit the poor in the shortest possible time.""
The shift away from project assistance to balance of payments support in the early 1980s was made by USAID, as well as other donors, once again leading to the abandonment of much of the physical and institutional infrastructure that was created and supported in the 1970s when the poverty oriented assistance was in vogue." Even though, compared to the World Bank, USAID has placed larger numbers of staff in field missions relative to the dollars committed, and even though this allows it to be relatively more knowledgeable about the particular needs of recipient countries, its assistance has nevertheless largely been driven by the changing directives from Washington.
As with other donor assistance, U.S. assistance in Africa has also tended to focus narrowly on changing "fads", i.e., on poverty alleviation in the 1970s and on macro policy reform in the 1980s. It has not been focused on areas in which the U.S. has had clear expertise, for example, on the development of human and institutional capital for growth. Each shift in the USAID and other donor emphasis has been well-founded. For instance, the Green Revolution in Asia in the late 1960s resulted in a concern that the impressive 22
technological change which engineered the revolution was not rf-aching the poorest of the poor. This lead to an emphasis on poverty orientation in the mid 1970s. Similarly the shift to structural adjustment resulted from a prolonged neglect of macroeconomic management, as rapidly expanding donor programs in the 1970s oriented to poverty alleviation swelled public expenditures. These extreme swings of emphasis, however, reflect the absence of an overall vision about a consistent albeit flexible long-term economic development strategy which reconciles micro and pectoral level concerns with the changing macroeconomic circumstances. Similarly, balance has been missing between directly productive activities in agriculture and manufacturing and long-term social sector investment activities which increase overall income productivity. Fads tend to be the result of active lobbying by specific interest groups, e.g. the humanitarians in the case of poverty, the commercial interests in the case of privatization associated with structural adjustment, and more recently the environmentalists. These lobbies place excessive emphasis on a particular aspect of an overall development strategy. However, since fads are by nature mercurial, an important consequence of the repeated waves of new themes is the decline of professionalism and replacement of specialists by the generalists. Virtually every study of donor aid carried out as part of the MADIA study bemoans the decline of the specialist and the technical expert in their respective agencies, and the increasing tendency on the part of donors to respond to specific aid lobbies within their own countries. Specialists are also less able and willing to shift their expertise to suit each changing fad, and to the directives from the capital city of the aid agency. They also tend to have greater need for stable, predictable long-term relationships with donors and recipients. The lack of vision on the part of donors in general and USAID in particular, is a more serious problem in the case of assistance to the African 23
continent than it was in Asia earlier. The capacity of the recipient countries to articulate 24
their needs and to ensure that the assistance is channeled in the direction they most desire was greater in Asia.
The short time-horizon has often undermined the effectiveness of US assistance. The type of investments that are needed, the investments in human and institutional capital which the US has a comparative advantage in providing, require a long time-period to establish.
Another problem with USAID has been that there is not much correspondence between the effective uses of aid and aid levels. To place USAID's aid allocations among countries in a larger perspective, it should be emphasized that bilateral aid on the whole has tended to be allocated less on the basis of economic performance than has multilateral aid. The World Bank has tended to use more objective considerations consistently,18 and so has played a stabilizing role by ensuring a steady supply of capital to more deserving developing countries.'9 Consequently, there is relatively little relationship between aid levels and the economic performance of countries. In Africa, for example Tanzania and Senegal, two of the largest recipients of aid, were poor performers.
Indeed, both the aid studies have shown that far too often "aid booms" had much the same (Dutch Disease) effects as "commodity booms" experienced by countries, namely the overvaluation of the exchange rate, excessive growth of public expenditures and misinvestlent of resources. 17 Instead of spending the revenues of the temporary windfall wisely, i.e. investing in activities which would increase the productivity of resources, recipients tended 25
to squander aid on unproductive expenditures or on premature heavy industrialization which their economies could ill support.
Aid allocations of other donors have also changed radically due to changes in the views of development strategy, although as stated earlier overall aid levels of other donors have been relatively more stable than of the U.S. For instance, Radetzki, who carried out the study of Swedish aid, and Hanak and Loft, in their study of Danish aid, point out that SIDA and DANIDA gave twice as and three times as much more aid to Tanzania than to Kenya, respectively, although Kenya used the aid more effectively. 20 Tanzania's socialistic ideology and rhetoric of participation appealed to the Scandinavian donors more than Kenya's relatively more freewheeling capitalistic approach to development. More lately, Kenya's human rights concerns have affected aid levels, although the record on rights of some of the other recipients of donor aid is not necessarily any better, but Kenya has suffered more adverse publicity in the western media.
To avoid excessive swings in the capital flows from donors due to the "bandwagon effect", the aid studies carried out in the World Bank emphasize the need for donors to play up to their comparative advantage, i.e., to provide assistance for those activities which the donors can carry out most effectively. Most donors have shown a distinct comparative advantage in assisting in particular areas. Frequently these areas are related to the presence of an efficient domestic industry in donor countries. For instance, Denmark has a distinct comparative advantage in assisting in dairy development due to its strong domestic dairy industry, and the know-how it possesses, particularly in the temperate zones of Africa.
Hanak and Loft in their study point out that Denmark was more successful for this reason in dairy development in Kenya than in Tanzania.
Sweden similarly has a comparative advantage in the development of the forestry sector given its large domestic forestry industry, albeit in the temperature zone. Moreover, it has developed expertise advantage in assisting in development of rural water supplies although as Radetzki points out, Swedish assistance to rural water supply in East Asia employed technology not manageable at the local level, involved operating and maintenance costs the central government could not afford, and made inadequate provisions for local participation."1 There have not been systematic investigations by SIDA at the sectoral level to explore how it might provide assistance for water development to countries which would be more appropriate. These problems are, however, not unique to Swedish aid. The MADIA study has shown them to be a pervasive problem with external assistance.
The U.S. has shown a strong comparative advantage in the development of education and training, particularly the university and post doctoral level science and technology needed for generating technical change in the agricultural sector. This comparative advantage in higher level education, training and research by the U.S. played a crucial role in the generation of the Green Revolution in Asia. It comes from the access of the U.S. to one of the best systems of higher education, an industry which now also contributes an important U.S. export. Moreover, there has been a stroi~ger philosophical commitment in U.S. external assistance to the concept of investment in the education and training of developing country nationals than has been true of other donors.
Many of the areas in which donor countries have a comparative advantage are those in which recipients need assistance on a consistent long-term basis as part of their overall long-term economic development strategy. However, donors are not always able to assist in areas in which they excel. The U.S. for instance. has considerable expertise in many of the crops which African countries produce and export, such as cotton, tobacco and groundnuts. However, because they compete with U.S. domestic production and exports, congressional guidelines prevent U.S. assistance to developing countries in such industries. Denmark similarly has difficulty playing up to its comparative advantage in the dairy industry except in situations where the growth of such industry would increase internal consumption of dairy products by the poor, consumption which would not otherwise be promoted through imports and when the development of such industry might lead to the growth of exports of machinery for the processing of products. In Kenya's dairy development, all these objectives were fulfilled. But donor studies carried out for the MADIA study show how lobbying by commercial interests in donor countries for certain types of aid results in aid-tying to equipment or even to entire projects leading to inappropriate choice of advanced, capital intensive technology, and even to investments that developing countries at an early stage of development can ill afford, e.g. the pulp and paper mills financed by Sweden and the World Bank and the steel plants financed by German aid in Tanzania. The U.S. similarly ends up using vehicles which do not fare as well in tropical countries with poor infrastructure, etc.
Donors, including the U.S. have, however, not chosen to pursue their comparative advantage, except when it serves domestic commercial interests and have instead attempted 28
to copy each other, e.g. towards poverty oriented projects, or structural adjustment. Similarly, Howell in the study of UKODA, Kennes in the study of EEC assistance, Claude Freud in the case of French aid, and Heimpel and Shulz in the case of German aid point out the shift away from export crops by donors who had a comparative advantage in giving assistance to export sectors of Africa'
It is clear that fundamental changes are needed in USAID assistance to Africa if it is to contribute effectively to changing economic prospects as it did earlier in Latin America and Asia. The U.S., (together with other donors), needs to help African countries to develop a long-term strategy of economic development, and to ensure through effective aid co-ordination that strategy is carried out consistently, while focussing its own assistance in the area in which it has the greatest ability to excel. This would mean that the U.S. would need once again to draw on its universities more for human and intellectual capital. It would need to rebuild the technical capacity of its own staff and it would need to begin to be more responsive to the needs to developing countries whose economic development it is geared to serve.
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