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• The Challenges of Financing Development in Africa: Theme Paper
• ESCAP on SAARC: Scorecard on Fiscal Reforms and Investment Regimes – Himal Southasian
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Essay Tibet. A reinvigorated spiritual politics of Tibetan Buddhism could prove to be a way forward. Mila Samdub. Related Stories. Between harb and jihad. The Editors Feb 01, Culture Fiction Literary Southasia. The Man Next Door. Manju Kak Dec 01, Wagah and Jallianwala Bagh. The Editors Dec 08, Archives Cover feature Nepal. Wandering souls, wondering families. Weena Pun Aug 01, Never Miss a Story stay in the know with fortnightly updates from our newsletters. African countries would best be further advised that as overall aid flows continue to decline, the continent could begin to lose out on aid allocations both in absolute and relative terms, compared to other regions with relatively better economic performance and aid effectiveness records.

Therefore, it is incumbent on African countries to deepen their policy and institutional reforms in order to attract additional aid and use it more effectively. Aid dependency is also an issue of concern for Africa — although in the short run, it is quite inevitable. For other indices of aid dependency, see Appendix Table 3. The high aid dependency is a reflection of the low savings prevalent in African countries. It has serious implications for the sustainability of the development momentum in Africa and adds to the number of questions being asked about optimum levels of aid and aid effectiveness.

Without the reforms outlined above, aid effectiveness is likely to remain low and aid dependency perpetuated. They also need to foster a new donor-beneficiary relationship in which multi-donor aid programmes are focused on an Africa-driven agenda, in order to strengthen the impact of aid. Past experience with aid on the part of donors and beneficiary countries suggests an urgent need to reexamine current aid modalities with the aim of increasing aid effectiveness.

Both donors and developing countries seem to agree on this issue. A key objective of the reforms should be to break the spiral of the weakness in recipient country capacity for programming, monitoring and evaluation , which has led to escalating donor intrusiveness in public expenditure decisions motivated by the urge to disburse funds — which in turn has further weakened recipient country capacity. The key to breaking this spiral is to put in place a mechanism for consensus building among key African development stakeholders including donors around an Africa-led agenda and to return spending authority, control and accountability to the beneficiary countries.

The Special Programme of Assistance to Africa SPA partnership has also come on board in terms of advocating a more prominent and systematic incorporation of perspectives from SPA countries; strengthening the focus on aid effectiveness through the development of new aid instruments; performance monitoring; selectivity and more effective follow-through within agencies and on the ground. The emphasis of the new thinking is the integration at national level and among global players of macroeconomic aspects of development with fundamental long-term issues of the structure, scope and substance of societal development.

They imply open sharing of information among all players and clear leadership by developing country governments in the programming and implementation of development programmes. The matrix is a tool for identifying unmet needs and for strengthening cooperation, transparency, partnership and accountability for results. In such a comprehensive framework for aid, for example, aid, debt and other factors impinging on the development process would not be considered in isolation. Creditor governments and their ODA agencies would act in concert: the ODA arm to ensure that aid composition is consistent not only with the long-term need for fiscal and external balance in the debtor country, but also with long-term structural transformation needs.

Creditor governments would ensure that the terms of debt relief support rather than subvert ODA objectives and, debt relief arrangements do not have the effect of diverting ODA intended to promote economic development. The OECD DAC report emphasizes, among other things, that well-targeted debt relief could make a real difference to the achievement of social and poverty reduction goals by the 21st century.

At the same time, it would help to reduce dependence on aid. When operational, the comprehensive approach would be a major step towards enhancing the effectiveness of ODA in the African development process. We expect some to invited participants from African governments, civil society, researchers and academics, intergovernmental organizations and donors at each forum, which will focus on a specific theme each year and will set goals and priorities for the continent. The forum will result in sharply defined, time-bound actionable programmes that can be implemented within the capacity of African countries.

Because selected partners will be invited to participate in proceedings of the Forum, or its other activities, the Forum will facilitate donor contributions to consensus building. It will bridge, and hopefully make unnecessary, the continued proliferation of new external agency-led initiatives towards a future vision of Africa — initiatives which, in any event, have proved difficult to translate into cohesive programmes. The first forum will be held in Addis Ababa in October on the theme: "The Challenge of Globalization and the Information Age", which will further promote the objectives of the African Information Society Initiative.

The net rate of return on investment in African countries is higher than in other developing countries.

It was estimated at between per cent during , on average, as opposed to per cent for all developing countries. Yet Africa has not been one of the significant beneficiaries of the dramatic increase in global foreign direct investment flows. Moreover, the flows are concentrated on a few countries and activities. More than 50 per cent of all FDI went to support the oil and petroleum industry, and most of the rest went to extractive, mainly mining, activities.

And one needs to recognizes that the decline in commodity prices, especially those of petroleum, gold, and diamonds could reduce the attractiveness to foreign investors of some of the countries — such as South Africa, Nigeria and Angola — that have been major recipients of FDI in the recent past.

Little FDI went to industry or services, where there are the greatest opportunities for technology transfer to sustain the development process.

The foreign-funded manufacturing sector, which was dominated by import-substituting industries, remains weak, largely because import liberalization has adversely affected their shares of the domestic market, in addition to large currency devaluations which have undermined their rates of return in foreign currency terms.

This perception is rooted in a number of inter-related factors, which have given the continent a negative image, including poor human, social and economic infrastructure, fear of policy reversal, civil conflicts and an inadequate legal framework for the enforcement of contracts. Low levels of income and small market size, poor international competitiveness, weak domestic private sectors, undeveloped domestic financial sectors and rudimentary capital markets are other key constraints to attracting private capital flows.

Surveys of foreign investors show that, FDI goes to countries with a stable political and economic environment, transparent and minimal regulations, good infrastructure facilities, a skilled labour force and low production and transactions costs — much the same set of factors that encourage domestic investors. These features have been largely absent in a number of African countries Fisher et al, and account for the poor performance. For selected FDI stock indicators for and , see appendix Table 4. In spite of the constraints to accelerated flows of FDI, there are encouraging signs that this could change.

Major steps are being taken by several countries to eliminate those factors that inhibit FDI flows, including maintenance of a supportive macroeconomic policy environment; increased liberalization of markets and trade regimes, business facilitation and improvements in the regulatory framework for private investment. As a result, economic fundamentals in the region are improving, which is an essential inducement for private sector investment UNCTAD, b, p. Initiatives outside Africa to promote private investment in the continent are also likely to reinforce this trend.

While there is some lingering debate within the Africa constituency in the US, and some alternative proposals are being put forward, the initiative is a major step in US-Africa trade and investment relations. Domestic and foreign programme and policy initiatives, however, will by themselves not produce durable private investment and development in Africa without key sustainability conditions being met, including raising the productivity and competitiveness of African economies.

African countries will need to invest in human capital, physical infrastructure as well as technology. It is, therefore, also imperative that African countries concentrate on improving the competitiveness of their economies in order to gain a foothold in the world economy. In the absence of selective export promotion policies, competitiveness depends on the behaviour of real wages, on productivity growth and on the real exchange rate.

A comparison of unit labour costs in African countries and some potential competitors in a number of manufacturing sectors in shows that in most cases, costs in Africa were much higher than in competing countries. Moreover, in general, unit labour costs in Africa actually increased after relative to those in competing countries, even though in many cases real wages stagnated or even declined UNCTAD: a, pp.

African countries, therefore, will need also to focus on how to improve the productivity and competitiveness of their economies as an integral part of the strategy to attract foreign direct investment and strengthen private sector activities in general. Privatization in Africa is becoming an increasingly important although far from fully explored avenue for foreign investment UNCTAD, b. Expanding privatization programmes in a number of African countries has broadened opportunities for FDI. In the privatization process, foreign investors bring along with them proven managerial capabilities, new technology and market access.

Although privatization is attracting foreign direct investment FDI in Africa, the amount is small relative to total FDI and compared to privatization-related FDI flows to the rest of the world. Such flows represent less than 5 per cent of all foreign investment in the Africa region, compared to 43 per cent in the transition economies of Eastern Europe, and 15 per cent in Latin America and the Caribbean White and Bhatia, The low level of participation by foreigners in privatization in Africa can be directly attributed to the small size of privatized enterprises, weak promotional efforts, lack of transparency of transactions, weak legal systems and the preference for local investors in areas of interests to foreigners.

There are a number of policy issues with which African countries have to grapple in the process of privatization. The most urgent one is the issue of broadening the ownership base of privatized enterprises to be more inclusive of major national constituencies. If ownership is broadened, national aspirations are satisfied and political acceptance of the process is garnered. Concrete issues relate to the avoidance of concentration in one particular ethnic group as opposed to another; the rich as opposed to the middle class; one political class as opposed to another, and a minority as opposed to the majority.

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Another important issue is the extent to which foreigners should have control over the "commanding heights of the economy" in the process of privatization. Should foreigners be allowed to own a larger share of most industries or sectors of the economy? In many African countries, there is reluctance to allow foreigners to own majority shares in sensitive areas of the economy such as the banking and power sectors. Some African countries have not yet opened up their economies to foreigners. Opening up is often seen as economic neocolonialism.