COMPACT FOR AFRICAN RECOVERY

Operationalising the Millennium Partnership for the African Recovery Programme

Addis Ababa
20 April 2001

Table of Contents

Introduction

Background
The Key Features of the Compact
Issues for Consideration by and
Expected Outcome of the Conference of Ministers

Chapter I – Foundations for the Compact for African Recovery
Key Strategic National Actions

Africa needs Good Governance, Peace and Security
The African Economy at the Dawn of the 21st Century
Improving Macroeconomic Performance

Chapter II – Key areas for joint African-international action

Overcome the HIV/AIDS Pandemic
Provide Basic Health Services
Invest in People: Increase Resources for Education
Provide ICT and Narrow the Digital Divide
Enhance Research Capacities
Improve Key Infrastructure
Strengthen Regional Cooperation

Chapter III – A New International Partnership with Africa 

Why International Partnership needs Reform
Increasing Resource Flows

Chapter IV – Enhancing Partnerships for Development

Guiding Principles
- Transformed Assistance Relationships: Putting them into Action
- Stable long-term resource flows
- Transformed aid relationship based on mutual accountability
- Partnership for the diverse conditions of each individual African country

Chapter V – Enhancing the Role of the Private Sector in Development

Private Sector led Growth in Africa: the potential
Good Corporate Citizenship
Public-Private Partnerships
Conclusion

Chapter VI – Implementing the Compact: The Way Ahead

Political Leadership in Africa
Conclusion

INTRODUCTION

Nelson Mandela

1. The Millennium Partnership for the African Recovery Programme (MAP) is emerging as the African initiative for development, bringing together all partnership initiatives within a single framework. The Compact for African Recovery is designed to provide technical and analytical support to the MAP. This introduction provides the background to the Compact for African Recovery, its key features and aims. It highlights the issues for consideration at the ECA Conference of African Ministers of Finance and Ministers of Development and Planning in Algiers, 8-10 May 2001.

Background

2. The Millennium Declaration adopted by the United Nations Millennium Summit in September 2000 devoted a section to meeting the special needs of Africa. It placed particular emphasis on supporting Africa in the areas of consolidation of democracy; encouraging and sustaining regional and subregional mechanisms for preventing conflict and promoting political stability; addressing the challenges of poverty eradication and sustainable development in Africa, including debt cancellation, improved market access, enhanced ODA; and helping Africa build up its capacity to tackle the spread of HIV/AIDS pandemic and other infectious diseases.

3. The Compact for Africa's Recovery represents an important component of ECA's response to the implementation of the Millennium Declaration. The idea of developing the Compact emanated from a speech made by the Executive Secretary of ECA, Mr. K.Y. Amoako, to the Eighth Session of the ECA Conference of African Ministers of Finance held in Addis Ababa in November 2000. In it, he called for a Compact with Africa in which the developed countries would invest the necessary resources through aid, debt relief and market access to give African economies the jump-start they need. In turn, Africa should be able to put in place the necessary political reforms to ensure that their economies take off.

4. Endorsing the Executive Secretary's proposal, the Conference adopted a resolution requesting ECA to develop the details of the Compact for consideration by the Joint ECA Conference of Ministers of Finance and Ministers of Economic Development and Planning to be held in Algiers in May 2001. The resolution also suggested that the Executive Secretary consult with individuals and institutions, including the United Nations and Africa's development partners, which have the potential to best assure the Compact moves to implementation. As the process of articulating the Compact and the related consultations evolved, it emerged that the Presidents Mbeki of South Africa, Obasanjo of Nigeria and Bouteflika of Algeria were developing an initiative known as the Millennium Partnership for the African Recovery Programme (MAP).

5. Inspired by the firm and shared conviction that African leaders have a pressing duty to eradicate poverty in their countries, the MAP aims to launch Africa on a path of sustained growth and development at the dawn of a new century. The MAP seeks to build on the momentum of change and progress in the continent, reflected in adoption of economic reforms, consolidation of democracy and new resolve to dealing with conflicts. The MAP recognizes that a new and effective partnership with the international community is essential to its success, even as it stresses the African governments and people have the primary responsibility for its implementation. These are also the goals of the Compact, which is indeed conceived as a technical input to the elaboration and implementation of the MAP.

6. At about the same time, President Abdoulaye Wade of Senegal announced his OMEGA Plan for Africa. This identifies the need to develop physical capital and human capital as the key prerequisites for sustained and balanced growth and argues for investment needs in priority sectors to be brought under the purview of a single international authority. The OMEGA Plan has the same vision and objectives as the MAP. Both are inspired by the need to launch Africa on a path of sustained growth and development at the dawn of a new century and both are based on the premise that Africa must assume the primary responsibility for that effort. Thus, at the extraordinary summit of the OAU in Sirte, Libya in March 2001, the Heads of State and Government agreed that the MAP and OMEGA Plan be merged.

7. Following this brief background, the rest of this introductory chapter will present the key features of the Compact, highlighting the main issues for consideration by the Ministers, including the expected outcomes from the ECA Ministerial Conference in Algiers.

The Key Features of the Compact

8. This is the decisive moment for a new approach to Africa's development, drawing on the momentum provided by what the MAP describes as the unprecedented `determination of Africans to extricate themselves and the continent from the malaise of underdevelopment and exclusion in a globalising world.' We are at a critical moment at which lessons learned can be put to the best use. The Compact is therefore a timely instrument, drawing upon existing modalities and developing emerging best practices, to draw up a comprehensive response to Africa's development challenges. The Compact does not propose any new aid modalities or instruments. Rather, the intention is to exploit to the full the scope of what already exists and, by providing an African vision for enhanced partnerships, to stimulate a transformation in aid relationships including fostering public-private partnerships.

9. The Compact draws upon extensive research into the many components of Africa's development challenges. The six chapters of the document are:

I. Key strategic national actions;

II. Key areas for joint African-international action;

III. Enhanced partnerships for development;

IV. A transformed aid relationship;

V. An enhanced role for the private sector;

VI. The way ahead.

10. Chapter I deals with the essential national actions that Africa's leaders must take if they are to claim the 21st century. Good governance is central to the Compact. There is a powerful consensus, in Africa and globally, that the quality of government is critical for poverty reduction. Poor quality governance is manifest in corruption, conflict and high expenditure in unproductive sectors such as the military. This in turn impedes the development of both the public and private sectors, while denying citizens access to adequate health care and education. In extremis, this leads to a vicious cycle of impoverishment, conflict, population displacement and capital flight. High quality government is better able to design and implement effective policies and programmes. It is also relatively transparent and accountable, governing in a constitutional manner, applying the rule of law, managing national finances soundly, and providing citizens with civil liberties, economic freedoms and essential social services. Last but not least, in a globalising economy, international capital seeks secure, rule-governed countries with skilled workforces as its favoured investment locations. Good governance is a sine qua non for poverty reduction.

11. The Compact outlines the necessary governance measures required for Africa's national leaders to establish an effective covenant with their own people on development progress in the years ahead. Actions focus on enhancing structures for political representation and ensuring greater inclusion, promoting transparency and public availability of information, participation of the private sector and civil society in policy-making, and establishing more equitable gender representation and participation.

12. The Compact is based on recognition that, under current conditions and with current trends, Africa's economies are going to fall far short of achieving the rates of growth necessary to meet existing International Development Goals (IDGs) by 2015. Africa is the only region of the globe in which the number of people trying to survive on less than $1 per day is increasing. To achieve the IDGs, Africa needs to grow at 7% per year: more than double its current rates. It follows that major resource mobilisation is required, both domestically and internationally. Chapter I of this document outlines the measures required to move towards macro-economic stability and economic growth, along with those needed to mobilise domestic resources and close the savings gap.

13. Chapter II details seven critical areas for joint African-international action. These areas have been identified as pressing issues of survival, tackling fundamental continent-wide constraints to Africa's development, and opening opportunities for Africa to maximise its potential. First, overcoming the HIV/AIDS pandemic is a basic survival issue, demanding immediate mobilisation on an emergency footing. Second, basic health services are needed across the continent, because without a healthy population, economic development is impossible. Third, Africa's educational systems need rehabilitation: investment in human resources is the sine qua non for development. In these sectors there is need for policy reform, strengthening service delivery systems, and increasing resources.

14. Targeted action in select areas can create significant opportunities. The Compact's fourth critical area is providing ICT and narrowing the digital divide. If Africa overcomes its marginalisation in this area, its economy has the opportunity to surge ahead. Next, Africa should enhance its research capacities, especially in agriculture, health, environmental science and public policy. Sixth, major improvements in key infrastructure can overcome constraints on Africa's competitiveness. Lastly, strengthening regional cooperation is a prerequisite for Africa's economic growth.

Africa needs a new international partnership

15. It is clear that Africa cannot achieve sustainable growth and poverty reduction without a transformed partnership with the international community. Chapter III outlines the key specific actions that the international community should take as the basis for the Compact for African Recovery.

16. Much has been learned about how to improve aid performance. Aid has had its successes, but there is growing mutual dissatisfaction with aid outcomes. Today there is an unprecedented frankness in examining the record, identifying best practices, and forging new modalities for cooperation. African ownership of policies and programmes is a precondition for success. The continent is diverse and there is no one-solution-fits-all scenario. Chapter III focuses on quantity of resource flows and Chapter IV on quality.

17. This document argues that Africa needs not only increased resource flows but more effective utilisation of those resources. More ODA is needed to help Africa fill its existing finance gap of approximately $10bn per annum if it is to meet the IDG goals of halving poverty by 2015. (This figure excludes the estimated financing requirements to address the HIV/AIDS pandemic.) Increased assistance should be targeted on countries that have a demonstrated capacity to use aid well, and should focus on priority areas.

18. A rapid and sustainable exit from the debt crisis is essential. Current debt reduction initiatives need to be enhanced and speeded up, and financial assistance options need to be less reliant on loans, which have the risk of relapse into indebtedness. The Compact entails significant changes in decision-making, assessment and financing of Africa's major development partners, continuing existing reforms.

19. It is through increased international trade that Africa will develop. Export is the means for obtaining long-term investment and finance: it is the necessary engine for growth. For this to be achieved, African products need much-improved international market access. Africa faces too many barriers to the sale of its products internationally-especially for processed primary products where Africa may have a competitive edge. The Compact envisages a range of measures within the WTO, ACP and bilaterally with trading partners to level the playing field in some areas, and to provide for preferential treatment in others.

20. This document underscores the critical role that FDI has to play in meeting the investment requirements of the African continent. In the decades ahead, Africa will either develop through the dynamism of the private sector-or it will not develop at all. This issue is developed in Chapter V.

21. Chapter IV presents the heart of the Compact for African Recovery. The Compact makes a significant contribution with its proposal for a transformed partnership between Africa's best-performing countries and their international partners. While the previous chapter focused on the quantity of resource flow, the focus here is on the quality of aid. The essential idea is that by upgrading and systematising existing best practices under the umbrella of the MAP, it will be possible to achieve a breakthrough in development cooperation. The Compact has four basic guiding principles underpinning this wider new partnership, which are discussed in this chapter.

22. The first principle is African ownership of visions and goals for national development, as well as policies and programmes for poverty reduction and the increased participation of African countries in the global economy. Building on existing country-level modalities such as Comprehensive Development Frameworks and Poverty Reduction Strategies, utilising established institutions and fora, the Compact proposes further measures to entrench and deepen African ownership.

23. The next requirement is stable long-term resource flows to Africa and the predictability of donor support: these are key to the success of aid and economic management. Several leading donors are moving in this direction, simplifying and harmonising their conditionalities and increasing the commitment horizons of their assistance. An important contribution of the Compact is seeking modalities for institutionalising this principle.

24. The third principle is transformed partnership based on mutual accountability to agreed development outcomes, including peer review and performance monitoring among both African countries and international partners. The Compact envisages new mechanisms for joint monitoring of both donor and recipient performance, and (most importantly) outcomes. This is a key area of innovation and is one of the major value added contributions of the Compact. Donors will be required to increase their own transparency and accountability, and focus on sectors where they have strategic advantages.

25. The final principle, and the other key added value of the Compact, is recognition of Africa's diversity. The continent is a mosaic with immense differences between countries. Some countries can immediately benefit from the full range of measures envisaged, while others need to make progress in governance and economic management before they will qualify. The Compact proposes three generic categories of countries: `enhanced partnership,' `limited partnership', and `post-conflict', with modalities of assistance appropriate for each. This should not be seen as an immutable or rigid categorisation, but as an operational framework for organising relationships with different sets of countries.

26. The document proposes that `enhanced partnership' countries-those that meet the criteria for governance, economic performance and commitment to poverty reduction laid out in the Compact-can take full advantage of all the measures envisaged, and benefit from the resulting increase in quantity and quality of resource flow. They should receive direct budgetary support in line with medium term expenditure frameworks towards agreed poverty reduction targets.

27. `Limited partnership' countries are those currently unable to make full and effective use of aid flows, which will therefore received limited assistance. Consideration for support to these countries is based on a three-fold rationale. First, poor people in these countries cannot be abandoned. Second, there is a risk that a poor performer may jeopardise the prospects for neighbouring countries. Third, international partnership is a means of building up mutual trust-especially in the case of donors that have strong historical ties with that country. For such countries, the Compact proposes a two-pronged strategy. They can benefit from joint actions in key areas including HIV/AIDS programmes and core pro-poor investments in public health, education, and basic infrastructure under the appropriate sector policy environment and criteria for effectiveness. Meanwhile, international partnerships will seek to promote governance and economic reforms, incrementally leading them towards the goal of enhanced partnership status.

28. This document proposes special measures for the third category of countries, namely post-conflict countries. Assistance will include enhancing post-conflict funds and interventions targetted at rebuilding the state and its key institutions, supporting demilitarisation, and reconstructing communities to meet the special needs of this category.

29. Chapter V deals with the major future engine for Africa's economic development: the private sector. It is now beyond dispute that the only source of finance that can provide the long-term finance required for economic growth and poverty reduction is the private sector, both national and international. The Compact recognises that business and markets are the cornerstone of development, and are the essential means of achieving a transition from ODA-dependence to sustainable growth. To a significant extent, private sector-led growth is already occurring, and the document marks some of the significant progress that has been made in the last decade. A vibrant and competitive private sector can play a key role in lifting people out of poverty; it can deliver well-managed services; and can provide robust capital markets. The Compact envisages an expanded role for public-private partnerships in Africa, and outlines some mechanisms that may help to achieve this, including the responsibilities of national governments and a regional oversight role. The general message from this chapter is one of optimism: when the conditions are right, private sector finance will develop Africa.

30. Chapter VI is concerned with the way ahead: putting transformed assistance relationships into action. The overall framework of the Compact envisages actions at a range of different levels to exploit to the full existing initiatives, and augment them with new processes. Both African and international actions will be required for a mutual buy-in to the principles of the Compact.

31. The MAP Heads of State Forum will be a critical anchor for the implementation of the Compact. The MAP has proposed this as its highest level forum, composed of the leaders of a select group of like-minded countries that can provide the necessary continental leadership, consistent with the `enhanced partnership' approach under the Compact. The Heads of State Forum can play several key roles. First, it can provide political leadership at the highest level. Second, it can be a key mechanism for mutual accountability towards agreed goals. It enables Africa's leadership to raise the key continental assistance issues with Africa's international partners and obtain coherence of leadership at the highest level in partnership with its developed nation counterpart, the OECD. Third, the Heads of State Forum, in collaboration with relevant and capable continental institutions, will establish mechanisms for the broad-based buy-in by African governments to peer review of performance on issues of governance and economic management. Lastly, the Heads of State Forum will candidly address the issue of diversity within the African continent.

Issues for Consideration by and Expected Outcome of the Conference of Ministers

32. This document is prepared by the ECA for the Joint Conference of African Ministers of Finance and Economic Development and Planning in Algiers, May 2001. The Algiers Conference provides the first opportunity for African Ministers to give their perspectives on the foundations and guiding principles of the Compact for African Recovery, the proposed implementation approaches and implication for transforming the aid relations discussed therein, the key areas of programmatic focus, and the envisaged linkages between the MAP and Compact.

33. In particular, the Ministerial deliberations will focus on the following issues:

  1. What should be the key strategic national actions to be implemented by African Governments?

  2. What strategic actions are required on the part of international development partners?

  3. What are the substantive transformations sought in the partnership with Africa?

  4. How should practical effect be given to the four guiding principles of the Compact?

  5. How should linkages between the MAP and the Compact be strengthened?

34. Through its detailed Ministerial consideration of these issues, the Conference will help advance African ownership of the vision of the continent's transformed development partnership with the international community. The Conference will deepen the appreciation by all stakeholders of the operational implications and the mutuality of commitments implied under this partnership, and help rally international support for this partnership. The analytically informed discussion of the Compact by the African Ministers will demonstrate that the goals of MAP can indeed be achieved. Discussions can also facilitate the merger of the OMEGA Plan and the MAP in line with the agreement in Sirte in March.

35. In the final analysis, the objectives of the MAP can only be operationalised at the country level. Based on the outcome of the Conference, ECA will work with African leaders on the modalities of operationalising the MAP. The details of the programmatic areas will be developed in the enlarged volume that is being prepared in parallel to this document, which is being presented to the Algiers Conference.

CHAPTER I

FOUNDATIONS FOR THE COMPACT FOR AFRICAN RECOVERY - KEY STRATEGIC NATIONAL ACTIONS

36. African governments face formidable challenges if they are to succeed in an agenda of economic transformation sufficient to overcome poverty and claim the 21st Century. Governance is the key. African political leaders must have a covenant with their people on development progress in the years ahead. With participatory and inclusive mechanisms for developing the right policies and programmes, African governments need not fall behind in setting their own development agendas. With the institutional capacities to deliver effective policies and programmes, domestic resources need not be squandered and international assistance can be effectively utilised. National, regional and international political leaders are confronting the challenges with unprecedented frankness. We are at a critical moment in which lessons learned can be put to the best use.

37. This chapter outlines the essentials of good governance. It identifies the key challenges that African governments need to tackle. It reviews the current economic plight of Africa, before turning to the macro-economic foundations for sustainable development and poverty reduction. These provide an overlapping, mutually reinforcing agenda of promoting effective pro-poor policies.

38. A series of sector-specific programmes requiring joint national and international actions are outlined in Chapter II. More details on the necessary governance and economic reform measures will be spelled out in the expanded volume.

Africa needs Good Governance, Peace and Security

39. The foundation of the Compact for African Recovery is a commitment by African governments to put their houses in order. First and foremost this means establishing good governance and peace and security. These are the foundation for the commitment to tackle poverty and to develop pro-poor policies and strategies aimed at achieving the international development goals. .

The fight against poverty requires good governance...

40. There are strong links between good governance, functioning institutions and poverty reduction. A market economy cannot function well in the absence of good governance, and functioning institutions. Resources will not be allocated to their most efficient uses; people will engage in directly unproductive activities such as rent-seeking, bribery and corrupt practices. Productivity growth will be undermined. Fewer jobs will be created and household incomes and welfare will decline. The essential elements of good governance encompass a range of actions aimed at creating more open participatory societies and promoting greater accountability and transparency in public affairs. For poverty reduction to be achieved it is imperative that there is a commitment to a adopt agreed principles of governance addressing a range of issues relating to the nature and capability of the state to ensure and guarantees the rights of each citizen; that strengthen democracy and promotes the rule of law. This includes, inter alia, the commitment to support assessments of governance and participative processes for determining the actions to be taken, develop suitable benchmarks for measuring improvements in governance overtime, and to develop and implement a programme of measures (e.g. policy or legislative changes and institutional reforms) to address deficiencies in governance.

... and conflict prevention

41. Armed conflict is a major cause of poverty and economic decline in Africa. War consumes resources and kills people, it destroys assets and displaces populations, it undermines democracy and good governance. Armed conflicts have set Africa's economic development back decades. Africa's poverty makes peace all the more essential. Unfortunately, poverty also contributes to armed conflict. Inequitable access to resources is one reason why excluded groups turn to violence. This points to the importance of sustainable and equitable development and improved governance in reducing conflict. Human development interventions that reduce poverty, reduce inequalities in access to resources and encourage the participation of excluded groups in society, all play a role in ameliorating the conditions that lead to conflict.

42.Recent African experience also points to the need for strong mechanisms and institutions for regional peace and security. No country can consider itself secure if its neighbour is embroiled in conflict. Conflict prevention, management and resolution mechanisms should be an integral part of a comprehensive programme of development.

The road to good governance is well-mapped out...

43. Progress in good governance follows well-mapped out steps. African governments can systematically enhance the structures of political representation, so as to ensure inclusion of all national stakeholders. They can develop their institutional capacities and act in accordance with national constitutions. Actions that promote transparency and accountability will have significant impact on the adoption and effective implementation of pro-poor policies.

44. Public availability of information on the workings of government is an important factor. Efficient bargaining outcomes in the legislative process are more probable when parties have access to information that allows them to weigh the costs and benefits associated with alternative policy choices. Independent regulatory authorities should also have open access rules for public hearings of petitions. An office of ombudsman to enable citizens to take up cases of perceived administrative injustice will also help to minimise corruption and increase public confidence in public administration.

45. The participation of civil society and the private sector in policy-making enhances the likelihood of effective implementation of public policy. The inclusion of all social groups in structures for political representation and executive bodies will encourage more equitable social outcomes of policy measures.

46. Gender representation and participation in decision-making at all levels is not only desirable in its own right, but is likely to promote greater orientation towards public goods and effective delivery of social services.

47. Improved information processing and dissemination capabilities within legislatures and independent regulatory authorities facilitates transparent economic impact assessments. Research institutions should be strengthened to provide in depth analytical studies of the potential economic impact of proposed legislation. Bills brought before parliament should be subjected to rigorous analysis from all parts of civil society.

...but we need to develop monitoring mechanisms

48. Monitoring good governance is an essential task. Currently, the ECA is developing indices for good governance, based upon benchmarks that reflect the norms of good governance, which can be assessed through a survey instrument. The indicators reflect three different dimensions of governance.

49. The first is representation: the extent to which all sectors of society are equitably and effectively represented in government structures and processes of decision-making. This includes both qualitative and quantitative indicators, focusing on inclusiveness of all social groups and gender representation as well as the policy outcomes of the participation of these groups. The role of the media and free access to information is an additional element.

50. Institutional effectiveness is the second dimension. The indices focus on executive respect for the rule of law; the extent to which legislatures are proficient in drafting and enacting legislation; independence and capacity of the judiciary; whether law enforcement institutions do their job and are subject to the necessary oversight; the existence of transparent and credible regulatory and oversight institutions; the extent of the participation of civil society and the private sector; the quality of decentralisation and the capacity for effective service delivery to the poor.

51. Economic management capacities. A good macro-economic regime is essential but it is not sufficient in and of itself. The indicators will also look at a core set of issues that relate governance to economic growth and poverty reduction. These include the efficiency of the system for revenue generation and distribution; independent audits; recognition of the role of the private sector; fiscal discipline; transparent and credible procurement system; the extent to which budgetary allocation is disaggregated by gender; independence, effectiveness and credibility of regulatory oversight, and commitment to poverty alleviation. Transparency, accountability and capacity are the cornerstones.

52. It should be stressed that the ECA project goes beyond a monitoring exercise, and that it is not intended as a ranking of countries. It is a mechanism for promoting dialogue, identifying best practices and areas in need of further reform and progress, and fostering governmental commitment to good governance.

The African Economy at the Dawn of the 21st Century

53. Africa made significant progress in economic in growth rates in the 1990s. However, the economic recovery is fragile and standards of living are still very low. Projections for the year 2015 suggest that Africa will not meet the international development targets for poverty reduction even under the best growth scenario. Furthermore, structural transformation, which is the key to sustained growth and poverty reduction, is not occurring fast enough to make significant inroads on poverty.

54. Africa's recent growth is not underpinned by strong domestic savings and investment. In addition, Africa's economies remain vulnerable to changes in climatic conditions and depend heavily on external concessional assistance. Indeed, economic growth for the last decade averaged only 2.1% a year, less than population growth of 2.8% and considerably less than the 7% growth needed to reduce by half the share of Africans in poverty by 2015.

55. Poverty remains widespread and severe. In contrast to other continents, the number of Africans trying to live on less than $1 per day increased from 217 million in 1987 to 302 million in 1998-52% of the population. The average income of Africa's poor is only 83 cents per person per day. Moreover, Africa has the worst income distribution in the world, with a Gini coefficient of 51%.

56. On current trends the IDG target of halving poverty by 2015 will not be met. Under baseline and low-growth scenarios, the number of people living in sub-Saharan Africa will grow from 302 million to somewhere between 361-426 million in 2015. Africa needs to achieve rates of growth unprecedented in its recent history if it is to reduce poverty at all.

57. Structural transformation is the key to achieving sustainable growth and reducing the vulnerability of African economies to outside shocks. But the pace of structural transformation is disappointingly slow. Africa lags behind, notably in its industrial development. It is still overwhelmingly reliant on primary sectors (agriculture and minerals).

Improving Macro-Economic Performance

58. Africa needs to become competitive. It requires effective and sustainable macro-economic policies that can overcome the structural weaknesses of its economies, build upon its comparative advantages, and prioritise the reduction of poverty.

59. The Compact recognises that macro-economic stability and sustainable economic growth are the foundation for poverty reduction. Several factors can contribute to sustainable economic growth. There is now a wide consensus that the following five features of an economy are crucial in this regard:

60. In addition, African countries need to mobilise more resources, domestically and internationally. The remainder of this section outlines the challenges in each of these areas.ound macro-economic policies

61. Sound macro-economic policies are crucial for sustaining high per capita growth rates because they increase national savings and investment rates and reduce high rates of inflation. Contrary to popular myths, such pro-growth policies are good for the poor because they raise their incomes, for example by reducing inflation.

62. Africa has a history of economic policies that have not favoured investment and growth. Despite two decades of adjustment, a legacy of economic mismanagement and distortion remains. Distorted economic policies also continue to benefit certain influential groups.

63. Necessary actions by African governments focus on maintaining sound macro-economic policy stances, combining a commitment to poverty reduction in line with the IDGs and sound macro-economic fundamentals.

A healthy and well-educated population

64. A healthy and well-educated population is essential for growth and poverty reduction. Health and education illustrate the problem of self-reinforcing disadvantages that trap people in poverty. The poor tend to have low quality human capital, with the head of the household often illiterate. As a result of poverty and illiteracy the household has limited access to health facilities and schools. The poor household then compensates for the low quality of human capital and high death rates with larger families. In such large families, girls will have lower chances of education than boys, and these girls will in turn have large families thus locking them into a poverty trap. Unless this cycle is broken then the prospects for sustainable growth and poverty reduction are low.

65. Specific actions to deal with this issue are dealt with in more detail in Chapter II, in the sections in HIV/AIDS, public health and education.

A structurally diversified economy

66. A structurally diversified economy is important because it will generate higher levels of income and will be better able to withstand external shocks such as droughts, floods and shifts in the terms of trade. Moreover, most of Africa's poor are trapped in small-scale agriculture, with little prospect for substantial improvement. Chances of breaking out of poverty are greater as the share of the agricultural sector shrinks and that of the manufacturing sector increases. Structural diversification is accompanied by enhanced technological capacities, with the production of higher value added products.

67. This challenge requires African governments to implement strategies for balanced growth. Africa in general has strong sectoral inter-dependence between agriculture and industry, so it follows that the most effective strategy for sustainable growth is to seek economy-wide growth. In order to achieve the target of balanced growth and industrialisation, Africa needs to achieve per capita growth rates of 4.1% in agriculture and 3.0% in industry.

68. Necessary actions by African governments include developing and implementing strategies for agriculture, industry, mining and oil and services. In turn, this entails strategies for lowering transaction costs, increasing returns and reducing risks to investors, and promoting regional economic integration.

69. Resource-based industrialisation is a priority: taking measures to promote industries that reflect Africa's comparative advantages, but for which have higher value-added, faster productivity growth, and higher global demand elasticities than Africa's traditional raw material exports.

70. Agriculture and rural development is essential for poverty reduction: overcoming infrastructural bottlenecks, sponsoring research into new farming and environmental technologies, and maintaining appropriate marketing policies.

Low external dependency

71. An economy with low external dependence has a greater chance of achieving sustainable growth because the cost of servicing high external debts can be punitive. A high debt burden drains away resources that the government needs to provide essential services to the poor and to build the infrastructure necessary for efficient economic activity. Actions to reduce external dependence are thus of the highest priority.

72. In this regard we can emphasise two sets of actions. The first is to seek accelerated debt relief under HIPC. Most African highly-indebted countries are already engaged in this process. However, there can be a tension between meeting the conditions for sound macro-economic fundamentals as required by the Bretton Woods institutions, and poverty reduction. A mature international partnership is required to meet this challenge and resolve this conflict of interest that currently lies at the core of international development cooperation.

73. The second set of actions is that African governments should not take out loans that run the risk of creating new debt burdens. Assistance that is taken on without the realistic capacity to deliver the anticipated returns will simply create additional debt that is not matched by equal or greater assets, thus re-creating the indebtedness cycle once again.

An economy with low transaction costs

74. Low transaction costs are important for a market economy to function efficiently. Poorly functioning and high cost utilities (electricity, water) and bad infrastructure (roads, railways, ports and airports) act as a tax on entrepreneurial activity thus dampening economic growth. Slow and unpredictable bureaucratic procedures for obtaining business licences and other necessary documentation and corruption also function as taxes on the private sector. Businesses, both local and international, will gravitate to countries with low transaction costs thus further marginalising African countries. A well functioning financial system is also essential for development, reducing the cost of money for domestic and international investors.

75. Overcoming this constraint demands a three-pronged approach. First there is the need for upgraded infrastructure including greater regional integration. Specific challenges are detailed in Chapter II, in the sections on ICT, infrastructure and regional integration. Second is the demand for better governance, outlined above. Third is improved financial services provision: developing domestic financial systems, especially micro-credit systems targetted at the poor; and providing tax incentives, investment guarantees and developing insurance cover for FDI including intra-African investment.

Domestic resource mobilisation

76. Effective domestic resource mobilisation is the essential prerequisite for economic growth and poverty reduction. If Africa is to achieve the target of halving the number of people living in poverty by 2015, it needs to achieve per capita growth of 4.4% per annum-a gross rate of about 7% per annum. Although this target is almost certainly unreachable, it allows us to focus on the nature and scale of measures needed to achieve serious poverty reduction in the continent. How is this to be achieved?

77. The first component is to promote investment. Africa needs substantially increased investment to reach the targets of halving poverty as well as achieving structural maturity in terms of balanced growth and industrialization. Investment rates of 33% of GDP (40% for SSA) are required to meet the IDG target, and 32% (39% for SSA) to achieve balanced sectoral growth and industrialization. Thus, creating an enabling environment for investment is a necessity. This includes institutional, legal, infrastructure and financial measures. At the national level, it is essential to engender confidence in the sustainability of appropriate macro-economic policies and ensure effective economic management and governance. Upgrading infrastructure to enable the exploitation of economic sectors with comparative advantages is also a prerequisite for mobilizing domestic investment and attracting FDI.

78. Establishing well-functioning and diverse financial systems, consistent with legal and cultural traditions and the capacity for adequate regulation, that respond to the multifaceted needs for financial services, is a major challenge that can simultaneously mobilise existing untapped reservoirs of domestic saving, and provide ready finance for entrepreneurs. Of particular value will be developing appropriate modalities for insurance provision, including public-private partnership and re-insurance, that can minimise risks for businesses of all sizes.

79. Linked to this is the challenge of closing the savings gap. Currently, Africa's domestic savings are far too low to sustain the required investment and growth at the levels needed to reduce poverty. In Africa, domestic investment (in terms of weighted average) has fallen over the decades from 25% of GDP (1974-80) to 19% (1991-98) while it has fallen from 22% to 17% in SSA. Over the same period, domestic savings have fallen from 15% of GDP to 10.5% (from 13% to 9.5% in SSA, excluding S. Africa, Nigeria and Gabon). The gap between savings and investment is about 8% (1991-98). Domestic savings have declined most for poorer countries, and the saving gap has narrowed only in the few best-performing countries. Low and frequently declining levels of real income are the chief culprit for these low savings levels.

80. Given that the weighted average savings rate is about 15% in Africa including the best performers, this leaves about 18% of GDP (25-29% in SSA) to be covered from external sources. There remains a residual development-financing gap of about 9% of GDP (13-17% in SSA) that needs to be covered on an annual basis with current average ODA inflows of about 9% of GDP (12% in SSA).

81. The goal of closing the savings gap requires a range of measures, including taking measures to stem capital flight and attracting savings held overseas back to African countries. These in turn require reforms to increase the returns on domestic investment and reduce risks. Meanwhile, governments can investigate the opportunities for establishing pension funds and other mechanisms to mobilise household savings.

CHAPTER II

KEY AREAS FOR JOINT AFRICAN-INTERNATIONAL ACTION

82. The Compact for African Recovery is concerned with the critical needs of today. It aims at addressing pressing issues of survival and overcoming the constraints to Africa's economic development. This Chapter is concerned with challenges that span the entire continent, which should be implemented in all countries. Four major challenges are identified:

83. A bold pro-poor development agenda requires that these challenges be squarely faced across Africa. A common theme runs throughout all these sections: the importance of developing regional public goods. Especially in the fields of science, technology, infrastructure and regional governance, regional public goods are a critical contributor to the prospects for poverty reduction.

Overcome the HIV/AIDS Pandemic

84. What is the nature of the problem? The scale of the HIV/AIDS pandemic is horrifying. It threatens not only the lives of tens of millions of Africans, but the very economic and political viability of many states on the continent. This is Africa's number one survival issue. Without an effective effort to overcome HIV/AIDS, all of Africa's progress in terms of development and governance will be reversed. In badly-affected countries, the pandemic is reducing growth by a percentage point or more each year. Currently, the resources needed to expand education and prevention programmes, to upgrade health services, to provide care and treatment to people living with HIV/AIDS, and to mitigate the economic impact of the pandemic on key sectors such as education, will cost an estimated $5-10bn per year. This is far beyond Africa's capacity for resource mobilisation. But without it, the outlook for Africa's future is bleak indeed.

85. In addition, HIV/AIDS respects no boundaries. The pandemic will be overcome at a regional level or not at all. For this reason alone, regional partnership and collective action is absolutely essential.

86. What should African governments do? HIV/AIDS needs to be treated as a national priority requiring the highest-level leadership. Recommended actions for HIV/AIDS include, among others:

  1. Leadership by National AIDS Councils, headed by the highest level political leadership in the country, to provide coherent policy-making across all governmental institutions and to mobilize national campaigns to engage all branches of government and society in combating the spread of HIV/AIDS.

  2. Resource mobilisation. Spending on HIV/AIDS should be prioritised and governmental, civil society, business and other sources of finance tapped.

  3. Meaningful involvement of people living with HIV/AIDS in all aspects of policy and programming.

  4. Combatting stigma, denial and discrimination through legal measures (where necessary), public education and leadership actions.

  5. Involving religious leaders, business, trade unions, and civil society at all levels.

  6. Reaching out to young people, in schools and out of school, seeking to change behaviour and to involve youth in planning and implementing HIV/AIDS programmes.

87. The ADF 2000 `African Consensus and Plan of Action' for overcoming HIV/AIDS provides a fuller roadmap which should be used to guide action.

88. What should international partners do? Africa's international partners need to enter into a comprehensive long-term partnership with African governments, civil society, international organisations and pharmaceutical companies with the aim of combatting HIV/AIDS.

  1. Provide grants not loans for treatment of AIDS patients using Highly Active Anti Retroviral Therapy (HAART). It is simply not logical to provide essential medical treatments in the form of loans.

  2. Facilitate access to generic drugs. International trade law allows for measures to circumvent the rigid enforcement of patent rights in certain cases. Under `compulsory licensing' a government can respond to an emergency by permitting the use of a critical patent within the country under terms set by the government. Furthermore, the compulsory licensing agreement can be reviewed by the WTO. Africa's development partners should actively support the production of cheap generic drugs.

  3. Work with pharmaceutical companies to reduce the cost of patented medicines. Measures such as tax breaks for companies that sell at affordable prices to Africa should be considered.

  4. Fund research into vaccines targetted at the variants of HIV most prevalent in Africa.

  5. Provide capacity building support to design and manage HIV/AIDS prevention and treatment programmes. An effective programme against HIV/AIDS can only succeed in the context of functioning public health service systems.

89. Complementing the above there is a regional agenda of research, both at the scientific level (developing vaccines and improved ARTs etc.) and the public policy level (identifying and learning from best practices, building transnational coalitions). These are regional public goods that benefit from both international and intra-African partnerships.

Provide Basic Health Services

90. What is the nature of the problem? Africa suffers from a range of preventable infectious and parasitic diseases. Tuberculosis and malaria are estimated to kill between 1-1.5 million people each year. Measles and water-borne infections take a huge toll on Africa's children. In addition to the human suffering caused by these diseases, they contribute to impoverishment, through loss of human capital, reduced labour productivity, and diversion of human and financial resources to care and treatment. Meanwhile, most African countries simply cannot afford the necessary health services. Expenditure on health is rarely as much as 4% of GNP and often as low as 1% - grossly inadequate for needs. Average public spending on health is perhaps $10 per person per year, with a comparable amount contributed by the affected individuals and their families. Realistic assessments of the cost of minimum health care are about $45-60 per year (compared to $2,000 or more in high-income countries). A pro-poor development agenda means that this financing gap must be taken seriously.

91. What should African governments do? Effective upgrading of health provision can only be effectively realised through reforms in sector policies and improvements in public service delivery systems (i.e. good governance) in the context of improved economic performance. However, African governments should also adopt the principle of prioritising basic public health services. In addition, specific targets for TB and malaria should be adopted:

  1. TB: the WHO Stop TB Initiative calls for a reduction in TB death and prevalence by 50% by 2010, with intermediate targets of diagnosing 70% of people with infectious TB and curing 85% of these by 2005, research and development milestones, and national 5-year TB plans adopted in high-burden countries by November 2001.

  2. Malaria: the WHO Roll Back Malaria plan calls for a reduction in the burden of disease associated with malaria by 50% by 2010, with a range of priority areas focussing on rapid diagnosis and effective treatment, prevention through the use of insecticide-treated bednets, provision of malaria prevention and treatment to pregnant women, and other measures.

92. What should international partners do? Overall estimates indicate that there is a financing gap of $25-40 per person per year for basic public health in low-income countries. This implies an overall resource outlay of $10-16 billion per year to cover the needs of low-income countries and communities in Africa: an increase of about tenfold in current assistance levels.

  1. Establish the principle that essential health services should be supported by an international partnership, and this funding should ring-fenced from any conditionalities unrelated to the effective delivery of public health.

  2. Provide financial support to health services and public health programmes, including health education, programmes to overcome tuberculosis, programmes to roll back malaria, measles immunisation, etc.

93. As with HIV/AIDS, there is a regional agenda for cooperation and partnership, focussed on medical research, public policy research, and common lesson-learning. Infectious diseases will be overcome on a regional basis or not at all.

Invest in People: Increase Resources for Education

94. What is the nature of the problem? Africa's education systems are in crisis. The last decade has failed to mark significant advances in terms of literacy and education levels. Without a better-educated population, Africa will not be able to break out of poverty, overcome HIV/AIDS, or achieve democracy and good governance.

95. What should African governments do? Many African countries have made major efforts to provide universal primary education. These should be sustained, and others should emulate them.

  1. Resources for primary and secondary education, adult literacy and teacher training should be prioritised in national budgets and public service delivery systems should be streamlined and strengthened to ensure that sector allocation is used for intended purposes.

  2. Special attempts should be made to overcome the gender gap in education, targetting the girl child for education.

96. What should international partners do? Africa's international partners need to enter into a comprehensive long-term partnership with African governments, civil society, international organisations and pharmaceutical companies with the aim of providing universal and free primary education. This involves the following:

  1. Increase financial commitment to education UNICEF estimates that the costs of bringing universal primary education to Africa amount to $2bn per annum, plus the costs of building new schools and enhancing school quality. The goal of universal secondary education is estimated at an additional $5-10bn per annum.

  2. Establish the principle that basic education provision should be supported by an international partnership, and this funding should ring-fenced from any conditionalities unrelated to the effective delivery of education.

  3. Seek to mobilise a wide coalition of governments, civil society, and international partners with the aim of ensuring that free primary education is available to all.

  4. Support tertiary education and research. This ranges from scaling up support for specialist technical and vocational colleges (teacher training institutes, nursing schools, ICT courses) to rehabilitating Africa's premier universities and scientific research institutes.

97. Education is a regional public good. This is especially true of higher education and research, given the relevance of technical, scientific and public policy research activities to countries across the continent. But even basic literacy and primary education brings benefits at a regional level, on account of labour mobility.

Provide ICT and Narrow the Digital Divide

98. What is the nature of the problem? The efficient creation, transmission and utilisation of information are the basis for wealth creation in the 21st century. Information and communication technology is the means whereby this potential can be harnessed. But if Africa is marginalised in the world economy, it is hyper-marginalised in the world information economy.

99. A digital divide has emerged among and within countries in terms of access to and use of ICT, including Internet and broad band communication. The digital divide within countries is reflected in the substantial barriers to participation in the ICT revolution by the poor and the marginalised in African countries. The digital divide among countries is reflected in the fact that developing countries share just 4.6 percent of global Internet host sites while they are home to 85 percent of the world's population.

100. What should African governments do? There is a range of important actions, including:

  1. Facilitate the development of the required ICT infrastructures:

  1. Establish effective legal and regulatory systems:

  1. Utilise ICT in specific sectors:

101. What should international partners do? International action is needed to extend ICT networks to African countries and to provide wider access to ICT within African countries. Actions include:

  1. Promoting existing and new ICT initiatives:

  1. Supporting infrastructure and capacity:

102. Information and communication technology is a prime example of the virtuous circle of regional cooperation and integration. Major ICT investments are most efficiently pursued at a regional level, while utilisation of ICTs in turn facilitates regional economic integration.

Enhance Research Capacities

103. What is the nature of the problem? Africa has massive research needs but its research institutions, universities, and planning departments are weak.

104. First and foremost, many of the most urgent problems facing Africa, concerning agriculture, environmental management, and health, require scientific research. These are major constraints on Africa's competitiveness.

105. Africa remains overwhelmingly a consumer of technologies, ideas, plans and strategies produced elsewhere. This is a major constraint on African-led development. The world's low- and middle-income regions-including the former Soviet Union-have about 84% of the world's population and 42% of its GDP, but account for only 13% of its scientific publications and a mere 1% of all European and U.S. patents. Africa is the most disadvantaged of all these regions: it is practically invisible on the world research map. Even when it comes to African studies, the major research centres and conferences are outside the African continent.

106. In the field of public policy, excessive time and human resources are devoted to handling international assistance: to negotiating with donors, poring over donor plans, and writing and submitting reports on donor-funded programmes. High-quality ideas and plans from Africa-especially innovative ones-have a small chance of being properly debated, refined and implemented.

107. What should be done? Several key areas for joint African and international research, planning, monitoring and evaluation can be identified:

  1. Promote scientific research targetted at finding solutions to some of Africa's most pressing problems.

  1. Develop research institutions and networks.

  1. Promote public policy research and partnerships.

  1. Encourage joint intra-African research and education initiatives.

108. Research outcomes are the number one instance of regional public good. Scientific, technical and public policy research products from one African country are highly relevant in others. All stand to benefit. But a high concentration of expertise and (in the case of scientific research) specialist equipment is required, which is best achieved through pooling of regional resources.

Improve Key Infrastructure

109. What is the nature of the problem? Hard infrastructure-telecommunications, power, transport, water and sanitation-is vital for economic growth. But Africa lags behind in these areas. Vast distances and low population density combine with the multiplicity of national borders to pose huge obstacles to putting the required infrastructure in place. In 1997 Africa, excluding South Africa, had 171,000 kilometers of paved roads-less than Poland. Outside South Africa, the continent has just 5 million telephones, and most Africans live two hours from the nearest telephone. Africa is estimated to require $18 billion per year in infrastructural investments. But infrastructure must also be better managed if increased investment is to pay dividends-the continent is littered with pot-holed roads, irrigation canals subject to salination, and broken down telephone exchanges. Shared resources such as the waters of the continent's major rivers can also be more efficiently utilised. These weaknesses contribute to higher costs, lower competitiveness, weak market integration and slow growth. They are also a factor in poverty and inequality, especially in remote rural areas.

110. What actions are required by African governments and international partners? More resources are needed, but more efficient management and maintenance is equally important. Tapping private sector finance will be essential.

  1. Boosting investment.

  1. Improving policies and management.

  1. More efficient utilisation of shared resources.

  1. Improving regional cooperation.

Strengthen Regional Cooperation

111. The benefit of regional integration and cooperation is a common theme running throughout this Chapter. Pandemic diseases such as HIV/AIDS demand a regional approach, while other key actions to spur economic growth and reduce poverty are greatly facilitated by cooperation across the continent. Africa needs more investment in regional public goods. This final section focuses on some of the institutional underpinnings for this cooperation and integration.

112. What is the nature of the problem? Africa is the most subdivided continent, with 165 borders dividing 51 countries. Africa suffers from a notable lack of economic integration. Small and landlocked countries suffer particularly from this fragmentation. Experience from elsewhere in the world indicates that consolidation into regional trading blocks is a prerequisite for development. Another building block is the development of regional public goods, especially technologies that are relevant across the region such as ICT, infrastructure, medical and agricultural research, and higher education. The institutional underpinnings of this cooperation are vital. This can be seen most clearly in the weakness of regional structures for peace and security.

113. What should African governments, regional organisations and international partners do? This is a prime area for regional and international partnership. Many of the specific actions have already been referred to above, in the context of financial markets, HIV/AIDS, ICT, research and infrastructure.

114. Additional regional instruments for international development cooperation will be useful mechanisms for ensuring that regional public goods and regional infrastructural projects receive their due prioritisation.

115. The final piece of this jigsaw is the regional institutional underpinnings of cooperation. This is a far-reaching agenda, but reflects a broad consensus across Africa that the continent must find the means of achieving greater economic and political unity. An essential first step is building the capacity of existing regional and subregional organisations concerned with peace and security, economic cooperation and integration, and a host of specialized activities. In addition to strengthening these organisations' capacities individually, there is a pressing need for them to find modalities for harmonisation and cooperation.

116. Regional integration cannot be powered solely from the top. Bilateral and subregional initiatives, civil society and private sector activities, are all components of this agenda. The regional and subregional harmonisation of education, legal systems, and taxation regimes are important fields of activity, along with the strengthening of cross-border links at the level of governments, legislatures, religious organisations, businesses and educational institutions.

CHAPTER III

A NEW INTERNATIONAL PARTNERSHIP WITH AFRICA

117. While it is true that a brighter future for Africa depends first and foremost on the continent's leaders managing their countries more effectively, it is clear that Africa cannot achieve sustainable growth and poverty reduction without a transformed partnership with the international community. This chapter will spell out the key issues that should underpin the specific actions that the international community needs to take to realise a Compact for African Recovery.

118. The first section analyses the nature of the aid partnership, asking what needs to be changed to make this truly effective in the future. The second section details with specific international actions to increase resource flows to Africa. More details on all of these areas will be spelled out in the expanded volume.

Why International Partnership needs Reform

119. Africa's growing consensus on development policies opens the way for reflection on its international development cooperation relationships. Serious problems exist with regard to current assistance modalities. This section analyses the major problems inherent in the current aid relationship. It asks, what are the main problems with aid as it has been provided for Africa? The lessons learned lay the foundation for a proposed transformation in international partnerships with Africa, which lies at the heart of the Compact for African Recovery, and is presented in Chapter IV

Aid has had its successes...

120. Advocates and practitioners of international development assistance can point to important success stories. One of the best examples is the post-war Marshall Plan in which the United States provided generous and effective assistance for European reconstruction, linked to the political imperative of keeping Western Europe out of the Soviet sphere and the economic aim of opening European markets to U.S. exports. Subsequently there was much optimism that this model of transitional assistance leading to sustained economic growth in recipient countries could be replicated in developing countries. Aid financed important successes in terms of developing improved varieties of crops (green revolution technology in Asia, maize varieties in Kenya and Zimbabwe). International cooperation eliminated smallpox worldwide and eradicated river blindness in West Africa. Much infrastructure was built with aid money, and lives and livelihoods were saved in famine-stricken communities. And in the last decade, with the help of international aid, an increasing number of African countries have succeeded in putting in place the necessary reforms to governance and economic management to enable them to achieve respectable rates of growth. These experiences suggest that international partnership towards specific programmatic goals-overcoming HIV/AIDS, increasing educational provision, developing infrastructure-can certainly achieve its goals. Chapter II has outlined priority areas for international partnership in the coming decade.

... but there is growing mutual dissatisfaction

121. Overall, however, the record of international development cooperation has failed to live up to its high hopes. There has been a circle of high expectations, grand promises, incomplete achievements of goals, and frustrations among recipients. Often, international specialists have given inappropriate advice, and African governments have been encouraged to borrow money for projects that have had little chance of success, or on the basis of economic policies unlikely to deliver. Inadequate attention has been paid to the domestic prerequisites for effective aid utilisation or policy reform. And in some cases, the Cold War confrontation dictated that governments received funds solely on the basis of their loyalty to a particular geopolitical patron. Too often the result has been that African governments have ratcheted up debts that they cannot pay, and a new generation of Africans is growing up saddled with the debts run up by theirprevious leaders. While international donors tend to blame lack of political will and poor implementation on the part of recipients, African governments prefer to point the finger at unrealistic advice, slow and inadequate disbursement of funds, and an adverse international economic environment.

Lessons have been learned...

122. Four decades of international partnership have left a rich reservoir of lessons learned. In the current international environment, there appears to be a greater readiness for African governments and international partners alike to examine the record with honesty and humility, and for each to acknowledge that reforms are needed. This frank dialogue is the foundation for exploring the possibilities of a transformed aid relationship.

123. Improving the effectiveness of aid requires changed behaviour by recipient and provider alike. As outlined in Chapter I, good governance, improved macro-economic management and the implementation of pro-poor policies will be required from aid recipients. Capacities need to be built. African ownership of aid-related programmes and policies has been often not been achieved-but where it has occurred, it has proven successful. The effectiveness of any social or economic programme or reform is closely associated with the degree to which it is researched, initiated, debated and implemented by institutions and individuals in the countries concerned. The best development programmes and projects are those that are most fully owned by the leaders of the country.

124. The African continent is diverse and there is no magic bullet or one-solution-fits-all scenario. Conditions vary enormously. Some countries are in conflict and others are emerging from periods of conflict. There are countries that are stable and democratic, with functioning, fair legal systems and sound economic policies. Other countries are at various stages of moving in this direction. And sadly some countries that showed great promise are flashing danger signs for relapse. However, too much programme and policy design has assumed that the same prescriptions will work everywhere. Experience has shown that this is not the case: the terms of aid should be appropriate for the recipient. Otherwise, a poorly performing country may borrow money for unsustainable programmes, and just run up greater debts.

... the challenge is implementing them

125. Reforming aid is a task for recipient and donor alike. Past efforts at reform have yielded incremental benefits, but they have been generally too ad hoc, or confined to a single donor or a single sector, to result in far-reaching benefits. However, there is now much more openness among the wider donor community to reforming aid. An increasing number of donors are also showing willingness to try innovative partnership approaches at the country level. What is required is for Africa and its development partners to build on the momentum that is underway to move towards a comprehensive, mutually-agreed transformation of the framework for development partnerships.

126. Much attention has been given to technical aspects of development assistance, but recently the process of aid provision has also come into focus. Most international partners specify recipients' `good governance' among their policy goals, including transparency and stakeholder participation in decision-making. But for many recipients, the aid process itself conspicuously lacks these same qualities. How can an aid process promote democracy if it itself is not transparent, not subject to stakeholder participation, and can be changed or halted unilaterally by one side without consultation? Even the basic data on assistance flows produced by OECD/DAC are of little value to recipients for their planning purposes. Experience indicates that when the process of assistance provision is itself open to participation by recipients, and information is shared more freely, the prospects for development cooperation are enhanced. This implies that more transparency and accountability by Africa's international partners will be a central component of enhanced aid effectiveness.

127. Another lesson is that assistance that has a short planning horizon is unpredictable, and subject to unilateral change or disruption without consultation with the recipient, rarely achieves its goals. Programmes and projects with intermittent stop/go decisions often achieve little. This encourages a cynical short-term view of aid by recipients and low levels of commitment to outcomes. Exceptional events, for example a military coup, will always demand exceptional responses, but there are too many other extraneous political or administrative influences on aid policies and disbursements. Africa needs the provision of long term and stable assistance .

128. There is also a need for Africa's external partners to focus upon taking a lead in specific strategic sectors. Drawing on comparative advantages will reduce transaction costs and improve outcomes. For instance, the World Bank, African Development Bank and the European Union could pay greater attention to the finance of regional infrastructure projects. On the bases of comprehensive country-owned development strategies, bilateral agencies may continue to direct a greater share of their country assistance to social sectors, where there is evidence that it tends to be more effective than multilateral institutions' interventions. Through interaction with various civil society organisations, some bilateral donors have had a particularly impressive impact in social sector interventions.

129. Receiving aid can be an onerous business. Donor assistance is often over-laden with conditionalities, which creates onerous bureaucratic work for recipients and generates uncertainty and cynicism. Different donors may have different conditionalities that increase the workload on recipients and may even contradict one another. Too much aid-related procurement is tied to the purchase of goods and services from the donor country. Too much aid is in the form of technical assistance which does not have a good track record. Many conditionalities are politically-influenced and have no clear criteria for compliance. This all interferes with the prospects of successful assistance. Efforts to simplify and harmonise aid conditionalities are clearly in order.

Increasing Resource Flows

130. Even assuming effective domestic measures to increase investment, Africa will face a resource gap, amounting to about $10 billion per annum, if it is to achieve substantial poverty reduction and economic growth. The additional resources needed to overcome HIV/AIDS are between $5-10 billion annually. This gap can be filled by increased official development assistance, debt cancellation, private sector investment, and improved access to international markets for African products. Action is needed in each of these areas.

More aid is needed

131. What is the situation today? Africa requires not only more effective aid. It also needs more aid. Net official ODA transfers per capita to Africa are now more than one third lower, in real terms, than they were in 1990. Even allowing for the hoped-for increase in domestic investment, Africa faces a finance gap of approximately $10bn per annum.

132. What should be done? It is only meaningful to provide more aid to Africa if that aid can be utilised effectively. Increased international assistance should therefore be targetted at countries and sectors that can absorb it and can deliver results. Under the umbrella of MAP, the Compact for African Recovery envisages a two-pronged strategy for increasing aid flows while also ensuring that the increased resources are effectively utilised.

133. First, target countries that have a demonstrated capacity to use aid well to promote growth and reduce poverty. Those countries that have stable domestic environments based on sound programmes need additional resources to take advantage of their opportunities and to be able to show their people that the sacrifices made are worthwhile. This leads to the Enhanced Partnership that lies at the heart of the Compact for African Recovery-the central theme of Chapter IV.

134. Second, focus assistance on priority areas for survival and for tackling key constraints to continent-wide growth and poverty reduction. Overcoming HIV/AIDS is a basic priority: the pandemic represents a threat to the survival of tens of millions of Africans. Providing basic health and education serves to increase Africa's human capital. Investing in ICT, research capacities and infrastructure addresses other major constraints on African development.

A rapid and sustainable exit from the debt crisis is needed

135. What is the situation today? Africa's debt is wholly unsustainable. Measures taken to date are not sufficient for a lasting solution and do not fit the specificities Africa. Specifically:

  1. Current initiatives to reduce debt are too little and too slow.

  2. Current financial assistance options for Africa are still far too reliant on loans with the risk of relapse into indebtedness. Even IDA funds, although highly concessional, have to be repaid, with the risk of further indebtedness if economic targets are not met.

  3. Countries emerging from conflict have too few financial instruments available to meet their specific reconstruction needs.

136. What should be done? Africa needs a lasting exit from the problem of debt. This requires action on several fronts.

  1. The great majority of Africa's debt should be cancelled without delay. Action needs to be taken to devise debt relief mechanisms that go further than the enhanced HIPC.

  2. To ensure that debt-relieved countries do not run up new, unsustainable debts, eligible HIPC countries should be provided with greater recourse to grant financing.

  3. Partners should not provide debt-creating support for unrealistic plans or for poor performers.

  4. Countries emerging from conflict face unique problems. Debt relief can yield a `peace dividend' providing valuable resources for key sectors.

  5. Brady Bond type arrangements based on the voluntary exchange of commercial debt for a menu of options including bonds or new money should be considered for several highly-indebted middle-income African countries.

137. A new international partnership with Africa entails significant changes in the decision-making, assessment and development financing practices of Africa's major development partners, including bilateral donor governments and the Bretton Woods institutions. Reforms in the desired direction are already considered or underway. The Compact seeks to tie these reforms in to a mutually-agreed and monitored targets and procedures.

African products need much-improved international market access

138. What is the situation today? It is through increased international trade that Africa will develop. Export is the means for obtaining long-term investment and finance: it is the necessary engine for growth. However, Africa continues to face barriers to international markets, with tariffs imposed on precisely those products in which African countries are more competitive-labour intensive exports of textiles, clothing and footwear, processed agricultural products. Tariff levels for a wide range of goods increase with the level of processing. EU and US regulations on preferential treatment are highly restrictive. Unless these rules are substantially revised in favour of Africa, export-led growth will remain hampered.

139. What should be done in the context of the international partnership with Africa? The following is a summary of recommendations:

  1. Conduct the prospective, new round of multilateral trade negotiations as a `Development Round' and Revise the Marrakech Treaties focussing on actions necessary to achieve the IDG targets.

  2. Revise international trade rules to provide for a more level-playing field, including:

  1. Ensure that international trade agreements enable Africa to exploit its comparative advantages:

  1. Upgrade Africa's technical capacity to play an effective role in international trade agreements:

  1. Promote regional economic integration in Africa:

Details of the present and future role of the private sector in Africa's development are spelled out in Chapter V.

CHAPTER IV

ENHANCING PARTNERSHIPS FOR DEVELOPMENT

140. This Chapter focuses on the key added value of the Compact for African Recovery, namely the proposed transformed aid relationship between Africa and its international development partners. The Compact aims to refocus attention on long-term development. It is premised on African leadership and commitment to strategies for reducing poverty through sustainable growth and a mutuality of commitment between Africans and their external partners for long-term partnerships in support of these strategies.

Guiding Principles

141. International partnership has long been an important component of African development. But, as the analysis in Chapter III has outlined, this has a mixed record in terms of delivering development objectives for Africa. Lessons have been learned that enable us to derive key guiding principles that can stand as a minimum for making future development partnerships work. Towards this goal, the Compact aims for partnerships based on four fundamental guiding principles, namely:

  1. African ownership of visions and goals for national development, as well as policies and programmes for poverty reduction and the increased participation of African countries in the global economy.

  2. Stable long-term resource flows to Africa and the predictability of long-term donor support.

  3. A transformed partnership based on mutual accountability to agreed development outcomes, including peer review and performance monitoring among both African countries and international partners.

  4. Recognition of Africa's diversity. Some countries can immediately benefit from the full range of measures outlined, while others need to make progress in governance and economic management before they will qualify.

142. Based on the above, the Compact envisages a transformation of aid relations away from fragmented donor-driven projects to predictable long-term support to African-owned programmes. It envisages a change from conditionalities, that are often perceived by Africans as intrusive, in the direction of a mature aid relationship characterised by dialogue and consensus-building and underpinned by African governments' good governance and sound economic management.

143. These principles provide a road map for the way forward. Each of the principles leads to specific actions that can be taken to transform the relationship between Africa and its international partners and thus lead to sustainable growth and poverty reduction. The Compact envisages an evolving set of relationships between Africa and its international partners in which each will hold the other accountable for overall performance towards mutually-agreed development outcomes. African governments will commit to adhere to agreed principles of governance and to meet criteria for sound public finance management, while international partners will undertake to respect priorities, strategies and policies laid down by African governments and reduce the transaction costs by harmonising and improving their aid modalities and practices.

144. The Compact does not propose new aid modalities or instruments, but draws on a number of innovations and approaches and aid practices that are already being tried to foster ownership and participatory development. What is new is that the four guiding principles, appropriately operationalised, are presented as the core minimum set of principles that govern the partnerships envisaged under the Compact.

Transformed Assistance Relationships: Putting them into Action

145. How are the four guiding principles to be put into action? How are we to democratise the aid relationship? This section outlines some of the necessary measures.

African ownership of policies and programmes

146. The centrality of ownership to successful policy reform and development is well recognised. But how is this to be operationalised? The first component is internal to African countries.

147. Ownership entails leadership and capacity to define and implement strategies that ensure the economic and social wellbeing of the country's citizens. National identification of development priorities and strategies is the first and most essential step. Elected officials should promote broad-based consensus around national strategies and related policy choices. Following from this, public officials should be committed and able to govern the affairs of the country in an efficient and accountable manner. The prerequisites for this include: participatory processes for priority setting and consensus building; analytical capacity for defining sound policy options and for accountable policy decision-making; the political will to make the necessary policy corrections based on learning by doing; and mechanisms for peer review and performance monitoring. In addition we can identify encouraging intra-continental learning from best practices, and developing national research and policy-making institutions. In short, there is a need to identify and use strong African-led processes to help meet these prerequisites.

148. The second component is a willingness on the part of international donors to coordinate and channel their aid programmes in accordance with African-led agendas and approaches, support national institutions and processes that foster consensus-building and accountable economic management, and redirect technical assistance programmes towards long-term national capacity needs.

What is the existing best practice?

149. International partners have introduced and piloted some important initiatives that have the potential for substantially increasing African ownership. In particular there are the Comprehensive Development Framework (CDF) and Poverty Reduction Strategy Papers (PRSPs)--both introduced by the Bretton Woods Institutions--which encompass the vision of country ownership and partnerships. The World Bank views the CDF as a framework that brings together all stakeholders in a country's development process around a nationally defined and elaborated development programme and the PRSP as the operational modality that puts the CDF principles to practice. The PRSP is also the trigger mechanism for all concessional funding from the International Development Association (IDA), the World Bank's soft window, the IMF's Poverty Reduction and Growth Facility (PRGF), and for debt relief under the HIPC. Similarly, at the heart of the UN reform is the Development Assistance Framework (UNDAF) which is designed to ensure collaborative UN system support to country-driven priorities. These priorities are articulated in a Common Country Assessment (CCA) prepared by the UN country team. The UNDAF and CCA offer potentially strong tools for promoting African ownership, and UN Resident Coordinators have expressed enthusiasm for UNDAF as the primary mechanism for coordination at the country level.

150. African governments at the highest level have endorsed the PRSP process and implementation progress has taken off. Meanwhile, the CDF is being piloted only in a limited number of countries. The review of the early experience with PRSP implementation points to a number of operational challenges and tensions that could potentially undermine ownership.

151. The key concerns expressed so far relate to: the shortcomings in national capacity to prepare PRSPs; the tension between ownership and the requirements for joint assessment by the staff of the World Bank and the Fund regarding the appropriateness of the PRSP as a basis for debt relief under HIPC; the tradeoff between the time required (an average of two-years) to prepare comprehensive and nationally-owned PRSPs and the need for urgent debt relief under HIPC; and the heavy demands placed on weak institutional capacity by the requirements for participatory and consultative preparation of PRSPs. An independent review of the wider social implications of HIPC by the UN Commission on Human Rights[1]has also