A BIG Financing for Development Conference underway in Addis Ababa this week will once again expose the donor-recipient divide, as world leaders seek a deal on financing the next big phase of global development, post-MDG.
It is essentially a bargaining session between rich countries and poorer ones, and despite this year being seen as a once-in-a-generation chance to end poverty, the odds might well be already stacked against African countries, which make up 33 of the the 49 countries classified as the world’s least developed.
A huge price tag of $2.5 trillion has been brandished at the talks, which is the amount needed every year to invest only in key areas, meaning the overall bill is much higher.
Pessimists argue that the odds of a deal that will add more tailwind to Africa’s recent growth are low—there is already behind-the-scenes wrangling over who will foot the bill.
African countries are pushing for the rich world to put their money where their mouth is, following years of unmet pledges. In 2005 in Gleneagles, G8 nations agreed to double aid over the next five years, translating into a rise of $50 billion every year—half to Africa— while debt cancellation was also part of the deal.
This and other measures, the G8 told the African representatives present—Algeria, Ethiopia, Ghana, Nigeria, Senegal, South Africa and Tanzania—would effectively double the size of the continent’s economy by 2015.
A month earlier, the European Union (EU), which is the largest donor to Africa, had agreed to double what it was doling out, raising hopes of a big tilt at slashing poverty rates.
Aid inflows to developing countries have certainly increased: in 2010, they reached their highest level ever at $129 billion. But that does not even begin to tell half the story.
The 0.7% target of aid to national income that was used as a reference by Gleneagles, the EU and the UN Millennium World summit has been around since 1969.
But of the 34 member countries of the Organisation for Economic Co-operation and Development (OECD), only 15 had met that target by 2012, according to its own data. And when the more-nuanced Gross Domestic Product (GDP) is used, only five countries make the cut.
Essentially, while “official’ aid to Africa has increased, as a proportion of national incomes of rich countries it has fallen away from that target over the years—in 2001 it touched a historic low of 0.22%. And when it hit its highest level in 2005 of 0.33%, it was due to exceptional relief operations in Iraq and populous Nigeria.
A lot of this volatility has had to do with global recessions, leading to belt-tightening and unwillingness by rich countries to ascribe to firm targets.
The economic terrain has also changed dramatically; many of the countries that were major aid recipients have now become middle-income powers: Brazil, India, China.
A deal reached in Addis Ababa would allow the UN to push ahead with its 2015-2030 Sustainable Development Goals (SDGs), due to be formally adopted by the United Nation in New York in October. There are 17 in all, ranging from ending poverty to providing universal access to sustainable energy.
But the recurrent push-pull is already playing out.
“Many donors are questioning who should receive development aid. They tell middle income countries ‘you’re wealthy, you can raise your own money, let’s focus on poor countries’,” Gail Hurley, a policy specialist with the United Nations Development Programme, told news agency AFP ahead of the summit.
Sharing the burden
Rich nations, already reluctant to raise their aid budget, are now pushing for greater private sector involvement and for emerging economies like China, Brazil and India to share the burden.
Campaigners say little is guaranteed. “What we don’t want to see is platitudes and promises,” Oxfam policy advisor Claire Godfrey said. “Any agreement that favours rich governments and commercial interests isn’t worth the paper it is printed on.”
Developed countries like the United States have also often argued that they are not convinced of the ability of African countries to spend aid efficiently.
Africa has already seen huge inflows from private players, building on the “trade-not-aid” mantra that is currently the flavour in multilateral parleys.
Foreign Direct Investment (FDI) into sub-Saharan Africa last year reached $42 billion, a rise of 5% according to UNCTAD figures, but all the money is still going to China and India.
The role of FDI on the continent remains significant: On average the government budgets of African countries currently depend on corporates domiciled in other countries for up to 14% of their funding.
And these transnationals still very much call the shots. A growing major point of contention has been their tax evasion; the UN wants a international tax-busting organisation set up with it, but OECD and G20 countries have been reluctant as that would take decisions about major foreign policy tools out of their hands.
But as the experience of Ebola has showed, where $3.4 billion was pledged to help reconstruct battered West African economies, investor presence on the continent is volatile.
African countries have fewer options. One is to tap the billions of dollars sent back by the diaspora remittances. The other is to look inward for development cash, where the most obvious, and viable, target is to increase domestic revenue.
These call for “implementing tax systems that are simple, broad-based, and fair,” IMF managing director Christine Lagarde said ahead of the summit, who said the lender would increase resources in reforming African tax systems.
The potential is huge: Cape Verde spends 44% of its own domestic resources on infrastructure projects, while of the $90 billion spent on infrastructure projects as at 2014, half was from domestic resources of African countries, according to UNECA data.
This has fuelled the argument that Africa’s own role has in funding its development not been well articulated, allowing international donors to bask in the limelight - in some countries taking more credit than they deserve.
Paying their way
IMF figures show that in about half of all developing countries, tax ratios to GDP are below 15%, compared with an average of 34% in OECD countries. Many African countries fall well below that.
Mail & Guardian Africa dug into available World bank data to highlight African countries that have done most work in raising this ratio, (see infographic) which means they are increasing both efficiency and growth. While a small step, they are on their way to further loosening stifling dependence on donors.
Algeria is by far the runaway leader on the continent, at nearly 50%, but Nigeria, with an average of 2% and now unable to pay its workers as the oil crunch bites, shows the perils of weak revenue collection plagued by numerous leaks.
Poor data availability from many African countries precludes a more comparative analysis—some 20 countries including Malawi and Zimbabwe have no data. On the opposite end are unlikely stars such as Mali, Liberia and Togo, which consistently collate data.
And as the coffers fill up, the next headache for Africa will be how to spend the money efficiently.