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- Question of the week
The scope of Africa’s development agenda continues to rapidly evolve in width and depth, although rarely equitably and sustainably. Realization of donors’ philanthropic intentions therefore implies that support must of necessity adapt to these changes to continue to assist these countries’ development effectively. This short article summarizes some of the key areas that may be considered to support inclusive growth in African countries.
Despite several challenges, African countries have continued to outperform global average growth indicators since the year 2000. Review of the growth patterns however reveal that these developments are mostly concentrated in the extractive and service sectors. While this has delivered benefits for specific population groups and geographical areas, it has also left many others trapped in poverty. These disparities are aggravated by poor infrastructure within and across countries. Infrastructure development is mainly hampered by vague national and regional sector policies; lack of financing; deficiencies in planning and procurement; project prioritization based on socio-political rather than economic considerations; and poor management of existing infrastructure assets.
Governance and institutions
Although the particular causes of inequality may vary across countries, weak and unaccountable states and institutions remain central in tackling poverty. Emphasis should therefore focus on improving governance capacities in the areas of resource allocation and mobilization. It is therefore suggested that donors review, on a country by country basis, various institutional innovations that can improve the quality of service provision by changing the incentive structures and improving accountability.
The impacts of climate change have already made profound effects on African countries, particularly in agricultural productivity and food security. This is of increasing importance as the 21st session of the Conference of the Parties (COP) on low-carbon and climate-resilient economies, is expected to take place in December 2015 in France. Donors may consider supporting efforts to increase and diversify agricultural productivity; and to build countries’ capacity to access climate finance from the Green Climate Fund.
Domestic resource mobilization
Most countries in Africa face large resource gaps due to low domestic savings and high investment needs. Conversely, where resources may be available, they often do not reach businesses, especially start-ups and Small and Medium Enterprises (SMEs) because of perceived risk on part of the lenders. Initiatives that strengthen collateral registries and credit bureaus can help improve businesses’ access to finance. The role of mobile banking facilities and microfinance institutions, particularly working in partnership to improve access to finance has been successful in some countries such as Kenya, and should be replicated widely. Domestic resource mobilization can provide a stage on which tax revenues can be raised – by deepening the tax base, strengthening tax administration and formalizing the informal sector. Private savings can be raised by banking sector reforms and through innovative ways such as leveraging the local wealth or securitizing future resource inflows (remittances, oil revenues). A further challenge is to ensure that there is change in attitude whereby aid becomes a complement to private sector investment and vice-versa. This can be achieved, for example, through initiatives aimed at crowding in additional private sector investment and also public-private partnerships. At the policy level, efforts that deepen the tax base; strengthen tax administration and formalize the informal sector should be encouraged. Since several countries still rely on aid for budgetary support, it is recommended that the disbursements be predictable to enhance macroeconomic stability.
Conclusion – opportunities for Dutch trade and policy
Given the foregoing, a number of opportunities for Dutch support will particularly enhance trade and policy congruence with African countries. The first is with regard to support to infrastructure projects, particularly at the policy development stage, and in the project prioritization and planning phases would therefore have optimal impact on including regions and populations trapped in poverty by lack of access to markets and infrastructure. Dutch policy should also be selective in its support of African public institutions, being particularly encouraging to those that strive to innovate to improve the quality of service provision while improving accountability. Fast-tracking access to financial services by replicating mobile money savings and transfers is also worthy of support, particularly in Western and Southern African countries that have comparatively low investments in the financial sector. Related to this, disbursements for budgetary aid support should be considered predictable and regular enough to enhance the stability of governments’ development projects.
To enhance the impact of aid in public sector management, donors must improve creativity, adaptability and flexibility in coping with the circumstances of low income countries which have weak administrative institutions. Going forward, aid remains important and should be re-formulated to strengthen domestic public and private capacity and to build upon alternative sources of development finance and partnerships.
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