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  January 3, 2017

What's Wrong with the Current Aid Model for Africa (2/2)


PERI's Leonce Ndikumana responds to Nobel Prize winning economist Joseph Stigltiz who argues unfair trade deals cost developing countries more than the West gives in aid
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biography

Leonce Ndikumana is Professor of economics and Director of the African Development Policy Program at the Political Economy Research Institute (www.peri.umass.edu) at the University of Massachusetts at Amherst. He is a member of the United Nations Committee on Development Policy, Commissioner on the Independent Commission for the Reform of International Corporate Taxation, a visiting Professor at the University of Cape Town, and an Honorary Professor of economics at the University of Stellenbosch, South Africa. He has served as Director of Operational Policies and Director of Research at the African Development Bank, and Chief of Macroeconomic Analysis at the United Nations Economic Commission for Africa (UNECA).


transcript

What's Wrong with the Current Aid Model for Africa (2/2)SHARMINI PERIES: Welcome back. This is part two of an interview with Leonce Ndikumana. He has recently published a paper titled "The Future of Aid Effectiveness in Sub-Saharan Africa: A Research Agenda." Leonce Ndikumana is Professor of Economics at the University of Massachusetts and a director of the African Development Policy Program at the Political Economy Research Institute, PERI. He's also a member of the UN Committee on Development and Policy. I thank you so much for joining us again, Leonce.

LEONCE NDIKUMANA: Thank you very much.

SHARMINI PERIES: Leonce, in a speech in India, by economist Joseph Stiglitz, he argued that unfair trade relations divert more money from developing countries to developed countries than all the money that developed countries give to developing countries in the form of aid. Is this true? And does this serve a political goal beyond simple generosity?

LEONCE NDIKUMANA: First of all, I think that these are very interesting and fundamental questions. My view is that aid has never been an act of generosity. Even if you look at the Marshall Plan for the reconstruction of Europe, it wasn't a gesture of generosity by the US or the other big powers. It was because they understand that rebuilding Europe was good for the world economy and world peace. So even if I counted in that context, that if aid is well-done, where implemented, and it actually does promote development in developing countries, it's good for the world. So I think aid is a public good, it's a global public good. More prosperous developing countries mean larger markets for donors. Let's face it, it means more business for their companies, but also it means more stability. It's more stability in developing countries means better peace globally.

So, I don't think we should look at the aid as benefiting only the developing countries; it benefits also the donors, not very from a myopic perspective or pecuniary, fiduciary or financial gains, but also from a strategic global perspective.

That's why, when people are pushing for... looking at aid from different new, noble perspectives like including access to trade, that's when you can actually have a larger impact of aid, if it's... though, if the donors can in addition to providing the standard conventional development assistance could open up their markets to developing countries, could facilitate a technologic transfer to developing countries, that strengthens the economies of developing counties. It allows two things which are good for the donors. One, it allows developing companies to graduate from aid, so that the taxpayer doesn't have to keep funding the aid money. But also, it increases the markets for the producers of the developed world.

So, in fact, I can argue that if aid is well-managed and well-targeted, it benefits not just the recipient countries, but also the world as a whole.

SHARMINI PERIES: Right. And, Leonce, this is a very important question that you take up in your paper, which is the importance of establishing south-south trade relations. First of all, I felt that this is a really important question when it came to Latin America with the leadership of President Hugo Chávez, which really propelled this idea of south-south trade in recent times because of the dependencies that Latin America had on, well, bank funding, IMF funding and funding from developed countries, and tried to serge a partnership with the south-south countries and various trade organizations who were formed.

As a result of some of that work – I'm not saying it was totally successful – but as a result of some of that work, Latin America now is less-dependent on IMF funding and World Bank funding, and in places like Bolivia, regardless of recent issues with the economy, were doing very well in terms of working with other southern countries.

Now, is this an example that Africa should follow and could follow, and do you think there are benefits to be gained from that?

LEONCE NDIKUMANA: Yes. Again, a very important question that should be part of the discussion about aid in general, which is the trade relationship between the African countries and their southern partners, this includes both emerging economies, China, Korea, Latin American countries, but also within Africa. There is a reason why south-south trade is important. The first one is... well, first of all, let me make a clarification comment. One is that when you talk about south-south trade, it should not be construed as being a substitute for trade between Africa and the north. No, it's a complement. The two are complementary.

But in terms of why African countries would benefit from increased trade between themselves and other developing countries, one is that first of all, a reduction of trading costs. When you look at many African countries, they are too far from Western markets, so by the time their products get there, they are way too expensive to be competitive against Western products. Whereas, if they could develop regional markets, their products will be much more affordable for the buyers, and thus increase the profitability and competitiveness of their industries.

The second reason is because selling products to Western countries, you have to go through so many hoops in terms of quality standards, lengthy regulations and so on, so that it becomes difficult for African countries to get their products, meet the expectations of the regulators of the market in Western countries, whereas the regulations and preferences, tastes and so on are closer within regions, so that African countries will do better trying to tap the regional markets.

Now, what we see is that regional trade remains very limited. There is progress in some regions, especially East Africa. You find actually, that some countries are trading within the region more than the rest of the world, which means that regional integration as far as trade is concerned is possible, and is beneficial. But that takes deliberate policy decisions, commitment, by the leaders of these countries, and I have to say that, again, in the case of East Africa, Southern Africa, there is deliberate and explicit will on the leadership to promote regional development, regional integration. But also, what we see is that huge interests in trade with the emerging countries out of the continent, China, Korea, Brazil, and so on, and we see that these first of all expand the scope of markets for imports and exports for African countries, which is good. They should not be depending on Western markets alone. But also, the trade between these countries, relationships between Africa and these emerging countries, tend to be a complex mix of aid, trade, commercial loans, grants, which are very difficult to untangle.

Is that a problem? I don't... for me, it's not a fundamental problem. The problem I see is, the challenge I see, is for African countries to acknowledge that the opening of south-south trade and finance relationships is a big opportunity. But that to liberate that opportunity they have to have a clear strategy as to how this trade and financial relationships are going to broaden their production systems, increase their economic transformation, not worsen their resource dependence, and also expand their markets. If they can do that, if they can find ways to integrate the opening of south-south trade into their national development strategy, their industrialization policy, that will be a win-win deal for developing countries, and Africa in general.

SHARMINI PERIES: And Leonce, are you talking about here with small African countries trading with other small African countries by way of south-south trade, or are you looking at the bigger countries like China, Brazil, India, playing a role when it comes to development? And in this case, wouldn't they simply be replicating the same relationships that exist now with more developed Western countries?

LEONCE NDIKUMANA: In terms of south-south trade I'm talking about all the above. I'm talking about trade within African countries, so for example Uganda is a big trading partner for South Sudan. Kenya is a big trading partner of Rwanda or Tanzania. And these trading partnerships are extremely important for both promoting domestic markets, domestic production, but also developing income opportunities for small and medium enterprises. In these systems, the biggest sector in terms of job creation, if you are going to ask small and medium enterprises to be eyeing the European Western markets, it's going to be very, very difficult. But for small and medium enterprises in Uganda, it's going to be much easier to tap the market in Kenya, in DRC, in Rwanda, so that opens lots of opportunities for small and medium producers.

But also, I am talking about trade between Africa and China, trade between Africa and Brazil and Korea. How is this... are these relationships different from the relationships with the traditional donors? Yes and no. No, in the sense that it still has to do with, do you have a strategy to leverage these trade relationships, these financial relationships? If you don't, you may get exactly the same results, because as I said, there is no such thing as aid driven by generosity. There are always benefits that are sought after for the donors. Whether they are Western or the new donors, they all want to establish strong relationships, they want to promote the markets for their producers, and they want to also promote access to inputs.

So, when you hear about China being branded as the new now major player in the market because they are attracted by natural resources in Africa, is that new? No, it's not new. Western donors came to Africa to look for mineral resources and oil. So, there's nothing new about that. The question is, do African countries have a different strategy now as to how they could own better their own natural resources. It doesn't matter whether they are dealing with China or the Western donors.

SHARMINI PERIES: All right. And then, finally, Leonce, you looked into aid in post-conflict areas, as well, and specifically in Rwanda and Burundi. But you show that Rwanda received more aid than Burundi, and also recovered faster as a result. Why was Burundi neglected here?

LEONCE NDIKUMANA: The case of Burundi and Rwanda are actually very interesting natural experiment to look at the impacts of aid in conflict and post-conflict countries, what works and what doesn't work. It's a natural experiment in the sense that they are two countries with lots of similarities – small size, small size of the economy, same people, same language, same culture. And also, in terms of the study on impact of aid during conflict and post-conflict countries, the two countries entered into conflict around the same period, 1994. So, they faced the same challenges of coming out of very costly conflicts which meant lots of need in terms of rebuilding the economy.

So, what we see, if you look at the evidence, you do find out in fact, Rwanda did receive more aid than Burundi, after the conflict, and also you do find that in terms of economic achievement, economic performance, the growth resumed much faster in Rwanda than in Burundi. The question is, did aid have an impact in these differential outcomes? I would say somehow it must have played an impact, for example, aid was instrumental in Rwanda in helping rebuilding capacity. So, when the new government came in power, they were dealing with very depleted administrative capacity, So, they had to rebuild through training, through using expatriates, and aid did help in terms of financing those programs, infrastructure rebuilding, infrastructure is very costly for a country that's coming out of conflict, that cannot be financed with only domestic resources. So, this financing did play a role in helping the country to overcome the effects of the conflicts.

In the case of Burundi, you can see that the recovery has been very, very slow, and because of much less resources to finance public investment. Much less resources to rebuild capacity, but at the same time, in terms of institutional engineering, I think Burundi had what was a very good example in term of peace negotiation, rebuilding the security system, the military and the police, and so on. Institutional building is very, very costly. It takes a lot of time, but at the same time, if the economy is not picking up, that actually can undermine the gains from institutional reforms.

So the point is that in the case of post-conflict countries, they need aid more than the stable countries, because not only do you need to finance post-conflict economic rebuilding, but also you need to finance post-conflict institutional reforms. And those two have to go hand in hand to get positive results.

SHARMINI PERIES All right, Leonce, very informative and interesting discussion. I thank you so much for joining us today.

LEONCE NDIKUMANA: Thank you very much.

SHARMINI PERIES And thank you for joining us on The Real News Network.

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