Aid to Africa — promises and trends

Recent statistics from the Development Assistance Committee of the OECD show that the development assistance to Africa is not increasing to the extent that was promised at the G8 summit meeting in 2005. The Nordic Africa Institute asked Bertil Odén to comment on these statistics.

2005 was a year of great promises and pledges for more support to the development of the African continent. This culminated at the 2005 G8 Summit in Gleneagles, Scotland. The pledge from that meeting was to double the total aid volume by 2010 compared to 2004, and that half of this increase should be allocated to Sub-Saharan Africa. This implied an increase of USD 25 billion for Sub-Saharan Africa. What can be said about the implementation of those promises so far?

Aggregated aid statistics for 2006 were recently published by the OECD Development Assistance Committee, DAC. Compared to 2005 the total aid flows from DAC countries and international organisations declined by 3 billion to USD 104 billion and as a share of DAC countries' Gross National Income (GNI) it declined from 0.33% to 0.30%. As for 2005, the figures for 2006 were strongly inflated by unusually high debt relief.

For Sub-Saharan Africa an increase of 23 percent between 2005 and 2006 to about USD 28 billion was registered. Also in this case, most of the increase was due to increased debt relief, mainly to Nigeria, where it almost doubled to USD 10.8 billion in 2006. Excluding this, aid to sub-Saharan Africa increased by about 2 percent between 2005 and 2006, thereby returning to the volume of 2004.

This implies that including debt relief the aid to Sub-Saharan Africa has continued the increasing trend since 1999. If the debt relief is excluded, aid to Sub-Saharan Africa increased more rapidly in the years before the Gleneagles pledge than after.

There is in principle nothing wrong with debt relief if it provides scope for increased government expenditure on health, education, infrastructure etc. But after a period with unusually large debt relief, it has to be replaced with ‘core’ aid to avoid reduced aid volumes, not to mention to sustain an upward trend. The DAC Chairman has warned that “Donors will need to undertake major expansions of their core development programmes to Africa if they are to meet the target.” The same message was emphasized during the World Bank and IMF Spring Meetings in mid-April.

The 15 EU countries that are members of DAC have pledged substantial increases of their total aid, and a number of them have also made national commitments to reach intermediate levels of aid/GNI percentage in 2006 or later. According to DAC, 12 out of 15 of them are on track, but European NGO networks point out that for seven of those 12 this is due to increased debt relief and other ‘non-core’ aid.

The aid to Sub-Saharan Africa from the Nordic countries as a group has increased in the range of 25 percent between 2004 and 2006, both including and excluding debt relief. The increase is mainly due to the significant increase of Sweden’s aid during the period.

The main picture is thus that the rapid increase of total aid flows to Sub-Saharan Africa in recent years is mainly explained by increased debt relief and emergency assistance, while the absolute level of project and programme assistance has been quite stable and therefore its share of the total Official Development Assistance has declined from over 60 percent in the early 1990s to just above 40 percent.

Since the 1990s social sectors and governance have received greater shares, which should be seen against the background of the strong emphasis on these sectors in the Poverty Reduction Strategies. The shares of agriculture and industry have declined.

The new landscape of external resources in Africa

While various efforts are being made to fulfil the G8 pledges, the scene of external resources in Sub-Saharan Africa is changing due to new actors, newly created schemes and the increased relative importance of other external flows. A number of examples could be mentioned.

The rapid expansion of China in Africa provides small amounts of grants and technical assistance, large semi-commercial credits and direct investments, besides the dramatically rising foreign trade. The inflow is estimated to be in the range of USD 2-4 billion per year. These funds come without conditions regarding economic and political reforms and are therefore highly appreciated by some African governments. Other important Asian players are India and Malaysia.

An increasing number of private and private-public foundations have been launched and are also active in Sub-Saharan Africa, mainly for fighting HIV/AIDS, malaria and other endemic illnesses. They provide important extra resources, but the amounts actually disbursed constitute a rather small part of the total aid flow.

Remittances from migrant workers abroad are also increasing to Africa. These were estimated to be around USD 6 billion in 2004 – corresponding to one fifth of total aid flows – and have certainly increased further since then.

The inflow of foreign direct investments has increased rapidly and reached 18 billion USD in 2005 – three times the volume in 2000, corresponding to more than half the total aid. This flow is highly volatile and concentrated to a few countries, with South Africa, Nigeria, Sudan, DR of Congo, Chad and Equatorial Guinea among the largest host countries in 2005.

In the wake of the G8 pledge a number of new plans and consortia aiming at improving the situation in Africa have been launched, such as the UN’s Central Emergency Response Fund, a plan of action for Science and Technology, the African Ministers’ Council on Water, the Infrastructure Consortium for Africa and the Investment Climate Facility for Africa. The main problem with all these new structures is that they wholly or partly are competing for ODA funds, although some of them also mobilise funds from other sources.

Another potential source of external finance would be the return of capital flight money, which in earlier studies has been estimated to between USD 185 and 285 billion, and probably has increased since then.

It is obvious that a more pluralistic landscape of external resources is emerging for governments and other players in Africa south of the Sahara, which will change and probably reduce the role of the traditional aid agencies, including the World Bank.

Bertil Odén, April 2007

Bertil Odén has worked for Sida (Swedish International Development Cooperation Agency), the Nordic Africa Institute and in Tanzania. He is the author of ’Biståndets idéhistoria’ (Studentlitteratur, 2006).

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