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4 The New Partnership for Africa’s Development: Opportunities and Challenges

Author(s):
Saleh Nsouli
Published Date:
September 2004
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Author(s)
Norbert Funke and Saleh M. Nsouli 

The New Partnership for Africa’s Development (NEPAD), adopted in 2001, is a pledge by African leaders to eliminate poverty and to achieve a sustainable path of growth and development on the continent. Although previous continent-wide initiatives have not led to the desired results, there is hope that this outcome will be different. This expectation is based on NEPAD’s new building blocks, which are critical for successful reform. New is the extent of African ownership and leadership of the development agenda, anchored in the recognition that African countries themselves have the primary responsibility for improving economic and social conditions on the continent. Also new is the wide acceptance of the proposition that good governance plays a key role in fostering growth and reducing poverty. Another new element is the extent of international appreciation and support for this initiative.

To achieve its objectives, NEPAD stresses four core elements:

  • It acknowledges that peace, security, democracy, and good governance are preconditions for investment and growth and the reduction of poverty.
  • It aims at promoting private sector development and regional and global economic integration.
  • It builds on action plans to develop the key pro-poor sectors of health care, education, infrastructure, and agriculture.
  • It underscores the importance of more productive partnerships between Africa and its bilateral, multilateral, and private sector development partners.

This chapter reviews the major issues involved in achieving the objectives of NEPAD, with a focus on those aspects that fall within the core mandate of the International Monetary Fund (IMF). The first section provides a backdrop on the NEPAD initiative by reviewing Africa’s economic performance during the past decade. The second provides an analysis of NEPAD. It evaluates the overall plan, looks at crucial factors for accelerating growth and reducing poverty, and assesses key NEPAD initiatives to achieve these goals, notably the consolidation of macroeconomic stability, the promotion of trade, the attraction of capital flows, and the reform of institutions. The third section discusses implementation issues and challenges and assesses the opportunities and the risks confronting NEPAD. The fourth discusses the steps that African countries need to take to achieve NEPAD’s objectives. The fifth section reviews how the international community can support NEPAD. The final section draws some broad policy conclusions.

The Setting: Africa’s Performance During the Past Decade

Macroeconomic Performance

Despite recent signs of progress, Africa’s overall economic performance has been disappointing. Since the early 1980s, real GDP growth has averaged only 2.5 percent a year, and real GDP per capita has remained virtually unchanged (Figure 4.1 and Table 4.1).2 Thus, extreme poverty is still widespread, particularly in sub-Saharan Africa. Based on the World Bank Atlas method, which uses three-year averages of exchange rates, in 2000 GNP per capita amounted to only $470 in sub-Saharan Africa, compared with an average of almost $27,700 in high-income countries (World Bank, 2002a).

Table 4.1.Real GDP Growth Trends Across Regions(In percent a year)
Real GDP GrowthGrowth of Real GDP Per Capita
Region1980s11990s2000-200221980s11990s2000-20022
Africa2.62.23.30.1-0.20.6
Sub-Saharan Africa2.52.13.20.1-0.50.4
(excl. Nigeria and South Africa)2.72.34.20.0-0.41.3
Asia6.97.45.85.55.84.8
Middle East2.23.82.6-0.41.60.3
Western Hemisphere2.13.00.00.71.4-1.5
World3.43.12.53.02.11.6
Source: IMF, World Economic Outlook database.

1983–89.

Data for 2002 are projections.

Source: IMF, World Economic Outlook database.

1983–89.

Data for 2002 are projections.

Figure 4.1.Real GDP Per Capita Across Regions

(1983 = 100)

Source: IMF, World Economic Outlook database.

Weak domestic policies have contributed to this lackluster performance, but factors beyond the control of African countries, such as negative terms-of-trade shocks, have also affected performance (see also Easterly and Levine, 1998). During the 1980s and the first half of the 1990s, macroeconomic policies in Africa were often unsatisfactory, institutions deteriorated, and governance was weak. In addition, a number of countries faced periods of adverse external conditions or had to cope with internal conflicts. Better macroeconomic management, market liberalization, and progress in private sector development improved growth appreciably in the mid-1990s. However, this short period of higher growth rates was soon followed by a moderation in economic performance.

The measures of average performance cited above hide important differences across countries. This becomes evident when the experience of the best-performing African countries is compared with that of the weakest-performing countries. For illustrative purposes we refer to the top-five growth performers between 1990 and 2001 as “high-growth countries.” This group comprises Botswana, Mauritius, Mozambique, Uganda, and Tunisia.3 The bottom-five growth performers, referred to as “low-growth countries,” comprise the Democratic Republic of Congo, Djibouti, Sierra Leone, Zambia, and Zimbabwe.4

Figure 4.2 shows the development of selected macroeconomic indicators for Africa as a whole, for the high-growth countries, and for the low-growth countries. For the last two groups, unweighted averages are used. Without asserting any direct causality, the following observations can be made:

  • The low-growth countries had substantial financial disequilibria both domestically (high inflation, large budget deficits) and externally (large current account deficits), as well as low saving and investment rates.
  • By contrast, the high-growth countries had lower average inflation, smaller budget deficits, smaller current account deficits, and higher saving and investment rates. In these countries, investment reached some 25–30 percent of GDP, whereas in the low-growth countries investment rates were approximately 10–15 percent of GDP.
  • High-growth countries tended to be substantially more open than the low-growth countries and more open than the average African country.

Figure 4.2.Selected Economic Indicators in High- and Low-Growth African Countries1

Source: IMF.

1 Forecasts for 2002. Openness for low-growth countries excludes Djibouti.

This analysis suggests that macroeconomic policy weaknesses are indeed an important contributor to weak growth performance in Africa.

Reflecting the inadequate growth performance, social conditions in Africa remain among the poorest in the world. In particular, in sub-Saharan Africa almost half of the population still lives on less than $1 a day. Moreover, although some progress has been made since the early 1970s, sub-Saharan Africa lags behind most other regions in terms of literacy rates, school enrollment, and health conditions (Table 4.2). Much more worrisome, HIV/AIDS has assumed alarming proportions in many African countries, posing a major threat to economic growth and development.

Table 4.2.Selected Social Indicators in Low- and Middle-Income World Regions(In percent except where stated otherwise)
Share of Population Living on Less Than $1 a DayHIV Prevalence2Adult Illiteracy RateLife Expectancy at Birth (Years)Infant Mortality Rate (per 1,000)Primary Schoo Enrollment3Secondary School Enrollment3
Region19901998119991970200019702000197020001970199819701998
East Asia and Pacific27.614.70.22441459697935901072462
Eastern Europe and Central Asia1.63.70.1873n.a.69n.a.20n.a.n.a.n.a.n.a.
Latin America and Caribbean16.812.10.582612617084291071302875
Middle East and North Africa2.42.10.03703552681344370972460
South Asia44.040.00.566845496213873711012348
Sub-Saharan Africa47.748.18.38723944471389151786264
World29.023.41.19n.a.2559669854851043465
Source: World Bank and World Development Indicators

Data are estimates.

Share of population aged 15–49 infected with HIV.

As share of primary or secondary school-age population.

As of 1996.

Source: World Bank and World Development Indicators

Data are estimates.

Share of population aged 15–49 infected with HIV.

As share of primary or secondary school-age population.

As of 1996.

Structural Indicators

Africa made major strides in implementing structural reforms during the late 1980s and in the 1990s, with many countries moving from heavily controlled and state-dominated economies to market-oriented economies. In general, price controls have been removed, state control of marketing arrangements has been liberalized, quantitative trade restrictions have been nearly abolished, public-enterprise reform and privatization have been widely pursued, exchange restrictions on current account transactions have been virtually eliminated, and labor markets have been reformed. Yet in spite of the broad progress made, a number of African countries need to continue and deepen their structural reforms.

Although a number of structural bottlenecks have been eased, the quality of governance, institutions, and public services has also emerged as a critical factor affecting growth. Table 4.3 presents several indicators of governance and institutions across regions. Measures of government stability, democratic accountability, and ethnic tensions give some indication of a government’s ability to carry out reform programs. Bureaucratic quality, law and order, and the degree of corruption are three indicators that capture the quality and strength of institutions. The investment profile includes such factors as risks to operations, taxation, and repatriation.

Table 4.3.Indexes of Quality of Governance, Institutions, and Public Services in Selected Regions During the 1990s1
Region or GroupGovernment StabilityDemocratic AccountabilityEthnic TensionsQuality of BureaucracyLaw and OrderCorruptionInvestment Profile
Asian NI Es26.86.08.38.28.16.86.0
Asia6.05.56.35.96.55.35.1
Western Hemisphere5.76.17.44.15.34.95.3
Africa
Of which:5.54.45.33.84.84.54.6
High-growth countries36.44.56.64.35.85.55.4
Low-growth countries44.74.05.33.04.13.53.6
World6.16.16.85.56.55.65.2
Source: International Country Risk Guide, published by Political Risk Services.

Index from 0 to 10, with the higher score indicating a better quality. Data are averages for the 1990s. For all groupings, data are unweighted averages of economies for which information is available. Indicators have been rescaled.

The newly emerging economies include Hong Kong SAR, Republic of Korea, Singapore, and Taiwan Province of China.

Botswana, Mauritius, Mozambique, Uganda, and Tunisia.

•Democratic Republic of Congo, Djibouti, Sierra Leone, Zambia, and Zimbabwe.

Source: International Country Risk Guide, published by Political Risk Services.

Index from 0 to 10, with the higher score indicating a better quality. Data are averages for the 1990s. For all groupings, data are unweighted averages of economies for which information is available. Indicators have been rescaled.

The newly emerging economies include Hong Kong SAR, Republic of Korea, Singapore, and Taiwan Province of China.

Botswana, Mauritius, Mozambique, Uganda, and Tunisia.

•Democratic Republic of Congo, Djibouti, Sierra Leone, Zambia, and Zimbabwe.

African countries have still not reached the levels of other regions in terms of governance and quality of institutions, although more countries in Africa espouse democracy and hold fair elections than ever before, and many countries have improved their governance. Table 4.3 shows that the fastest-growing African countries are better governed and have a better institutional environment than the average for the region. But even they have not yet achieved the same levels as the newly industrialized economies in Asia. Conversely, indicators for the low-growth African countries are generally lower than the averages for Africa and substantially lower than the indicators for the high-growth countries. These findings are consistent with those of a survey of 23 African countries conducted by the Harvard Institute for International Development (Sievers, 2001).

Analysis of NEPAD

Deeply concerned about inadequate economic growth and widespread poverty in their region and with the increasing marginalization of Africa in an interdependent world economy, African leaders resolved to undertake NEPAD. In the following sections, we analyze the nature of NEPAD and its key initiatives in the context of a simple analytical framework, set out in Table 4.4.

Table 4.4.The NEPAD: A Simple Framework for Analysis
AreaPolicy Questions
Overall plan• What is the NEPAD from an economic perspective—a Marshall Plan, a framework, an institution, or a blueprint?
• What are its basic objectives? Are they coherent?
• How ambitious are the reform objectives in terms of quantity and quality?
• Are reform priorities well specified?
• In what way does NEPAD differ from previous initiatives?
Analysis of selected initiatives• What are the economic benefits of the initiative?
• What should reform priorities be in light of recent developments in Africa?
• Are there any specific lessons from recent reform experiences?
Risks• What are the opportunities and risks associated with NEPAD?
• What needs to be done to minimize risks?
What must African countries do to achieve results?• How can public support be obtained and sustained?
• How can authorities increase the credibility of NEPAD?
• How can reform progress be measured?
• What are the contingency provisions needed to address reform slippages or unforeseen shocks?
How can the international community support NEPAD?• What should be the relation between NEPAD and other ongoing international initiatives?
• How can cooperation between donors be improved?
• Under what conditions will international support likely increase?

Overall Plan

As originally intended and described by its architects, NEPAD represents a common vision and strategic framework for Africa’s renewal (see Box 4.1). As such, it is neither a Marshall Plan, a regional institution, nor a “blueprint.”

Box 4.1.The NEPAD: Its Origins, Objectives, and Structure

The New Partnership for Africa’s Development is “a pledge by African leaders, based on a common vision and a firm shared conviction, that they have a pressing duty to eradicate poverty and to place their countries, both individually and collectively, on a path of sustainable growth and development, and at the same time to participate actively in the world economy and body politic” (NEPAD, 2001). Accordingly, the three main, interrelated long-term objectives of NEPAD are eradicating poverty, accelerating growth, and stopping the marginalization of Africa in the globalization process.

The NEPAD resulted ultimately from a merger of the Millennium Partnership for the African Recovery Program (MAP) and the OMEGA Plan. The MAP was a far-reaching plan that embraced many aspects of development, including conflict resolution, governance, investment, aid, and debt. The plan was initiated by Presidents Abdelaziz Bouteflika of Algeria, Thabo Mbeki of South Africa, and Olusegun Obasanjo of Nigeria. The OMEGA Plan, put forward by President Abdoulaye Wade of Senegal, focused on four priority sectors: agriculture, education, health, and infrastructure. The finalization of the merger between the MAP and the OMEGA Plan led to the New Africa Initiative (NAI)—approved by the Organization of African Unity Summit of Heads of State and Government, and later endorsed by the leaders of the Group of Eight countries—in July 2001. The Heads of State Implementation Committee (HSIC) finalized the policy framework in October 2001, and the NAI was renamed NEPAD.

The NEPAD is based on a number of principles, most importantly those of African ownership and leadership, broad participation by all sectors of society, domestic and international partnerships, and, more generally, on a commitment to the Millennium Development Goals. These goals include the following: to reduce the proportion of people living in extreme poverty (or on less than $1 a day) by half between 1990 and 2015; to enroll all children of school age in primary school by 2015; to move toward gender equality and remove gender disparities in elementary and secondary enrollment by 2005; to reduce infant and child mortality ratios by two-thirds between 1990 and 2015; to reduce maternal-mortality ratios by three-quarters between 1990 and 2015; to provide access for all who need reproductive health services by 2015; and to implement national strategies for sustainable development by 2005 compatible with the preservation, by 2015, of the ecosystem and ecological resources. To help achieve these goals, the NEPAD calls for attaining and sustaining average growth of real GDP of above 7 percent a year for the next 15 years.

To translate the goals of NEPAD into action, Section V of the October 2001 NEPAD document, entitled “Program of Action: The Strategy for Achieving Sustainable Development in the 21st Century,” is central. The Program of Action is divided into three parts: it discusses the conditions for sustainable development, identifies sectoral priorities, and looks at the mobilization of resources. In each of these three parts, major initiatives are laid out. These major initiatives fall under peace, security, democracy, and political, economic, and corporate governance; bridging the infrastructure gap, human resource development, agriculture, and environment; and capital flows and market access.

The highest authority of the NEPAD implementation process is the Heads of State and Government Summit of the recently launched African Union (AU), formerly known as the Organization of African Unity. Below this is HSIC, which is composed of 20 members, four from each of the five African subregions. The HSIC reports to the AU summit on an annual basis. The personal representatives of NEPAD heads of state and of government of the five initiating members—South Africa, Algeria, Nigeria, Egypt, and Senegal—form a steering committee. The coordinating and liaison arm of the NEPAD Steering Committee is the Secretariat of NEPAD, which is based in Johannesburg, South Africa. Following instructions of the Steering Committee, the Secretariat is in charge of coordinating projects and processes that the HSIC has identified as priorities. The NEPAD Secretariat is an interim arrangement, pending the eventual full integration of NEPAD into the African Union’s structures and processes.

The press at times has interpreted NEPAD as a kind of “Marshall Plan for Africa” (see Herbert, 2002). Unlike the Marshall Plan, however, NEPAD is not foreign-led; it is an African-owned initiative. Its goal is not to reconstruct something that existed previously, but to reach a new and substantially higher level of development.

The NEPAD has also been compared to a regional institution (for example, Kanbur, 2001). However, a regional institution typically focuses on more narrowly defined goals and initiatives; it has dedicated resources; and it has mechanisms to enforce contracts. By contrast, NEPAD is broad-based and comprehensive; and as yet, it has little enforcement power.

Nor is NEPAD a blueprint for African development. Implementation details are still being developed and will largely be formulated in the context of the national development strategies of individual African countries.

The opening paragraph of the NEPAD framework sets out three interrelated objectives for African countries—eradicating poverty, achieving sustainable growth and development, and participating actively in the world economy (NEPAD, 2001). But this clarity gets somewhat blurred in some other parts of the framework document. For example, given that poverty reduction is an overarching objective, it is surprising that poverty reduction is also listed as one of several aspects under the human resource development initiative. Also, each NEPAD initiative has several objectives, which appear at times as final goals in themselves. For example, under the market access initiative, one of the stated objectives is “to develop Africa into a net exporter of agricultural products” (NEPAD, 2001, p. 40). Although this may help support Africa’s development, it cannot be seen as a goal in itself.

The NEPAD addresses a fairly coherent range of issues. If poverty reduction is to be seen as the overall objective, a necessary but not sufficient condition for reducing poverty is increasing growth. The various NEPAD initiatives in the Program of Action focus on particular aspects of reforms that will help to increase growth or to improve the social environment. Therefore, all NEPAD initiatives should be viewed and evaluated in light of their importance and contribution to achieving the main objective of reducing poverty along with enhancing growth.

The objectives of NEPAD are very ambitious. In particular, it will require tremendous effort for most African countries to achieve and sustain the targeted growth rate of real GDP of 7 percent a year that is needed to reduce by half the population living in extreme poverty by 2015. In this regard, it should be noted that growth performance in recent years has been moderate, budgetary pressures have persisted, and the external environment has been unfavorable. In addition, the number and diversity of NEPAD’s initiatives suggest that NEPAD will inevitably face implementation constraints. Although a better-coordinated and more efficient use of resources may lessen these constraints, the situation calls for a clear prioritization of initiatives.

The NEPAD framework document implicitly and explicitly proposes some prioritization (see Kanbur, 2001). It acknowledges that the preconditions for sustainable development are conflict prevention, democracy, and good governance; thus high priority must be given to these areas. At the same time, the framework document identifies areas that should be fast-tracked, namely, communicable diseases (especially HIV/AIDS, malaria, and tuberculosis); information and communication technology; debt reduction; and market access (NEPAD, 2001, p. 54). In addition, the recent progress report to the HSIC further identifies top-priority actions, such as the implementation of the African Peer Review Mechanism (APRM) and the integration of NEPAD’s principles into national development goals (NEPAD, 2002d). Useful governing principles for further prioritization may be the likely impact of an initiative on the ultimate objective of poverty reduction, the time needed to achieve positive results, and, more generally, the lessons drawn from the timing and sequencing literature (see Feltenstein and Nsouli, 2001; and Nsouli, Rached, and Funke, 2002). Actions that will have a rapid and direct impact on poverty reduction should be implemented first. Also, sequencing considerations suggest that institutional reforms and, in particular, ensuring the rule of law need to be granted high priority.

In contrast with previous initiatives, NEPAD places major emphasis on African ownership, leadership, and accountability. This is best expressed in the concluding section of the framework document, which notes that ‘Africa recognizes that it holds the key to its own development” (NEPAD, 2001, p. 57). The APRM, which is a voluntary monitoring instrument involving member states of the African Union, is seen as an essential feature of this new sense of ownership and accountability. Its objective is to assess whether participating countries are adhering to the political and economic governance values, codes, and standards contained in the Declaration on Democracy, Political, Economic and Corporate Governance (see NEPAD, 2002a and 2002c; Cilliers, 2002). The review process envisaged under the APRM will lead to the preparation of a report by the evaluating team. This report will then be considered by the heads of state and of government of the participating member countries, and ultimately made public. Well implemented and enforced, the APRM should help promote the adoption of policies, standards, and practices that foster the goals of NEPAD.

Major Initiatives for Poverty Reduction and Sustainable Development

As indicated above, NEPAD gives high priority to conflict prevention, democracy, and good political governance as essential ingredients for Africa’s renewal. Indeed, given Africa’s past and even current experience, there is no doubt that the achievement of substantial poverty reduction and sustainable development will depend importantly on ensuring peace, security, human rights, and good governance throughout the continent.5 Although these issues are not discussed further here, they are considered critical elements of Africa’s development agenda. The following sections deal with other important issues and initiatives envisaged in the NEPAD document.

Consolidating Macroeconomic Stability

In light of the conditions prevailing in most, if not all, African countries, NEPAD recognizes the need for consolidating macroeconomic stability. Macroeconomic stability is not only a one-time policy concern. It requires constant efforts to preserve and reinforce past progress. Countries that have already achieved a stable macroeconomic environment with single-digit rates of inflation must ensure that macroeconomic policies be geared toward maintaining this record.

A low-inflation environment is an important basis for future growth and for reducing poverty. For developing countries, Khan and Senhadji (2001) have shown that inflation rates above 7–11 percent a year are harmful for growth. High inflation tends to hurt the poor in particular, essentially because most of their transactions use financial assets that are not protected from erosion by inflation (Dollar and Kraay, 2001a). This suggests that countries that have not yet realized low inflation and a stable inflationary environment need to give high priority to achieving macroeconomic stability. This clearly holds for countries with very high rates of annual inflation of around 100 percent, such as Angola and Zimbabwe, but also for countries with lower but still double-digit rates of inflation, such as the Democratic Republic of Congo, Ghana, Madagascar, Nigeria, and Zambia.

Fiscal policy will have a particularly important role to play in the consolidation of macroeconomic stability. While ensuring financial stability, sound fiscal policy could also help promote growth and the reduction of poverty. Using a sample of 39 low-income countries, Gupta and others (2002) provide evidence that fiscal consolidation supports growth, in both the long and the short term. Results for the 1990—2000 period suggest that a reduction of 1 percentage point in the ratio of the budget deficit to GDP may lead to an increase in annual growth per capita of ¼, to ½ percentage point. This relates in particular to countries that have not yet achieved macroeconomic stability. The reduction of budget deficits also needs to be accompanied by a review and possibly a restructuring of public expenditure toward growth-promoting and pro-poor outlays. Baquir (2002) shows that social sector spending tends to increase with democratization.

A reallocation of public expenditure and improvements in public expenditure management are two important ingredients for a pro-poor strategy in the fiscal domain. Estimates from Baldacci, Guin-Siu, and de Mello (2002) suggest that an increase in education spending by one-third may be sufficient to achieve the millennium goal of universal primary education. In an empirical study of 65 IMF-supported country programs, Gupta and others (2000) show that increases in certain types of expenditure, such as spending on basic education and health services, are particularly beneficial for the poor and essential for poverty reduction. At the same time, public expenditure management needs to be strengthened to ensure that poverty-related spending is effectively delivered and monitored. A preliminary assessment of 25 heavily indebted poor countries (HIPCs), including 20 from Africa, showed that most of these countries needed substantial upgrading in their capacity to track and report on pro-poor spending (IMF and World Bank, 2002). A comprehensive expenditure review may be an important first step toward developing a coherent medium-term expenditure framework. Involvement of key stakeholders may increase local analytical capacity. For example, a recent public expenditure review in Zambia, with the involvement of key stakeholders and external technical support, has provided a good basis for strengthening public expenditure management (IMF and World Bank, 2002). More generally, for the short term, experience has shown that priorities should include measures such as broadened coverage of government expenditure, improvements in classification systems, the introduction of functionally based in-year reporting across ministries, and the piloting of integrated financial management systems. In the medium term, the overall framework of budget formulation, execution, reporting, and auditing needs to be reviewed and changed where needed.

Promoting Trade and Regional Economic Integration

The NEPAD program of action places great weight on promoting trade and, in parallel, ensuring market access. As numerous studies have shown (for example, Dollar, 1992; and Sharer and others, 1998), open economies promote a more efficient use of resources and faster growth. In a selected survey of cross-country regressions, case studies, and firm- and industry-level analyses, Berg and Krueger (2002) review the evidence for a relationship between openness and levels of income and between changes in openness and changes in GDP per capita. A fundamental finding is that an increase in trade volumes tends to lead to higher growth rates. Using firm-level panel data from three sub-Saharan African economies, Mengistae and Pattillo (2002) provide evidence that higher exports can lead to positive productivity effects through learning by exporting.

Cross-country studies and studies from country-specific liberalization periods suggest that the benefits of trade liberalization accruing to the poor are, on average, roughly equal to the benefits accruing to an average person (see also Dollar and Kraay, 2001a and 2001b; Srinivasan and Bhagwati, 2002). The benefits for the poor may even be more important if trade liberalization is accompanied by an increase in the relative wages of low-skilled labor and if liberalization of the agricultural sector results in higher rural incomes.6

Despite the important progress made in trade reform and trade integration in Africa since the early 1990s, the above considerations suggest that Africa’s potential gains from increasing trade and diversifying exports are still very substantial (Ndukwe, 2004). Trade reform in the early 1990s eliminated most nontariff barriers and lowered peak tariff rates to a range of 20–30 percent. However, in many cases reforms have not yet been sufficient to support faster growth in income per capita. Africa’s world export market share has continued to decline (from 3.9 percent in 1970 to 1.9 percent in 2001). Rodrik (1999b) emphasizes that more openness may be expected to lead to faster growth only if it is complemented by well-functioning institutions and sound domestic policies.

Sequencing considerations suggest that, in the next round of reforms, high priority needs to be given to dismantling the remaining nontariff barriers to trade, further simplifying and reducing existing tariff rates and structures, limiting exemptions, and improving customs administration. As emphasized in NEPAD, it is also important to foster export diversification in order to limit vulnerability to terms-of-trade shocks. At the same time, exchange rates must be maintained at competitive levels.

Regional economic integration has been progressing only gradually.7 An acceleration of such integration would also help to promote trade. The authorities of the West African Economic and Monetary Union (WAEMU) have made progress on the integration front with the entry into effect of the customs union in 2000.8 The Central African Economic and Monetary Community (CAEMC) has initiated a number of projects aimed at establishing a single market in the region.9 To fully achieve this goal, further progress is needed in the areas of trade liberalization, harmonization of taxation, and the facilitation of movement of persons. Although the Southern African Development Community has started to phase in a free-trade area, this will be only fully realized by 2008, according to existing plans. Integration objectives will also be facilitated by the convergence of macroeconomic policies.

Attracting Capital Flows

To achieve the targeted economic growth rate of 7 percent and meet the Millennium Development Goals (MDGs), the NEPAD framework document indicates that Africa will need to fill an annual resource gap of $64 billion (equivalent to 12 percent of GDP). Although this will require increasing domestic saving, the bulk of the needed resources will have to be obtained from abroad. Thus, NEPAD emphasizes the importance of attracting capital flows.

Foreign capital flows can have positive effects on domestic investment, technology spillovers, domestic financial development, and the productivity of investment (Fuchs-Schündeln and Funke, 2001). However, for such effects to occur, financial markets must be efficient, and foreign funds must be used in a way that supports the development process. Trying to attract long-term capital flows, in particular foreign direct investment (FDI), is an essential first step in mobilizing private foreign financial resources. In contrast, there is more debate over the benefits and risks associated with portfolio flows, in particular short-term capital flows. There is concern that the higher volatility of short-term capital flows may increase countries’ vulnerability to crises.10

Foreign direct investment has the potential to play a pivotal role in Africa’s development. However, although the stock of FDI in Africa increased from around $33 billion in 1980 to almost $150 billion in 2000, Africa’s share of global FDI has continued to fall (Table 4.5).

Table 4.5.Inward Foreign Direct Investment Stock by Host Region as a Share of Global Stock(In percent)
Region or Croup19801985199019952000
Industrial countries56.058.471.668.064.9
Developing countries44.041.628.230.733.0
Africa4.63.52.62.62.4
Latin America and the Caribbean7.28.26.06.79.9
Asia and the Pacific32.229.919.621.420.8
Central and Eastern Europe0.10.11.32.1
Source: World Investment Report.
Source: World Investment Report.

Analyzing empirically the determinants of FDI to developing countries, Asiedu (2002) shows that openness to trade promotes FDI, but that higher returns on investments appear to have no significant positive impact on FDI in sub-Saharan Africa. This may be because Africa’s small and vulnerable economies are considered to present high risk in the eyes of many international investors. In such cases, small increases in returns are not sufficient to compensate for the major risk factors, such as poor judicial and financial infrastructure, as well as widespread corruption. Burdensome regulation may also make investments more costly. At the same time, a “neighbor effect” may discourage FDI: even if one country is pursuing stable policies that are conducive to investment, neighboring countries may not. This may have a negative effect on investment in the whole region.

A closer analysis of country experiences may also help identify important factors in attracting FDI. Some non-oil-producing countries, such as Botswana, Lesotho, Mauritius, Mozambique, Namibia, Swaziland, and Uganda, have been relatively successful in attracting FDI (Basu and Srinivasan, 2002). Although the main reasons for this success differ from country to country, overall their positive experience points to the advantages of far-reaching macroeconomic and structural reforms, political stability, the availability of natural resources, and a policy environment conducive to investment, such as privatization of state assets and other host-country policies targeted toward attracting foreign investment.

Most African countries need to overcome the perception of high risk. Apart from macroeconomic stability, further improvements are essential in the institutional environment and the functioning of domestic financial markets. Asiedu (2004) argues that an absolute improvement in the investment climate may not be sufficient to attract a larger share of FDI in a globally competitive environment. For African countries, it is also important to achieve an improvement in the policy environment relative to that in their main competitors. Also essential to an improved investment climate will be the way in which the various NEPAD initiatives are implemented. Rigorous implementation of action plans would signal a clear change in policy and make policy reversal less likely in the eyes of international investors.

More generally, financial market access requires good management of market expectations. An analysis of risk ratings suggests that several years of good policy performance may be needed to change market perceptions. An active dialogue between the government and executives of domestic and international companies is essential. Investment advisory councils (IACs) are one vehicle to improve the investment environment. The recently established IACs in Ghana, Senegal, and Tanzania are steps in this direction.

Fostering Qood Qovernance and Institutional Reform

The foregoing discussion has highlighted that two interrelated key challenges are to implement reform successfully and to improve the quality of institutions. Two countries with identical endowments of capital and labor and identical production facilities may have different levels of income and wealth if their governance and institutions differ. The absence of good governance, the rule of law, and a sound institutional environment typically leads to rent seeking and widespread corruption (Abed and Gupta, 2002).

Governance refers to the manner in which authorities deal with their responsibilities (Wolf and Gürgen, 2000). Key questions are the following: Is the government effective? Are the authorities’ decisions and policies transparent? Do the authorities follow internationally accepted standards and codes? Is the government accountable for its decisions? In the context of NEPAD, an explicit distinction is made between political and economic governance through two separate initiatives: the peace, security, democracy, and political governance initiative, and the economic and corporate governance initiative. By giving these two initiatives a prominent place in the section on “Conditions for Sustainable Development,” NEPAD acknowledges the overriding importance of good governance for the achievement of its basic objectives (Sako, 2004).

Good governance is an important part of a sound institutional environment and is essential for success in many other reform areas. If institutions are weak, policies are also most likely to be weak (Goldsmith, 1998). In general, good governance and well-functioning institutions provide an enabling environment for private initiative and allow for a more efficient use of resources. Policy reforms in areas such as trade and capital flows will only bring about the full potential gains if the institutional framework is appropriate.

Empirical evidence confirms that institutions play a key role in economic performance (World Bank, 2002b). An index of institutional quality performs well in explaining growth differentials (see, for example, Rodrik, 1997). Hall and Jones (1997) confirm, in a study of 133 countries, that differences in social infrastructure account to a very large extent for differences in output per worker. Institutions that favor production over “diversion”—that is, the misuse of production—and some form of private ownership foster the accumulation of human and physical capital, eventually leading to higher total factor productivity and overall growth. A more recent analysis even provides some evidence that the quality of institutions is the most important determinant of income levels around the world (Rodrik, Subramanian, and Trebbi, 2002). Also, a simple correlation analysis shows that institutional quality and GDP per capita are very closely related in Africa (Figure 4.3).

Figure 4.3.GDP and Institutional Quality in Africa

Sources: World Bank; International Country Risk Guide, and IMF (2002c, p. 51).

The question is no longer whether institutions matter, but which institutions matter, and which institutional reforms have to be implemented when. Rodrik (1999a) distinguishes among five types of institutions: property rights, regulatory institutions, institutions for macroeconomic stabilization, institutions for social insurance, and institutions for conflict management. A clearly delineated system of property rights protects the assets of investors and the return on those assets and supports contract enforcement. Regulatory institutions, such as bank regulatory agencies, encourage competitive behavior, limit anticompetitive practices, limit the worst cases of fraud, and more generally promote sound economic development. Institutions for macroeconomic stabilization are those responsible for monetary and fiscal management and can help support economic development. For example, oil-stabilization funds fall into this category. Institutions for social insurance may take the form of transfer programs, such as institutions for the payment of unemployment benefits, or health- and pension-related institutions. Finally, institutions for conflict management include, for example, the rule of law and high-quality judiciary systems.

The distinctions among these five types of institutions suggest that reform priorities differ from country to country, depending on the development of the various types of institutions. In an initial stage of development, and to encourage private sector initiative, market-creating institutions may be most important. In countries where property rights are not clearly defined, highest priority needs to be given to this task. In addition, reliable institutions for conflict management are important to promote the domestic exchange of goods, to foster international trade, and to attract international capital.

Issues and Challenges in Implementation

Moving from a Basic Framework to an Operational Blueprint

As NEPAD represents a common vision and strategic framework for Africa’s development, a key issue is how this framework will be effectively translated into action. To a very large extent, the move from a basic framework to an operational blueprint will depend on the resolve of, and the steps to be taken by, each African country. Every African country will have to design its own blueprint, consistent with NEPAD’s goals, to accelerate growth and achieve the MDGs. Depending on each country’s circumstances, this will involve setting more specific quantitative objectives, as well as pursuing consistent macroeconomic policies and structural reforms, enhancing capacity building for deeper integration into the global economy, embracing the APRM, and transforming partnerships with donors through mutual commitments and accountability.

Work on national development blueprints has already progressed substantially, as in recent years many African countries have prepared either interim or full-fledged Poverty Reduction Strategy Papers (PRSPs), which are focused on enhancing growth and reducing poverty. Because the PRSP approach is country-driven, participatory in nature, comprehensive, results-oriented, and based on a long-term perspective for poverty reduction, it shares many of NEPAD’s fundamental principles. It is an important instrument for incorporating continent-wide priorities into national poverty reduction programs and attracting the needed support from Africa’s development partners. However, both PRSPs and NEPAD are still works in progress. In this regard, it is important to avoid duplication of effort, which may lead to inefficiencies and conflicting signals.

The lessons of a recent in-depth review of the PRSP process may be useful for those working to achieve NEPAD’s objectives (IMF, 2002b; IMF and World Bank, 2002). The lessons learned suggest the need to:

  • Be as specific as possible in setting targets, thus facilitating their monitoring and increasing transparency.
  • Develop and promote action plans on the basis of alternative policy choices and social impact analyses of these choices.
  • Improve public-expenditure management.
  • Elaborate on the risks to policy implementation, including those related to external shocks and shortfalls in financing.
  • Include contingency planning in the macroeconomic framework.
  • Encourage and further broaden the systematic participation of stakeholders in the discussion, design, and implementation of the various initiatives.

Apart from the key role of individual countries in the implementation of NEPAD’s framework, responsibility for carrying out some programs and projects has been given to designated institutions, notably the African Development Bank and the Economic Commission for Africa. Moreover, the regional economic communities (RECs), which are considered essential building blocks of Africa’s economic integration, have also been called upon to play a leading role in the implementation of infrastructure projects at the subregional level (Banny, 2004). Accordingly, it is expected that the organization and capacities of the RECs will be strengthened, and their evolution more closely related to the development of the African Union.

Opportunities and Risks

The NEPAD involves many opportunities. First and foremost is the unique opportunity for African countries to demonstrate ownership and leadership in setting the development agenda and carrying it out. Recent international discussions (for example, Khan and Sharma, 2002) have stressed the importance of country ownership for the success of reform programs and strategies. The Africa-wide recognition of the need to accelerate the continent’s economic development and the broad consensus among African leaders regarding development priorities constitute an important precondition for the ability of African countries to reduce the development gap.

The NEPAD also provides a unique opportunity to align development objectives across countries while acknowledging country-specific differences. There are likely to be benefits from closer cooperation among African countries toward achieving these goals. When countries move together, economies of scale and scope can facilitate the overall tasks, provided that new inefficiencies are avoided.

The NEPAD is also expected to facilitate cooperation with the international community. The development challenge to reduce poverty requires a comprehensive strategy based not only on the efforts of African countries themselves but also on increased international financial assistance. A common understanding of reform priorities and needed resources will facilitate the dialogue between the international community and Africa. The NEPAD may also put Africa in a better position to strengthen its voice in international gatherings, which may ultimately lead to an increase in the transfer of resources to Africa.

Notwithstanding these opportunities, NEPAD also involves two broad and interrelated categories of risk: political risk and implementation risk. Given NEPAD’s diversity of objectives, political priorities may differ between countries and hinder the progress of various initiatives. Implementation risks may also stem from too-high expectations, unclear responsibilities, a lack of credibility, and resource constraints. Some observers may regard partial fulfillment of the objectives of NEPAD as failure. And failure of this initiative would most likely increase the hurdles to be faced by any future reform initiative.

Expectations may be too high on the implementation side because of the broad-based nature of NEPAD. Given its scope, it is almost inevitable that progress will vary among countries and among various reform areas. The challenge therefore remains to translate the broad objectives into well-specified and tractable goals. Attention needs to be given to setting realistic targets and time frames for individual initiatives that take into consideration country-specific circumstances and constraints.

Another potential problem relates to the roles and programs of existing regional institutions. The NEPAD foresees that certain projects and reforms will be implemented regionally, but the ideal regional approach may not correspond to existing institutions or regions. There is a risk that NEPAD will lead to varying reform initiatives across regional institutions. At the same time, it is important that NEPAD not develop into another layer of bureaucracy. Although the current size of NEPAD structures is small compared with their tasks, it will remain a challenge to find the right balance between the resources devoted to this initiative and the tasks it undertakes.

Despite its current support, NEPAD has to meet the challenge of maintaining credibility over time. To establish that credibility, it is important to demonstrate at least some progress early. However, it has to be recognized that in many cases it simply takes time to implement reforms. Given the scope of the reforms, administrative capacity in each of the participating countries will be tested and may determine the speed at which reforms can proceed in a given country. Therefore, initiatives cannot be implemented in an identical manner across the continent. In addition, in a difficult external environment, it may take longer than expected to achieve positive results.

Finally, the availability of adequate resources, particularly of external financing, will put a natural limit on the speed of implementation. The willingness of the international community to actively contribute to NEPAD will to a large extent depend on Africa’s ability to cope with its challenges.

What Must African Countries Do to Achieve Results?

To be successful, African countries will need to ensure good governance in all of its aspects and to implement sound macroeconomic policies and structural reforms as discussed in this chapter (see also Calamitsis, 2001; and Basu, Calamitsis, and Ghura, 2000). At the same time, further prioritization of reform initiatives will be needed. Uncertainties about the time frame, the costs and benefits of the various reform elements, and available financial resources make it difficult to set priorities. Setting priorities will require a very good understanding of the critical reform needs and available resources in each country. Prioritization should be based on a clear identification of policy options and trade-offs. Political-economy considerations also suggest that the focus should be on measures that can lead quickly to positive and measurable results.

In some cases, initial reforms may be accompanied by temporary costs in terms of output and employment. Greater reform credibility would reduce the risk and the magnitude of these potential short-term costs. However, credibility is difficult to establish and easy to lose. It requires consistent policy performance and visible achievements over a sustained period. One way to gain credibility is to implement policies on the basis of broad-based discussions with the general public, interested parties, and the international community. This must be followed by a convincing track record, transparency, and accountability.

Although NEPAD explicitly foresees a wider public discussion, it has been acknowledged in several forums, including the Conference of African Ministers of Finance, Planning, and Economic Development in October 2002, that more needs to be done in this area (United Nations Economic Commission for Africa, 2002). Although awareness at the senior international level is high, public participation in Africa is still limited. Reform efforts need to be based on a more open dialogue between governments and domestic stakeholders. The active selling of reforms must become an integral part of the NEPAD framework. In this regard, the efforts under way to set up national and regional NEPAD communications centers are steps in the right direction.

The APRM can also serve as an important vehicle for enhancing credibility. However, as African leaders noted themselves (United Nations Economic Commission for Africa, 2002, p. 4), the APRM must be free from political interference, it must be conducted consistently using high standards, and countries must be willing to take corrective measures in light of the findings. Countries not willing to accede to the APRM or to follow the recommended measures will in one way or another be exposed to the downside risks of inaction. Although it was envisioned to start in 2003, the APRM will take time to organize and implement its review process.11 A period of learning by doing may be required, and the first reviews may not look like subsequent ones. It will take time until all interested countries have been reviewed, and a few years until a second review can assess any improvements. Although potentially a forceful mechanism, short-term improvements as a result of the APRM are less likely. In the meantime, each country must improve its economic and governance environment, using as a basis the internationally accepted guidelines and codes of good practices endorsed by the African heads of state and of government at their meeting in Durban, South Africa, in July 2002.

For each initiative and for NEPAD as a whole, a clear follow-up mechanism must be in place. Any broad-based initiative such as NEPAD may encourage some countries to free-ride on their partner countries’ achievements. To make action plans more credible and verifiable, detailed timetables must be set up. At the same time, it is necessary to develop indicators that facilitate the monitoring and control of implementation.

Although in many cases it may be easy to see whether a country has implemented the envisaged changes, such as a tariff reduction, it is more difficult to assess whether these changes have led to the desired outcome.12 Therefore, two types of indicators may be needed. The first set of indicators should be closely linked to the required action, that is, to the instrument of economic policy to be used (Type 1 indicators). The second set should be closely linked to the desired outcome of the action (Type 2 indicators). Type 1 indicators would give a clear picture of whether the authorities have pursued reforms as announced. Type 2 indicators would signal whether the implemented policies are leading to the desired results. It is essential that these indicators be as objective as possible and free of manipulation. For example, in the area of trade reform, Type 1 indicators could relate to the abolition of quantitative restrictions or the reduction of average tariff rates. Type 2 indicators could relate to openness, measured as trade volume as a percentage of GDP, or to real export growth.

The use of indicators, if widely published, would increase the transparency of policy actions and the accountability of the authorities. In particular, a comparison of Type 1 and Type 2 indicators would allow differentiation between government failure to implement reforms and any discrepancies in the relationship between actions and outcomes.

In some areas, progress at reform may be slower than anticipated, in part because of unforeseen shocks. To minimize the costs associated with reform slippage, contingency provisions are needed. These relate to specific actions that have to be taken if expected results are not realized or if unforeseen shocks occur. For example, in the case of an external shock, the appropriate response will depend on the likely nature of the shock—whether country-specific or global, whether arising from demand or supply, whether transitory or permanent—and on its size. To the extent that adequate contingency provisions are in place, the policy response to events that could adversely affect the reform efforts would be speeded up, thereby ensuring the achievement of the desired objectives.

How Can the International Community Support NEPAD?

The Group of Eight (G—8) and the international financial institutions (IFIs) have welcomed NEPAD and have expressed their commitment to establishing enhanced partnerships with African countries. However, the international community has also made clear that support will be focused on those countries whose actions and performance are in line with the objectives of NEPAD. Exceptions will be made only in the case of humanitarian need. In the G—8 Africa Action Plan, adopted at the G-8 summit in Canada in June 2002, the leading industrial countries pledged substantial assistance to promote peace and security in Africa, strengthen institutions and governance (including the APRM), and improve education and health (including combating HIV/AIDS). Moreover, they made commitments to give African products greater access to their markets, to implement debt relief under the enhanced HIPC initiative, and to provide more-effective official development assistance. The IFIs have also committed themselves to provide increased technical and financial assistance to support strong African reform programs.

African leaders have noted with satisfaction these expressions of support for NEPAD and the specific actions already taken by the international community. In particular, with regard to market access, they welcomed the Everything-but-Arms Initiative of the European Union and the African Growth and Opportunity Act (AGOA) of the United States as important steps in enhancing opportunities for African producers and exporters.13 They also welcomed the G-8 commitment to further trade liberalization under the Doha Round of multilateral trade negotiations within the World Trade Organization. As to debt relief, they appreciated the commitment made by the G-8 to help ensure that the projected shortfall in the HIPC Trust Fund is fully financed. Last but not least, they welcomed donors’ commitment to allocate more new aid to Africa.

However, significant differences remain in nuance as well as in substance between the views and expectations of Africans and those of the donor community. African leaders are asking their international partners to remove all further barriers to trade, particularly agricultural subsidies, tariff peaks, and nontariff barriers; to expand and speed up the relief provided under the enhanced HIPC initiative; and to increase development assistance to the initial target of 0.7 percent of the donor countries’ GDP, as well as to reform the modalities for the provision of such assistance. Furthermore, African leaders are urging a partnership with the rest of the world based on mutual commitments and accountability.

In welcoming the consensus reached in recent international conferences to fight world poverty, and noting especially the challenges of NEPAD, the heads of the IMF and the World Bank have emphasized the importance of a two-pillar approach to Africa’s renewal (see, for example, Kohler, 2002). First, African countries must take strong action to implement appropriate policies and reforms along the lines discussed above. Second, the international community must provide increased, more efficient, and more comprehensive support to help African countries accelerate their progress toward attaining the MDGs. Otherwise, on present trends, few African countries are likely to meet most of the desired goals.

Apart from its financial assistance to African countries, notably under the concessional Poverty Reduction and Growth Facility, the IMF has responded to the requirements of NEPAD by intensifying its support for capacity building in Africa.14 Accordingly, the IMF recently opened an Africa Regional Technical Assistance Center (AFRITAC) in Dar es Salaam. This is the first of five such centers envisaged for the region. Through the AFRITACs, the IMF will help African countries build local capacity for economic and financial management. Working closely with the African Capacity Building Foundation, the African Development Bank, the World Bank, and bilateral donors, the IMF will provide capacity-building efforts in its core areas of expertise, including macroeconomic policy, fiscal affairs, financial sector policies, and macroeconomic statistics. At the same time, the IMF will continue to enhance the training activities of the IMF Institute, which provides substantial support to African countries.

The IMF is also helping African countries improve their institutional environment by fostering transparency and accountability. The IMF has done extensive work on internationally agreed standards and codes of good practice and, in conjunction with national authorities, has embarked on a series of Reports on the Observance of Standards and Codes (ROSCs). These reports focus on 11 areas, including information on monetary and fiscal transparency, corporate governance, banking supervision, and accounting. In autumn 2002, reports from 14 African countries were already published on the IMF Web site, with a majority of the reports focusing on fiscal transparency. The expertise gained through these assessments as well as the ROSCs themselves could usefully serve as inputs for the APRM.

Under the enhanced HIPC initiative, by September 2002 the IMF and the World Bank had approved debt-reduction packages for 22 African countries and 4 other low-income countries. For these 26 countries that have benefited from debt relief, debt service is expected to fall by half in relation to exports or GDP between 1988–99 and 2001–05; it is expected to decline from 24 percent to about 10 percent of government revenue by 2005. Thus, although debt relief is not a panacea, more resources will become available for economic and social development purposes.

Conclusion

Despite the progress made by an increasing number of African countries toward macroeconomic stability and reform since the mid-1990s, Africa’s overall growth performance has remained inadequate, and poverty is still widespread, with almost half of the population living on less than $1 a day. Thus, the adoption of NEPAD has been timely and important, giving renewed impetus to efforts focused on accelerating growth, reducing poverty, and integrating Africa into the world economy, consistent with the MDGs.

The enthusiastic support of NEPAD by African leaders and the international community has been based on its far-reaching vision and objectives. However, NEPAD has not yet attracted the same degree of support among the wider African public. Although NEPAD is based on a number of previous initiatives, in some respects it is fundamentally new. New is the wide recognition on the part of African leaders that they themselves have primary responsibility for improving economic and social conditions in Africa. Also new is their acceptance that good governance is critical for the achievement of sustainable development. Thus, NEPAD provides a unique opportunity to demonstrate African ownership of and leadership in implementing the development agenda.

This chapter has emphasized that poverty reduction can be seen as the overarching objective of NEPAD. Increased growth is then a necessary but not a sufficient condition for tackling poverty. The various NEPAD initiatives are geared toward increasing growth or achieving a more satisfactory social and structural environment. But the challenges are enormous, and realizing the targeted average annual growth rate of real GDP of some 7 percent will require unprecedented efforts and sustained implementation of sound macroeconomic policies and structural and institutional reforms.

The analysis in this chapter has highlighted a number of risks and pointed to factors that the authorities will need to take into account in order to minimize these risks. In moving from vision to action, it remains essential to:

  • Broaden and deepen discussions with the wider public, so that NEPAD can obtain the necessary attention from, and acceptance by, all stakeholders
  • Use PRSPs or other nationally owned development strategies to translate NEPAD’s framework into operational blueprints
  • Avoid duplication of effort by making good use of existing national, regional, and international arrangements and institutions
  • Pay continuous attention to the sequence and pace of policy implementation in order to ensure policy coherence
  • Strengthen the monitoring of progress by making some goals operational, developing detailed timetables, and establishing indicators in all relevant areas
  • Prepare contingency plans so as to be able to react quickly to sudden or unexpected shocks
  • Clarify the responsibilities of NEPAD structures, individual countries, and regional and designated global institutions in the implementation process
  • Harmonize fully implementation of NEPAD with other ongoing projects.

Because implementation will, to a large degree, take place on a national basis, the success of NEPAD will depend primarily on the willingness and ability of individual countries to implement needed reforms. The APRM is potentially an important mechanism to promote good governance and best practice in policy implementation. Although it will take time to make this instrument fully operational, it will need to be carried out in an objective and constructive manner, free of political interference. Anticipating a future peer review, countries may be tempted to wait until a first thorough review is finished, but such an attitude would clearly delay progress of NEPAD. It can only be hoped that the anticipation of an upcoming review helps to speed up reform efforts.

Although Africa’s own efforts will be critically important, there is no doubt that substantial international support will be needed to help Africa achieve, or come as close as possible to achieving, the MDGs. Thus, consistent with commitments already made in various international forums, the leading industrial countries need to open up their markets to African products, provide adequate debt relief, and increase as well as improve the delivery of official development assistance. More international support will also be essential for capacity building and strengthening institutions in Africa. In all of these areas, the IMF, the World Bank, the World Trade Organization, and the UN system as a whole will also have important roles to play. But such support will not be forthcoming—or it will be much less than needed—if African countries do not deliver on the major promises and commitments embodied in the visionary NEPAD framework.

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1We thank Masood Ahmed, Abdoulaye Bio-Tchané, Evangelos A. Calamitsis, Roland Daumont, Andrew Feltenstein, Joshua Greene, Samir Jahjah, Naheed Kirmani, Françoise Le Gall, Damian Ondo Mañe, and Ismaila Usman for their comments on this paper.
3Equatorial Guinea is not included in the group of high-growth countries because temporary double-digit growth rates in that country reflected mostly special factors, notably a spectacular oil-induced growth.
4Qualitatively similar results emerge when the groups of high-growth countries and low-growth countries are enlarged, for example to include the top and the bottom quin-tile of the distribution, respectively (see, for example, IMF, 1999).
5For a comprehensive analysis of poverty reduction strategies, see World Bank (2000).
6For a skeptical view of the existing empirical analyses, see Rodriguez and Rodrik (1999). On the political economy aspects of trade protection and reform, see Krueger (1996) and Lai and Snape (2001).
7For a wider analysis of trade reform and regional integration, see Iqbal and Khan (1998).
8The members of the WAEMU are Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo.
9The members of the CAEMC are Cameroon, the Central African Republic, Chad, the Republic of Congo, Equatorial Guinea, and Gabon.
10Edwards (2001), Eichengreen and others (1998, 1999), and Ishii and Habermeier (2002), among others, analyze policy issues related to capital account liberalization.
11The HSIC recently asked the NEPAD secretariat to develop criteria and indicators for measuring performance on political and economic governance.
12See also the discussion on conditionality by Khan and Sharma (2002).
13On the AGOA, see, for example, Mattoo, Roy, and Subramanian (2002).
14On capacity building, see, for example, Dessart and Ubogo (2001) and Bio-Tchané (2004).

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