Increased financial transparency is critical to stem the illicit capital outflows that are crippling Africa.

Lack of transparency, resulting in inadequate regulation, underpins the current global financial crisis, argues Charles Abugre. The secrecy ultimately hurts the poor and erodes the social contract that underpins government accountability to deliver to citizens.

Charles Abugre explores the links between extreme financial deregulation, rising social inequalities and the falling Kenyan shilling.

'If a government based on devolution and the dispersal of power is to be given a chance, the IMF’s role in political horse-trading in Kenya should be curtailed,' argues Charles Abugre.

The illicit extraction, concealment and channelling of capital from poor countries abroad destroys societies and must be curtailed. So how do we do this, asks Charles Abugre in the final article in a four-part series on the flow of ‘dirty money’.

How do multinationals and unethical companies conceal and move capital abroad? Mostly through manipulating import and export prices, writes Charles Abugre in Part 3 of a four-part series on the flow of ‘dirty money’.

Tax avoidance, not developing country corruption, is the biggest source of illicit capital flight, writes Charles Abugre in Part 2 of a four-part series of articles on the flow of ‘dirty money’.

A wicked blow to Africa, the invasion of Libya has little to do with protecting civilians and all to do with strategic interests. Why are these invaders so heartless, asks Charles Abugre.

Charles Abugre introduces ‘the web of secrecy, collusions and the players that drive and sustain the world of illicit money flows’, with reference to the ongoing case of Kenyan public officials Chris Okemo and Samuel Gichuru and multinational corporation Alcatel-CIT.

This week saw world leaders gathering in New York to review progress towards achieving the Millennium Development Goals. The solutions to meeting the goals, says Charles Abugre, are proven and cheap. And donor nations, African leaders and citizens must work towards a common future.

In producing often 'negative resource transfers' (from developing to developed countries), development aid and official development assistance (ODA) essentially remain an exercise in taking money from poor countries for the purpose of enriching wealthier ones, writes Charles Abugre. Given the difficulty of enforcing ODA commitments and the need to halt the net transfer of developing countries' resources, poorer countries should look towards drawing upon SWFs (Sovereign Wealth Funds) in combination with the globally fast-growing Islamic bond market, Abugre argues.

cc As US President Barack Obama heads to Accra, Ghana, this week, Charles Abugre hopes a new 'wind for change' is blowing. Coming from a 'son of Africa' held with pride and esteem by Africans across the continent, Obama's speech will have major influence on the way the world regards Africa. For all the anticipated talk about 'good governance' and 'democracy', Abugre stresses, the US president should first acknowledge his country's historical role in undermining African countries' stability and progress. If Obama is to spark a new beginning in US–Africa relations based on genuinely mutual interests and respect, he must actively allay fears around US militarisation and seek to review US economic relations with the continent. Through building trust and commending Ghana's democratic successes, who better, asks Abugre, to understand the wind of change than Barack Obama?

The former head of development research at the World Bank and current Professor of Economics at Oxford University, sets out a broad agenda for the G8 to tackle the problems of the (unidentified) countries at the bottom of the development heap.

Using statistics to cut through persisting preconceptions, he analyses their problems as a series of “traps” - conflict, natural resources, landlocked, and bad governance – before setting out an agenda to solve them including aid, military intervention, legal reforms and trade.

There is much to be commended in the book – especially its accessible style and its quest to take a fresh and facts-based approach to old controversies. Unfortunately this does not always result in the unbiased analysis and objective solutions that the author (and the reader) are seeking. The importance of inequality, of geopolitics and of history in determining both problems and solutions, for example, is given little analytical space and resulting policy advice is therefore skewed.

This is most evident in the chapter on trade – one of the most hotly contested topics in development circles.

During his time at the World Bank that institution’s trade research was criticized as failing to take a balanced view of the evidence and favouring research that suited its own policy agenda. In the Bottom Billion, this selectivity and bias is evident.

The trade chapter opens with a three page attack on Christian Aid and its campaign on trade justice as part of the Make Poverty History coalition. Nowhere is it acknowledged that many of the policies he prescribes are similar if not identical to those of the charity – reforming farm subsidies, ending mercantilist approaches to trade negotiations with poor countries and better market access for their exports.

Instead he criticizes Christian Aid for being misled by Marxist advisors on the basis of advertising slogans and an (inaccurate and) unflattering look at the credentials of its researchers and advisors. He does not go into the substance of the original debate that he and colleagues had with Christian Aid and its advisors within the letters pages of the Financial Times.

In the research in question Christian Aid estimated GDP losses for Africa in the 1980s and 1990s due to aggregate demand effects arising from trade deficits resulting from trade liberalization of that period. That imports grew faster than exports with a reduction in net demand for domestically produced goods and services and national income is consistent with historical observations and other studies carried out by UNCTAD and the Carnegie Foundation, among others.
It is a result that is not palatable for those, like Mr Collier, who favour liberalization as the only trade policy choice for developing countries and who decry the use of selective, outward looking protectionism.

In Mr Collier’s book, therefore, we find the usual warnings against rent-seeking protectionists but no examination of its success stories that range from the Japanese car industry to the dairy sector in India.

The politics of trade policy is also ignored. He does not explor the role of rich countries his former employer, the World Bank in imposing economic reforms on poor countries and in creating the problems they now face in harnessing trade for development. This tradition of externally designed and driven solutions is one of the key changes that needs to happen before the prospects of the Bottom Billion can improve.

* Charles Abugre, Head of Global Advocacy and Policy, Christian Aid, London, UK.

The Bottom Billion: Why the Poorest Countries are Failing and What can be done about it. By Paul Collier. Oxford: Oxford University Press, 2007. 205 pp.

* Please send comments to or comment online at http://www.pambazuka.org/

To read the more detailed response from Christian Aid, see the link below.

There is hardly anything like Pambazuka on Africa's development. It is my first point of call as a news sources and as a source for an alternative perspective. Whilst its articles have effectively reacted/contributed to the the development agenda set in the North, it is unique in pushing issues that matter to Africa even, and especially when, they are not at the centre of the Euro-American discourse about Africa or couched in the language of the dominant polemic. The resource pack is particularly valuable. I download and store them for reference. Nothing goes to waste. May I suggest that resources permitting, periods (say 2-4 times a year) be blocked for re-publishing selected articles (supplemented by a few new teasers) under thematic headings. This will allow resources to serve specific constituencies in a timeless way. Looking forward to your 300th annual birthday. I will be there, jaw-bones and all.

Charles Abugre

2005 was supposed to be a year of action for Africa, with demands for “more and better aid, debt cancellation and more just trade policies”. What happened? Charles Abugre from Christian Aid offers some insights into the demands of the last year and provides pointers on where African civil society should focus their energies in the related areas of aid, debt and trade.

The rationale behind the “more and better aid, debt cancellation and more just trade policies” is that these will create the conditions to ensure adequate resources to finance Africa’s development. Undoubtedly, if fully addressed, these will put more money in the hands of governments and people and ease the resource constraint. We will argue however that on their own – never mind the quality of aid, the speed of debt cancellation, the degree of market opening in the north and the end of export subsidies - these demands will not provide the resources adequate for Africa’s development.

These demands, though relevant, are slightly misplaced in their singular focus on sources of “inflows” to the total denial of the mechanisms of “outflows”. It is the balance of inflows and outflows that create the net resources for development. We will also argue that the singular focus on “inflows” entrenches the sense of Africa’s dependence and perpetuates the myth of Africa’s resource poverty and powerlessness. In addition, in focussing on trade policy per se at the exclusion of what underlies trade, we miss a fundamental explanation for government’s persistence on liberalisation – beyond the view that they are reckless, ignorant, powerless or uncaring.

More and Better Aid

Our demand that governments in the north fulfil their obligation to deliver 0.7% of the gross national products for international development is right. It is indeed a right of African countries in particular, to demand it in view of the fact this promise has been used repeatedly in the past as a bait to secure economic and social reforms in Africa. But realistically, we know it won’t be delivered. The slow pace and low volume of aid increases committed at the 2005 G8 meeting in spite of all the noise, and the subsequent threat by the US to undermine the 0.7% target itself, shows how difficult and risky it is to rely on increasing volumes of aid for Africa’s development. The explanation is simple, to the extent that traditional aid continues to depend on taxpayers in the north, its ebbs and flows will depend on the political temperature and economic performance in the north, especially Europe.

But the key problems of aid are its purpose, its governance and its impact on the psychology and accountability of our governments and elite. Official development aid is hardly ever completely altruistic or single-purpose or hardly ever completely divorced from foreign policy. Consequently, we are constantly going from opposition to one thing or the other associated with the provision of aid, e.g. tied aid, policy conditioning; human rights conditioning, policy leveraging and more recently the increasing link with the war on terror.

Regardless of the rhetoric, aid cannot be separated from foreign policy objectives and to the extent that these shift, the purpose of aid will shift. In any case why not? Why shouldn’t taxpayers in the north demand that their taxes serve values and goals they hold as dear to them? Why shouldn’t they expect their governments to account for the impact of aid, therefore put in place measures to ensure that their money delivers the purpose for which it is given.

Conditionality is an important issue for Africa largely because aid forms too large a share of budgets, therefore risks associated with aid policy are more significant for African than other continents where aid forms a minuscule proportion. Whilst it is proper to keep ensuring that the conditions associated with the provision and management of aid do not exacerbate Africa’s development problems, the real challenge is to reduce its importance to Africa’s development.

The more debilitating impact of development aid is what it does to the mentality of the African elite and to the democratisation and accountable governance process. Governments have developed the myth that their economies cannot survive without aid. In reality it is their governments and the patronage systems that maintain them which are under threat without the aid machinery.

The competition among African governments for inclusion in the club of favoured nations leads to wilful abandonment, to donors, of sovereignty won at the cost of lives in the anti-colonial struggle. The multi-donor budget support arrangement is one manifestation of this loss of sovereignty. Without a break in the aid dependency mentality Africa stands no chance of building democracy based on accountability to citizens. Worst still, the imagery that aid agencies – private and official – find necessary to deploy in order to sustain domestic political interest for aid is often an affront to the African personality and spirit, diminishes the African self-worth and perpetuates negative stereotypes. Whilst we cannot ignore aid, we should not be glorifying it.

Sometimes we in civil society contribute unconsciously to the erosion of sovereignty and the loss of self-worth. We are sometimes quick to demand or endorse “governance conditionality” where aid and debt relief is made conditional to progress in these areas. To monitor compliance often requires even greater involvement and power of donors in domestic governance. It is like saying that new forms of colonisation are acceptable on human rights grounds. This is dangerous. Yet, there are cases where human rights abuses, dictatorship and corruption are at such a level that the impact of debt relief and aid will be to strengthen repression and enrich a few than promote development. What do we do under this situation?

A solution could be based on the principle that regional political bodies are better placed to manage political problems in member states. This is the principle applied by ECOWAS, SADC and the AU in conflict resolution and peace building/keeping. This is also the principle underlying the Africa Peer Review Mechanism (APRM). We propose a Peer Trust Fund to be managed by the AU and used as the financial muscle behind the APRM. Debt relief and humanitarian funds meant for countries abusing the citizens will be paid into this Fund, to be held in trust for the country and be released by the AU as the country makes progress in the governance areas of concern. Such a mechanism will:

- Strengthen and give teeth to the AU’s desire and capacity to promote accountable and democratic governance in the region;

- Act as a muscle and an incentive for the APRM;

- Take away the excuse of creditors not to write off debts owed to Africa or withhold aid needed for humanitarian purposes but which, for reasons outlined above, cannot be channelled directly to an abusing country or to NGOs;

- Allow Africans and their political institutions to drive their own political reforms;

- End the arbitrary and selective means by which donors apply governance conditionality.
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So what should we do about aid:

- Support our northern partners’ efforts to make their governments fulfil their part of the global compact but scale down its importance in Africa’s plan of action;

- Support the establishment of a Peer Trust Fund to assist the AU to deal with the governance issue;

- Increase domestic CSO interests and involvement in budget processes so as reduce the influence of donors on budget governance and steer budgets to deliver public services and fight corruption;

- Oppose donor-driven budget management arrangements that undermine parliamentary oversight and propose parliamentary oversight procedures that are transparent and inclusive of civil society.

Whilst these actions are necessary to improve the quality of aid and reduce its damage, they do not address the resource deficit problem per se.

Debt

The issue of debt is not so much what we demand but whom we address with what messages. First the message of ending the debt burden has been directed largely at one direction – the creditors. The message itself has been one of appealing for understanding whether based on justice or empathy. There is nothing wrong with this in as far as this appeal is coming from our northern partners directed at their publics and governments. Whatever strategies they find as feasible to exert pressure for action should be welcomed by us as long us these strategies neither diminish the African dignity nor undermines the messages coming from Africans.

But directing our energies at appealing to northern creditors suggests our lack of belief in the power of the debtor. However, the Nigerian debt relief effort, no matter how unsatisfactory, and the Argentinean debt restructuring initiative suggest that debtors do have power and can force change. In the Nigerian case, it was the threat by Parliament to withhold appropriation for debt servicing and the subsequent road show that the joint committees of parliament undertook in Europe and America to drum home their threat that forced the Paris Club to rush through a debt relief package. In Argentina’s case, an economic and political meltdown resulting from years of faithful compliance with the IMF’s conditions and faithful debt servicing, forced Argentina to impose a unilateral moratorium on debt servicing and then subsequently unilaterally discounted its debt instruments by 75%. After heaving and puffing both the IMF and the private creditors accepted their lot and Argentina’s economy rebounded.

Africa’s debt overhang of over $200bn provides the muscle for a successful collective African threat. This is the task for the African Union and we should make that forcefully clear. The cancellation of $200bn poses no threat to the global financial system but can save millions of lives. Even a threat of a collective moratorium will send the message clear and loud, especially if this threat were accompanied by an enforceable commitment to transparency and anti-corruption and the channelling of the money so saved into revamping public services. We should not celebrate divisive debt relief initiatives like the one delivered at Gleneagles although we can celebrate the victory in terms of the comprehensive principle, i.e. that all debts, including the debt stock owed to the IFIs must be cancelled.

So where do we go from here in relation to debt:

- Welcome the principle of debt stock cancellation agreed at Gleneagles and at the annual meeting of the IMF/Bank but condemn the selectivity and divisive approach;

- Develop a strategy to pressurise the AU and its member states to adopt a debtor-led strategy;

- Campaign for an International Law to regulate international debt.

Trade

The trade policy focus has been in four areas:

- Defending our domestic markets from further harmful liberalisation;

- Defending our producers – especially our farmers – from demise resulting from “dumping” of subsidised imports;

- Seeking market access without reciprocal market opening obligations;

- Promoting regional integration.

These demands are relevant and we should continue to maintain a focus on them. We should prioritise, in particular:

- The defensive interests of our people: For example, our focus on agriculture should be driven by food security and rural development objectives rather than export promotion. Not only is the latter not realistically attainable in a significant way (except traditional commodities) but detracts from what Africa’s needs are at this moment. In this sense, the key policy focus is to prevent any further market opening (liberalisation) whether this is through aid and debt deals or through multilateral negotiations. Better still, the goal should be to protect the space for flexible policy whereby countries can vary tariff policy to meet development goals, starting with consumer goods and shifting to intermediary inputs of capital goods – whilst relaxing consumer good imports – as the economy develops. It is this flexible and progressive use of tariffs that is essential as an industrialisation strategy.

- Conditions for industrialisation: This intersects with the defensive interest. The key constraining factor for industrialisation is demand - the competition from foreign consumer goods which makes it impossible for local produce to carry on producing let alone innovate. Investing in infrastructure including roads and energy will contribute to reducing transaction cost but are not, at the most constraining to industrialisation. We should not be detracted by the so-called supply-side argument that suggests that investments in infrastructure will correct for competitive pressures. The policy demand is to not give any more market access through the Non Agricultural Market Access (NAMA) negotiations and others whilst securing the policy space necessary to allow for flexible use of trade policy.

- Defend public services: The aggressive push embarked on by the EU and the US at the on-going talks to open up the services sector reflects the shift in the structure of these economies into services. It also reflects the increasing importance of services for profits and services as a means of gaining control of scarce natural resources such as water. Without the universal provisions of public services by the public sector, Africa stands no chance of reducing poverty, managing inequality and conflict and growing the labour force of the future. We should put in all the energy we can marshal to campaign for the universal provision of public services by the public sector, the minimisation of commercial ethos in basic services and the avoidance of market opening commitments.

- Regional markets: The key issue here is to support the AU and sub-regional trading blocks to resist the pressure to make market opening and third-party tariff concessions before the dynamics of intra-regional trade are worked out, not least in the Singapore issues. This suggests the need to postpone the market access aspects of the Economic Partnership Agreements (EPAs) with the EU and to shift energy into campaigning for a reform of Article 24 of the Regional Trade Agreements component of the WTO in order to protect the principle of less than full-reciprocity. In the interim we should back the Stop EPAs campaign’s call for a reform of the rules of origin aspects of the Everything But Arms (EBA) to make it meaningful for African LDCs.

- The Mandate of the WTO and dispute settlement: Developing countries, and Africa in particular, stand to lose with a WTO saddled with a broad rather than a narrow agenda. This is because Africa has the least capacity to defend, let alone promote their interest in multiple negotiating forums. The continent’s heavy dependency on the IFIs for resources exposes it to unilateral liberalisation pressures. Once unilateral liberalisation has been embarked upon, there is always the risk of easily committing liberalised sectors to the lock-in mechanism of the WTO. In addition, making commitments at several fronts imposes an implementation burden, the cost of which is relatively higher for poorer countries than richer ones. It is therefore in the interest of Africa to see a slimmer WTO.

However, the decision to focus on trade to the exclusion of investments is a serious limitation. In the first place, the Services Agreement and the Singapore agenda are essentially about investment. It is important to note also that underlying the market access concessions that African governments give to the north, especially in services, is an expectation of foreign direct investments and its mythical value as the solution to underdevelopment. Similarly, FDI expectations underlie the anti-inflationary macroeconomic policies of governments and debt servicing compliance.

The belief in FDI is so strong that governments have happily adopted negative taxation policies to attract foreign companies. To have a chance of developing trade and macroeconomic policies that promote development, restrain our governments from giving away market access concessions recklessly and channel attention towards domestic resources for investments, we must first effectively champion a more realistic and less jingoistic expectations associated with FDI.

So what do we do in relation to trade and investment?

- Encourage national governments to be more proactive in protecting their markets especially in the area of consumer goods, agriculture and essential public services. They will not necessarily suffer punitive action. Even if they did, their economies may still come out better-off.

- Drum home to national governments that opening markets will not necessarily bring FDI and even if it did, FDI will not necessarily bring about development. Encourage the AU to promote a critical debate on the role of FDI in Africa’s development.

- Continue the campaign for policy flexibility and an end to coerced liberalisation. This is crucial for defending Africa’s producers.

- Scale down the export focus of agriculture (market access in the north) and emphasise its food security and rural development objectives.

- Support the Stop EPAs campaign

Financing Development: Beyond aid debt relief and trade

What matters for ensuring that governments have adequate resources to finance development are net flows. This means factoring in not just inflows such as earnings from trade, or aid or remittances but also what is lost to the rest if the world. Debt servicing is one outflow. But there are several other ways in which resources are lost to the continent. Indeed, the reality of Africa is that the resources that leak out far exceed those that flow in. This is why Africa is a net exporter of capital.

And the sums are staggering. Njukumana et al estimate that between 1970 and 2000, whereas Africa received about $100bn id aid (including loans) it lost $274bn in capital flight induced by debt, trade mis-invoicing and imputed interests. Add cumulative losses due to terms of trade of non-oil producing Sub-Saharan African countries, estimated by the World Bank to be in the area of $400bn or 120% of combined GDP. Add also losses that African countries have incurred simply by opening up their markets.

Africa was made to reduce their rates of protection at a pace three times as fast the countries of the OECD. This has left the continent ridiculously open, relative to its stage of development. Christian Aid recently calculated that over the past two decades, Africa lost in income terms the equivalent of over $270bn from the negative growth effects alone of trade liberalization. This amount alone more than matches the accumulated value of grants, loans and net FDI channelled into the continent.

Add losses due to tax competition, tax evasion and tax avoidance. Taxation which has served developed countries well as a means of redistribution and source of investment capital but which has been undermined through the enforced deregulation which has promoted tax competition, tax avoidance and tax havens. As a result, whereas government revenue from taxation in developed countries average 30% of GDP between 1990 and 2000, in sub-Saharan Africa this has declined over the years to an average of 17.9% of GDP.

Losses from tax competition have largely benefited multinational corporations whilst the tax burden has been transferred to wage earners and small businesses. Some analysts suggest that African oil producers command less than 20% of the profits. The rest are lost to a complicated network of unfair trade practices. The transfer of revenues to tax havens by these corporations and rich individuals further exacerbates the revenue loss. It is estimated that at least $11.5 trillion is currently held in about 74 tax heavens – lost to tax authorities – by wealthy individuals. This does not include laundered profits of businesses which operate through tax havens to avoid tax, nor does it include money illicitly transferred abroad through corruption, drugs and money laundering. These latter elements in any case comprise a much smaller share of resources losses than is generally believed.

As is obvious from above, Africa is not as poor or as helpless as is often presented. Instead, it is a continent that leaks heavily. The task is to plug these leaks. To do so, African civil society must turn attention to addressing:

- Support for campaigns aimed at corporate transparency;

- Campaigns against tax concessions and for progressive tax policies;

- Work with relevant networks to campaign for the end to banking secrecy and tax havens;

- Follow-up on the recommendation of Africa Commission report to pursue and return stolen wealth from Africa and to put in place measures to discourage illicit transfers abroad.

Incidentally, taxation and reliance on domestic sources for financing development also provide a more conducive environment for promoting democratic accountability than the dependence on aid. We have an obligation to plug the leaks.

* Charles Abugre is currently the head of policy and advocacy at Christian Aid. He has been a development activist in Ghana and many parts of Africa and Asia. This is a shortened version of a paper presented to an Africa consultation of the Global Call to Action Against Poverty, held in Harare, Zimbabwe from 7-10 November, 2005.

* Please send comments to [email protected]

Two months ago, celebrity campaigner Bob Geldof declared the 2005 G8 Gleneagles summit as a “qualified triumph” in the fight to end poverty. Charles Abugre assesses promises made on debt, aid and trade, in the process questioning the myths that surround much of the development discourse. He concludes that G8 promises are unlikely to translate into delivery and questions whether progressive civil society should legitimise a fundamentally unaccountable global governance arrangement.

It is barely 2 months since the Gleneagles G8 summit - declared by its host, the British Minister, as the “beginning of the end of extreme poverty in our world” and that Bob Geldof pronounced as a “qualified triumph” - and there are ominous signs that once again promises and delivery can be worlds apart.

The Japanese government is reported to have retracted from the promise of substantial new money for aid, the German government is yet to decide where it will get the money from, the French contribution is largely absorbed in past debt relief promises to its former colonies whilst the Bush administration stands little chance of selling a bigger aid budget to its Republican-dominated law makers.

The IMF and World Bank have thrown cold water over the magnitude and pace of debt cancellation expectations. The World Bank claims that only a small portion of the promised debt write off has so far been committed, whilst the “unconditional” aspect of the debt deal is being challenged by some key rich countries. Rather than a triumph, this may well turn out to be the “vastly disappointing result which will not make poverty history”, in Christian Aid’s assessment of the summit’s outcome.

1.0 The G8’s Promises

The G8 promised a doubling of aid to Africa, as part of an overall increase of $48 billion for all developing countries by 2010 (compared to 2004 levels), “which will start to flow immediately” (according to Tony Blair). The European Union promised to increase its aid by an extra $38 billion. Canada promised to double the overall volumes of its aid by 2010 and aid to Africa by 2008/09 compared to the 2003/4 levels. The United States of America promised to double aid to Africa by 2010 whilst Japan pledged an additional $10 billion over the next five years. If the Japanese deliver, this will halt an embarrassing 5-year decline in the volume of Japanese aid. In addition, Germany, Italy, France and the UK confirmed time tables for reaching the much heralded 0.7% of GDP commitment. In contrast, Japan, the United States and Canada remain unwilling to commit to a timetable to reach the 0.7% target. In terms of conditionality, the communiqué contained language to the effect of allowing developing countries to “decide, plan and sequence their economic policies”.

In terms of debt, the G8 announced a 100% cancellation of the multilateral debts of some Highly Indebted Poor Countries (HIPCs) calculated to amount to a total of $55 billion of relief, “$40bn dollars immediately” according to Gordon Brown in a speech to UNICEF and “without conditions” in a speech to his Treasury Select Committee. This debt deal is expected to benefit 18 HIPC countries who have successfully completed their HIPC programmes with the IMF with another 20 countries possibly benefiting with time. In addition, Nigeria stitched a deal estimated to be worth $17bn of debt cancellation including debt stock, described by Nigeria’s finance minister and former World Bank employee as “unprecedented”.

On trade, the G8 agreed to “establish a credible end date for agricultural export subsidies”, “measures to build Africa's capacity to trade” and recognised poor countries' need to determine their own economic and trade policies, i.e. to “decide, plan, and sequence their economic reforms”. This statement is interpreted by some to imply an imminent end to economic conditionality and a potential expansion of the policy space for developing countries, if implemented.

2.0 How Much Progress?

Do these promises constitute a vastly disappointing outcome or a qualified triumph? The answer of course is, it depends on what the standard of comparison is. Compared against the demands of the Make Poverty History Movement which called for more and better aid, debt cancellation for the poorest countries and trade justice in the form of non-reciprocal market access, the end of export subsidies and an end to “forced liberalisation”, the Gleneagles Summit undoubtedly delivered a significant part of this agenda. It is also fair to say that compared to other G8 events the Gleneagles agenda undoubtedly covered the most comprehensive set of issues central to international development – debt, aid and trade – but also conflicts and conflict management in Africa.

If what was asked for was at least substantially delivered, why were the aid agencies generally unhappy? Well, for a start, they were not disappointed to the same degree. Clearly it is hard to say that Comic Relief (whose director, Richard Curtis was the key to the celebrity mobilisation and media imagery) was unhappy to the same degree as War on Want or the World Development Movement when the celebrity star player declared the outcome as a “qualified triumph”. Nor were they disappointed for the same reasons, given that agencies placed different weights on different bits of the MPH agenda. It is not surprising that Bob Geldof declared the summit a triumph and Christian Aid a vastly disappointing result largely because they placed different weights on what was offered. The debt deal may well have delighted some in the MPH coalition who placed much emphasis on the poorest countries, compared to the Jubilee South movement who tends to approach the debt problem as a product of systemic injustice suffered by developing countries.

2.1 The game of numbers

Assessing the adequacy of the aid and debt deals is always a game of numbers. Aid targets being bundled around vary according to whether the estimates relate to resources needed to achieve the minimalist MDGs or more broadly to promote development. They vary according to whether they relate to least developed countries (LDCs) or developing countries generally and the magnitude varies with what is counted as aid and what the cut-off point is. In many cases, the targets and promises are decidedly vague and confusing. The G8 deal for example was vague about how the $48bn global number translates into actual flows year on year up to the 2010 target. The promise of $48bn of additional aid by 2010 may have satisfied the expectation of the Africa Commission Report but falls far short of the expectations of the Millennium Project Report which estimates the additional aid requirements to be in the magnitude of $90bn by 2010. This figure also pales if compared with the $170bn or so equivalence of the 0.7% GDP that rich countries should be providing, and even smaller compared to what developing countries actually need to finance their transition from underdevelopment.

There is an issue of what the actual resource additionality is in the $48bn dollar pledge. First, if the $20bn dollars pledged for HIV/AIDS by 2010 is taken out, only $28bn remains for all other development needs. Second, according to MPH analysis, only about $16bn is new money. The rest are old promises. $16bn, over 10 years, therefore represents “Bob Geldolf’s triumph”. It should also be noted that the $48bn pledge includes the amount required to write off the multilateral debt, according to Gordon Brown, who confirmed this to a Treasury Select Committee.

2.2 The delivery track record

Scale and additionality apart, there is the gap between pledges and delivery. The track record of delivering promises has been singularly appalling. Recall the Millennium Challenge Account announced by the United States in 2002 to provide $5billion dollars to support Africa’s development. Three years later, the United States managed to deliver only $17 million dollars to Madagascar bizarrely in support of land privatisation and the introduction of a cheque-account system in commercial banks. Mr. Applegarth, the man Bush appointed to run the MCA, recently resigned out of frustration and, some say, inefficiency. Post-G8 reports coming out of Japan raise doubts about whether Koizumi’s $10bn additional aid pledge will be delivered. The Japan Network on Debt and Poverty report that following the G8 meeting the Japanese government has subsequently decided that the $10bn promised by Koizumi will not be additional money for international development but will be devoted to fulfilling Japan’s commitments to the cancellation of Iraq debt and debt owed by Tsunami affected countries. Whilst Japanese aid to Africa is expected to increase by $1.6bn for the coming 3 years, this will be achieved through diverting resources from other parts of the existing aid budget.

In truth, the $48bn promise is yet to be fully financed. Germany and France are still exploring the possibility of raising money from aviation taxation and some limited form of Bond transactions along the lines of Gordon Brown’s International Finance Facility. Italy is reported to be signalling that budgetary constraints may adversely affect their ability to fulfil their 0,7% targets. Therefore even the limited additional $16bn dollars – the Geldof triumph – may not be fully forthcoming. The subtle impression created in various announcements that massive new funds will be injected into poverty reduction is in the least disingenuous.

2.3 Aid quality

There is also the issue of quality. The one issue that UK NGOs are united in their excitement about is the statement that throws some cold water over overt conditionality. Is this the beginning of the end of conditionality? Unlikely, for several reasons. First, much of US aid, especially the Millennium Challenge Account (MCA), is conditional upon access by US firms to recipient country markets and on liberalisation generally. It is highly unlikely that the US will change the terms of the MCA based on UK government preference. The rest of US aid is either concentrated in a few countries in pursuit of military and geopolitical interests or provided in the form of food aid. Secondly, although the communiqué says little about how the additional resources will be disbursed, it is reasonable to suppose that the much of it will be channelled through the IFIs.

Indeed, the Communiqué intimated that the judgement of the IFIs will be crucial to deciding whether a country’s policies are growth oriented, pro-poor and support good governance. Given that no specific reform measures were proposed for the IFIs, a business as usual approach will be the norm. Business as usual for the IMF is a continued insistence on a macroeconomic framework grounded on neoliberalism. For the World Bank, this will be an affirmation of the current shift from overt to covert conditionality which they currently enforce through various selectivity mechanisms such as prior actions and the use of rating systems biased in favour of liberalisation for the allocation of badly needed resources to poor countries. Without substantial reform of the core purpose of these institutions and diluting their power, poor countries will continue to be “forced” by aid dependency to liberalise through skewed incentive frameworks. The on-going review of the World Bank’s conditionality framework makes this clear. Whilst overt conditions will reduce in numbers, covert ones will take their place.

But the use of conditionality is not the preserve of the IFIs. Indeed the conditionality approach, including specific instruments used by the IFIs, and their various mutations, have their roots in the OECD-DAC. Some specific conditionalities are “forced” on the IFIs by powerful members in the G7 in pursuit of their domestic interests. An example is the privatization of public infrastructure and basic services which the World Bank enforces through its lending programmes and written into their Private Sector Development Strategy which is believed to have been pushed by the United States against opposition of some senior Bank staff. Procurement is the newest area of battle. Reuters reported that on May 25th, 11 business organisations, including the US Council for International Business, Computing Technology association and US Chamber of Commerce, sent a letter to the World Bank protesting against the Bank’s proposed revision of its procurement rules to permit developing countries to use their own budding rules to award World Bank funded contracts in order to promote their own businesses, and seeking to open up all government procurements to international competitive bidding. Republican Senator Richard Lugar, chairman of the influential Committee on Foreign Relations, raised similar issues in a letter to Paul Wolfowitz, former Pentagon No.2, now World Bank President. This is irrespective of the fact that developing countries have rejected the liberalisation of domestic procurement in the WTO multilateral trade talks. Under these circumstances it will be naïve to believe that economic conditionality is about to come to an end.

2.4 The debt deal

The debt deal has been controversial almost as soon as Gordon Brown announced it following the G7 Finance Minister’s meeting in June. One issue is presentation. Gordon Brown has tended to speak about the deal in language that suggests a 100%, immediate and unconditional debt cancellation for the poorest countries. Brown said to a Unicef meeting that “together and for years we have fought for debt relief, and this year we are finally delivering 100% relief to the poorest countries in the world: a $55bn write off of multilateral debt, $40bn immediately”. In truth, it is a proposal to the Boards of the IMF, the World Bank and the African development Bank to consider cancelling debt owed to them by 18 countries that have completed their HIPC programmes, with the possibility of more countries benefiting from the same arrangement in the future. It is not a 100% debt cancellation as the deal does not affect other categories of debt and is silent on debt owed by the eligible Latin American countries to the Inter-American Development Bank.

Some will argue that even this limited offer is not entirely altruistic but self-serving to a degree – a means to extend the life of a debt management arrangement that has singularly failed to resolve the debt crisis but has served the creditors well. By dangling a new carrot - the prospect of the cancellation of the debt stock owed to the IFIs - the 62 or so low income countries will be encouraged to continue to make good their debt obligations, thereby ensuring that creditors make as much money back as they possibly can on dodgy debts that would otherwise have been defaulted. This strategy has been used for 20 years to minimize disaster rather than solve the debt crisis.

Even this modest, not-so-altruistic debt relief proposal has hit a snag. First, the proposed cancellation of debt owed to the World Bank and the African Development Bank is limited by the caveat that the cancellation will be fully paid for so that these countries will not suffer revenue losses. Yet, the G8 did not commit the full resources needed to achieve this. The World Bank says that the G8 has committed to covering $1.4bn of reflows over 3 years and that this did not “cover all of IDA’s true costs”, meaning it will come at the cost of reduced IDA lending. Geoff Lamb of the World Bank also made it clear that the cancellation will be a drip-feed affair over 40years which he estimates will cost an extra $24bn today (if the debt were to written off today in one swoop), which is the equivalent of a quarter of all global aid flows in 2004. Without full donor financing of the debt relief initiative, “IDA countries will not benefit from the relief, he said. This non-commitment of the full resources for debt cancellation has generated much confusion as whether the deal represents a one-off debt cancellation for the illegible countries or a drip-feed arrangement which will continue for as long as someone commits to the needed resources in the future.

The IMF on the other hand question the “unconditional” principle, arguing alongside some non-G8 key countries like Switzerland, Belgium and the Netherlands that conditionality is central to ensuring the enforcement of the appropriate economic policies. Instead of immediate and unconditional debt cancellation, these countries argue for a compensation framework where countries first pay up and then have the money returned to them in exchange for policy leverage. The conditionality issue is therefore entirely up for grabs at the autumn meeting of the IMF and the World Bank. Besides, the issue of how the IMF debt cancellation will be financed also remains to be resolved. But even if the HIPC debts were fully financed in one way or the other that will leave Africa for example still $200bn in debt and the developing world’s debt in general largely untouched. It leaves developing countries still paying to the rich world over $100mn daily. The choice of only some of the poorest countries for some debt relief is arbitrary (e.g why Uganda and not Kenya, Bangladesh or Ecuador or Haiti) and expedient for rich countries - a humanitarian gesture which goes no distance in tackling poverty and inequality let alone the injustice of the global debt management framework. Most of the poorest people live in the countries by-passed by HIPC debt relief initiatives

2.5 The trade deal

For trade, the G8 agreed to commit nothing. They agreed to agree some time soon on a time table to end export subsidies. Tony Blair hints that a timetable is possible and that a 2010 date is what he has in mind. Trade campaigners jumped at the language to the effect that poor countries be given the space to determine their pace of trade reforms. This language can be interpreted to mean different things, including that they expect poor countries to continue to open up their markets but will accept a slower opening. This undermines the MPH coalition’s implicit demand that there should be explicit recognition that poor countries may have gone too far already in opening their markets and should sensibly reverse gear when necessary. The MPH demand in the WTO negotiations is a principle of non-reciprocity where the rich countries should be expected to open up their markets without requiring poor countries to reciprocate if even less steeply. They got no such signal in the communiqué. There was also no explicit language addressed to the IMF and the World Bank to end the use of debt relief and loans as instruments for promoting unilateral market opening. Given the crisis of production facing African countries in particular, the refusal to reform the unjust trade rules is clearest signal of the double standards of the G8.

3.0 Beyond the MPH’s Agenda.

It is not sufficient to merely assess the extent to which the promises made will be delivered. The bigger issue is how fundamentally the MPH-type agenda tackles the obstacles developing countries face in mobilising resources for development. This cannot be adequately done without questioning various myths and holy grails.

3.1 Rethinking Aid

Aid is one such Holy Grail. The development community tends to ask for more of it largely on the assumption that it does more good than harm. The MPH demand for “better aid” is based on the understanding that aid can do harm if not provided appropriately, with conditionality being the main villain. What remains to be recognised is that even with reformed conditionalities more aid is not necessarily good and there is a point where aid necessarily does more harm than good.

A recent IMF report argues that aid can lead to lower growth if it distorts wages and exchange rates which in turn reduces competitiveness. Some argue that it is the size that matters. When aid exceeds 15% of GDP, it is more likely to do more harm than good because it exerts a negative pressure on absorptive capacity. But there is also political explanation why aid dependency hurts. Higher levels of aid tend to be associated with higher corruption and the erosion of the quality of the bureaucracy. It undermines accountability by prioritising accountability of bureaucracies and the political elite to aid arrangements rather than citizens groups. Aid tends to reinforce the power of the executive over the legislature thereby weakening political checks and balances central to democratic governance. Aid destroys democracy even more when ruling parties see their chance of continued rule in receiving and disbursing aid to buy patronage.

Aid and independence move in different directions Aid is a source and instrument of power – both coercive and discursive. Aid cannot be separated from the ideas it conveys about how societies should be managed. When those ideas are conveyed under conditions where a fair competition of ideas cannot take place or worst still where healthy skeptism cannot be exercised, then aid becomes an instrument of control through ideas. The power exercised through the monopoly of knowledge is discursive power, as opposed to the coercive power conveyed through overt conditionality. Development is impossible with double dependency – on other people’s empathy and on other people’s ideas. It is not surprising that governments in aid-dependent countries tend to sound and act more neoliberal than the godfathers of neoliberalism, parroting the extreme versions of IMF and World Bank ideologies and selling the interest of their people down the tube without noticing. The political and developmental implications of aid and knowledge dependency are issues that aid agencies are yet to address in a serious way.

3.2 Plug the leaks

A progressive agenda will look beyond aid to other ways to finance development that are more empowering. They are several, including taxation which has served developed countries well as a means of redistribution and source of investment capital but which has been undermined through the enforced deregulation which has promoted tax competition, tax avoidance and tax havens. As a result, whereas government revenue from taxation in developed countries average 30% of GDP between 1990 and 2000, in sub-Saharan Africa it averages 17.9% of GDP and is even lower in South Asia, of about 10.54% of GDP. Losses from tax competition have largely benefited multinational corporations whilst the tax burden has been transferred to wage earners and small businesses. The transfer of revenues to tax havens by these corporations and rich individuals further exacerbates the revenue loss. It is estimated that at least $11.5 trillion is currently held in about 74 tax havens – lost to tax authorities – by wealthy individuals. This does not include laundered profits of businesses which operate through tax havens to avoid tax.

Developing countries also bleed from general capital flight. Over the past 30 years Africa has been a net capital exporter (creditor) – transferring several times more capital abroad than they received in aid loans and foreign direct investment. Some estimates suggest that Africa’s accumulated stock of capital transferred abroad between 1970 and 2000 amounted to over $280 bn through balance of payment financing, debt servicing, official reserves held abroad and trade mis-invoicing. Add cumulative losses due to terms of trade of non-oil producing Sub-Saharan African countries estimated by the World Bank to be in the area of $400bn or 120% of combined GDP. Add also losses that African countries have incurred simply by opening up their markets. Africa was made to reduce their rates of protection at a pace 3 times as fast the countries of the OECD. This has left the continent ridiculously open relative to its stage of development. Christian Aid recently calculated that over the past 2 decades, Africa lost in income terms the equivalent of over $270bn from the negative growth effects alone of trade liberalization. This amount alone more than matches the accumulated value of grants, loans and net FDI channelled into the continent. A progressive financing strategy will first seek to plug these leaks.

3.3 Explode the FDI myth

A major reason why developing country governments tacitly or aggressively promote policies that bleed their countries is in expectation of foreign investment – the one magical antidote to underdevelopment. At the heart of the policy of fiscal prudence (pursued at the cost of undermining health and education systems), strict adherence to debt servicing obligations (even when they simply can’t afford it)’ tax holidays and tax concessions (which deny them critical and liberating sources of finance), trade liberalisation and privatization of public assets including services, is the expectation that these create the environment for foreign direct investment – another holy grail for development which has assumed mythical dimensions. Political and business leaders in developing countries are imbued with the myth that they cannot develop without FDI leading the process and that massive incentives serve to invite FDI. This myth was recently exploded by empirical work, which examined FDI in Brazil, China, India and Mexico and concluded that incentives such as tax holidays, free land and subsidised financing of foreign interests only serve to detract value from those investments (The McKinsey Quarterly 2004). Without a fundamental reassessment of this myth, developing countries are unlikely to pay greater attention to the challenges of domestic resource mobilisation and retention critical to their investments needs.

3.4 Developing Countries have unexercised power. Help them to use it

A progressive agenda will approach the issue of debt and trade justice from the view that even poor countries have the ability to force change not simply act as beggars and compliant recipients of empathy and goodwill. The evidence suggests that poor countries get more fundamental change in their favour when they act or threaten to act against the interest of the powerful. Because of the risk of reprisal, poor countries are more likely to be successful when acting together or when acting from a point of economic or moral strength.

Compare the G8 debt deal with the Nigeria debt deal. Nigeria after all got a much better deal (although with significant limitations) because the lower house of the Nigerian Parliament threatened the Paris Club that they would repudiate if after a defined time, the Paris Club did not offer an acceptable deal. Argentina got an even better deal because they unilaterally discounted their debt by close to 70%. The task of progressive civil society is to persuade and support finance ministers to develop the courage that the trade ministers found in Seattle and Doha to lead the walk out that has since fundamentally changed the WTO negotiating dynamics. Beyond repudiation, the real challenge, according to the veteran intellectual and fighter, Samir Amin, is to fight for an international law regulating international debt necessary to regulate both debtors and creditors. But for now, it will be a grave mistake for anyone to rejoice over the poisoned crumbs thrown to a few poor countries.

4.0 So what about the Gleneagles G8?

Was the G8 a success? Yes, if understood as an opportune moment for the MPH’s mobilisation effort. Will the promises, if delivered, Make Poverty History? No. In the first place it is unlikely to deliver much of the little it promised. Yet, it may have provided sufficient bait to buy an extended period of compliance and dependency, especially of African leaders. In any case should progressive civil society be legitimising a fundamentally unaccountable global governance arrangement? A question for another time.

* Charles Abugre is currently the head of policy and advocacy at Christian Aid. He has been a development activist in Ghana and many parts of Africa and Asia

* Please send comments to [email protected]

Charles Abugre sees Africa as a beautiful, welcoming and sharing person. But that person also has a wound that is still festering, has scars around its edges and is constantly poked by external factors and by the self. Abugre traces the history of this wound and the path to healing, in the process laying out a vision of what a healthy African state might look like.

Thanks to the recent incredibly successful mobilisation by the Make Poverty History (MPH) coalition, never before has Africa been so much in the public conscience in the United Kingdom. But as what? Tony Blair’s imagery of Africa is that of a scar on the conscience of the rich world. A scar is an ugly tissue left after a wound has healed or is healing. It acts as a reminder of a past painful experience. If the sight of it abhors you, look away or otherwise help to make- it-over in one form or the other to improve the aesthetic effect. There are some that feel strongly that the imagery of Africa presented through our airwaves and TV screens, and the justification that the pundits make for action under the MPH agenda is one of making-over an otherwise ugly, disturbing blemish that is also an unwelcome reminder of the past. My eight year old, who has not been back in Ghana in three years, asked me, “Dad, why are all Africans so poor and so miserable?” Her conscious has clearly been touched!

I do not suggest that the MPH’s agenda of debt cancellation, more and better aid, and trade justice is driven by make-over objectives. I believe that for the majority in the MPH coalition, it is about redressing injustice. If it is, then imagery and analysis matters.

My image of Africa is a beautiful, welcoming and sharing person bearing a gaping and bleeding wound that threatens her/his happiness and life. Africa’s wound is old (historically rooted) and still festering. There are scars around its edges suggesting partial but superficial healing. The wound is constantly poked both by external objects as well as self. As a result, it is still gashing. Stopping the bleeding is a first aid priority to protect life, before healing is possible. To heal, we must get the diagnosis right and recognise the age of the wound, how it was caused and what continues to exacerbate it.

We must help Africa to stop bleeding, first and foremost. Africa is presented as a continent with insufficient resources to feed itself, to treat itself, to exchange abroad and to pay its debt. This is true. But did you know that over the past 30 years Africa has been a net capital exporter (creditor) - transferring more capital abroad than received in aid loans and foreign direct investment? Some estimates suggest that Africa’s accumulated stock of capital transferred abroad between 1970 and 2000 amounted to over $280 billion through balance of payment financing, debt servicing, official reserves held abroad and trade mis-invoicing.

Debt, a phenomenon of the 1980s (brought about by Structural adjustment Programmes imposed by the IMF, the World Bank and rich countries) was particularly debilitating. Some estimates suggest that of every one dollar received in loans, 80 cents went right back out the same year in debt servicing. The remaining 20 cents will induce outflows equivalent to about a further 40 cents. Debt became a means of inducing capital flight and sucking out more resources than was originally provided. Further it was an instrument for making African countries implement policies prescribed my rich countries against the will of many African people.

Africa bled and continues to bleed from two further mechanisms: tax avoidance and tax competition and import penetration. A favourite policy of the aid providers over the past 20 years has been to encourage poor countries to reduce tax obligations on foreign investors. Consequently, across Africa, governments offered mining companies tax holidays ranging from 20-35 years. Ghana’s Ango-Ashanti will not pay tax for over 25 years. In addition, they are allowed to hold as much as 80% of the foreign exchange earning abroad in their own accounts, thereby denying Africans the foreign exchange earned by these companies. Sadly, much of this capital ends up in tax havens. The Tax Justice Network suggests that the stock of capital held by tax havens, a large part of which is from developing countries, exceeds 11 trillion dollars. If the returns to this capital were to be taxed at an average of 30%, they suggest that every year, this could generate well over $250 billion.

Losses from declining terms of trade have been regularly documented by UNCTAD, often amounting annually to tens of billions of dollars. What has not been estimated until recently are the losses that African countries have incurred simply by opening up their markets. Africa was made to cut down their rates of protection at a pace three times as fast as the countries of the OECD. This has left the continent too open and too dependent and with an ever declining share of international trade. Christian Aid recently calculated that over the past two decades, Africa lost in income terms and accumulated value well over $270bn from the negative growth effects of trade liberalization. This amount alone more than matches the accumulated value of grants, loans and net FDI into the continent.

To stop the bleeding, we should stop pushing African countries to reduce taxation on foreign companies, especially in the area of natural resources and financial services. We should address the issue of commodity pricing and commodity terms of trade and we should tighten the rules regulating the operation of companies to tackle trade mis-invoicing. Finally, we should stop encouraging or forcing African countries to open up their markets even further. We need to make it clear to the G8 that Africa is too open for the size and structure of its economy and probably needs to reverse the situation, especially in manufacturing and some agricultural products, to have any chance at all of recovering.

The media answer to the cause of Africa’s poverty is bad governance, by which is meant either corruption, or the lack of visionary leadership or caring leadership. All these are a part. The problem goes deeper than that. Africa has not lacked visionary leadership and Africa’s leaders have not always been corrupt. Visionary leaders became victims of cold war reprisals. Did you know that in the first 10 years of Africa’s independence 27 leaders were removed by military coups and other violent means? Kwame Nkrumah of Ghana and Patrice Lumumba of the Congo were notable visionaries. Africa did not at the time know about coups. Most were orchestrated by Western intelligence. Removing leaders by coup d’etat became implanted early in Africa’s post-colonial experience.

But the current crisis of governance is rooted not simply in corruption but the increasing irrelevance of the state to citizens. In the first 20 years of independence the relevance of the African state was clears to its citizens – build unity around a nationalist project; deliver improvement in wellbeing through investing in health, education and production. Consequently Africa experienced its greatest economic and social progress in the 1960s and 1970s before the intervention of structural adjustment. Economic growth in SSA averaged 2.4% in the 60s and 4.0% in the 70s, compared to post structural adjustment growth of 1.4% in the 1980s and 2.1% in the 1990s. The same is true in basic social services. The attempt to transform the state into a facilitator (getting the environment and prices right) rather than an interventionist has led to massive inequality, exclusion and conflict. Rapid market opening has exacerbated these contradictions by displacing basic local production.

To address governance, governments have to first be relevant to the aspirations of its poorest - which means mobilising taxes from the rich and investing them in economic and social development. It means not just building roads and ports but providing teachers, extension services, price and storage support to producers and investment and R&D to help promote science in the interest of production. Budget tracking and transparency is useful only in the context of citizens seeking to defend resources for themselves. Such a state will look completely different from what the IMF, the World Bank and DFID have in mind and might look quite similar to what it was in the 60s and 70s. At least we have lessons of China and India to go by.

This new form of state and new form of accountability cannot happen when aid agencies and powerful governments use any excuse to direct and dominate decision-making in Africa. Aid-directed governance leads to reverse (de facto) accountability where governments account to donors rather than their own citizens. That is why we should oppose conditionality, including governance conditionality. They either don’t work (according to the World Bank's evaluation department) or they dominate and over-ride domestic politics which is the same as the neo-colonialism named by Kwame Nkrumah.

* Charles Abugre is currently the head of policy and advocacy at Christian Aid. He has been a development activist in Ghana and many parts of Africa and Asia. He writes in a personal capacity.

* Please send comments to [email protected]

EPAs mark a historic turning point in the history of trade agreements. But, writes Charles Abugre, any new trade agreement must help ACP countries to improve and diversify what they produce and export. This will require a radical rewrite of EPAs as they currently stand.

EPAs are historic trade agreements. They will have an unprecedented impact on the development of some of the world’s poorest countries. They mark a radical shift in the relationship between these countries and their most important partner for aid and trade – the European Union. Previously characterised by preferential market access and aid for building trade capacity, this 'partnership' will oblige ACP (African, Caribbean and Pacific) countries to sign up to free trade agreements with the EU in order to maintain the market access on which producers and traders have come to depend and in order to benefit from the development assistance package that is tied to 'economic partnership agreements'. Christian Aid recognises the danger of this approach. If carried out in their current form, EPAs will undermine the development potential of many of the world’s poorest countries by exposing poor producers and traders to unequal competition and by tying the hands of governments to use trade policy selectively to support their agricultural and industrial development.

As the deadlines for the 6th ministerial conference of the World Trade Organisation in Hong Kong become more pressing, the attention of civil society is potentially diverted and the negotiating capacity of ACP countries is increasingly stretched. It is therefore important that the criticality of EPAs is not forgotten, not least because the two sets of negotiations are inextricably linked.

The discussions underway in the Rules Negotiating Group on regional trade agreements (RTAs) will establish the framework for EPAs. The call of the African Union to shift the timetable of EPA negotiations to let these basic rules be in place before substantive negotiations start is a logical one (African Union 2005). Currently ACP countries are trying to hit a moving target, or worse are trying to shoe-horn EPAs to fit flawed rules that were not designed for RTAs between developed and developing countries. WTO talks will also establish the baseline for EPAs. It is impossible to know what is the value of offers on market access until these talks are completed. It is also impossible to know what the impact will be of a new WTO deal on preference erosion – a critical issue for ACP countries, and one that the EU has committed to address under the Cotonou Agreement and as part of the Doha agenda.

Under EPAs, some of the world's poorest countries are being asked to open up their markets to products from Europe. The likely results are not hard to imagine. With their diverse range of products and muscle in the marketplace, European producers can outstrip ACP rivals in their domestic markets. European producers have enjoyed decades of subsidies, support and protection from their governments and have built strong, competitive industries. ACP countries – whose problem is not only that they cannot sell enough, but that they cannot produce enough – have not. They stand not only to lose existing markets, but also the potential to develop new ones.

According to the rhetoric, EPAs are designed for poverty reduction and to ensure the ACP's integration into the world market. After decades of structural adjustment, the majority of ACP countries are already integrated into international trade – it is the nature of this integration that is the problem. Since colonial times, ACP countries have been locked into feeding the European market with raw commodities and are often locked out when they try to export processed or value-added products.

Any new trade agreement between ACP countries and Europe must help them to improve and diversify what they produce and export. EPAs that focus on locking in an inexorable reduction in tariffs, and their eventual elimination, will not achieve this. No country has developed without the flexibility to raise as well as lower tariffs selectively to protect and encourage development of new industries.

In a recent report, Christian Aid exposed the already disastrous impact of enforced trade liberalisation on poor producers and looked ahead to the likely effects of further lowering tariffs in three African countries (Christian Aid 2005).
In Ghana and Senegal, the enforced lowering of import tariffs on products such as tomato paste and chicken parts has been followed by a deluge of products sold at cut-throat prices from Europe. These often undercut local goods, causing factories that add value to local produce to close down. This leads to great hardship in poor, rural communities where people's livelihoods rely on selling surplus food.

In Mozambique, liberalisation resulting from EPAs would open up a thriving milling industry to more cheaply produced wheat-flour from Europe. This would not only mean job losses in the milling industry, but would have a knock-on effect among the small but growing number of Mozambican farmers who produce wheat.

The studies show that not only is liberalisation often a harmful policy for poor people, but it will 'cap' development and leave countries dependent on the same narrow range of primary commodities.

EPAs are also threatening existing but fragile regional groupings among ACP countries. African countries in particular have long considered regional integration an important development strategy. It is both a means to overcome the limitations of small markets and an opportunity to pool resources for infrastructure and major production projects. But regional integration will not be advanced enough to kick-start growth by the time the EU expects African countries to start opening up markets to EU imports. This will mean that advantages accrue to the EU as the common and dominant partner in these trade arrangements. Opportunities to develop industries in goods that can be traded regionally will be lost.

EPAs are poorly designed to promote regional integration, regardless of timing. Least developed countries (LDCs) and non-LDCs have different incentives to sign up to EPAs, since LDCs benefit from the Everything But Arms initiative beyond 2007. The integrity of two long-standing African regional groupings – COMESA and SADC – is under threat because member governments of both groupings now have to choose under which they will negotiate a new trade deal with the EU.

Putting development first will require a radical rewriting of EPAs. EPAs provide potential advantages over preferential schemes as they enable the ACP to negotiate continued and improved access to EU markets that is legally secure. They are also attached to development assistance to enhance regional integration, to address supply-side constraints to production and to help cope with the costs of adjustment caused by trade reforms. Neither of these features of EPAs should be used to leverage commitments to liberalise. Instead, the EC must work with the ACP to ensure that development does indeed come first, and that ACP country governments are able to use trade policy flexibly to enable this to happen.

Progress towards this goal can be made in Hong Kong, if countries support measures to make effective special and differential treatment an integral part of WTO rules governing regional trade agreements.

* Charles Abugre is currently the head of policy and advocacy at Christian Aid. He has been a development activist in Ghana and many parts of Africa and Asia

* Please send comments to [email protected]

References

African Union (2005) 'Ministerial declaration on EPA negotiations', June

Christian Aid (2005) For Richer or Poorer: transforming economic partnership agreements between Europe and Africa. London: Christian Aid

The G8 was no success, argues Charles Abugre. While some of the campaigners at Gleneagles welcomed the outcome saying that "Important steps have been taken - steps that will bring hope to millions", others were more forthright in their condemnation of the deal. The debt deal is a huge disappointment. The MPH called for the cancellation of debt owed by at least 62 countries worldwide who need debt cancellation to revive their economies and reduce poverty. Not only is the offer only to a small number of countries, an impression has been created that 100% of their debt will be cancelled. This is disingenuous. There are no specific targets on trade. The G8 agreed to agree some time soon on a time table to end export subsidies. The outcome of the G8 meeting provided another bait that could lead to several more decades of dependency and begging. Where are the leaders with a vision and substance?

The G8 (actually it is a G7 +1(Russia) + 3 (the IMF and World Bank and the European Commission) event, hyped as the last ditch effort to save Africa from itself and from poverty has come and gone. It was a show as never before. Bob Geldorf's global rock party to Make Poverty History, some say, had at least one-third of humanity hooked to it. We rocked to explosive music beamed from 7 locations around the world, interspersed with pictures of the misery and desolation of Africans and Africa. Kofi Annan dropped in. In Edinburgh, a quarter of a million people marched, the biggest demonstration the "most beautiful small country in the world" (Scotland), had ever seen. It was all a rather odd sort of demonstration. The rulers identified with it and some even carried placards appealing to themselves. Thousands of activists filled the churches and few found themselves in running battles with high handed, even brutal, police response. These were only the staging post for the main event - the G&++++ meeting.

The Gleneagles Hotel, the meeting place of the political face of those who the run the world, is in the middle of nowhere, much in keeping with locations picked for G8 meetings in recent time. The hotel, a luxury facility for rich golfers, is surrounded by rolling hills and lush green fields. Takes anywhere from 1-2 hours to get there, if you can figure out where you are heading, driving over narrow roads and through valleys and hills. The rich and the leaders take the faster means - helicopters. The venue was effectively cordoned off by well over 10,000 police and some say up to 2 000 heavily armed American marines and special forces. The skies were filled with Chinook helicopters, if not routinely patrolling, busy intimidating the 10,000 strong "clown army" and the so-called "anarchists" intent on spoiling the party or at least sharing the media limelight.

Two and half days of meetings arranged in a hierarchy much resembling an apartheid power structure - first it was the white men among themselves, then with a G5 made up of the 'coloureds' (Brazil, South Africa, Mexico, India and China) and then finally the 'blacks' had their turn (the 7 African leaders, including Ghana led by the AU Chairman, Gen. Obasanjo) the communique was finally released. Hours before, the rock band celebrities who "negotiated" on behalf of the poor of Africa had announced to the international media that although what was being offered will not make poverty history it will save millions of African lives, and so we should prepare ourselves to celebrate. And so it was that Tony Blaire announced to a sombre crowd (sobered both by disappointment and the aftermath of the bombs that killed scores of innocent working people in London) that the G8 communique represented great progress- a "very good beginning", he said, towards making poverty history, although he "recognises that it will not please everyone".

True to form, when the official document was released, the campaigners gathered in Scotland were scathing in their reaction. The Official reaction of the Make Poverty History Coalition said: "Today the G8 have chosen not to do all that campaigners insist is necessary to free people trapped in the prison of poverty. Important steps have been taken - steps that will bring hope to millions. But more action is urgently needed if they are to play their role in bringing about real change for the world's poorest people and consigning extreme poverty to the history books". According to Oxfam GB, "The G8 have recognised today that this is the beginning, not the end, of their efforts to overcome poverty. The world's richest nations have delivered welcome progress for the world's poorest people, but the outcome here in Gleneagles has fallen short of the hopes of the millions around the world campaigning for a momentous breakthrough."

But others were more forthright in their condemnation of the deal. Christian Aid called it a "vastly disappointing result which will not make poverty history", adding that: 'Millions of campaigners all over the world have been led to the top of the mountain, shown the view and now are being frog-marched down again.'

In the Action Aid press release, Caroline Sande Mukulira, (ActionAid's Southern Africa programme) is quoted to have said "What Africa needed from the G8 was a giant leap forward, all it got was tiny steps. The deal that has been announced falls way short of our demands. We have some aid, but not enough, some debt relief but not enough and virtually nothing on trade. Once again Africa's people have been short-changed."

According to Yassin Fall of the African Women's Millennium Initiative (AWOMI), the G8 communique is a "testimony of the determination of rich countries of the West to keep Africa subjugated by debt and unfair trading rules".

So what was offered and how much of a "very good beginning" did this represent.

The Make Poverty History (MPH) coalition demanded action in 3 areas together- more and better aid, debt cancellation for all the poor countries needing debt cancellation to reduce poverty and reform in trade rules in 2 fundamental areas: to stop dumping subsidised products on developing country markets and to stop forcing poor countries to open up their markets through the WTO and through conditionality attached to aid and debt relief.

In terms of platitudes, there is much in the communique to warm the heart. It talks about working in partnerships not via conditionality; helping Africa to prevent conflicts and to rehabilitate their economies after conflict and contain the proliferation of small arms; support the Africa Peer Review Mechanism (APRM) to promote better governance; they will work "vigorously" to ratify the UN anti-corruption convention which none of them has signed on to (but yet some how find the moral courage to condemn others), strengthen their laws to discourage their corporations from engaging in bribery and to work towards recovering and repatriating stolen African assets held in the north and they will make Africa's development problems a long-term concern. Nothing new here... all a leaf from the Blaire/Brown Africa Commission report.

Concrete commitments are in the following areas.

Aid

This is the bit that makes the mouth of African governments water uncontrollably and where the spin of success was at its peak. The G8 promised to boost aid by US$48 billion for all developing countries in five years of which $25bn will go to Africa. This seems to satisfy the recommendation of the AfC. The Africa Commission report called for the boosting of aid to Africa by US$25 billion per year by 2010. Thereafter, to raise aid by an additional $25bn by 2015. In contrast, the Millennium Project Report of Jeffrey Sachs called for raising aid by at least $85bn in 2006, and by a further $60bn by 2015. The MPR emphasized front loading and new money

Whilst the $48bn promise has some aid agencies dancing and the eyes of African governments gleaming, it falls short of the expectations, it is not front-loaded and it is also not what it is cracked up to be. Firstly, much of it is not new money. The MPH calculates that only around US$20 billion is new money if delivered. Some of this money is also likely to be raised through borrowing from future aid budgets, rather than new contributions. There is one thing promising, there is another delivering. The track record of delivery is rather appalling. Recall the Millennium Challenge Account announced by the United States in 2002 to provide $5billion dollars to support Africa's development. Three years later, the United States managed to deliver only $17 million dollars to Madagascar bizarrely in support of land privatisation and the introduction of a cheque-account system in commercial banks. Countries like Ghana are still sniffing for the money they were jingoistic about when Ghana was named as potential beneficiary. Mr. Applegarth, the man Bush appointed to run the MCA has recently resigned from frustration and some say inefficiency. The Enhanced HIPC debt relief initiative promised, in 1999 a debt relief package for all eligible highly indebted poor countries to the tune of $100bn. Six years later, as the HIPC regime threatens to fold up, they have delivered $40bn less. Bush may make promises but he does not have the power to actually deliver. It is his Congress that does and that is filled with extreme neo-cons who hate foreign aid.

What will the aid be for and under what conditions will it be delivered? The spin is that the aid will come without strings, except the requirement of good governance. The Ghanaian government and pundits echo this line. Well, for starters it depends on what goes into the term "good governance". What is mostly talked about is anti-corruption and democratic governance. Who doesn't want that? But what does good governance actually mean? What type of government is good, for who? The term governance as used by IFIs refers to more than political accountability and democracy. It is also used to define a specific economic orientation. Over the past 20 years they have sold the idea that a good government is one that creates an "enabling environment" for business but does not itself get involved in directly providing public services like health, education, and water, or get involved in the productive sector i.e. invest in manufacturing or agriculture or employment generation. It was this good governance concept that drove the policies that dismantled the state's capacity to deliver health and education and led to the introduction of cost-recovery, user fees and the proliferation of private for profit health and education institutions catering for a small middle class. Good governance, in their view, also means deep and extensive liberalisation, including trade and the privatisation of public enterprises and deregulation of foreign corporation. Good governance for Americans is an investment climate that reduces or eliminates taxation for their corporations, removes all barriers to the transfer of capital abroad and dismantles any protection for labour (the right of corporations to hire, fire and pay wages without obstacles or dictat. Good governance is a euphemism for a neoliberal political and economic order.

Besides the good governance conditionality the G8 agreement effectively stamped the authority of the IMF and the World Bank over the policy making environment of those expected to benefit from debt relief and aid. The debt relief package is explicit on this. It rewards those that have dutifully followed the IMF (often to the chagrin of their societies) and expects those hoping to gain debt relief to fulfil their IMF obligations fully. The IMF and the World Bank, 2 of the biggest culprits (alongside African governments and global corporations) for the demise of the continent have not only escaped blame but have been re-enthroned as rulers. This agreement has effectively plunged Africa once more into another decade of IMF/World Bank stranglehold, which means greater enforced liberalisation and structural adjustment. In addition, the Americans are very clear about the preconditions for accessing the Millennium Challenge. They include opening up markets to, and providing effective protection for, American companies. Ghana qualified for the MCA not simply because it met the democracy criterion but more so because the US Commercial assessment conducted by the US State Department rates Ghana highly for upholding the rather ridiculous intellectual property rights regime that promotes profit for pharmaceutical and other firms over saving lives. It praises Ghana's investment laws for successfully weakening labour unions and for maintaining no restrictions to the transfer of wealth abroad by foreign companies and for being unable to regulate companies. In its "Country Commercial Guide for US Companies" the Department of State had the following to say about Ghana: "Ghana has no restrictions on transfers out of the country of dividends or net profits, payments on foreign loans, fees and charges related to technology transfer agreements and remittance of proceeds from the sale or liquidation of an enterprise". "Ghana is in compliance with the WTO's TRIMS and does not have performance requirements for establishing, maintaining and expanding a business. The Parliament has passed TRIPS-compliant legislation, except for the copyright bill. Foreign investors are not required to have local partners except in the fishing, insurance and mining industries. By law, the GOG acquires ten percent of all interests in mining ventures at no cost. Investment in a trading enterprise must employ a minimum of ten Ghanaians".

"The regulatory bodies governing telecom, power and water are new and under-resourced which limits their ability to deliver the intended level of oversight".

These are what have qualified Ghana for the MCA which it is yet to receive but the negative consequences of which are immediate to local producers.

But even assuming that the promises could be delivered with fewer strictures, is more aid always a good thing to pursue? The Millennium Project report and the AfC make a forceful case for the positive effect of aid. Aid works if it is directed to improving social and physical and social infrastructure and building the institutions of governance. Aid can improve poverty when it provides essential public services, expands government expenditure and increases economic growth. Although the aid-growth relationships are not so clear cut, expanding access to health especially HIV/AIDs, malaria and TB treatment, education water etc. has a direct positive impact on poverty. Aid provided in humanitarian forms can save lives and assist fragile communities to recover from stress and strengthen their livelihood structures.

But some aid can do more harm than good. A recent IMF report argues that aid can lead to lower growth if it distorts wages and exchange rates which in turn reduced competitiveness. Some argue that it is the size that matters. When aid exceeds 15% of GDP, it is more likely to do more harm than good because it exerts a negative pressure on absorptive capacity. But there is also a political explanation why aid dependency hurts. Higher levels of aid tend to be associated with higher corruption and the erosion of the quality of the bureaucracy. It undermines accountability by prioritising accountability of bureaucracies and the political elite to aid arrangements rather than citizens groups. Aid tends to reinforce the power of the executive over the legislature thereby weakening political checks and balances central to democratic governance. More than everything else, aid carries with it a set of ideas with privileged access to the executive, thereby effectively leading to a monopoly of the ideas conveyed by the aid system. The power inherent in this is referred to as discursive power, as opposed to directly coercive power conveyed through conditionality. Aid basically undermines autonomous thinking and the confidence to rely on domestic ideas and domestic sources of development finance. That is why we have governments all over the continent who sound and act more neoliberal than Hayek (the godfather of neoliberalism) , parroting the same things as the IMF and the World Bank and selling the interest of their people down the tube without noticing. Aid destroys democracy even more when ruling parties see their chance of continued rule in receiving disbursements aid crucial to buying patronage. Aid and independence move in different directions.

Debt

The deal is that the G8 recommends to the annual meetings of the IMF and World Bank to cancel debt owed to them by 18 countries (14 in Africa) as well as debt owed to the African Development Bank. This number could rise to 32 if the remaining countries are able to fulfil typical IMF conditions under the HPIC framework. This effectively means an extension of the HIPC arrangement but this time to include the cancellation of the principal not just interest servicing falling due. But this cancellation is not meant to be immediate. The $40bn figure is in nominal terms and will be delivered over 40 years. In Net Present Value terms, this is equivalent to only $17 bn. Ghanaians seem to have developed the impression that there is a one-off cancellation of all its outstanding debts so that Ghana has suddenly woken up to a debt-free life. That's not what it is. Indeed the opposite is the case. Ghana is effectively married to the IMF for another 40 years before the old debt stock finally goes. Then again, a new one would have been built up.

The debt deal is a huge disappointment. The MPH called for the cancellation of debt owed by at least 62 countries worldwide who need debt cancellation to revive their economies and reduce poverty. Not only is the offer only to a small number of countries, an impression has been created that 100% of their debt will be cancelled. This is disingenuous. It is in reality a 10% deal, not including middle income countries, which offers little immediate relief. The deal excludes private sector debt and some debt owed to other multilateral institutions such as the Arab development Bank, the Caribbean Development Bank. It should also be understood that, the debt relief will be at the expense of a proportion of the ODA (aid). Also it is still not clear how the IMF will finance its debt write-off. The scale of the World Bank debt reduction will also depend on how much the donors commit to financing the debt write-off. As for the IMF bit, campaigners are hugely disappointed that the IMF will not have to sell its idle and undervalued gold but will instead depend on donor contributions and a 1999 sale-buyback agreement.

Compare this deal with the $30bn unconditional and immediate cancellation of Iraq's debt in 2004. The African Union called for an immediate, unconditional and non-selective debt write off for all of Africa. Although they did not get anything near this, its President, Gen Olusogin Obasanjo inexplicably announced at the G8 meeting that he was very satisfied with the Gleneagles outcome and that the G8 was a great success. Was this because Nigeria had stitched a separate deal? Was this another evidence of the lack of resolve by African leaders even unable to publicly defend a collective mandate given them by the African Union? Whatever it is, Africans in Gleneagles lowered their heads in shame.

But this disappointment may well bear the seed from which a more just resolution of the African debt will arise, i.e. one of defiance and proactive ness. Nigeria afterall got a much better deal (although with severe weaknesses) because the lower house of the Nigerian Parliament threatened the Paris Club that they will repudiate if after a defined time, the Paris Club did not offer an acceptable deal. Argentina got an even better deal because they unilaterally discounted their debt by close to 70%. The task of African civil society is to persuade finance ministers to develop the courage of the trade ministers who led the Seattle walk out of the trade talks. Beyond repudiation, the real challenge, according to the veteran intellectual and fighter, Samir Amin, is to fight for an international law regulating international debt which specifies a fair and transparent arbitration process. But for now, it will be a grave mistake for anyone to rejoice over the poisoned crumbs thrown to a few poor countries.

Trade

There are no specific targets on trade. The G8 agreed to agree some time soon on a time table to end export subsidies. Tony Blaire hints that a timetable is possible and that a 2010 date is what he has in mind. There is also some vague language to the effect of recognising the need for poor countries to determine their pace of trade reforms. This language can be interpreted to mean that they expect poor countries to continue to open up their markets but will accept a slower opening. This undermines the MPH coalition's demand that there should be explicit recognition that poor countries may have gone too far already in opening their markets and should sensibly reverse gear when necessary. The MPH demand in the WTO negotiations is a principle of non-reciprocity where the rich countries should be expected to open up their markets without requiring poor countries to reciprocate if even less steeply. They got no such signal in the communique. There was also no explicit language addressed to the IMF and the World to end the use of debt relief and loans as instruments for promoting unilateral market opening. Given the crisis of production facing African countries in particular, the refusal to reform the unjust trade rules is clearest signal of the double standards they represent.

Why in any case should leaders who preside over economies whose success is bound to pillage and injustice (historically and contemporarily|) be expected to take decisions against their own fundamental interests. Couldn't it be that we have underestimated the power and influence of corporations that shape the agenda of governments or have we overestimated the power of charity over fundamental interests? Shouldn't the lessons of Seattle and Doha tell us that the prospect of real change lies in the hands of the poor - people and governments - in resistance, in resolve and in holding firm to the interests of their people? Why for example did Asafo Marfo bend like a leaf when the IMF threatened to not fast-track the HIPC completion point if he did not undermine his own parliament and constitution over the poultry and rice tariff issue? Why on earth should Ghana liberalise its government procurement unilaterally when this has been reject under the multilateral framework by African countries which Ghana has been a part? There are many such questions begging for answers.

The G8 was no success. It provided another bait that could lead to several more decades of dependency and begging. Where are the leaders with a vision and substance?

Charles Abugre is currently the head of policy and advocacy at Christian Aid. He has been a development activist in Ghana and many parts of Africa and Asia. He writes in a personal capacity.

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