Global Policy Forum

By Judith Achieng'

Economic reforms in Africa have largely failed because donors have employed their instruments indiscriminately through out the continent regardless of the different prevailing circumstances, a new World Bank study reveals. Whether in countries that have successfully reformed with clear political movements leading to change, or in those that have made less progress as a result of powerful vested interests in blocking change, donors have provided the same type of aid with the same set of conditions, the study notes.

"Using the wrong instrument at the wrong time is at best wasteful, and may in some cases, have retarded reform," Shantayanan Devarajan of the development research group at the World Bank who compiled the report said here. The report "Aid and Reform in Africa" synthesises the findings of case studies of aid and reform in 10 African countries. Its contents reflect a shift in World Bank attitude towards policy reforms in Africa from a donor driven to domestic initiative.

In all the ten cases, the study reflects the strained relationship of aid and reform in the African continent. The studies indicate also that in most African countries, political leaders realised they had little choice but to undertake serious reforms such as liberalisation of foreign exchange and foreign trade when relations with donors were strained and financing was on the decline.

Presenting the findings to economic experts and government officials in the Kenyan capital, Devarajan noted that although donors have a wide range of instruments that push for reforms in the continent, much of it has been applied indiscriminately, producing little of the required results. The major instruments in the hands of donors in the last two decades include money, conditionalities and technical assistance, but poorly applied in different stages of the reform period.

"All of these case studies agree that economic policy is primarily driven by domestic politics, not by outside agents. The key to successful reform is a political movement for change, and donors cannot do very much to generate this," says Devarajan in the report. This view is supported by the case study of Nigeria. "What is needed is to develop new ideas about how Nigerian politics should operate, something that the World Bank, the IMF, and bilateral donors cannot provide. Only Nigerians can do that," concluded Jeffrey Herbst and Charles Soludo their report on the West African country.

For Kenya, where reforms have been slow and painful, the economic results from two decades of structural adjustments have been disastrous, with poverty steadily rising, a problems donors blame on corruption among top government officials. George Saitoti, Kenya's vice president insists that for reforms to succeed, they must be fully owned by recipient countries. "To a large extent, Africans have been on the receiving end of the conditionalities and thus conditionalities are seen as donor driven. Under such circumstances, the reforms target may never be met," he told more than 100 participants at the seminar.

Devarajan argues that giving large amounts of money to countries like Kenya, with poor policy has not stimulated reform. In fact, he says, several case studies argue persuasively that money in this situation allows a government to avoid reform. "The evidence is that in the poor policy situation, money does not provide broad benefits reflected in growth or poverty reduction," he says. "But it has to go somewhere, so presumably it allows the government to finance favored sectors and groups, maintaining support for the inefficient status quo."

For example in the case of Congo, although the responsibility of failure rests with the political elite under former president Mobutu Seseseko, who ruled the country until 1997, the report notes, interaction with the donor community was not as helpful as it should have been. "The major donors were also the major creditors. By financing non-viable projects under commercial credit conditions in the early 1970s, and not providing appropriate debt relief 10 years later when the country was in the process of reforming, they contributed in making the adjustments difficult to sustain," noted Jerome Chevallier and Gilbert Kiakwama in their DR Congo case study.

The foreign aid can only be useful to the continent if it were more selective the recipients and instruments, Devarajan says. In poor countries that have made good progress with policy reforms, donors should find simple ways of providing finance without loads of conditionality, he says. For governments that have poor economic policies, and no serious interest for reform, donors need to operate at a small-scale level, providing technical support where there is real demand. "In this situation, large scale finance and conditional loans have not been useful," he adds.

In the case of reformers like Uganda and Ghana, the study notes, financial assistance grew as policy improved and increased the benefits of reforms. "Most importantly, rather than reducing support, as they have tended to do in the few countries that have achieved sustained good policy, donors should maintain high level of finance in these productive environments."

GPF Note:
Download the report here.
Find the ten country papers here.
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