Debt Relief and Development: The challenge in assisting Africa
               (by Arash Rowshanzamir)

Last month's G8 summit in Gleneagles proved to be a prime example of international altruism as the worlds eight wealthiest countries agreed to exhort a policy of debt relief by wiping out approximately $40 billion of debt owed by Africa's 18 poorest countries. The G8 also agreed to increase aid flows to Africa, so that by the year 2010, the beleaguered continent will be on pace to receive $25 billion in aid on an annual basis.

This recent display of Western philanthropy is a definite step in the right direction, however the consensus amongst most who study the issue closely is that debt relief on its own will not solve the problem of poverty in Africa. Neither will in increase in aid for that matter. A reduction of the economic imbalances that control international markets and proper governance is the only effective formula that can be used to tackle poverty. And only when this formula is combined with secondary factors such as aid and debt relief can the problem of poverty in African be fully tackled.

As a matter of fact, the current situation in Africa suggests that aid and debt relief may be doing more harm to development than good. The primary reason for this is that in order to receive financial aid, or to qualify for debt relief, the majority of African nations are obliged to concede to certain economic demands at the behest of donor countries and international organizations such as the International Monetary Fund (IMF) and World Bank. These demands revolve primarily around the deregulation of national economies, but more often than not, extend to public sectors within the African nations as well. One of these obligatory concessions is the privatization of urban water industries.

A great case study would be Mozambique. Several years ago, the ravaged nation applied for Highly Indebted Poor Country (HIPC) status, to qualify for debt relief and financial assistance. However, before it could do so it had to privatize its water industry. Saur, a French firm which lead the Aquas de Mocambique consortium, jumped at the opportunity and agreed to a 15 year contract which called for the privatization of the nation's water industry. In this endeavor, the French firm had the backing of the World Bank. But after a series of devastating floods left most of the country submerged under water, Saur announced its withdrawal, rendering Mozambique and its destroyed water industry in shambles. It was not until three years after the calamity that a second consortium even bothered to give consideration to an investment program. The French firm abstained from giving a formal reason for its withdrawal, but a conflict of interest stemming from Saur's economic agenda and Mozambique's domestic affairs should not be ruled out. Regardless of the reasons for the pullout, it is widely acknowledged that if the state's water industry had been under the regulated control of a public, state owned utility then abandonment would not have been an option.

It is not only forced water privatization that is exacerbating the situation in Africa. Countries that require financial assistance and debt relief not only have to privatize their public services but they also have to expose their decrepit markets to an international trade arena which is dominated by European Union trade tariffs and subsidized agricultural products from Europe and North America. These subsidies, which are specifically prevalent in the US, have severely hindered African efforts to compete in the global market. One example would be in Ghana, where over 3 million tomato farmers have suffered immense damage as a result of their inability to compete with subsidized tomatoes from Europe. Realizing this, President Bush vowed to reduce farm subsidies at the G8 summit. However, the subsidies will be fully curtailed only when a global trade deal, which fully takes into consideration the disadvantageous situation of African farmers, is agreed upon between Washington and the World Trade Organization (WTO).

In fact, many in the field of economics and development, including Gordon Brown, Britain's finance minister, believe that fairer trade may be one of the keys in solving the puzzle that is poverty reduction in Africa. If Africa was given unobstructed access to the markets of the West, it would have an easier time in promoting economic growth within its own borders, a factor which is fundamental to long term development. African farmers need to be able to export their products abroad in order to bridge the gap between the continent's exports and imports.

Peter Mandelson, the European Union (EU) trade commissioner, would agree. In a recent interview with The Guardian Mandelson argued that trade was the only way to convert humanitarian assistance into economic sustainability in Africa and went on to state that opening up the worlds markets would be the only way to doing so. One only has to look at Asia to see how trade effects development. There, the countries which have found a pathway to democratic transition while concurrently opening up competitive markets to the global trade arena have reaped the benefits in terms of sustainable development. It is imperative that this paradigm be duplicated in Africa, with the assistance of the international community.

Although fair trade would go a long way in solving Africa's problems, sustainable development will go nowhere until proper governance is implemented and corruption is rooted out. There is no long term benefit in pouring billions of dollars in aid into a continent run by men such as Robert Mugabe. Incompetent political systems run by reprehensible leaders, which spearhead the misuse of aid and debt relief by using it to maintain their grip on power, coupled with informal networks that have the ability to exercise control over Africa's poor, are the real inhibitors to sustainable development.

Philanthropy might prove sufficient in terms of temporarily alleviating individual disasters, such as the current drought in Niger, but it does nothing to assist in long term development. For every natural or political disaster averted as a result of international collaboration, hundreds more arise which are not solved cooperatively. Rhetoric needs to be replaced by accomplishment if Africa is to survive in the 21st century.

Sources

Dennis, Jon. "G8 will not end poverty, warns Brown." The Guardian. 3 Jul. 2005. 30 Jul. 2005. <http://www.guardian.co.uk/debt/Story/0,2763,1520488,00.html>.

Goff, Hannah. "The downside of the G8 debt deal." BBC News. 8 Jul. 2005. 30 Jul. 2005. <http://news.bbc.co.uk/1/hi/uk/4639485.stm>.

"The G8's African challenge." The Economist. 7 Jul. 2005. 30 Jul. 2005. <http://www.economist.com/agenda/displayStory.cfm?Story_id=4126793>.

"US warns Africa on farm subsidies." BBC News 19 Jul. 2005. 30 Jul. 2005. <http://news.bbc.co.uk/1/hi/business/4696961.stm>.

[ issue contents ] [ fmm home ] [ send feedback ] [ tell a friend ]