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United Nations (UN)

The Monterrey Consensus and Development in Africa:
Progress, challenges and way forward

Kavazeua Katjomuise, Patrick N. Osakwe, Abebe Shimeles, and Sher Verick

United Nations Economic Commission for Africa (UNECA)

August 2007

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Executive Summary

Since the dawn of the new Millennium, several promises have been made by Africa’s development partners as part of an overall effort to scale up resources for development in the region. The Monterrey Consensus, the World Summit Outcome, the Paris Declaration and the G8 Gleneagles Declaration capture the main commitments in this area. These commitments were driven by the need to accelerate progress towards meeting the Millennium Development Goals (MDGs). We are now at the midway point between the year in which the MDGs were adopted and the 2015 target date and available evidence indicates that African countries will not meet the goals if present financing trends continue. Consequently, the international community has now focused attention on how to scale up financing for the region. It has been acknowledged that the implementation of the commitments in the Monterrey Consensus is critical to achieving this objective.

Against this background, this paper provides an assessment of where we are in terms of meeting the commitments to Africa in the six core areas of the Monterrey Consensus: mobilizing domestic financial resources for development; mobilizing international resources for development; promoting international trade as an engine of development; increasing international financial and technical cooperation for development; external debt relief and sustainability; and addressing systemic issues.

The paper finds that Africa’s recent economic growth performance has improved relative to the situation before the adoption of the Monterrey Consensus. Average annual growth of real GDP increased from 3.3 percent in the pre-Monterrey period (1998-2001) to 4 percent in the post-Monterrey period (2002-2005). But it is still below the average 7 percent growth deemed necessary to meet the MDGs. Furthermore, the improvement in growth has not been translated into progress in the ultimate objective of poverty reduction. Consequently, more effort is needed to accelerate growth in the region and ensure that it is pro-poor.

In the area of domestic resource mobilization, the paper finds that there has been a modest increase in the ratio of domestic savings to GDP, although it has not led to an increase in investment ratios. Capital market development, strengthening micro-finance institutions, better governance, elimination of capital flight and measures to reduce the impact of trade liberalization on government revenue are identified as critical to boosting domestic savings in the region. An international environment that supports a gradual approach to trade liberalization in the region would be welcome.

Some progress has also been made in the mobilization of international resources for development. Net FDI flows to the region increased from an average of US$11.9 billion in the pre-Monterrey period to US$18.1 billion in the post-Monterrey period. But FDI continues to be concentrated in the extractive sector and in a few countries. There has also been an increase in net debt flows as well as remittances. That said, at the national level, there is the need for African countries to adopt a coherent and comprehensive policy aimed at attracting foreign capital to complement domestic resources and external aid. They must ensure that they seek and attract FDI in sectors that have high value-added, have high potential for employment creation, and do not have any negative impact on the environment. Efforts should also be made to ensure that domestic investors are not discriminated against in the drive to attract private capital flows. African countries also have to harness the potential of remittances for development and improve access to financial services to make it easier for people to use the banking system and other formal channels to receive remittances from abroad. At the international level, development partners should take actions to reduce the transactions costs of remitting money to developing countries.

In the area of international trade, African countries have made progress in promoting exports as evidenced by the fact that the share of exports in GDP increased from 29 percent in the pre-Monterrey period to 33 percent in the post-Monterrey period. However, there has not been any significant progress in efforts to improve the international trading environment for African countries. In this regard, there is the urgent need for development partners to ensure that any potential trade deals under the Doha Round address the development concerns and needs of African countries. The recent Aid-for-Trade initiative of the WTO has an important role to play and is welcome. However, it is taking too long to operationalize. There is the urgent need for all parties involved in the initiative to fast-track its implementation so that valuable time is not lost in increasing the capacity of African countries to take advantage of existing opportunities in the multilateral trading system.

Some progress has also been made both in terms of increasing aid quantity and improving aid effectiveness. However, there is a wide gap between actual aid flows and donor commitments to the region. More importantly, the quantity of aid is still below what is needed to ensure accelerated and sustained growth in the region. Africa’s development partners should scale up efforts to meet their pledges on aid. They should also make more efforts to reduce the transactions costs of aid delivery as well as untie aid flows and make them more predictable.

Significant progress has been made on debt relief in the last two years. However there is the need to extend eligibility for current debt relief programmes to non-HIPC African countries. It is also important to reduce the number of years it takes for countries to move from decision to completion points in the HIPC programme. Furthermore, there is the need for African countries to put in place a mechanism to ensure that loans from new creditors do not lead to a new cycle of indebtedness.

On systemic issues, progress has been very limited. African countries still do not have fair representation in decision making organs of international institutions. Efforts should be made by the international community to increase the voting power of African countries at the IMF, BIS, the World Bank and the WTO. This will ensure that these institutions are sensitive to the needs and concerns of poor countries and make them more accountable to the region.

In conclusion, the evidence on the implementation of the Monterrey Consensus suggests that substantial progress has been made in the area of external debt relief. However, very limited progress has been made in the other core areas of the Consensus. There is the understanding that monitoring of the commitments made by both African countries and their development partners is essential if the objectives of the Monterrey Consensus are to be realized. African leaders have recognised this and put in place a mechanism to monitor progress in the implementation of their commitments as well as those of their development partners. The recent institutionalization of an African Ministerial Conference on Financing for Development is a bold step by African Leaders in this area. The international community has also put in place a mechanism to monitor donor performance. For example, they have established an African Partnership Forum and an African Progress Panel, both of which will monitor progress in the implementation of key commitments on development finance. Ultimately, the effectiveness of these monitoring mechanisms shall be assessed in terms of how they are able to turn promises made by development partners into deeds. For it is only through the implementation of these commitments that African countries and the international community can reduce poverty in the region and lay the foundation for a brighter future for its people.

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