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Poverty is the root of terror. (View from the City).

The US-led 'war on terror must be supported by concerted global actions against widespread poverty. About 20% of the world's population live in severe hardship. The lack of development and socio-economic deprivation can provide new recruits for various terrorist groups around the globe, according to the World Bank.

The widening gap between haves and have-nots poses threats to global security and prosperity. Recently, President George W. Bush remarked: "Persistent poverty and oppression can lead to hopelessness and despair."

James Wolfensohn, the World Bank's President, also believes that foreign aid should play a vital role in the war against terrorism. In essence, measures to foster economic growth and eradicate poverty are in the west's interests. Mexico's Foreign Secretary, Jorge Castaneda, argued that industrialised countries have a moral responsibility to give financial resources to the developing world, not as handouts but in the form of investments in development policies that will benefit all."

Sources of development assistance are official aid (bilateral/multilateral), debt-relief, international trade and private capital (foreign direct investment)

The United Nations International Conference on "Financing for Development", in March was an opportunity for the rich world to pledge more money for developing countries, which include some of the poorest people on earth. The conference in Monterrey, Mexico, was attended by some 50 Heads of State (notably from America, Canada, France and Spain), the Ministers of all participating nations, non-governmental organisations (NGOs) and prominent aid activists, including George Soros, the international financier-philanthropist (who donates $500m per annum in private aid).

Who gives what

The Bush administration has attempted to present a mote caring foreign assistance policy by pledging an extra $5bn for poor nations. The US's offer of $5bn over three years from 2004 and followed by a permanent increase of $5bn per annum thereafter is, however, contingent on recipients pursuing open-market and liberal trade policy, as well as rooting out corruption. President Bush said: "We must encourage nations and leaders to walk the hard road of political, legal and economic reforms so all their people can benefit."

New US money will be targeted at mostly African countries. The US is also proposing to increase funding for the World Bank's International Development Association (IDA) programmes by 30% over next four years, providing an agreement can be reached on raising the proportion of grant aid element from currently 2% to 50%.

But most NGOs have dismissed the US's pledges as too little and too late. True, the world's least developed countries (LDCs) need more resources right now for overcoming decades of economic stagnation and human misery. Interestingly, despite new future commitments, America's present annual aid budget of $25bn represents a paltry 0.1% of gross domestic product (GDP), the most stingiest among rich countries.

The other main economic bloc, the European Union (EU) has agreed to boost aid spending from average of 0.33% of total (EU) GDP to 0.39% by 2006, amounting to additional $25.4bn. The most generous of the EU-15 member countries are Denmark, Sweden, Holland, Norway and recently Britain. The least generous remains Germany, whose aid budget represented 0.27% of GDP in 2000.

However, most rich nations still fall well short of the UN's three-decade old target of 0.7% of national income given in development aid.

Under-funded aid industry

Compared with the early 1990s, official development assistance (ODA) to poor nations in real terms is down some 10%, but developmental needs are greater than ever. ODA pealed at almost $70bn in 1995. But in recent years, total aid flows globally have totalled between $50bn to $60bn per annum.

On present trends, financial resources are plainly inadequate for achieving the UN's millennium development goals, which include halving absolute poverty, reducing infant mortality by two-thirds and ensuring universal primary education by 2015. The World Bank urges richer nations to double their aid commitments to $100bn per annum in order to meet internationally agreed socio-development targets by 2015. A recent study for the World Health Organisation showed that additional expenditure of $27bn could save 8m lives per annum in the poorest regions.

Sweden's Secretary for Development Cooperation rightly commented that the developed countries just don't deliver," despite promising for the last 30 years to share their wealth.

Flows to Africa

The British Finance Minister Gordon Brown - a key supporter of ODA - noted that the real value of aid to sub-Saharan Africa (SSA) has dropped from $20bn in 1990 to $l3bn in 2001. The overall aid fell from 0.33% of GDP to 0.22% during the 1990s, according to the UK's Department for International Development.

But since 1980s, Africa's poverty gap has widened substantially with the rest of the world. Most SSA countries have experienced little, or no growth in real per capita incomes since early 1970s. Based on the International Monetary Fund (IMF) estimations, the share of SSA's population surviving on less than $1 per day fell by just 1.5% between 1990-98, compared with a 4% drop in south Asia and 12% in east Asia. Also, infant mortality rates in SSA fell by 20% between 1990 and 1998, compared with larger falls of 30% to 50% achieved in other developing regions.

According to the World Bank, present aid pledges and economic policies should curtail Africa's poverty by only 11% by 2015 and a 50% hike in aid flows can double poverty reduction to 22%, but still below the target set in 2000. To halve poverty by 2015, SSA's economies need robust 7% GDP growth per annum. This in turn, will require higher levels of investments and export-growth.

Callisto Madavo, World Bank's vice president for Africa affairs, said: "Many African governments already are putting in place policies that will boost growth, strengthen governance and more effectively deliver social services. They are keeping their side of the bargain. They now need rich countries to deliver speedily on theirs."

Aid's effectiveness

For decades, some aid has undoubtedly been wasted by corrupt and incompetent bureaucracies. Tied-aid constitutes "export-subsidy" and obliges recipients to buy goods and services from the donor country and food-aid benefits mostly rich-country farmers, as means of dumping their surplus production in poor countries. Also, most bilateral (soft) loans are allocated to countries for mainly geopolitical considerations or as reward for supporting western donor's foreign policy.

It's noticeable that US money is selectively targeted at few strategically-important middle-income countries like Colombia, Egypt and Indonesia. America spends 40% of its aid budget on the (LDCs), compared with the (OECD)-country average of 60%. But not a single SSA's country features in the top-1 US aid recipients. Financial support for Egypt ($2.5bn-$3bn) in effect, exceeds total US money given for fighting HIV/AIDS across Africa.

Furthermore, over two-thirds of foreign aid is still spent bilaterally, but studies show that multilateral institutions, chiefly the International Development Association (World Bank's soft-lending arm) and regional development banks are more effective at improving local conditions.

New studies by prominent development experts such as Craig Burnside, Paul Collier and David Dollar show correlations between increased aid and GDP growth, especially in well-managed countries.

The World Bank argues that "development assistance has played in some cases catalytic and supportive role." The Bank estimates that $1bn of extra-aid could lift 284,000 people from extreme poverty. Recent success stories in are Uganda, Mozambique, Ghana, Vietnam and Bangladesh. These countries are implementing good policies to combat poverty.

Trade not charity

Trade remains a powerful instrument for boosting growth and incomes. According to estimates, a 1% increase in Third world's trade could lift 120m people out of poverty.

But the developing world faces severe protectionism, especially on agricultural and textiles, the two sectors representing 70% of total exports from poor countries. The rich (OECD) countries spend $361bn per annum on protecting their farmers against cheaper exports from poorer regions. Agricultural subsidies are, in fact, equivalent to the entire GDP of sub-Saharan Africa!

Oxfam, the UK aid charity, accuses the EU, America, Canada and Japan of practising 'double standards' by encouraging poor countries to liberalise, while protecting their own markets. The IMF estimates that developing countries stand to gain between $82.5bn to $224.4bn annually, if all barriers to merchandise trade are eliminated.

Foreign direct investment (FDI) is important, but it goes to only selective countries and confined to few market-oriented sectors. Thus FDI does not fulfil developmental needs like building rural infrastructures and improving public services. What is needed is a sincere 'development contract' between rich and poor nations. The former should guarantee wider accessible markets and more technical and financial assistance whilst, the latter must provide good economic governance, thus ensuring more efficient utilisation of targeted aid and an improved private investment climates.
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Article Details
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Author:Siddiqi, Moin
Publication:African Business
Geographic Code:0DEVE
Date:Jun 1, 2002
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