economy To faster change

Still, the flow of aid to Africa can be seen as a response to the small volume of private
capital flows and, of course, it is also a response to the state of poverty in the region. Africa
receives more aid per capita than any other major region. There are a few countries with extremely high aid dependency ratios, mainly those countries that have emerged from civil war
and internal conflict and are in a rebuilding phase. Other countries have high ratios because
of debt write-offs, while others have gradually done better economically and have become
‘donor-darlings’.
Has aid to Africa been effective in terms of its impact on economic growth? The most
recent studies find that there is a significantly positive effect of aid on growth, although
they are less positive in the tropics (and many African countries fall into this category). This
result is not generally conditional on good policies, although good policies of course make
outcomes better.
Private remittances to Africa have shown an increasing trend, according to official statistics,
and the official flows are estimated to be about 2.5% of GDP, which is considerably
less than flows to other developing countries. One important positive feature of remittance
incomes is that the flow has been rather stable, while both aid and FDI have fluctuated considerably.
Remittance incomes provide an opportunity for low-income households to access
formal financial services.
At the Millennium Summit of 2000, world leaders agreed on a set of common development
targets, the Millennium Development Goals, for development efforts until 2015. In
2005, proposals for massive increases in aid to Africa in particular were presented by the UN
and the Commission for Africa. In terms of the promises made by the Western countries,
for example at the G8 meeting at Gleneagles in 2005, the aid flow to Africa should increase
rapidly during the next few years. There is also agreement within the EU that all (the old)
members will give at least 0.56% of GNI as aid by 2010 and 0.7% by 2015. Sweden already
surpasses this figure, while the average for the whole of (old) EU was 0.35% in 2004. Whether
the member countries will live up to these promises remains to be seen.
One of the most notable aspects of the current process of globalisation is the increase
in trade between sub-Saharan Africa and Asia, particularly China and India. African exports
to Asia grew by over 10% per year from the early 1990s to 2003. In parallel with increasing
trade, Chinese FDIs have risen rapidly but from a low level. Chinese companies have invested
in various sectors, including oil, mining, fishing, telecommunications, construction and
power generation. Moreover, Chinese companies have been setting up plants to circumvent
quota regimes in the West for textiles and clothing.
The increase in trade with China and India implies both threats and opportunities. First,
the effects of a natural resource boom are difficult to handle for countries with weak institutions,
and there is a risk of domestic conflict, or at least gross misallocation of government
income resources. Second, imports of cheap manufactured goods are a threat to Africa’s
manufacturing sector and might lead to de-industrialisation. There are also threats related to
FDI. Chinese firms tend to invest in extractive industries with few links to local firms. They
also use their own labour to a high degree and do not invest much in African workers.
On the other hand, China’s trade and investment in sub-Saharan Africa is an opportunity
for economic growth and integration into the world economy. Growth rates are higher than
for decades, which no doubt is related to the commodity boom induced by China and India.
Moreover, the increase in trade has made cheap consumer goods available to many Africans,
thus raising living standards. And investments in production and infrastructure are bound
to have many beneficial effects. Furthermore, China and India have huge and expanding
consumer markets.