Paris Declaration for the Least Developed Countries for the 1990s

A Review of Progress Achieved by the African Least Developed Countries in the Implementation of the Paris Declaration and programme of Action for the Least Developed Countries for the 1990s (1990-1994)

CONTENTS

Paragraphs

EXECUTIVE SUMMARY

I. INTRODUCTION1 - 6

II. SITUATION ANALYSIS7 - 43

A. Overall economic performance (1990-1994)7 - 10

B. Domestic resource mobilization28 - 29

C. Assessment of social conditions (1990-1994)35 - 43

III. EVALUATION OF EXTERNAL SUPPORT MEASURES44 - 79

A. Commitments and performance45 - 48

B. External financial flows 49 - 52

C. External debt61 - 62

D. Debt relief measures67 - 73

E. Market access74 - 80

IV. A DEVELOPMENT VISION FOR THE AFRICAN LDCS80 - 100

A. Improving existing policy framework81 - 83

B. Mobilization of domestic resources84 - 86

C. Globalization and the African LDCs development87 - 88

D. The admission and graduation criteria

for LDC membership89 - 93

E. Poverty alleviation: A renewed focus94 - 101

F. Poverty alleviation strategies102 - 105

V. INTERNATIONAL COOPERATION AND SUPPORT MEASURES106 - 116

A. External resource flows 106 - 109

B. Debt-relief measures110 - 113

C. Market access114 - 115

D. Economic cooperation and integration116

VI. FOLLOW-UP MECHANISMS AND MONITORING117 - 119

Annex Tables

E/ECA/CM.21/15

EXECUTIVE SUMMARY

1. In accordance with the decision of the General Assembly of the United Nations, contained in its resolution 49/98 of 19 December 1994,[1] the United Nations Conference on Trade and Development (UNCTAD) will convene a meeting of the High-level Intergovernmental Group on Least Developed Countries (LDCs) at New York in September/October 1995 to carry out a global mid-term review of progress achieved in the implementation of the Paris Declaration and Programme of Action for the Least Developed Countries for the 1990s.[2] The review will entail an assessment of the economic and social conditions in the LDCs during the first phase of the programme (1990-1994); an appraisal of the support measures provided by the international development partnership to assist the countries with their development efforts and consider new measures that will lead to the successful implementation of the Programme of Action during the second half of the 1990s.

2. Currently, there are 33 LDCs in Africa[3] after the recent admission of Angola and Eritrea and the graduation of Botswana from the group. In mid-1994, there was a combined population of 330.6 million, or 52 per cent of the total population of developing Africa. The economic and social situation of these countries deteriorated further during the period 1990-1994 when the aggregate gross domestic product (GDP) declined by an annual average of 0.03 per cent, corresponding to an average annual decline in per capita income by 3.1 per cent. The average ratio of investment in GDP was stagnant at 16.7 per cent while the average ratio of domestic savings to GDP was a mere 4.7 per cent in the same period, with a resource gap of US$7.3 billion in 1990 that increased in real terms to $8.5 billion in 1994.

3. Agriculture, which absorbs more than 50 per cent of the labour force and contributes an average of 37.8 per cent to GDP in the African LDCs, declined by 2.6 per cent per annum during the period 1990-1994. Manufacturing output recorded an average annual growth rate of -2.1 per cent. Most of the African LDCs reported increasing budgetary deficits. Excluding Zaire, the rate of increase in consumer prices in all the other LDCs averaged 31 per cent during the period 1990-1993, mainly because of the removal of price controls, monetization of the deficits, the effects of devaluation and the liberalization of interest rates.

4. This sluggish overall performance is attributed principally to civil wars and internal strife in a number of the LDCs that caused the destruction of physical and social infrastructure, disruption in production, displacement of persons and mass exit of refugees. The 1992 drought in Eastern and Southern Africa, the 1993/1994 crop failure in the Horn of Africa and the worsening in the terms of trade are other significant explanatory variables. Many of the African LDCs are implementing adjustment programmes which have engendered dire social consequences, partly as a result of government disinvestments and budgetary cuts, unemployment, deterioration in basic social services and increased poverty. Domestic resource mobilization is rendered virtually impracticable and external resource flows, both from official bilateral and multilateral sources and foreign direct investment, is inadequate and, at best, not commensurate to the financing needs for adjustment and other reform programmes being implemented by the African LDCs.

5. Progress is lacking in the social sector development of the African LDCs. In the education sector, for instance, as much as 59 per cent of the population are illiterate, the primary school enrolment rate is about 68 per cent and the mean year of schooling is roughly 1.2. The main causes of morbidity and mortality are still neo-natal-related health hazards, malaria, measles, acute respiratory infection (ARI) and diarrhoeal infections, some of which have been eradicated in other developing countries. Statistics show that there is one doctor for every 18,000 people, one nurse for every 2,300 people and one bed for every 880 persons. The average government expenditure on education and health as a percentage of the total budget is 8.7 and 7.4 per cent, respectively.

6. The infant mortality rate was about 121 per 1,000 and life expectancy at birth was 50 years for the African LDCs in 1993. The total fertility rate is a mean value of 6.5, while the annual population growth rate is estimated at 3.1 per cent. The high fertility and population growth rates have intensified the high dependency burden. The status of women is far below expectation. The female to male ratio of literacy and primary enrolment is 53 and 73 per cent, respectively, and the rate of participation of women in the labour force is 63 per cent. As much as 60 per cent of the population of the African LDCs live below the poverty line and the magnitude and severity of poverty has been exacerbated by the negative impact of adjustment programmes, especially the elimination of subsidies and public sector retrenchments which have led to both higher prices of basic consumer goods and widespread unemployment.

7. Despite various efforts at economic integration in the region, no substantial progress has been made in either intra-African trade or in the establishment of joint ventures in distribution and production. There are a number of strategic market alliances that are being forged in other regions [e.g. the European Union (EU) and the North American Free Trade Area (NAFTA), to mention only two]. In this context, African countries, particularly the least developed, risk being isolated and marginalized which makes it imperative for them to make firm commitments and to take the necessary steps to implement effectively all the treaties and protocols of the regional and subregional economic groupings.

8. External financial flows to the LDCs were far below the commitments and targets set in the Pro-gramme of Action, notably the transfer of 0.20 per cent of donor gross national product (GNP) as official development assistance (ODA). Some donors increased their ODA and have attained the target but the con-tribution from major donors, like the United States of America and Japan, remained at 0.04 per cent of their GNP. On the whole, the total ODA flows to LDCs stagnated at an average of 0.09 per cent of donor GNP.

9. The total financial flows to the African LDCs decreased at an annual average of 2.2 per cent during the period 1990-1993 as compared to 4.4 per cent during the period 1987-1989. In absolute terms, the total flows averaged $12.5 billion between 1990 and 1993, much lower than the 1990 figure of $13 billion, or less than one third of the target. The oft-cited reasons for this low level of assistance are said to be the new demands on aid resources by the transitional economies of Eastern Europe and the Republics of the former Soviet Union; continued recession and aid-related budgetary cuts in the Organization for Economic Coopera-tion and Development (OECD) countries; and the diversion of aid funds to emergencies and conflict resolu-tion operations.

10. The level of debt of the African LDCs was $86.7 billion in 1992, increasing slightly to $87.8 billion in 1993, while the average debt to GDP ratio stabilized at around 110 per cent. Most of the countries are experiencing severe debt burden and debt overhang and, as such, they are being prudent in debt management and are avoiding contracting non-concessional credits. The level of debt service had declined from $2.4 billion in 1990 to $2.0 billion in 1992 and a further decline to $1.8 billion in 1993, while the average debt service to export of goods and services ratio dropped from 15 per cent in 1990 to 12 per cent in both 1992 and 1993. This is basically attributed to the growing arrears and accumulation of debt through re-scheduling rather than any fundamental change in the debt situation.

11. In the context of the UNCTAD Trade and Development Board resolution 165 (S-1X) and commit-ments in the Programme of Action, several OECD creditors have cancelled official debts owed by some African LDCs during the period 1990-1994. Multilateral financing institutions took initiatives like the special programme of assistance (SPA) for sub-Saharan Africa, the debt reduction facility (DRF) and the supplementary International Development Association (IDA) adjustment credit programme of the World Bank and the International Monetary Fund (IMF) special adjustment facility (SAF) and enhanced special adjust-ment facility (ESAF) resources, all of which have benefitted a number of the African LDCs. Nonetheless, most of the African LDCs are experiencing critical resource shortages and remain with a heavy debt burden and severe debt overhang.

12. In the light of the above, the way forward points to a multi-pronged policy and strategy directions to be backed by adequate domestic and external funds together with the necessary human and institutional capacities to design and implement reforms. The African LDCs should continue to improve their reforming stance if they are to attain and maintain a stable and sustainable economic growth-track. These reforms should cover wide ground and be "additive" in their effects, i.e., improve their reforming capacity, accelerate their pace of development, shorten the "transition phase" of structural adjustment programmes (SAPs), etc. In addition to improved economic organization and management, reforms are expected to increase the level and rate of growth of domestic resources and enhance the integration of the African LDCs into the global economy.

13. Tax reform, the formalization and growth-enhancing initiatives in the sectors of informal finance, informal trade and informal manufacturing are likely to result in an increase in the volume of domestic resources and their improved use for economic expansion. The tax base should be broadened to reach new, previously untaxed, sources and, through their built-in elasticity, allow government revenue levels to adjust automatically to changes in the revenue base. In many African LDCs, informal finance rates very high in economic transactions, especially in rural areas, and the volume of funds involved is, in most cases, invariably more significant than the financial resources released by official banking institutions. By reform-ing the banking system and formalizing the operations of informal financial intermediation, domestic resources can be increased and effectively utilized to finance development. In the same way, improving the internal trading environment and by encouraging informal manufacturing, governments could bring forth large volumes of private financial resources and direct their use in a growth-enhancing manner.

14. Globalization of the economy would enable the African LDCs to overcome the limitations of their small domestic markets. Perhaps the best route for most African LDCs toward integration in the global economy is via regional and subregional integration. By actively participating in the current economic inte-gration arrangements in the region, the African LDCs could derive enormous benefits in terms of an expanded product and factor market, development finance, economies of scale, etc.

15. Donors should increase their financial aid to African LDCs in fulfilment of their commitment to assist these countries in their pursuit to create an enabling environment. External financial flows would have the desired development impact if they were to be more focused, coordinated and increased and guided by the development strategy of the African LDCs recipients. The debt problem of the African LDCs is not a matter of liquidity but one of solvency. In the light of the proposal made by the Government of the Netherlands in 1990, creditors should anchor their commitments and political will to undertake outright for-giveness/cancellation of official bilateral debt owed to them by the African LDCs. Such a gesture, as part of a strengthened development partnership, would remove the debt overhang and improve the relationship with the donor community thereby paving the way for additional financial flows to the African LDCs.

16. The widely held view about the trade-off between economic growth and equity is a myth within the African LDCs, where these objectives should be regarded as complementary. The complementarity would be forged through appropriate policy interventions when designing national development plans and pro-grammes and in the preparation of annual budgets with a deliberate focus on poverty alleviation. Govern-ments of African LDCs should identify techniques and approaches to alleviate poverty and social deprivation. For instance, one major policy intervention could be a statutory commitment by governments to provide the minimum calorie intake to the poorest segment of their population on a permanent basis. This requires proper identification of the intended beneficiaries so as to target the programmes in order to achieve optimal impact in the framework of national poverty alleviation goals. The provision of primary health care services and basic education should be top priority. Basic education should include some practical skills in farming and handicrafts to upgrade the labour of the poor, as this could contribute to increased agricultural produc-tivity and poverty alleviation.

17. A substantial amount of domestic resources combined with external assistance should be allocated to family planning programmes within the framework of a well-researched and realistic population policy. Improving the status of women and ensuring that they are equal participants in the process of nation building would not only increase economic growth but also guarantee a gender-free socio-economic environment that would maximize the total productivity of the active labour force of the population.

18. The African LDCs were given access to the OECD markets through the generalized system of pre-ferences (GSP), the Lome Convention and other special measures for the LDCs but many of their processed primary products are not covered by these schemes which exposes them to high tariffs and non-tariff barriers, and with their low production base, they would not benefit greatly from the schemes. The Uruguay Round Accord is a remarkable achievement in liberalization of international trade but, again, the African LDCs may not benefit from it, mainly because of their low production base and supply rigidities and their weak competitive position. Studies have shown that the Accord may wipe out even the modest advantages the African LDCs have gained under existing preferential schemes. The eight to ten years period of transi-tion given to developing countries to adjust is too short for the African LDCs. The implementation system and procedures are also too complicated for them, judging by the inadequacies of their human expertise and administrative capacities.

19. Despite the above shortcomings and weaknesses, the preferential trading arrangements should continue to be extended to the African LDCs as they are the weakest participants in the international trading system. Additionally, the African LDCs should be financially compensated for any potential loss they are likely to incur due to the anticipated erosion of existing benefits as a result of the Uruguay Round. In fact, they should be given a 15- to 20-year moratorium for the implementation of the Accord and granted substan-tial technical and financial assistance to expand their production base, diversify and promote their exports, as well as technical and administrative support to enable them to successfully implement the complicated systems and procedures of the Accord.

20. The expanded nature of the range of conditionalities for the provision and disbursements of aid by donors are too complex and difficult and the delays and uncertainties interfere with the planning and budget-ing process in the African LDCs. This situation invariably leads to political and social disturbances, disloca-tions in the economy and, ultimately, in the accentuation of poverty. Efforts being made to effectively co-ordinate aid in the African LDCs need to be intensified, particularly with respect to coordination between the Paris and London Clubs, the consultative aid group and round-table meetings. In view of their special circumstances and inadequate administrative capacities, donors should be flexible in applying conditionalities, especially those relating to debt repayments and the attainment of performance criteria of adjustment pro-grammes and other economic reforms.

21. In view of the growing globalization of the world economy, African LDCs should participate effec-tively in the existing economic cooperation agreements under the various economic groupings in the African region. In cooperation with other African countries, systematic actions are required to implement the provi-sions of the treaties of the subregional economic groupings, particularly those related to the removal and/or reduction of tariffs and non-tariff barriers, free movement of people and capital, development of transport and communication networks [full implementation of the subregional and regional projects and programmes of the second United Nations Transport and Communications Decade in Africa (UNTACDA-II)], official recognition of cross-border trade and the joint development of multinational industrial and commercial enter-prises as required in the Abuja Treaty establishing the African Economic Community and the second Indus-trial Development Decade for Africa (IDDA-II).

E/ECA/CM.21/15

I. INTRODUCTION

1. In accordance with the decision of the General Assembly of the United Nations contained in para-graph 4 of its resolution 49/98 of 19 December 1994, UNCTAD is to convene a meeting of the High-Level Intergovernmental Group on Least Developed Countries (LDCs) at New York in September/October 1995 to carry out a global mid-term review of progress achieved and to consider new measures, as necessary, in the implementation of the Paris Declaration and Programme of Action for the Least Developed Countries for the 1990s.

2. Currently, the African LDCs number 33, with the addition of Angola and Eritrea and the decision of the General Assembly that Botswana should graduate from the LDCs category in 1994. There are 13 land-locked and five island countries in the group. They had a combined population of 330.6 million in mid-1994, 52 per cent of the population of developing Africa. Population sizes range from 200,000 in Sao Tome and Principe to 55 million in Ethiopia. Seven countries have a population of less than 1 million, nine coun-tries have 1 to 5 million, ten countries have 5 to 10 million, three countries 10 to 20 million and three others 25 to 40 million. The population density varies from 2 inhabitants per km[2] in Mauritania to 290 inhabitants/km[2] in Rwanda.[4]

3. Despite various measures taken at the national level, the economic and social situation of the African LDCs has deteriorated further during the 1990-1994 period compared to the performance during the second half of the 1980s. The reasons are derived from the impact of both domestic factors and the unfavourable international economic environment. Some of the countries are still going through civil wars and internal strife - Angola, Liberia, Rwanda, Sierra Leone, Somalia, the Sudan and Zaire - causing destruction of property, production assets and social and physical infrastructure as well as an increased number of refugees and displaced persons. Where such internal strife and wars have been settled, e.g., Ethiopia, Eritrea, Mozambique and Uganda, reconstruction and rehabilitation has not proceeded or been completed as rapidly as was expected.

4. Beside the disruption of production for exports caused by internal wars and the effects of drought and other supply rigidities, the deterioration in the terms of trade was largely due to the decline in primary commodity prices; inelastic income demand for primary products in the developed countries; and the rise in the prices of imports. Decline in external resource flows to the African LDCs was due mainly to budgetary cuts in major OECD donor countries; diversion of aid to new recipients in Eastern Europe and the Republics of the former Soviet Union; and the switching of aid resources from development per se to emergencies and peace-keeping operations and assistance to refugees and victims of famine. The African LDCs have failed to attract foreign direct investment (FDI) or short-term capital inflows, while capital flight and the brain-drain continue to deplete vital resources for development in these countries.

5. In the face of the lack of substantial debt-relief measures, the rising external debt and problems of debt services are causing an enormous debt burden and debt overhang. Besides diverting attention and priorities to short-term stabilization measures at the expense of long-term economic growth and development, SAPs have not been accompanied by the required quantum of resources to ensure their successful imple-mentation in the African LDCs. On the contrary, adjusting LDCs have experienced an aggravation of the worsening of their economic and social conditions leading to an increased level of poverty.

6. It is against the above background that ECA, as the regional focal point for the follow-up and monitor-ing of the implementation of the Programme of Action in Africa, has prepared this report reviewing the economic and social situation of the African LDCs during the first phase of the implementation of the pro-gramme, 1990-1994. It gives an assessment of the international support measures provided by the donor community in the context of the commitments and targets agreed in Paris in September 1990. Also, the report presents a case for a renewed focus on approaches to poverty alleviation and considers new measures in the framework of a development vision that requires the creation of an enabling environment that could accommodate an accelerated pace in the process of establishing a sustainable growth and development path in the African LDCs.

II. SITUATION ANALYSIS

A. Overall economic performance (1990-1994)

7. The economic situation in the African LDCs continued to deteriorate in 1994. Even in the few cases where some improvement is indicated, the extent of improvement has been small, and the sustainability of growth uncertain. The average annual growth rate of GDP for the African LDCs as a group is estimated at -0.03 per cent in the 1990-1994 period, with wide variations across countries. With their annual average population growth rate estimated at 3.1 per cent, per capita GDP growth rates have declined by 3.1 per cent (see figure 1).

8. Economic growth during the period 1990-1994 was not possible in some countries (e.g., Liberia, Rwanda and Somalia) because of civil war and politically unsettled conditions. The relatively high GDP growth rate in the Sudan in 1992 was due mainly to improved weather and the resultant expansion of agricultural output. The cessation of hostilities, improved weather and a substantial injection of foreign aid are the major factors behind a similar output growth in Ethiopia in 1993-1994. The Tanzania, another of the relatively larger economies, registered a positive growth trend in 1993-1994 as a result of similar developments.

9. External resource flows, mainly in the form of grants and other concessional lending, is a key deter-minant of economic growth in the African LDCs. Inflows of FDI are negligible, indicating the pursuit of development strategies that are increasingly official aid-dependent and vulnerable. Economic performance was also hampered by the inherent structural weaknesses, especially the inadequate human and institutional capacities, as well as the low levels of external financial support which together make it difficult for these countries to introduce and persist with macroeconomic reforms.

10. In a recent review of "adjusting countries" in Africa, the World Bank comments that, while all adjusters failed to achieve a sound macroeconomic stance, the degree of the "adjustment success" varied across countries and sectors. Among those reviewed are 21 of the African LDCs. Burkina Faso, the Gambia and the Tanzania are reported to have introduced significant improvements in their macroeconomic stance which produced some measure of success in their growth effort. However, the reform programmes in Guinea, Mauritania and the Sudan, which were supported by the IMF and the World Bank, were interrupted for various conditionality reasons and, consequently, no discernable growth path has been charted in these economies.[5] Nonetheless, it is still debatable as to whether the relative success in the macroeconomic performance of adjusting countries can be attributed solely to their "better than average reforming stance".

1. Food security and agriculture

11. The Paris Declaration and Programme of Action for the Least Developed Countries for the 1990s makes the improvement of food security and the development of the agricultural base a central objective of the development strategy in the LDCs. However, mid-way through the Programme, most of the African LDCs were unable to ensure an adequate and stable supply of foods for their growing population. Under-developed and war-ravaged transport and communication infrastructure and the lack of storage and relief management capacity also denied access to sufficient food by a needy population, often located in parts of these countries which are inaccessible.

12. A common measure of food adequacy is the per capita daily dietary energy supplies (DES) which takes into account all food items consumed by the population. During the period 1980-1990, the African LDCs had a positive DES growth rate of only 0.08 per cent per annum as compared with an average growth rate of 0.64 per cent per annum for all developing countries.[6] Seventeen African LDCs experienced nega-tive growth and for the Central African Republic, Lesotho, Madagascar, Malawi and Rwanda, the rate of decline was in excess of 1 per cent per annum. During the period 1990-1994, the DES levels for most African LDCs are estimated to have deteriorated even further.

13. The trend of growing food insecurity is also shown by the widening gap between food production and the assumed minimum consumption standards.[7] During the period 1970-1990, the shortfall in staple food production from the average trend value was above 20 per cent in Botswana, Cape Verde, Mauritania and the Sudan. Production shortfalls of 10 to 20 per cent were registered in the Gambia, Lesotho, Mali, the Niger and Zambia during the same period. In other African LDCs, production levels were below the minimum consumption standard and the shortfall was less than 10 per cent. African LDCs are net food importers and dependent on food aid. Some of those ravaged by war or drought, e.g., Malawi, Mozambique and Uganda, the level of food aid in cereals was in excess of 100 per cent of cereal imports (see annex table 1). The goal of food self-sufficiency, although reachable because of the potential for expansion in the agri-cultural sector, has not been attained in most of the African LDCs.

14. Increasing food insecurity and poor macroeconomic performance generally reflect adverse develop-ments in agriculture. Most African LDCs, including almost all of the relatively larger economies in the group, depend on agriculture for GDP growth, export earnings, and employment (see table 1). The GDP share of agriculture had increased from 35.5 per cent in 1990 to 39.5 per cent in 1994. Active macro-economic reforms in many African LDCs during the period 1990-1994 did not significantly affect the rela-tive GDP share of agriculture. On average, the share of agriculture in GDP is 37.8 per cent and provides employment for 50 per cent of the labour force in the African LDCs.

15. The continued poor performance of agriculture in 1994 is evident from a cursory look at agricultural production trend data. According to the FAO production index (1990=100), the average annual rate of growth of agricultural production was 6.9 per cent in 1991, -0.4 in 1992, 0.7 in 1993 and -0.3 per cent in 1994. In 1988/89 agricultural production declined by more than 20 per cent in the Sudan. In Liberia, the rate of decline was 32 per cent in 1989/90 and 8 per cent in 1990/91. In Somalia, agricultural production dropped by 33 per cent in 1990/91 and by 8 per cent in 1991/92. These declines in production are associated with major political disturbances and years of severe drought in the respective countries. Recent reports also show that 1994/95 may become another agricultural crisis year for many African LDCs.

Table 1. Employment and share of agriculture in GDP of African LDCs

16. Some African LDCs, e.g., Cape Verde, Djibouti, Mali, Mauritania and the Niger, have little prospect in crop cultivation development because of scanty arable land and insufficient precipitation. Those that have an ample supply of arable land rely heavily on rain-fed agriculture the productivity of which fluctuates with the weather. Some countries like Burkina Faso and Chad have few or no permanent water courses which limit their development of irrigated cultivation. Even those with enormous potential for irrigated agriculture have been net importers of cereals and are heavily dependent on food aid: e.g., Ethiopia, the Gambia, Mozambique, the Sudan and Zaire. Large-scale deforestation and the destruction of soil cover are taking place in practically every least developed country in Africa resulting in loss of moisture and soil fertility and these have become major factors behind the decline in agricultural productivity.

2. Manufacturing industry

17. The average share of manufacturing value added (MVA) in GDP in 1990-1994 for the African LDCs is about 9.8 per cent with a relatively high variation across countries. If the Zambian MVA share is excluded, the average GDP share of manufacturing for the remaining 32 countries drops to 8.6 per cent with a relatively low variation. During the 1990-1994 period, the share of MVA in GDP declined by 2.2 per cent.

18. As shown in table 2, manufacturing output in the African LDCs declined at the average annual rate of 2.2 per cent during the period 1990-1994. However, the trends in the growth rates varied across coun-tries. Burkina Faso, the Gambia and Uganda recorded positive and relatively high MVA growth rates during this period, while major output fluctuation and decline occurred in the Central African Republic, Mozambique, Sierra Leone and Togo. Manufacturing activities of course are carried out by enterprises of different scales. The micro-enterprises and small-scale firms are mostly in the informal sector producing food, textiles, wood and leather goods, while the large-scale enterprises, often public companies, are dependent on imported inputs, sometimes functioning with production interruption and excess capacity, and are invariably judged to be inefficient and not cost-effective. Market reforms have tended to raise production costs of these enterprises by increasing the price of inputs while at the same time reducing their competitive-ness against cheaper imports and locally manufactured products of medium-scale formal sector enterprises. Many enterprises are forced to close shop because of their inability to sustain persistent economic and finan-cial losses. These factors have contributed to the recent decline in MVA growth rates in many African LDCs.

Table 2. Trends in manufacturing

19. Privatization is the other reform measure pursued in the hope of rejuvenating manufacturing industry growth in African LDCs. However, privatization successes are actually few and problems abound. First, liquidations and closures of public enterprises are more numerous than their sale. Second, planned privatiza-tion of government property outstrips actual asset transfers by several fold. Third, the lack of national private entrepreneurial capacity and poor credit facilities have curtailed domestic buying of public assets, and foreign buyers have not shown interest in loss-making public enterprises. During the initial phases of SAPs, it is plant closures, cuts in expenditure and the rationalization and reorganization along market lines that is prevalent in the African LDCs which are undertaking reforms.

3. External trade and balance of payments

20. The share in world trade of the LDCs, including the African ones, is very small and is declining. In 1992, all LDCs together accounted for only 0.3 per cent of the world's exports and 0.6 per cent of the world's imports. These represent a decline of 50 per cent in the share of exports and 40 per cent in the import shares from their respective levels in 1980. By the end of 1994, the African LDCs did not raise their relative trade shares from their 1992 levels. This poor trade performance is also reflected by the unfavour-able developments in the balance of payments (see table 3). The balance on the current account shows a deteriorating trend which is projected to continue into 1995. Restoring external viability in the African LDCs economies is highly dependent on external financing of import purchases and export enhancement funding which tend to alter the balance of payments picture within a relatively short time span, as experienced with the IMF and World Bank credits in support of macro and sector adjustment programmes. Even those African LDCs which reduced import growth rates and increased export growth rates, adjustment lending partially explains the improved performance in the balance of payments.

Table 3. African LDCs: Balance of payments (1990-1995)

(in millions of US$)

[e] estimates

[p] projections

21. As shown in table 4, imports are growing faster than exports in many African LDCs. In the 1985-1994 period, the average annual growth rate of imports exceeded that of exports. During the period 1990-1994, the average growth rate of imports was 3.3 per cent per annum, while exports declined at the rate of 2.2 per cent per year. This trend is the more alarming, given that the base from which import changes are calculated is larger than the export base. Such growing deficits in the merchandise trade are noted in Burkina Faso, Burundi, Rwanda, Somalia and the Tanzania. Among the countries which showed relative success in reducing the export-import growth rate differential during the same period are Benin, Cape Verde, Ethiopia, Mali, Mauritania and Togo.

22. Several basic factors explain the poor trade performance in the African LDCs. During the period 1990-1994, the purchasing power of exports was irregular: 100 in 1990; 112.4 in 1991; 105.3 in 1992; 102.7 in 1993 and 100.8 in 1994. On the other hand, unit value indices of imports were as follows: 99.0 in 1989, 100 in 1990, 92.4 in 1991, 92.6 in 1992, 88.2 in 1993 and 90.8 in 1994. This explains the erratic movement in the terms of trade during the period. On the other hand, domestic supply or production constraints have constricted exports. This is a structural problem which is difficult to eliminate, even in the long run, unless effective measures are introduced to enhance production. Also, many African LDCs are unable to reap the full benefits of preferential treatment [IMF/Compensatory Contingency Financing Facility (CCFF), EU/Stabilization of Export Earning Scheme (STABEX), Generalized System of Preferences (GSP), etc.] due to their low production base and other supply rigidities.

Table 4. African LDCs: Average annual growth rates of exports and imports

(in percentage)

4. Fiscal reform

23. The fiscal reform measures in the African LDCs have been implemented to serve the goals of the ongoing SAPs in these countries. They feature four primary objectives: balancing the budget, restructuring government expenditures, enhancing revenue growth, and restoration of external viability, all aimed at intro-ducing economic growth and stability. Most countries have sustained growing fiscal deficits for well over a decade (see annex table 2). In some cases, government expenditure was increasing because of burgeoning military purchases and unbudgeted statutory expenditure financed through an increasing recourse to borrow-ing from the domestic banking system. Under structural adjustment regimes, it has not been possible for many African LDCs to increase domestic revenue. Declining incomes and tax administration difficulties have drastically diminished domestic government revenues in such countries as Burundi, Ethiopia, Rwanda and Uganda.

24. The World Bank (1994)[8] classified the following sample countries on the basis of fiscal performance in 1990/91: (a) surplus or small deficit countries - the Gambia, Mauritania, Senegal and the Tanzania; (b) moderately deficit countries - Burkina Faso, Burundi, Malawi and Togo; (c) large deficit countries - Benin, the Central African Republic, Madagascar, Mali, Rwanda and Uganda; and (d) very large deficit countries - Mozambique, the Niger, Sierra Leone and Zambia. The fiscal indicators in annex table 2 show that, for all groups of countries covered in the survey, there has been a general reduction in the level of deficits in 1990-1991 from the higher deficit levels of 1981-1986. The reduction is more for the relatively small deficit countries than it is for the very large deficit group. Taking all African LDCs as a group, grants have reduced the level of deficits by an average of about 50 per cent during 1990-1991. The effectiveness of grants to reduce deficits is greater for the small deficit countries (where grants have financed nearly 100 per cent of the deficits) than for the very large deficit countries. It takes time to improve the fiscal reform stance of the African LDCs, i.e., to reach a situation of sustainable budget surplus. In the meantime, the reform process has made them increasingly vulnerable and heavily dependent on foreign grants and loans for their budget and economic management.

5. Price and monetary developments

25. In all adjusting African LDCs, the governments have taken measures to deregulate prices and markets. By 1992, out of the 18 African LDCs which had "extensive price controls" before reform, six removed controls altogether and ten retained limited price controls.[9] Furthermore, the scale of government intervention in marketing major food crops and exports through marketing boards and corporations was also reduced in most African LDCs. Initial market reactions to the increase in domestic prices and market liberalization was mixed in most cases. Imports increased, but domestic production remained sluggish. Another limiting factor to the ineffectiveness of price and market deregulation in stimulating economic growth has been constricted demand in the African LDCs. In some cases, close to 50 per cent of the popula-tion (e.g., in Ethiopia, Rwanda and Somalia) is dependent on food aid. Even in the other African LDCs, public sector reform (which includes public expenditure cuts, public sector employment reduction, reorganization of public institutions, etc.), stagnation and decline of real wages, and rising unemployment have increased the level of poverty. This development has made it necessary to reintroduce price regulation for basic staples as a safety-net for the poor.

26. Excluding Zaire, consumer price increases have been on an upward trend since 1986 in most African LDCs, rising by an average rate of 31 per cent per annum during the 1990-1993 period. One explanation is the relatively low to moderate seigniorage (government revenue from printing money as a percentage of GDP) in the African LDCs. Calculating inflation as a percentage change in the consumer price index, the World Bank argues that the relatively high seigniorage countries (Benin, the Gambia, Sierra Leone, the Tanzania and Zambia) have sustained relatively higher inflation rates than the moderate ones (Madagascar, Malawi, Mauritania, Rwanda and Togo) or low seigniorage countries (Burkina Faso, the Central African Republic, Mali and the Niger).[10]

27. A low level of monetization of the economy limits how much can be achieved by a sound monetary policy in the African LDCs. It was expected that devaluation would lead to a reduction in the trade deficits by increasing exports and reducing imports. But, in many African LDCs, domestic prices rose following devaluation (often by more than the rate of devaluation), thus curtailing export expansion. More important is the lack of supply response to devaluation. High production costs, undeveloped productive capacity and low income elasticities of demand for African LDCs products abroad greatly reduced the effectiveness of exchange rate policy. There is also a misalignment of policy instruments in that exchange rate adjustment may create the right trading environment in the short term, but supply (production) response requires measures that are effective only in the long term. However, a number of the African LDCs have succeeded in eliminating exchange rate differentials (between the official rate and the black market one) by increasing the supply of foreign exchange through official channels (loans and grants) and by exchange rate adjustment. Also in the African LDCs, interest rates are set as part of economic adjustment but the effectiveness is circumscribed by undeveloped capital markets.

B. Domestic resource mobilization

28. The GDP share of aggregate investment in the African LDCs averaged 16.7 per cent during 1990-1994. The stagnation in investment ratio is indicative of the general economic decline and deterioration in these economies. The average annual growth rate of investment in the African LDCs during the 1985-1989 period was about 3 per cent, which dropped to -0.1 per cent per annum in the 1990-1994 period.[11] But there are wide variations across countries. For example, in 1993, the GDP share of investment was in excess of 40 per cent in Cape Verde, the Gambia, Lesotho, Sao Tome and Principe and it was below 10 per cent in the Central African Republic, Ethiopia, the Niger, the Sudan and Zaire. Likewise, the rate of decline in investment in the same year was in excess of 20 per cent in Malawi and Togo, while positive and high investment growth rates occurred in Botswana, Mauritania and Zambia. The low and fluctuating base from which investment changes are measured explains the instability of the estimated growth rates.

29. The share of gross domestic savings in the GDP of the African LDCs has been unacceptably low at 4.7 per cent during the period 1985-1989 (as against 22 per cent in developing countries as a whole) and the average savings rate remained at this level in the 1990-1994 period. The poor savings performance is also reflected in the low real per capita savings level estimated at only $16 in 1990, dropping to $10 in 1994. The savings gap has widened from $7.3 billion in 1990 to $8.4 billion in 1994 or 10.3 and 11.9 per cent of GDP in both years, respectively. There is a wide gap between "gross domestic savings" and "gross national savings". The latter includes foreign savings (i.e., foreign direct investment, official grants and loans) and is therefore much larger than the former. During 1985-1989, foreign savings alone made up 9.5 per cent of the GDP of African LDCs as against 4.3 per cent of GDP accounted for by gross domestic savings. The low level of savings and investment explain the poor macroeconomic performance in these economies and underscores the need for an increased effort at domestic resource mobilization.

1. Domestic private resource mobilization

30. Low income levels and high marginal propensities to consume continue to depress the level of private savings in the African LDCs. Average income levels are below the taxable income range (i.e., below tax exemption levels of income) and marginal propensities to save approximate to zero (and, in 1993, were possibly negative in such countries as Burundi, Rwanda and Somalia). Most of the population depend on subsistence agriculture and the output level in recent years has been below consumption needs in many cases. Certain government policies have not been favourable to private capital formation in a number of the African LDCs. Nationalization of private property, implicit and high rates of explicit agricultural taxation, active discouragement by administrations to private initiatives, the brain-drain and capital flight are among the factors which explain why savings and investment rates are low (and sometimes negative) and why it has not been possible to make headway in domestic resource mobilization in the African LDCs.

31. Reform measures to enhance private domestic resource mobilization, including market and price deregulations, have invariably raised the level of prices and thus increased the rate of return on private investment. In many cases, market liberalization was accompanied by administrative reforms to eliminate discrimination against private industry. Previous restrictive practices against private investment are now eased in such countries as Ethiopia, Malawi, Uganda and the Tanzania to raise the level of private sector participation in development. However, these measures are being taken at a time of wide-spread poverty and a fall in income, and are undertaken through the SAPs which have, in themselves, a grave fall-out of social maladjustment. Unemployment is on the rise, partly as a result of institutional reorganization and public sector retrenchment which has not been compensated by the growth of private activity. The instability of transitional politics has raised the private risk premiums to unacceptably high levels, and the rate of capital flight out of the African LDCs is escalating. Counterpart funding (sale of foreign exchange) and earmarked financial transfers from abroad, ease foreign exchange constraints which many private industrialists face in the African LDCs. But, the latitude given by these temporary reliefs are not capitalized upon to institute measures to mobilize domestic resources or to build local resource-generating capacity. A reverse in capital flight is noted in many African LDCs that are increasingly becoming aid-dependent.

2. Public sector resource mobilization

32. The African LDCs have a relatively small private sector and, hence, depend on the activities of government for resource mobilization and economic growth. During the first half of the 1980s, government expenditure as a percentage of GDP was in excess of 30 per cent in Malawi, Togo and Zambia; and less than 10 per cent in Uganda (annex table 3). Except for Guinea-Bissau and Mauritania,, where the share of government expenditure increased significantly, the relative size of government expenditure (measured by the ratio of government expenditure to GDP) declined during the latter half of the 1980s in all the other countries under review. Government expenditure declined further during the early 1990s, but not signi-ficantly, following public sector reforms in most of these countries.

33. Increasing levels of budget deficits resulted from the gradual erosion of the tax base and rapid increase in government expenditure. Tax revenue shares started to decline as income levels fell and as tax administration difficulties worsened. Foreign trade taxes lost their relative significance in the revenue struc-ture of the African LDCs when export levels plummeted and import capacity shrank. Two other sources of expenditure finance were utilized to their limits before embarking on macroeconomic reform under SAP: non-tax revenues and domestic bank borrowing. Regarding the former, the most important source is the revenue from public enterprises but disinvestments under privatization is gradually eliminating this. The Governments of African LDCs have had to resort to domestic bank borrowing to finance their public budget deficits. In Ethiopia, for example, domestic bank borrowing to total ordinary revenue rose to 51 per cent in 1990 and was 40 per cent in 1991.

34. The importance of external resources in the budget structure of the African LDCs is perhaps made more clear if the share of external financing of government deficits are computed. Grants make important contributions towards balancing the budget and grant levels vary across countries. The share of government deficits financed by external resources (which include grants and loans) have remained high in Ethiopia, Malawi, Mali, Togo and Zambia. Increased dependency on foreign finance to balance the budget is noted in those countries which started implementing adjustment programmes in earnest during the first half of the 1990s, for example, Benin, Ethiopia, Mali, Mauritania and Zambia.

C. Assessment of social conditions, 1990-1994

35. The human development index (HDI) is a relatively new approach of measuring the economic and social progress of societies. The method combines three variables - expectation of life at birth, educational attainment and income. More specific social indicators include education, health status, demographic indicators, status of women as well as other direct measures of poverty. Estimates of infant mortality, expectation of life at birth, total fertility rate, population growth rates and dependency ratio for the African LDCs for the periods before and after 1990 is given in annex table 12. The figures clearly show that, in general, the African LDCs had high infant mortality during the 1980s which did not improve in the early 1990s.

36. It is argued that there is a synergy between population growth and the accentuation of poverty in the LDCs. Despite the merits and demerits of this argument, the high rate of population growth is a development-retarding factor in resource-poor countries, such as the African LDCs. With the average population growth rate of the African LDCs at 3.1 per cent, the population of the group is likely to double in about 24 years. As a conscious effort, many African LDCs introduced some interventions with a view to reducing population growth. Family planning programmes are being introduced in many countries with a view to reducing fertility and population growth. With respect to fertility, African LDCs tend to exhibit a high total fertility rate. A typical mother seems to have as many as 6.5 children during the 35 years of her reproductive cycle as compared with 2.5 for mothers in industrialized countries. The results in annex table 12 also show that about 48.8 per cent of the population of African LDCs are classified as dependents.

37. Several studies on women in development in the African LDCs have shown that, certain cultural traits of these countries have led to the marginalization of women. The rate of participation of women in education and the labour force, as well as unemployment in the formal sector are lower as compared to those of men. Giving women access to education, health, employment and other opportunities would not only enhance economic and social progress, but could make a substantial contribution to reduce the current high rate of population growth in many African LDCs. Indicators on the literacy rate, gross enrolment ratio for primary education, mean years of schooling as well as participation in the labour force are given in annex table 13. Each variable is expressed in terms of females as a percentage of males which interprets a ratio of one as indicative of equality. National governments, donor countries and multilateral agencies are invest-ing in development projects the objectives of which are to enhance the status of women and to improve their level of participation in the development process. For instance, about half of all the World Bank's IDA-9 supported projects durig fiscal 1991-1993 included components that addressed the specific needs of women and efforts were made to encourage the participation of beneficiaries in project design and implementation.[12]

38. As can be discerned from the above analysis of indicators of human resources development, it is clearly shown that the majority of the population of the African LDCs is in abject poverty. The absolute poverty level (defined as that income level below which the minimum nutritionally adequate diet, along with basic non-food requirement are not affordable) is estimated as the percentage of people below a pre-deter-mined poverty line. It is estimated that about 65 and 30 per cent for rural and urban areas, respectively, in the African LDCs, are below the poverty line. In Chad, Malawi, Sierra Leone and the Sudan, as much as 80 to 90 per cent of rural population are below the poverty line.

1. Education

39. A comparison of the illiteracy rate of African LDCs during the 1980s and early 1990s is given in annex table 14 which shows high rates in most of the countries. A similar conclusion is reached comparing mean years of schooling completed among the population aged 25 years or more. The value is only 1.13 years in 1990 with a slight increase to 1.18 in 1992, as compared with those of other African countries of 2.4 and 2.5 years, respectively. With respect to the gross enrolment rate of primary education, the table indicates that the African LDCs have the lowest rates compared to the other categories of countries.

40. The Governments of African LDCs are taking steps to increase budgetary allocations for basic and higher education. A higher percentage of budgetary allocation to education would indicate a conscious attempt to improve the educational level of the population. Annex table 15 shows that, on average, there was a slight increase in 1991 (from 12.9 to 13.5 per cent) compared to 1988, but the figures are low as com-pared to those of other African countries of about 19.2 and 22.0 per cent of total public expenditure to education. Cape Verde, Lesotho and Rwanda allocated relatively higher percentages. On the other hand, Ethiopia and Guinea have had very low allocations, although, since 1992, Ethiopia has improved its budgetary allocation substantially.

41. Any increase in the literacy and enrolment rates, as well as other indicators are meant to show whether there has been a quantitative improvement in the provision of expenditure for education. Common indicators of quality of education include pupil/teacher ratio, number of students per classroom and allocation of educational budget for primary, secondary and tertiary education. Information on some African LDCs show unequal distribution of resources between the three levels, and more emphasis seems to be laid on tertiary education. For example, in 1991, Ethiopia had less than one per cent of the student body enrolled in tertiary education but as much as 15 per cent of the educational budget was earmarked for this level of education. In general, when the provision of education as an indicator of social development is taken into consideration and a comparison made between pre- and post-1990, the achievement of the African LDCs in this regard is very low compared to other African countries.

2. Health

42. In general, all comparative studies on the health status of African LDCs show that there was no significant improvement in the early 1990s, compared to previous periods. In most of the African LDCs, the prevalence of diseases that have long been eliminated in other parts of the world is observed. Mortality levels, particularly infant and child mortality are high. The reason for this is the prevalence of communi-cable and preventable diseases, such as malaria, measles, acute respiratory and diarrhoeal infections. Some of the indicators of health status include the expectation of life at birth which is derived from the age-specific mortality rate, population per physician, population per nurse, population per hospital bed, as well as the proportion of public expenditure allotted to health which are given in annex table 16. During the period 1986-1992, the average number of people per physician in the African LDCs was 17,984 as compared to 6,645 in other African countries. A few exceptions include Cape Verde, Guinea-Bissau and Sao Tome and Principe which seem to have a better performance. Also, the number of people per nurse decreased during the period 1986-1992, when compared with the previous period. As for the number of people per hospital bed, the pattern is similar to the other indicators.

43. According to the World Health Organization (WHO), the five leading causes of morbidity and mortality are neo-natal, malaria, measles, acute respiratory infections (ARI) and diarrhoeal infections. Annex table 17 cross-classifies each African LDC by these causes. In 1991-1992, nine countries had the maximum leading causes, while the others experienced three to four of the causes. The data suggests that there was an all-out effort in the early 1990s to reduce or eliminate some of the leading causes of morbidity and mortality. For some African LDCs, the high morbidity and mortality rates may be due to civil strife, drought, famine and dislocation of people from their place of residence which, taken together, tend to worsen the already low nutritional intake of infants and children. Low weight at birth and incompatibility between age and weight of infants and children reflect low calorie intake even during normal periods. This is likely to expose children and adults to various types of diseases as their resistance level is reduced. In recent years, AIDS has become a major threat to the health of the African LDCs population. The disease is mainly concentrated in major urban centres but in some LDCs, such as Uganda and Zaire, the prevalence of HIV-AIDS in rural areas seems to be growing. The transfer of resources from basic health services to the AIDS programme, the occupation of many hospital beds by AIDS patients and the high cost of treatment are overstretching the meagre resources allocated to the health sector. Based on data for 1990, as contained in annex table 15, budgetary allocation to this sector was around 8 per cent. Madagascar is a noteworthy case, allocating an average of 11.5 per cent of its public expenditure to the health sector.

III. EVALUATION OF EXTERNAL SUPPORT MEASURES[13]

44. One of the basic principles of the Paris Declaration and Programme of Action for the Least Developed Countries for the 1990s is that "The strengthened partnership for development necessitates adequate external support from the LDCs development partners".[14] The international community committed itself to provide sufficient concessional resources; to give assistance in respect of the transfer of technology and skills; provide access to their markets for the LDCs' exports; offer substantial debt relief and adequate financial compensation for loss of export revenues. These commitments were to complement the efforts being made by the LDCs and, as such, the contributions were to be adequate in terms of volume, efficient in allocation and prompt in disbursement, so as to meet the needs of the LDCs.

A. Commitments and performance

45. In the context of the above, it was agreed that: (a) those donor countries giving more than 0.20 per cent of their GNP as ODA to the LDCs should continue to do so; (b) other donors whose ODA flows to the LDCs had already reached the 0.15 per cent target should strive to attain the 0.20 per cent by the year 2000; (c) those that had undertaken to reach the 0.15 per cent target should reaffirm their commitment and by con-tinued effort reach the target within the following five years; and (d) the others were urged to do their best to raise their assistance to the LDCs.

46. The overall ODA contribution to the LDCs from the countries of the OECD Development Assistance Committee (DAC), as a ratio to their GNP, has remained at 0.05 per cent during 1990-1992. That is, the rate which was attained in the latter half of the 1980s. As annex table 18 shows, in seven countries (Australia, Luxembourg, New Zealand, Norway, Portugal, Switzerland and the United Kingdom), the ODA contribution to the LDCs, as a ratio of donor GNP, was higher in 1992 than in 1990. In four other coun-tries (Austria, Canada, Denmark and the United States), the ratio remained unchanged, while in the other remaining ten countries the ratio was lower. Norway, with the highest ratio (.55 per cent), still heads the list. The five countries (Denmark, Finland, the Netherlands, Portugal and Sweden) which have already exceeded the 0.20 per cent target, sustained their ODA.

47. The total net disbursement from all sources to the LDCs declined by 1.8 per cent during the period 1990-1992. Of this total, ODA concessional sources (bilateral and multilateral) accounted for over 97 per cent in 1992. But the contribution from ODA bilateral concessional sources decreased from 61 per cent in 1990 to 55 per cent in 1992 while the share of concessional multilateral resources in the total increased from 39 per cent in 1990 to 45 per cent in 1992. The leading single source of multilateral finance to the LDCs has been the World Bank's International Development Association (IDA), followed by the European Union/European Development Fund (EU/EDF) and the World Food Programme (WFP).

48. Failure to meet commitments and targets is mainly attributed to the limitation of external financial flows from OECD/DAC countries to LDCs, because of the emergence of new demands on donor aid budgets in the face of budgetary cuts by major OECD/DAC donors; the diversion of funds to international emer-gencies and conflict resolution operations, the continued recession in industrialized economies and the general wave of donor fatigue.

B. External financial flows

49. As shown in annex table 19, total financial flow to the African LDCs (at current prices) dropped by 12.3 per cent from a peak of $13 billion in 1990 to $11.4 billion in 1991; it rose by 13.2 per cent to $12.9 billion in 1992 but dropped again by 7.4 per cent to $11.9 billion in 1993. In other words, the total finan-cial flow to the African LDCs declined by an average of about 2.2 per cent per annum during the period 1990-1993, compared to an annual average growth rate of 4.4 per cent attained during the period 1987-1989. The share of African LDCs in the total financial flow to all LDCs increased, however, from 69 per cent in 1987 to 77 per cent in 1992. Of the total financial flow, 51 per cent went to seven countries (Ethiopia, Malawi, Mozambique, Somalia, Uganda, the Tanzania and Zambia). Ethiopia, Mozambique and the Tanzania together received about 36 per cent of the total. The external flows to the Sudan and Zaire showed drastic declines during the period 1990-1993, possibly because of their classification as "non-cooperative" by IMF and the associated cross-conditionalities that block the flow of other donor support funds.

50. The ODA share in total external financial flows to the African LDCs increased from 92.9 per cent in 1990 to 104.9 per cent in 1991 and then remained at 99 per cent in 1992 and 1993. This means that the African LDCs are now totally dependent on ODA as the main source of external financial assistance (see figure 2). This is mostly due to the difficulties of borrowing from commercial markets because of their debt distressed situation. Furthermore, unlike the rest of the other developing countries, the African LDCs have failed to attract FDI. Non-OECD bilateral flows from the former Soviet Union have dried up, and Arab and the Organization of Petroleum-exporting Countries (OPEC) sources have also become scanty due to the fall in oil prices and domestic financing needs to meet the rehabilitation costs after the Persian Gulf war.

51. The net financial flow from ODA sources to the African LDCs, however, declined between 1990 and 1993. There was a decrease from $12.1 billion in 1990 to $12.0 billion in 1991, a rise to $12.8 billion in 1992 (an increase of 6.7 per cent) before a fall to $11.8 billion (a decrease of 9.2 per cent) which corresponds to an annual average decline of 1.0 per cent between 1990 and 1993, as compared to the annual average growth rate of 4.4 per cent betrs. Guinea, Madagascar, Malawi, Mauritania, Sierra Leone, Togo, Uganda, the Tanzania and Zambia have benefitted from the programme during the period 1989-1993. The Bank's DRF is intended to provide grants on a case-by-case basis to IDA-only borrower countries to reduce their debt to commercial banks through discounted debt exchange or buy-backs. Mozambique, the Niger and Uganda already benefitted from DRF during the period 1991-1993, while others like Ethiopia, Mali, Mauritania, Sao Tome and Principle, Sierra Leone, the Tanzania and Zambia were considered during the 1993-1994 period.

75. The IMF provides credits under its SAF and ESAF at 0.5 per cent interest rate to be repaid over 10 years with a grace period of 5.5 years. To use these facilities, the countries must introduce adjustment programmes or a more comprehensive economic reform programme and be up to date with debt-service pay-ments both to the World Bank and the Fund. The IMF is also implementing its "Rights Accumulation", a programme in which low-income, debt-distressed countries can use the resources of the Fund. For instance, in support of Sierra Leone's "Economic and Financial Policy Framework, 1990/92-1992/93", the IMF extended credits to the Governments under its Rights Accumulation programme during fiscal 1991.[15]

E. Market access

1. The international trading environment

76. The African LDCs have not benefitted fully from market access arrangements under the Lome Convention nor from the GSP schemes because all these schemes are subject to quotas and ceilings, tariff and non-tariff barriers and particularly graduation clauses, which discourage the countries from taking steps to develop their export potentials, as well as to diversify their production base. For instance, vegetable oils, textiles, tobacco and sugar, which are important export commodities of the African LDCs, all face tariff and non-tariff barriers. Consumer prices for tropical products are still kept high as these products are subject to internal taxes after entering a particular country under GSP schemes. Some African LDCs are excluded by certain other countries from full benefits of GSP schemes. Export items of interest to African LDCs, like clothing, are subject to non-tariff barriers. Semi-processed primary commodities are also subject to higher tariffs. Most of these preferential schemes do not cover major primary agricultural commodities. African LDCs also lack the expertise to make full use of the GSP schemes together with their market access under the Lomé Convention. They do not have marketing information or know-how nor do they possess skills to improve product qualities, standards and packaging. Consequently, they do not make headway in export promotion.

77. The IMF CCFF and the EU Stabilization of Export Earning Scheme (STABEX) are two major compensatory financing schemes which assist African LDCs to reduce the negative impact of price and quantity fluctuations of their major export commodities but their coverage has been limited. Furthermore, the IMF-CCFF has rarely been used due to its conditionality and non-concessional terms. During 1991-1992, African LDCs received an annual average of $260 million under STABEX, which is half of that scheme's payments to developing countries. Since 1980, Zaire and Zambia have received $800 million from Special Financing for Minerals (SYSMIN) under the Lomé Convention. The funding for STABEX was raised by 62 per cent to ECU 1.5 billion under Lomé IV, and the SYSMIN - copper, manganese, tin, iron ore, bauxite, uranium and phosphate - increased by 16 per cent to ECU 480 million. The loan component, which was 30 per cent under Lome III, has been removed under Lome IV. But all this could not fully compensate the African LDCs for the loss of their export revenues.

78. The recently ratified Uruguay Round Accord is aimed at liberalizing trade in goods and services, including trade-related investment, trade-related intellectual property and trade-related services. The Accord attempts to reduce tariff and non-tariff trade barriers and to encourage changes in domestic economic policies and strategies, which at present hinder expansion in international trade. A joint study by IBRD and OECD estimates that the world economic output will rise by $200 billion annually by the year 2000 [current figures by the General Agreement on Tariffs and Trade (GATT)/World Trade Organization show an increase in world income by over $500 billion] due to the Accord but that the African economies will lose $2.6 billion per year. Those that will be worst affected are the African LDCs because of their supply rigidities and low production base and capabilities. This situation is likely to preclude them from facing open competition in the markets they have already secured under various preferential schemes and, thus, their existing benefits in market access will be adversely affected.

79. The Accord gives LDCs seven to ten years as a grace period to implement all the liberalization clauses; five to eight years for other developing countries and two to five years for industrialized countries. For African LDCs, this period is too short to be able to adjust, and the implementation system and proce-dures are too complicated and require sophisticated administrative capabilities which African LDCs do not possess. To cope, they will require substantial technical assistance and training.

2. Regional cooperation

80. Most of the African LDCs belong to various economic groupings like the Economic Community of Central African States (ECCAS), the Economic Community of West African States (ECOWAS), the Preferential Trade Area for Eastern and Southern African States (PTA), the Southern African Development Community (SADC) and the Economic Community of the Great Lakes Countries (CEPGL). Despite various efforts, resolutions and agreements made at high level, no substantial progress has been made in terms of intra-African trade and joint ventures for production and distribution. Intra-African trade remains less than 6 per cent of the total external trade of the region. Some of the reasons are that most of the countries produce similar products; transport systems are linked mostly to trade with developed countries; countries fear to forego customs revenue, which is an important domestic source of financing the budget; lack of com-munication among African commercial banks and shortage of foreign exchange; non-tariff barriers; lack of inter-connected information systems; political and currency instabilities; and the lack of recognition for cross-border trade.

81. Against the background of the above constraints, the African LDCs have not benefitted greatly from subregional cooperation. Countries that tried to export to neighbouring markets failed due to the unpredict-ability of currency fluctuations. For instance, Botswana's attempt to export manufactured goods to Zimbabwe was frustrated by the devaluation of the Zimbabwe dollar. The Gambia's booming re-export trade to Senegal was wiped out by the devaluation of the CFA franc.

IV. A DEVELOPMENT VISION FOR THE AFRICAN LDCS

82. Mid-term through the Programme of Action, it is becoming evident that the Programme may face the same fate as the Special New Programme of Action (SNPA). On the whole, financial flows to the African LDCs have not reached the level of commitment. There is also a lack of coordination and reverse flow. Many African LDCs Governments have failed to create the right economic environment for an increased development effort due to inefficient and reduced management capacity. On the basis of frequent reviews of progress in the implementation of the Programme of Action, remedial measures should be taken and an increased effort made on the part of both African LDCs Governments and the international community so that the targets set in the programme are approximated during the second half of the 1990s.

A. Improving existing policy framework

83. To implement reform programmes successfully requires the necessary human and institutional capa-cities, the demonstrated lack of which is currently raising the "cost of reform" beyond the levels of the domestic financing capacity of the African LDCs. The "dose", timing and sequencing of reform is also important. The costs and benefits of reforms must be carefully weighed to minimize a reduction in terms of welfare losses and deterioration in the human condition. It is also important to bear in mind that drastic reforms can become destabilizing. A number of the African LDCs that undertook adjustment programmes did so with interruptions because of the difficulties of adherence to the stiff conditionalities and performance criteria of the programmes. This, too, is expensive in terms of costs incurred in the stop-go nature of the process. Policy development should be seen as a continuous process. Monitoring of progress and adjusting or changing policies when necessary, so that the results of reform are "additive" (i.e., contributing to the attainment of predetermined goals) are necessary elements of good reform. Most African LDCs need to place their economies on a working reform-track.

84. The issue of whether adjustment programmes and other ongoing reforms in the adjusting African LDCs are producing the desired results has not been empirically validated. Even in the so-called relatively successful cases, growth is not internalized, and if the grant and foreign loan effects are removed from the calculations, "the better than average performance of the adjusters" would be difficult to observe. The social ramifications of SAPs are so strong, there is an emerging consensus among policy makers that SAPs in Africa should be "human-centred" and the "social dimension" of development and transformation be not ignored. Although "safety-nets" are now established as integral parts of SAPs, in order to cushion the poor against the exigencies of reform, the packages are usually taken as interim measures with short life-cycles. The transition period for the "safety-nets" for the poor need to be made long enough for its effectiveness to be felt and this requires that aid donors and creditors would have to continue making available the requisite funds to contain poverty and stabilize the economy over a much longer period of time than is usually programmed.

85. The volume of aid and credits has remained small and relatively incommensurate to the level of resource requirements of the African LDCs to implement externally supported adjustment programmes and broader economic reforms, as well as purely home-grown development programmes. But, the disbursements are badly coordinated and consequently, the creation of an enabling environment for sustained development is prolonged and made uncertain. In addition, there is often a demonstrated lack of local reform and management capacity which, together with loose aid monitoring by donors, have inflated the "cost of reform" in the African LDCs. For reform to be effective, grants and credits need to be focused and coordinated. Close supervision and monitoring of assistance programme implementation by aid givers and creditors, increased and sustained flow of financial resources, and capacity building activities must also be seen as important determinants of the effectiveness and sustainability of growth in the African LDCs.

B. Mobilization of domestic resources

86. Aggregate indicators, such as low per capita income and high marginal propensities to consume, do not reveal the extent of interpersonal income (and consumption) differentials and tend to disguise the poten-tial for private resource mobilization in the African LDCs. The informal financial systems in Africa play an important role in the economy. They finance private consumption and modest investment expenditures and in many cases generate and distribute more resources, especially in the rural areas, than the formal bank-ing systems in these countries. Easy access (reliance on familiarity or status of the borrower within a com-munity), conditionalities tailored to private needs, low credit management cost, and widespread location) is the factor which explains the popularity of informal financial systems in African LDCs. The Governments of African LDCs should take measures to develop and improve the performance of these informal financial systems, in order to enhance the mobilization of domestic financial resources for investment. Among the measures envisaged is that the cost of formalization should be made lower and that inter-linkages between formal and informal financial and banking institutions and money and capital markets should be established and exploited.

87. Domestic informal trade and unrecorded cross-border trade (of which smuggling is the dominant form) are also major sources of domestic private financial resources that could make important contributions to economic development in the African LDCs. Local markets are operated by small traders, most of whom are perhaps peasants "moonlighting" from the production cycle in agriculture. There are large amounts of financial resources from unregulated cross-border trade which are lost to governments in the form of tax revenues foregone and to society in the form of net costs of management of illegal trade. By formalizing these trading activities and taking measures, such as providing subsidised business stands, simplifying the licensing and administrative procedures, and providing credit facilities to prospective traders, etc., the African LDCs Governments could mobilize and bring into the open a large volume of private financial resources which could then be used to finance economic growth. Government policy directed towards encouraging new investments and the expansion of small-scale manufacturing and micro-enterprises in the informal sector and the promotion of the formalization process could contribute immensely to the mobiliza-tion of private domestic resources and economic growth.

88. As regards domestic public resource mobilization, the improvements are expected from two sides. On the expenditure side, defence expenditure reduction and the restructuring of public expenditure generally could make available financial resources which could be used to finance economic development. On the revenue side, it might be possible to restructure taxes so that the treasury could benefit from private sector growth. African LDCs depend on foreign trade taxes as the major domestic source of budgetary revenues. Tax structure should be designed so as to avoid the disincentive effects of progressively high taxes with built-in tax flexibility that permits automatic government revenue increases from income growth. Reforms in taxation may try to broaden the tax base to tap new resources (e.g., new property taxes, etc.) and another important area of reform is tax administration. At the moment, the reform process in African LDCs is erod-ing central government authority. The Governments of these countries should build up a capacity to ensure an extensive coverage of taxable sources. For this, efficient and cost effective tax systems become the first imperative.

C. Globalization and African LDCs development

89. Advances in technology, diversification and internationalization of production structures, the growth of trans-border trade and advances in transport and communications have facilitated the integration of the world economy. Globalization of the world economy, which is an increasing interaction of national economies, is a development process which, in recent years, is moving at a more rapid pace than in the previous decades. Many countries, especially the industrialized ones, are introducing reforms and making adjustment to reap the full benefits of the globalization process. The creation of regional markets (EU, NAFTA, etc.), the Uruguay Round of Multilateral Trade Negotiations, bilateral and multilateral consultations and the integration and expansion of the world capital market are important determinants of, and at the same time adjustments to, the requirements of world market expansion. Particularly important in the globalization process are the activities of the transnational corporations (TNCs) and FDI. In the late 1960s, there were some 7,000 TNCs, mainly based in the United States and in the United Kingdom but by 1990, there were 37,000, with 170,000 affiliates scattered all over the world. As an indicator of the concentration of economic power, only 100 TNCs have global sales of more than $5.2 billion, and hold assets worth $3 billion, a third of it in other countries.[16]

90. Globalization affects lives in the remotest village. A small change in the agricultural policy of a rich country can affect the well-being of a poor peasant living thousands of miles away.[17] However, in this process, the marginalization of the African LDCs becomes obvious. This group of countries brings to the global markets commodities which have low income elasticities of demand and for which value added is small and terms of trade are deteriorating. To interact in such a global framework, the pace of industrializa-tion, involving production restructuring and the adoption of modern technologies, must be considerably increased in the African LDCs. It is interesting to note that in 1992, foreign direct investment in-flows to 43 LDCs added together amounted to only $300 million - the equivalent of FDI received by Pakistan alone during that year.[18] There is no alternative for the African LDCs but to reform and adjust to create an enabling environment. The environment is to enhance the development of a production structure within the framework of the world production system and to make it possible for the African LDCs to draw lasting benefits from their integration within the world economy. Production for the world market removes the con-straints imposed by the smallness of the domestic market. The reforms and adjustments made and the assistance received may thus be directed at enhancing integration within the global market.

D. The admission and graduation criteria for LDC membership

91. Since 1991, the criteria for the admission of countries to the LDC category has had the following elements:

(a) Measure of relative poverty to per capita GDP;

(b) Human resource development, which is measured by an augmented physical quality of life index (APQLI), which is a combination of health and education development indicators. These, in turn, con-sist of life expectancy at birth, per capita calorie supply, combined primary and secondary school enrolment ratio, and adult literacy rate;

(c) Structural weakness (or transformation) of the economy is measured by a composite economic diversification index (EDI), comprising the GDP share of manufacturing, the share of employment in manufacturing, per capita electricity consumption, and the export concentration ratio;

(d) Countries with a population in excess of 75 million are not considered for inclusion into the African LDCs grouping.

92. The application of the criteria produces the inherent measurement problem of the indices. Regarding the first criterion (per capita GDP), the recommended cut-off point at present is $600 (1987 prices). In cases where a country falls within a predetermined range of index values for LDC membership using all the indices, classification is easy and the criteria is seen to work. The problem arises, however, in defining marginal cases and where a particular index classifies a country one way and another index a different way. In cases where automatic application of criteria fails, it is recommended that a case by case review be under-taken to determine the state and prospect of development of a country. Among the considerations that facili-tate assessment of eligibility in such cases are natural endowment, climatic variability, country profile (whether an island, land-locked State, small population, etc.), the share of petroleum exports in total trade, ODA levels and supplementary in-depth country studies. Regarding graduation, too, the criteria for clear cases are spelt out: maintenance of index values above the cut-off points for at least three years. For per capita income the cut-off point needs to be exceeded by $100, for APQLI and EDI, by five and three points, respectively.

93. There are at least three major sources of instability of the criteria which should be reviewed from time to time: the measures constituting the indices, the formulae for composite indices, and the weights given to specific measures in the formulae. Through experiments it may be possible to develop a criteria that differentiates countries as required. For example, experimental results show that the "export concentra-tion ratio" is given too much weight in the EDI index, and the "per capita electricity consumption index" exhibits extreme values at the upper end. The former problem can be solved by either reducing the weight of the factor or by substituting it by another (more suitable) measure altogether. The latter problem can be addressed by establishing a lower ceiling for the measure to exclude outlying values.

94. The other problem relates to the measurement of the benefits of international measures and external assistance programmes. The LDCs derive benefits by being so classified. These include bilateral assistance, multilateral assistance, debt relief, and access to markets. It is important to ensure that commitments to help are translated into deeds. There are many instances which show that aid targets are not met and that the degree of grant target approximation varies between donor countries and time periods. The LDCs also show varying capacities in their utilization of the "benefits". Benefits (be they financial grants, concessionary loans, or technical assistance) are sometimes wasted or not used for the intended purpose, and the asymmetry between assistance objectives and actual performance may go beyond conditionalities to correct them -requiring monitoring aid application, coordinating assistance, planning for graduating LDCs, etc.

95. In general, the criteria applicable at present focuses on admissions, the primary measure used being the extent of poverty. While there is need to revise and continually up-grade this criteria, some thought may also be given to the development of a graduation criteria which must be more focused than the one applied at the moment. There is also a need to develop criteria relating to the measurement of the progress being made toward graduation, the identification of sustainable development routes, and the effectiveness of external assistance (the "benefits of LDC membership") in bringing about irreversible graduation. For example, it is widely reported that in the implementation of SAPs, growth reversals occur with the decelera-tion or cessation of the flow of external financial assistance. Some African LDCs are very small and are likely to remain totally dependent on outside help. Among the variables to incorporate in the development of composite indices in the light of this are:

(a) Duration of LDC membership (number of years as a member of the group);

(b) Assistance effectiveness measures (such as commitment to actual assistance ratios);

(c) Assistance targeting measures (whether or not assistance is used to finance predetermined graduation goals);

(d) Globalization or integration of the economy measures (e.g., manufacturing share of exports, share of production for world trade, intra-African trade ratios, etc.;

(e) Growth potential assessment and identification and determination of development "routes" (and the extent of deviation); and

(f) Irreversibility of growth measures (e.g., the development of sustained growth indices from which the effects of aid are removed).

E. Poverty alleviation: A renewed focus

96. The human and social measures of development as reflected in educational, health and demographic variables, as well as the status of women, show that the African LDCs are faced with a formidable task of improving the living conditions of their people. Poverty has accentuated in the African LDCs in the past three decades. The magnitude of the poverty situation in sub-Saharan Africa (home to 33 LDCs with a population of 330.6 million, mid-1994) under one scenario - based on a 4 per cent growth rate - is that the number of those in absolute poverty will more than double from the current 184 million to around 304 million by the year 2000.[19] This forecast is echoed by the World Bank's projections which reveal that "compared with a reduction of 400 million in poverty elsewhere in the developing world, in sub-Saharan Africa slow economic growth and rapid population growth will mean an increase of nearly 100 million in the number of poor people. By the end of the century, sub-Saharan Africa will account for more than 30 per cent of the developing world's poor, as against 16 per cent in 1985.[20]

97. In spite of the aforegoing gloomy forecasts and conjectures on the accentuation of poverty in the region, the Governments of the African LDCs (by definition and basic economic and social indicators, the poorest in Africa and the developing world as a whole) have failed to recognize the pervasiveness and severity of the poverty problem and to proffer acceptable and workable modalities for its alleviation. The international community has also failed to address poverty as an object of development in their assistance packages. For instance, it was only after intense pressure and much haggling that safety-nets for the poor were appended to SAPs.

98. The fact that the African LDCs are the poorest in the world community of nations makes it all the more imperative for a renewed focus on poverty alleviation. Poverty is a development issue, not a social welfare one. As Chambers (1995) has pointed out "we development professionals have often been wrong when we were sure that we were right. More and more we have come to realize that the way we see things, and what we believe, are artifacts made and moulded by our education, professional values, personal interests, methods of investigation, selective perceptions ... People who are poor, weak and peripheral have another reality, often polar opposite in its values."[21] The development partnership, in the context of the Declaration of Principles of the recently concluded Copenhagen Social Summit, should therefore think about new approaches and re-orient development assistance to address the problem of mass poverty in the African LDCs as an object of development policy.

99. It is a firmly held view that there is a synergy between population growth, the prevalence and accentuation of poverty and environmental degradation, in short, the PPE spiral.[22] The population picture of the African LDCs was presented earlier in the introductory part of this paper and it is not necessary to enter into a debate on this conjecture in this review. However, it needs to be pointed out that the African LDCs' population is growing at 3.1 per cent per annum, one of the highest of any group of developing coun-tries. For reasons of narrow macroeconomic capacities and enormous resource constraints related to development in general, the Governments of the African LDCs, especially the three countries with population in excess of 25 million, should take steps to stabilize or reduce their population growth. This involves the allocation of a substantial portion of their budgetary outlay towards family planning programmes including mass education campaigns to sensitize their rural population especially. Also, the provision of basic educa-tion and health services, as well as enhancing the status of women, are another means of reducing the current high rate of population growth. Women should be given equal access to education, health and related ser-vices, land tenure and other property rights and to empower them to exit from their current low economic status in many of the African LDCs.

100. As for the correlation between poverty and environmental degradation, Chambers (1995) comments that different research has shown the fallacy of the deeply rooted belief that a more dense population in rural areas is not necessarily always bad for the environment and that the conventional wisdom is wrong in assuming that this is universal. Studies in Guinea and Nepal (both LDCs) show conditions in which more people can have positive environmental effects, with the planting and protection of more trees and a more sustainable natural resource management. It is a fact that it is the big businesses that extract natural resources fast for quick gain and not the poor, who plant and protect trees on their own land, and invest labour to create sustainable agricultural systems such as paddy fields and terraces.[23] Efforts towards the alleviation of poverty in the African LDCs should take cognizance of the fact that, given the means, support and opportunity to participate in the design and implementation of environmental programmes, the poor can contribute immensely to the protection and improvement of the environment.

101. The alleviation of poverty in the African LDCs will be hard to bring about without a serious commit-ment (policy, financial and otherwise) to capacity building through improvements in the education and health sectors. While poor health results in individual suffering and high mortality rate, low educational standards lead to lower productivity. Empirical evidence shows a high rate of economic and social returns on invest-ment in education, which is taken as the opportunity cost of capital in the LDCs and, suggests a strong and positive relation between education and earnings. Streeten (1993) argues that the nexus between income (or expenditure) and nutritional status is stronger in other areas such as South and East Asia but weaker in Africa. But, it is plausible to assume that factors such as education (particularly in health and hygiene) and infrastructure (safe water and sewage) are vital elements for policy since they determine whether oppor-tunities to earn income or the provision of public social services should have priority.[24]

102. Most of the population in the African LDCs are engaged in agriculture where basic education would be likely to increase productivity. Provision of basic health services could increase both the quantity and quality of labour. High morbidity and mortality of infants and children could result in a greater loss of working hours among parents and the negative effect in terms of loss of income and other earnings is likely to be high among poor households. Thus, the returns on investment in basic health services is likely to be substantial. There are also other (social) demographic benefits of basic education and health services, includ-ing lower mortality, lower fertility and, eventually, a reduction in the overall rate of population growth.

103. Currently a number of African LDCs are implementing adjustment programmes which demand expenditure switching and wide-scale cuts in budgets affecting programmes that are especially beneficial to the poor. In addition to the governments' commitment to provide basic education and health services, there is a need to identify and protect certain core social programmes from budget cuts and even to take steps to enhance such activities. The core social programmes may include primary education and primary health care and family planning programmes, particularly in the rural areas where an average of 80 per cent of the population live. Agricultural support services, including improved inputs, storage facilities, seeds, pesti-cides, fertilizers and other extension services, should be protected. Projects that deal with food security, including the nutritional value of food products and nutrition education, are particularly important to the poor. Expenditure in improving the nutritional intake of under-nourished or malnourished children is an investment in human capital and must be safeguarded.

F. Poverty alleviation strategies

104. To have a clear perception of poverty alleviation objectives, policy makers should understand the precise definition and measurement of poverty since this is essential in designing appropriate interventions and policy measures and strategies. For example, if poverty is defined merely as falling below an arbitrary poverty line, this boils down to direct or characteristic targeting of the poverty alleviation programmes which are in most cases limited in impact. But, if poverty is viewed as pervasive (and generalized as in the African LDCs) and account is taken of the magnitude and severity, then the issue on how to alleviate the conditions of the poor becomes a broader development goal that require more extensive poverty alleviation measures and the requisite funding. Also since poverty alleviation programmes give the poor two types of benefits: the transfer and stabilization of benefits, both should be considered on their merits and the time-frame in designing and evaluating poverty alleviation strategies and programmes.

105. A fundamental prerequisite in alleviating poverty is the empowerment of the poor in the African LDCs through a massive investment in physical infrastructure (appropriate transport network that have at their core rural roads, especially farm-to-market, rural electrification, telecommunication facilities and clean piped water) and social infrastructural development in education (particularly basic education with emphasis on vocational and other skills training) and health (rural health clinics). Another closely related aspect of the empowerment is the recognition and formalization of the informal income generating activities of the poor and to enable them to avail themselves of credits through appropriate mechanisms of financial inter-mediation that links (e.g., by government guarantees and insurance of credits) the informal financial transac-tions and the formal banking system and/or the establishment of financial institutions specifically to cater for the needs of the poor (e.g., the Grameen Bank).

106. One of the major constraints undermining the effectiveness of poverty alleviation programmes is the lack of integration into the long-term development perspectives and appropriate allocations made in the annual plans and budgets of the African LDCs. The resources employed in a typical programme, such as public works schemes, are usually valued at their social opportunity cost (i.e., the cost of foregone benefits). However, such evaluations should avoid a short-term outlook and be based on longer-term objectives. In other words, the short-term cost may be higher than a project's benefits but the long-term benefits, including those non-monetary variables, may outweigh these shortcomings. Poverty alleviation programmes must have a strong poverty focus; incur modest institutional requirements; create less distortions with a high visibility and political marketability and should not incur unsustainable future resource allocation which may keep the poor in a perpetual state of receiving hand-outs.

107. Because of the limited options available for monitoring and enforcement, many poverty alleviation programmes have not reached their intended beneficiaries but instead have benefitted the better-off more dis-proportionately. To circumvent this constraint of proper targeting of intended beneficiaries, which is tradi-tionally done through direct targeting, it becomes a prerequisite to apply characteristic targeting whereby a set of criteria bordering on some salient economic and other homogenous characteristics of the poor can be defined. The elements may include landlessness, ownership of livestock and other forms of wealth, level of education, housing and related features. Other elements may include the imposition of costs on potential participants which will increase with an assessed growth in income and status of the participants in the context of a graduation mechanism that are associated with long-term poverty alleviation programmes. For example, most economic reform and structural adjustment packages include some intervention mechanisms so as to reduce the negative effects of the policies on the poor. In such cases, an identification of poor individuals or households that may be most affected by the reforms should be undertaken. This approach is likely to generate a cost-effective way of alleviating poverty.

V. INTERNATIONAL COOPERATION AND SUPPORT MEASURES

A. External resource flows

108. Currently, the OECD DAC countries provide well over 80 per cent of the development financing requirements of the African LDCs. It is therefore imperative that these donors endeavour to fulfil the commitments and targets established in the Paris Declaration and Programme of Action, particularly the 0.20 per cent of their GNP in the form of the ODA resource flow to the LDCs. Donor countries should also improve the quality and terms of the ODA resource flow by increasing the grant and near grant elements, and to minimize the tying of aid. The tying of aid to the importation of certain goods from a particular donor own-sources of suppliers has distorted the benefits of aid to the African LDCs, as projects become "donor driven", failing to meet recipients' priorities. Experience has also shown that with tied-aid, the effec-tiveness of international competitive bidding is eroded. The grant component of the ODA resource flow to African LDCs should be separated from officially guaranteed and subsidized export credits where, in the case of the latter, recipient countries should decide on the specification of goods and services for international competitive bidding.

109. The country review process and other resource mobilization mechanisms should give the lead role to the recipient African LDCs. For instance, since a SAP is now a prerequisite to be eligible for ODA support, the receiving countries should be fully involved in the concept and design of their respective pro-gramme as "owners", so as to give it creditability and sustainability during implementation. In order to improve the design and concept of SAPs and sectoral adjustment programmes and encourage broad popular support and participation, open discussion should be held at the national level, involving professional and trade associations, universities and academicians, the business community and chambers of commerce, religious and labour leaders. Streamlining aid procedures will facilitate aid management and speed up disbursement. Flexibility in aid resource allocation is required to adapt aid resources to the particular circumstances of the African LDCs.

110. Adjustment programmes should be implemented in a timely manner and be properly sequenced. While short-term stability may be central to SAPs, there is a case to strengthen and broaden the economic base through diversification and sustainability of economic growth and development in the African LDCs economies on a long-term basis. Also, while stipulating the promotion of the private sector, the rehabilita-tion, modernization and upgrading of the public sector should not be overlooked. Pledging of funds, through consultative groups and round-table meetings and for SAPs and the SPA, should be more predictable and flexible in terms of timely disbursements. In view of the growing role of IDA in providing concessional finance to the African LDCs, the replenishment of IDA-11 should be given full support by the international community. Furthermore, there should be closer coordination between the consultative and round-table groups and the Paris and London Clubs. The other option is to hold the two meetings (pledging and coordination of aid funds and rescheduling debt) simultaneously so as to look comprehensively at the needs (short- and long-term finance) of each of the African LDCs.

111. The African LDCs should create an enabling environment to attract FDI because, as experience has shown in other developing countries, the inflow of FDI can create conditions whereby a country may avoid further borrowing for public investment in certain sectors of investment interest to the TNCs. FDI also comes along with transfer of technology, managerial and technical capabilities, and market power/market access. Thus, the African LDCs should first build investors' confidence in their respective countries in terms of security for foreign investment in a politically and economically stable environment. Gaining confi-dence is also a prerequisite for domestic capital formation. Currently, there are large amounts of capital flight from the African LDCs being invested abroad, including the "brain-drain", as well as savings deposited overseas by nationals. Most of the remittance and capital repatriation are through unofficial channels to assist relatives, meet basic needs and for speculative activities. Evidence in Latin America and Asia appears to indicate that an environment which induces citizens to invest in their own country is more likely to attract FDI.[25] The African LDCs should, therefore, genuinely attempt to create confidence in an enabling environment of adequate social and physical infrastructure, political and economic reforms and stabilities, and constitutional guarantees against expropriation and nationalization.

B. Debt-relief measures

112. The debt problem of the African LDCs is not a matter of liquidity but one of solvency. The situa-tion is being compounded by the decline in export earnings; increased payments for imports and mounting debt-service obligations which have engendered very wide resource gaps. The deterioration in the terms of trade and the critical resource situation of the African LDCs is bound to be protracted given the present grim outlook for domestic resource mobilization, global shortages of investment capital and flows of ODA. These conditions are bound to exercerbate an already precarious resource situation for development in the African LDCs. In this regard, the creditor countries should anchor their political will in the spirit of global economic and political security by deciding on an outright cancellation of all debt owed to them by the African LDCs.

113. At the moment, the ETT are applied by most Paris Club creditors to the African LDCs but the Trinidad Terms are given (in its entirety or some variants of the options) on a unilateral basis by individual creditors to a few countries such as Zambia and Mozambique.[26] The Nordic countries have now proposed to raise further the level of debt cancellation from two-thirds to 80 per cent under the Paris Club debt-relief and rescheduling schemes. Taking into account the debt-distressed situation of African LDCs, the level of poverty and the deterioration of their economies, other bilateral and multilateral creditors/donors should strongly support the Netherlands' proposal made in 1990 for creditors to unilaterally cancel official bilateral debts to all the LDCs. Non-OECD creditor countries should take similar debt-relief measures for the African LDCs. This option will remove the debt overhang, reduce uncertainties to private investors, relieve debt countries' policy makers from protracted debt re-negotiations, restore disrupted debtor-creditor rela-tionship and improve cost of credits, particularly of short-term loans.

114. Under present arrangements, there are no debt rescheduling and debt forgiveness as far as debt owed to multilateral financing and development institutions such as the IMF and the World Bank. The majority of the African LDCs are the poorest in the developing world and their critical resource situation and severe debt burden deserve special discriminatory treatment by multilateral financial bodies as well as the regional development financing and banking institutions. For instance, the IMF should consider the sale of gold reserves, the funds from which could be used to create a special debt-relief facility for the African LDCs. The present initiatives on debt relief by the World Bank and the IMF should be expanded in coverage, improved in conditionalities and adequately replenished in terms of funding. The supplementary IDA adjust-ment credit programme and the DRF should be expanded and strengthened to cover all non-concessional World Bank debts owed by the African LDCs. Bilateral and other multilateral donors should be invited to contribute more funds to such programmes. The conditionality of being current to World Bank/IDA debt services should be waived and/or made substantially flexible for the African LDCs who are simply not capable of debt repayments under the stringent rules now applied which also cover richer developing coun-tries the economies of which are more resilient to such financial pressures. The African Development Bank (ADB) and the African Development Fund (ADF) should emulate the multilateral organizations to devise initiatives of their own in producing lending programmes to the African LDCs.

115. Funding for the World Bank's SPA to assist low-income, debt-distressed countries in reducing debts to commercial banks through buy-backs should be expanded and strengthened to cover all the commercial debts owed by the African LDCs. The conditionality of a minimum commercial bank debt to establish eligi-bility for assistance could be waived for the African LDCs since the amount of commercial debts owed is relatively small compared to other forms of debts. Other measures may include debt swaps and debt conver-sion for local investments, acquisition of shares, write-off against taxes, etc.

C. Market access

116. Although the African LDCs have not been able to fully exploit the benefits of preferential schemes (EU/STABEX, IMF/CCFF, etc.) due to various reasons, it is necessary to continue extending and expanding the schemes to the African LDCs under better conditions so that they can take advantage of the benefits to be derived from such arrangements. With respect to the Uruguay Round Accord, the economies of the African LDCs are likely to be marginalized due to their narrow production base and other supply rigidities and weak competitive position in the international trading system. Apart from extending the moratorium of implementation of the Accord beyond the ten years stipulated, specific protective measures should be taken to enable the African LDCs to retain the existing benefits or obtain compensation for the losses they are expected to incur.

117. In addition to a longer period of moratorium, say 15 to 20 years, for the implementation of the Uruguay Round Accord, consideration should be given to the African LDCs, particularly with respect to the clauses on protection of newly established industries, export subsidies, anti-dumping, and trade-related investment measures, reporting systems and penalties. Apart from this, the African LDCs should get adequate technical and financial assistance to remove supply rigidities by developing export potentials and diversify the production base, as well as to improve their technological, managerial and marketing capabi-lities and skills through training and capacity building.

D. Economic cooperation and integration

118. The momentum to create strategic market alliance within regions, subregions and other economic and geographical spheres continues to build up in other continents. African countries should therefore inten-sify their efforts to successfully implement the Abuja Treaty by ensuring the effectiveness of the subregional economic groupings as defined by the Final Act of Lagos.[27] African Governments would have to muster the required determination, political will and commitments, supported by appropriate policy measures and action to implement effectively the existing regional/subregional economic cooperation agreements. Among others, emphasis must be placed on the removal/reduction of tariffs and non-tariff barriers; free movement of people and capital; improvement in transport and communications to connect neighbouring countries eventually leading to an African trade network; intensify economic cooperation based on a common genuine interest to acquire inputs or access for outputs; establishment of inter-cooperation councils/associations; recognition of cross-border trade and the development of border outposts and localities; and to sensitize decision makers and the general populace on the benefits of subregional economic cooperation and integration.

VI. FOLLOW-UP MECHANISMS AND MONITORING

119. The Paris Declaration and Programme of Action for the Least Developed Countries for the 1990s gives the African LDCs' Governments the key responsibility in the implementation process. The develop-ment of policy, institutional reform, planning and implementation of programmes at the national level are the primary responsibilities of the national governments to be assisted by the development partners through such mechanisms as the UNDP round-table discussions and World Bank consultative groups. Monitoring of the progress in economic cooperation and the strengthening of such cooperation programmes at the regional and subregional levels are spearheaded by the United Nations regional commissions, in close coordination with UNCTAD. The Programme of Action is monitored at the global level by UNCTAD.

120. There is need to reflect on the adequacy of the present mechanism and to critically examine the performance during the past five years on the basis of similar experiences with the Special New Programme of Action (SNPA) and other United Nations-sponsored global or regional programmes. The task of follow-up and monitoring involves many organizations and activities but a framework that introduces coherence and consistency of all the efforts aimed at implementing the Programme is not yet properly established. The use of existing institutions and mechanisms is implied in performing the follow-up and monitoring tasks but there is functional voidness in this arrangement and it leaves many loose ends. For the Programme to work, the possible modalities of interaction should be formalized, articulated and reflected in firm work plans and schedules and the necessary budget provided.

121. Follow-up and monitoring activities in the African LDCs by ECA is undermined by inadequacy of staff and financial resources. In order to introduce division of labour, adequately monitor developments in 33 countries, liaise with relevant organizations, provide technical and advisory services, sponsor workshops and seminars, etc., it requires the necessary appropriations in the regular budget of the Commission. Effec-tive monitoring of the implementation of the Programme of Action is possible only if ECA is supported by an appropriate budget and adequate staff resources commensurate to the task.

E/ECA/CM.21/15

[1] Resolution 49/98: Implementation of the Programme of Action for the least developed countries for the 1990s: High-level Intergovernmental Meeting on the Mid-term Global Review of the implementation of the Programme of Action for the Least Developed Countries for the 1990s (Report: A/49/728/Add.1, 19 December 1994).

[2] UNCTAD, Paris Declaration and Programme of Action for the Least Developed Countries for the 1990s. United Nations, New York, 1992.

[3] Angola, Benin, Burkina Faso, Burundi, Cape Verde, the Central African Republic, Chad, Comoros, Djibouti, Eritrea, Ethiopia, Equatorial Guinea, the Gambia, Guinea, Guinea-Bissau, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, the Niger, Rwanda, Sao Tome and Principe, Sierra Leone, Somalia, the Sudan, Togo, Uganda, the Tanzania, Zaire and Zambia.

[4] ECA, Survey of Economic and Social Conditions in African Least Developed Countries, 1992-1993 (E/ECA/LDCs/93/005, p. 2).

[5] World Bank (1994), Adjustment in Africa: Reforms, Results, and the Road Ahead. Oxford University Press, pp. 1-5.

[6] UNCTAD, The Least Developed Countries 1992 Report. United Nations, New York, 1993, p. 27.

[7] The Food and Agriculture Organization of the United Nations (FAO) defines consumption standard for developing countries with a positive per capita DES trend as the trend values. For those with a negative per capita DES trend, the mean values for the period under review are taken as the minimum consumption standard.

[8] World Bank (1994), Adjustment in Africa: Reforms, Results, and the Road Ahead. Oxford University Press.

[9] The 18 African LDCs reviewed in the sample are: Benin, Burkina Faso, Burundi, the Central African Republic, Guinea, Guinea-Bissau, Madagascar, Mali, Mauritania, Mozambique, the Niger, Rwanda, Sierra Leone, Togo, Uganda, the Tanzania and Zambia. See World Bank (1994), op. cit., p. 91.

[10] World Bank, 1994, op. cit.

[11] In fact, if the high projected growth rate of 6 per cent for 1994 is excluded, the average annual growth rate of investment for the period 1990-1993 is -2.4 per cent.

[12] World Bank, Annual Report, 1994, p. 171.

[13] All data on external resource flows and debt were obtained from UNCTAD, OECD and World Bank sources.

[14] UNCTAD, Paris Declaration and Programme of Action for the Least Developed Countries for the 1990s. United Nations, New York, 1992, p. 20.

[15] ECA, Survey of Economic and Social Conditions in African LDCs, 1990-1991 (E/ECA/LDCs.11/EXP.10/2, 27 March 1992), p. 38.

[16] Nitin Desai, "Change, exclusion and the good society" in Our Planet [United Nations Environment Programme (UNEP) magazine for sustainable development], vol. 7, No. 2, 1995.

[17] Nitin Desai (1995), op. cit.

[18] UNCTAD, World Investment Report 1994. New York and Geneva: United Nations, 1994, p. xix.

[19] Action Aid, Bridging the poverty gap - An Action Aid briefing, March 1993.

[20] World Bank, World Development Report, 1990. p. 5.

[21] Robert Chambers, "We need to stand on our heads", in Our Planet, vol. 7, No. 2, 1995.

[22] UNICEF, The State of the World's Children, 1994.

[23] Robert Chambers, "We need to stand on our heads", in Our Planet, op. cit.

[24] Paul Streeten (1993), "Poverty concepts and measurement" in Poverty Monitoring: An international Concern, Rolph van der Hoeven and Richard Anker (eds.). Papers from an international Workshop on Poverty Monitoring organized by the International Labour organization (ILO) and the United Nations Children's Fund (UNICEF) in Santiago de Chile, September 1991.

[25] ECA, Problematique of financing development in Africa (E/ECA/94/10, p. 10).

[26] The Economic Intelligence Unit (EIU), Country Profiles for Zambia and Mozambique, 1994-1995, The Economic Intelligence Unit, 15 Regent Street, London SWlY 4LR, United Kingdom.

[27] OAU (1981), Lagos Plan of Action for the development of Africa, 1980-2000.