Panel on policies, institutions and convergence OECD Paris 16 January 2006

1. Millennium Development Goals, Peer Review and African divergence Jorge Braga de MacedoFaculty of Economics, UNL and Tropical Research Institute (IICT) Panel on policies, institutions and convergence OECD Paris 16 January 2006

2. Outline • Question: Can the African Peer Review Mechanism serve as a convergence instrument? • Answer: No, but it sure beats the Millennium Development Goals, whose African record is dismal. • Intervening Topics: • Tristes tropiques • FfD vs. MDGs • Policy convergence • NEPAD-AU vs. APRM

3. Systematic Quantification of Comparative Economic Performance • Maddison (2002) provides a millenial perspective on the world economy with a message of divergence in space and time: “the West and the Rest”. • This has to be adjusted to the rise of the BRICs. • In the same vein as celebrated GS car race, Whalley (2005) has BRICs (+South Africa, ASEAN and Mexico) at 20% or 60% of OECD GDP in 2004 depending on valuation.

4. Dreaming with BRICs Overtaking the G6: China Moves into Pole Position Source: Goldman Sachs (2003) courtesy of Roopa Purushothaman Source: Goldman Sachs (2003) courtesy of Roopa Purushothaman

5. Tristes tropiques or Is Africa becoming a global ghetto? • On slightly different definition of West from Maddison’s, East in 2015 reaches same % as 1913, 5 points above 1950 trough while the gap between West and South (Africa+Latin America) falls over 20 points during same period. • According to Maddison (2004), Africa’s average GDP per capita in 2001 was 1500 and Latin America’s 6000 (both in 1990 international $)!

6. GDP cap in different regions as % West (excluding Japan, Russia, Turkey) Year WMad East South 0 98 % 99% 92% 1000 102 % 112% 103% 1500 100% 80% 58% 1820 102% 53% 43% 1913 103% 22% 26% 1950 100% 17% 29% 2001 110% 19% 9% 2015 107% 22% 8% Note: WMad includes J, RU & T here they are included in East. South is Africa+LatAm. Numbers in Maddison (2004) differ somewhat

7. “institutions survive the presence of geography, and vice versa” • Gylfason (2006) explains growth differentials across countries by: • Private initiatives (investment, fertility) • Public policies (education) • Institutions (democracy) • Geography (natural resources) • Total effect of natural capital on growth is negative as long as wealth per head is below $150K • No African dummy. • Contrast Sachs (2000): “Perhaps the strongest empirical relationship in the wealth and poverty of nations is the one between ecological zones and per capita income”.

8. Policy convergence • According to Sachs and Warner (1995), countries whose policies related to property rights and to integration of the economy into international trade do not qualify as appropriate do not converge. • In published version they dropped property rights and overstated their argument. • Cohen (2002) shows that there is not a unique factor behind the poverty of nations. • Poor countries are "slightly" disadvantaged in each one of the factors behind prosperity. But the combination of these slight weaknesses results in huge income gaps.

9. From 25% to 6% of the West • Excluding Sub-Saharan Africa, Cohen finds average income per capita in poor countries is only 1/4 that of rich countries even though the level of human capital, its ratio to physical capital and total factor productivity are each2/3 of the rich countries'. • Sub-Saharan Africa has only 40% of the West’s level of human capital, physical capital and productivity but this implies that average income is just 6% that of the West.

10. Financing for development and MDGs • The persistence of tropical underdevelopment has led to internationally agreed goals such as the Millennium Development Goals incorporated in the 2002 “Monterrey Consensus” (sometimes called Washington consensus with a sombrero). • Clemens et al. (2004) argue that the MDGs may undermine the cause of helping the world’s poor “by over-reaching on the targets and overselling the efficacy of aid”. • This is even more true when international organizations (UN, IMF, World Bank, WTO) are unable to work together, as indeed seems to have been the case (The FfD conference in Monterrey was the exception). • In Zedillo report, the call for more aid is supplemented by innovative forms of financing, described by Reisen (2004).

11. Reisen on global taxes and special funds • Global taxes seek to finance a global public“good” (development) by imposing a tax on a global “bad”, such as speculative international finance, pollution or the arms trade. They have widespread public support, notably among civil society groups but face the opposition of crucial govts. • Topic-specific funds, like the Global Fund to Fight AIDS,the Vaccine Fund and the Global Environment Facility, can serve as focal points for finance for specific urgent global problems but they may also result in a less coherent response to global problems, since they may duplicate existing structures or introducenew ones into what is already a cumbersome and complex management system.

12. The International Finance Facility(IFF) • The IFF would be built on a series of pledgesby donors (each lasting 15 years) for a flow of annual payments to the IFF. On the back of these pledges (its assets) the IFF would issuebonds in its own name (its liabilities). However, real liquid public assets would bolster the credibility of the Facility. • The IFF could boost aid to as much as $100 billion per year during the crucial 2010-2015 period. • Yet agreement about the IFF has not been reached within the G8. TheUnited States, in particular, have favoured a bilateral approach, increasing foreign aid by 50 per cent overthe next three years by creating a Millennium Challenge Account (MCA).

13. Quoting Clemens et al. (2004) • What poor countries need from rich ones is broad-based, sustained, moderate engagement—not emotional, moralistic, centralized big bangs. Aid can work, but it must be dramatically improved. • Innovations like the Global Health Fund or the Millennium Challenge Account are a great start, but we need much more such experimentation and evaluation before “scaling up” makes any sense. • And we need to go far beyond aid, • investing in key technologies (such as vaccines), • opening our markets, • finding creative arrangements for win-win labor mobility, • and many other avenues to support ongoing efforts by poor countries themselves.

14. Eight MDGs from 1990 to 2015 • halve extreme poverty (1a) and hunger (1b); • achieve universal primary education (indicators are rates of enrollment 2a; and reaching grade 5 2b); • promote gender equality (3a) and empower women (3b); • reduce under-five mortality by two-thirds (4); • reduce maternal mortality by three-quarters • reverse the spread of HIV/AIDS, malaria and other diseases; • halve the proportion of people without access to safe drinking water (7a), ensuring environmental sustainability; • develop a global partnership for development with targets for aid, trade and debt relief.

15. MDGs and Africa • At current rates, the fraction of world population living under $1 a day will be halved in 2015, due to spectacular progress in China and India. • It will not be the case in Africa, where extreme poverty will fall from 48% in 1990 to 39% in 2005, while the MDG is 23%. Only six countries – mostly from North Africa – will reach the goal. The hunger target has been achieved in Ghana, Libya, Namibia, Nigeria and Tunisia. • At end 2005, African outlook remains mediocre, in spite of numerous initiatives on the part of the UK presidency of G8 & EU and of continued world growth. • Russian G8 Presidency goals (energy, education, health) not targetted to Africa.

16. MDGs performance ratio in Africa Goals achieved and on track as % of total (includes slightly off, far behind, slipping back and no data, the latter is indicated in parentheses) 1b. halve people suffering from hunger: 28%(11%) 2a. all children enroll in primary education: 59% (6%) 2b all children reach grade 5: 13%(74%) 3a promote gender equality:55% (23%) 3b empower women: 36%(40%) 4. reduce under-five mortality by two-thirds: 21%(2%) 7a halve the proportion of people without access to safe drinking water: 51% (28%)

17. African Economic Outlook • Joint report by OECD Development Centre and African Development Bank Publication began in 2001 thanks to grant from European Commission. • Modeled on OECD Economic Outlook, includes overview of 29 countries representing close to 90% of population and GDP and a statistical annex which includes social indicators. • Special themes each year: Privatisations in 2003; Energy in 2004; financing of small and medium entreprises in 2005.

18. 1996-02 03 04e 05p 06p GDP % pa 3,8 4,4 5,1 4,7 5,2 Inflation % pa 11 8,3 7,9 7,5 6,2 Budg defic % GDP 1,9 1,4 0 0,7 0,3 Trade Bal % GDP 1,6 2,8 5,7 7,1 6,5 Macroeconomic Indicators from AEO 2005

19. AEO Message & NEPAD • AEO Message since 2002/2003 has been that economic challenges are rooted in domestic governance rather than on external factors. • Monterrey Consensus explicitly acknowledges therole of good governance and peer pressure. NEPAD does the same as it based on the twin concepts of ownership and partnership, whereby Africans themselves are in charge with the support of their development partners. • This has led to 5 African Partnership Fora meeting in Africa and in the G8 presidency country. • More importantly the key to NEPAD is its African Peer Review Mechanism (APRM), reviewed by Kanbur (2004).

20. NEPAD, AU and good governance • NEPAD has led to a new dialogue between African leaders and their development partners but also to a new impetus for African integration. • The pressure for appropriate policies has increased and stronger commitments have been made in connection with sustainable development and social and economic programmes socio-economiques • AU-NEPAD Ministers for Science and Technology met in Dakar in Sept 2005. These meetings are usual in EU especially as a new framework program is being approved in Parliament.

21. 26 countries have signed up for APRM • 26 countries have signed the APRM Memorandum (or are about to so at the 5th Summit to be held in Sudan next week): Algeria, Angola, Burkina Faso, Cameroon, Congo, Ethiopia, Gabon, Ghana, Kenya, Mauritius, Mali, Mozambique, Nigeria, Rwanda, Senegal, South Africa, Uganda, Benin, Malawi, Lesotho,Tanzania, Sierra Leone, Sao Tome, Sudan and Zambia. • The review of Ghana and Rwanda will be concluded, to be followed by Kenya et de Mauritius, then Uganda, Nigeria, Algeria and Senegal. • So far no announced peer review date has been met: the 5th Summit was supposed to take place in November 2005.

22. APRM spread itself too thin • APRM provides a forum that speaks with an African voice toAfrican nations but Kanbur (2004)cautions it must not spread itself too thin to meet the three criteria of competence, independence and competition. • There are 93 indicators in the 4 sub-areas listed of governance. This cannot be covered competently, no matter how good the staff. • The success of the APRM depends on the seeds of its assessment of acountry falling on the fertile soil of a vibrant civil society dialogue in that country. • Better links with other multilateral surveillance procedures (IMF, OECD and EU) would help. This is the purpose of the Africa Partnership Forum, launched in Paris in 2003, now under Russian and Nigerian co-chair.

23. Annex Kanbur’s criteria for peer review 1. Competence • Technical competence is essential. • Academic peer review relies on thecompetence, authority and reputation of journal referees and editors. • The OECDsecretariat is central to the functioning of its peer reviews. • The IMF is criticized morewhen it steps outside of its basic competence in macroeconomics.

24. 2. Independence • Any suggestion of influence on the reviewers, either from those reviewed or fromforces extraneous to the review, would undermine the integrity of the review. • Inacademic review, anonymity assures this independence, as well as the professionalstature of the reviewers and editors. • OECD peer reviews explicitly include a politicalphase where the reports and their conclusions are discussed, and negotiated, but there is independence of the technical work. • The IMF’s independence from the interests of its majorstakeholdersis widely questioned by governments and civil society in poorcountries.

25. 3. Competition • Peer review mechanisms work best when they are part of a wide range ofassessments. When a review isperceived to be the “only game in town”, the high stakes set up a dynamic of pressures that can undermine trust. • There are many academic journals to which authors rejected from onejournal can take their paper; • OECD peer reviews feed into a rich and ongoing policydialogue and debate in the reviewed country; • IMF reviews work like OECD reviews inrich countries not using IMF resources, but not so in poor countries dependent on them.