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Debt relief, trade and aid: the road to development?

Africa is the only place in the world that will not meet a single one of the Millennium Goals if the overall situation does not improve dramatically. Therefore Africa was the main theme when

the powerful G8 countries had their summit in Scotland in July. The G8 leaders promised to

give debt relief and to increase development aid to the world’s poorest countries. But is it enough? Or is it too little too late? And could the money of the West be spent more wisely?

By Per Bergholdt Jensen 04. November 2005

Great expectations - such was the situation all over the world prior to the G8 summit in the Scottish town of Gleneagles in the beginning of July. People had gathered worldwide in one of the biggest campaigns against poverty ever, to oblige the leaders of the G8 countries to take action.

The G8 consist of same of the world’s major industrialized countries: USA, Canada, England, France, Germany, Italy, Japan and Russia. The leaders of these countries meet annually to address important economical issues.

The English government was hosting the summit and decided to put Africa and Climate Change on the agenda.

Prime Minister Tony Blair of Great Britain explained the decision to focus on Africa this way:

“Africa is the only continent which, without change, will not meet any of the Millennium Development Goals. Although there are success stories in Africa, four million children under five die in Africa every year. Three thousand children die a day from malaria. Fifty million Africa children don't go to primary school. Life expectancy is plummeting - by 2010 it will be down to just 27 years in some countries. Africa is an immediate moral cause which commands our attention.”

Mozambique is on the road to develop, but the G8 aid and debt relief might prove

unsufficient. Photo: Per Bergholdt Jensen.

Some political commentators have seen this as a move that should secure the political legacy of Mr. Blair following an increasingly unpopular and messy involvement in Iraq. But regardless of the motives, this summit might prove to be a turning point in the attitude of powerful Western countries towards Africa.

Popular demands

Arguably there has been more focus on the problems of Africa during this summer than ever before. The moral cause of the continent made thousands of people participate in demonstrations and other acts of sympathy, while millions watched the Live8 concerts, all in order to address poverty.

The “Make Poverty History” campaign seems to have a deep popular impact that could change the awareness of Western citizens concerning poor people. But is all this activity just a stunt to make Western citizens feel better about them selves, while the gap between the rich and the poor is getting bigger by the minute? Or will it have any real impact? In the long run it is hardly enough that well meaning rock stars, that earn more in a day than most people in Africa do during a life time, gather every 20 years to address the issues of poverty and hunger.

More substantial economical and political changes are needed to improve the situation in Africa. And debt, trade and foreign aid are crucial matters in this context.

The purpose of debt relief is to liberate funds for education and health. Photo: Per Bergholdt Jensen.

Debt relief and trade

The debt burden of many poor countries has been a major obstacle concerning their development,

and many nations spend more on paying back loans than they do on health care or education. Prior to the G8 summit the World Bank and the International Monetary Fond had cancelled the debt of 18 highly indebted poor countries, including Mozambique.

The whole intention of the debt relief is to liberate funds within the states budgets that would otherwise have been spent on paying interests on loans. In the case of Mozambique it is believed that the country will initially save US$ 55 millions every year because of this debt relief. This money is supposed to be channelled into education and health care and thus benefit the Mozambicans. In this way the living conditions of the people should improve, and a basis for economic growth should progress.

Critics of the debt relief could lead to further problems. Their argument is that a complete debt cancellation could encourage African governments to apply for new loans, and thus start irresponsible economic politics that would once again leave the poor nations in a mess.

As for the concern about irresponsible economic politics, the countries that have been chosen for debt relief have all lived up to strict conditions. The countries had to be able to present proof of good governance, poverty reduction strategy papers and willingness to fight corruption. In September the World Bank and Mozambique signed a loan agreement for $120 millions aimed at poverty reduction. But loans alone are not enough.

The African nations have to help themselves through economic growth and trade in order to obtain sustainable development. Most developing countries, however, are unable to compete with rich industrialized countries on equal terms.

The poor countries do not always have access to the lucrative markets in the West. Furthermore, the government subsidies that Western farmers receive make it virtually impossible for African farmers to sell their products and gain a profit. In the European Union, for instance, every cow receives $2 per day in subsidies, while millions of Africans live on half that amount.

The G8 agreed that they should establish a credible end date for agricultural export subsidies.

This could have a positive impact on Mozambique’s agricultural export of products like cotton, which would then benefit the cotton farmers in the Nampula province. But exactly when these measures will be taken to reduce the subsidies is still left to be seen.

The Need for Aid

Like many other poor African nations Mozambique is heavily dependent on foreign aid, and approximately half of the state budget originates from foreign donors.

The G8 countries agreed on a doubling of aid for Africa by US$25 billion a year by 2010, as a part of an overall increase of US$50 billion for all developing countries. The G8 put emphasis on education and health in Africa, agreeing on free primary education and basic health care for all, and taking measures on illnesses such as malaria, HIV/AIDS and polio. Furthermore the G8 confirmed its commitment to training and equipping 75,000 troops by 2010 in order to end conflict and create conditions of stability.

There are some hesitations towards this policy, however. Different sources have stated that it would a mistake to start a spending spree without having secured that the money would be spend properly on liable projects. Using funds on programs, projects and NGOs without substance just in order to make the donors look good would also be a mistake.

After all these funds come from taxpayers in the Western world and a misuse of development funds could backfire politically and thus provoke reluctance towards future aid.

But in order to solve the overwhelming problems of Africa increased funding is needed. And the proposed aid of the G8 countries might prove too little if the millennium goals have to be achieved before 2015.

The Price of Setting Africa Straight

One of the most acknowledged economists concerning development issues in the world, Jeffrey Sachs – who is also personal adviser to UN Secretary-General Kofi Anan - has done the numbers on Africa. And he reached this

conclusion if the basic problems of the continent are to be solved:

“Basic infrastructure - roads, investments in soil health, water harvesting for crops, drinking water and sanitation, modern cooking fuels, electricity - would cost around $45 per person per year between now and 2015 (using an average of the per-capita costs identified for Ghana, Tanzania and Uganda). Basic health care - for control of malaria, AIDS, TB, childhood diseases, safe childbirth, nutrition and family planning - would be another $30. Upgrading primary and secondary education would add another $15 per person per year. Other high-priority items would add roughly another $10, bringing the total needed investments to around $100 per person per year.” (Jeffrey Sachs: Doing the sums on Africa, The Economist, 20 May 2004.)

Of course, the question is where these funds could come from. A possible answer is military budgets.

Weapons vs. Welfare: Books or Bombs?

Governments all over the world spend an obscene amount of money on arms. The Stockholm International Research Peace Institute estimates that the annual military expenditure world wide amounts to US$1035 billion (US$ 1.035.000.000.000) or the equivalent of US$ 162 pr. person in the world.

This money could change the lives of millions of poor people around the globe if only spent differently. In comparison there has been spent US$450 billion on aid in Africa between 1960 and 2005, or less than half the annual military expenditure.

In order to solve the problems above mentioned for the 800 million people in African, it would take some US$ 80 billions. In other words less than a modest ten percent cut in the annual world wide military expenditure could solve the gravest problems in Africa.

Recently there has been a tendency towards a rise of military expenditure world wide. Mozambique is an exception from this, however. In recent years the Mozambican government has taken the consequence of not facing any inner or

outer threats to the country, and have therefore opted for spending the money in other sectors.

On the other hand, the USA and Great Britain are involved in an extremely costly armed conflict in Iraq. In October 2005 the total cost of the war had amounted to more than $200 billion.

This money could have funded worldwide AIDS programs for 20 years, or global anti-hunger efforts for 8 years. Likewise the cost of the Iraq war could have secured basic immunization for every child in the world for 67 years.

The cost of the war is increasing with some $2000 per second. There are moral causes – and then there are moral causes.

(Published by Mellemfolkeligt Samvirke /

ActionAid Denmark 05 November 2005.)