GREEN PAPER

on relations between the European Union and the ACP countries
on the eve of the 21st century
Challenges and options for a new partnership

CHAPTER III.
SOCIO-ECONOMIC CHANGE IN ACP STATES: LIMITING FACTORS AND POTENTIAL

This report should be cited as: European Commission. 1996. Green Paper on relations between the European Union and the ACP countries on the eve of the 21st century - Challenges and options for a new partnership. Brussels: European Commission

DG VIII page

• A. The vicissitudes of economic policy in a deeply uncertain climate
• B. Anticipating risks and exploiting potential
• C. Implications for the future partnership

A. The vicissitudes of economic policy in a deeply uncertain climate

1. Socio-economic performance: uneven, but generally disappointing

In the last two years, the economic situation has improved appreciably in a growing number of ACP countries. This as yet fragile recovery may yet prove lasting, with knock-on effects on other countries, provided that they continue to improve their economic policies.

Over the long run, however, the performance of ACP countries as a whole has been disappointing and generally inferior to that of other developing countries, particularly in sub-Saharan Africa, the region with the greatest problems at present. There is no shortage of indicators to support this assertion:

• Per capita GDP in sub-Saharan Africa grew by an average of only 0.4% a year between 1960 and 1992, compared with 2.3% for developing countries as a whole. This figure reflects both markedly lower economic growth (3.3%) and higher population growth (2.9%). The gap between per capita GDP in sub-Saharan Africa and that of other countries has since widened to 1:4, and on current trends is likely to widen further to 1:6 within 15 years.
• The region's low growth makes its continuing poverty problems all the more worrying; it scores extremely badly on income, health, nutrition, education and access to drinking water. On the most commonly used measure of poverty, per capita income/consumption, the World Bank estimates that 1 300 million people live below the poverty line, of whom 515 million are in southern Asia and 220 million in sub-Saharan Africa. Poverty is particularly widespread in sub-Saharan Africa, where the average income of the poor is 15% below than the poverty line. Despite important recent advances in assessing social development (by the UNDP and the World Bank in particular), it is difficult to grasp the reality of such poverty and in particular to assess the dynamics of it, given the lack of reliable long-term data series for many countries. Available estimates suggest that between 1987 and 1993, the incidence of poverty remained fairly steady at 39% of the population; there were marked improvements in some countries, such as Nigeria, Ghana, Tanzania and Ethiopia, while in others the situation worsened, sometimes dramatically so.
• Education and training standards improved from a very low starting point in the early 1960s, although adult illiteracy is still over 40% and attendance rates are markedly lower than in other developing countries (36% of those aged 6 to 23, compared with 47% for all developing countries in 1990).
• Life expectancy has certainly improved (from 40 in 1960 to 51 in 1993) and infant mortality has declined (from 167 to 97 per thousand live births), but this is less impressive than comparable figures for other developing regions. The percentage of the population denied access to health services is still large over 40% compared with an average of 20% for developing countries generally.
• Sub-Saharan Africa has the fastest-growing population in the world. If present trends continue and there is no sign of any levelling-off it is set to double between 1992 and 2017. Rapid urbanization increasingly threatens living standards and complicates infrastructure management schools are overcrowded, health services overburdened, water supplies inadequate and below standard, and electricity supplies erratic. The United Nations Fund for Population Activities (UNFPA) forecasts a rise in the percentage of Africans living in cities of over 5 million inhabitants from 8% in 1994 to almost 20% by 2015.
• Food production is chronically inadequate and likely to remain so. Per capita food production has fallen by 5% over the last 15 years. With population rising fast, it is difficult to see how the food deficit will be filled, especially in the poorer countries, although there is substantial scope for improving agricultural yields in the region. At present, such countries are heavily dependent on food imports and therefore on export earnings and food aid.
• Economic and social development is increasingly hampered by environmental damage. The poor are worst hit by deforestation and soil exhaustion, while water and air pollution problems are becoming increasingly acute in overpopulated areas.
• Exports are still geared to primary exploitation of natural resources. Sub-Saharan Africa began to lose its market share internationally in the 1970s and continued to do so throughout the 1980s, up to 1993. This part of the world has attracted little FDI, with a few exceptions, and so far has failed to benefit from rising investment in developing countries. In 1995, for example, it captured a meagre USD 2 billion out of a total of USD 90 billion in investment in developing countries. Whereas FDI is becoming a major source of external finance for many developing countries, it represents only 10% of such funds in sub-Saharan Africa. Altogether, the region is of marginal importance in the world economy at the moment, accounting for only 2% of international trade and less than 1% of FDI.
• Major macroeconomic disequilibria persist, notably a highly inadequate rate of savings which, allied to low growth, has allowed external debt to expand to unmanageable proportions in some countries. Sub-Saharan Africa is the most heavily indebted region in the world, at 270% of export earnings and 75% of GNP, and is chronically in arrears.

The overall picture masks a wide variety of conditions, however, and, as in other developing regions, the gap between African countries is widening.

In 1994 income per capita averaged USD 460 in sub-Saharan Africa, ranging from USD 80 or 90 in Rwanda and Mozambique to USD 600 in Côte d'Ivoire and Senegal, and around USD 3000 in Botswana and Mauritius.

Moreover, forecasts indicate a growing divergence between countries capable of implementing credible development policies and others locked in a vicious circle of violence and poverty. Countries covered by the Special Programme for Africa have achieved encouraging growth rates in recent years; GDP growth was around 1.5 points higher than in other sub-Saharan African countries on average from 1994 to 1996 (at median rates). Faster growth was matched by improved exports and increased investment, which is now running at almost 20% of GDP. The growth of private sector investment, in particular, illustrates the marked improvement in the economic climate of those countries. Another encouraging sign is that this improved performance has been more or less steady since structural adjustment programmes were introduced in 1987.

Most Caribbean countries, with the exception of Guyana, Suriname and Haiti (one of the world's poorest countries, with an average per capita income of USD 230), figure in the intermediate income bracket. Some, like Trinidad & Tobago, are better off (at around USD 3 740 per capita), while Barbados is among the region's elite. On the whole, however, GNP growth has been poor (even if one excludes Haiti), averaging 1% since 1990, and there is considerable poverty. Social indicators nonetheless show the Caribbean's health and education performance to be better than that of sub-Saharan Africa even where incomes are similar, reflecting advances achieved in recent decades by focusing on basic needs. In the last few years, however, that progress has been jeopardized by pressure to curb spending, particularly social expenditure, with a view to macroeconomic stabilization and structural adjustment.

Improved economic policies led to a rise in FDI from the early 1980s onwards in almost all but the poorest Caribbean countries; however, conditions are still far from conducive to privatesector diversification. The region is still heavily dependent on a few agricultural products (bananas, sugar and rice, mainly), and mineral products, for its exports. Since most Caribbean countries are islands, the climate and weather conditions also influence their economies, and considerably increase the per capita cost of social and economic investment and infrastructure.

The eight Pacific ACP States form a relatively heterogeneous group in both economic and cultural terms. The largest, Papua New Guinea (PNG), with some 5 million inhabitants, accounts for 70% of the group's total population, while the smallest, Tuvalu, has only 9 000. There is likewise a wide range in income, from USD 710 per capita in Kiribati to USD 2 130 in Fiji. As islands, with very small-scale economies, the eight countries are highly vulnerable to external influences: they are heavily dependent on trade and vulnerable to natural disasters such as cyclones.

Given the growing diversity of economic and social conditions found in the ACP States, it is tempting to subdivide them into different categories. On current performance, one can, in fact, distinguish between:

• (1) countries in political or economic crisis, such as Somalia, Liberia, Sudan, Zaire, Rwanda and Burundi;
• (2) countries which have embarked upon reform, but have not yet begun to see results in terms of faster growth, and which are stagnating; this applies to most of sub-Saharan Africa;
• (3) emerging economies which, over the last few years (since 1992-93), have shown themselves capable of reform, and whose growth prospects are now improving (e.g. the Côte d'Ivoire-Ghana-Mali-Burkina Faso axis, Uganda, and Namibia). In the Caribbean, Jamaica, Trinidad & Tobago, and the Dominican Republic have stepped up the pace of reform with a view to acceding to the North American Free Trade Agreement. In the Pacific, PNG has, since 1989, participated in the APEC-led (Asia Pacific Economic Cooperation) liberalization process. The ACP countries also count a few exceptional "success stories", such as Botswana et Mauritius.

While this classification is useful for analytical purposes, its development policy implications are extremely limited in practice. The categories are subject to change; a good number of African countries have been and will be subject to abrupt changes of fortune. Countries which once performed quite well have experienced major reversals Rwanda is a case in point, as is Nigeria, where political upheaval halted reforms. On the other hand, some countries which had been in recession for a long time are now advertisements for successful reform: Ghana and Uganda, for example.

Categorizing aid recipients is, therefore, no substitute for a thorough analysis of the problems that African countries are likely to face now and in the future.

2. Causes of low growth in sub-Saharan Africa

Several factors contribute to sub-Saharan Africa's poor per capita growth performance. Among the economic factors are its relatively low investment, rapid population growth, and failure to improve industrial/agricultural productivity, which in turn is partly explained by economic policy failures. Africa has unquestionably suffered poor economic management: large budget deficits, overvalued currencies, excessive market regulation, market distortions caused by protectionism and poor public sector management, all of which has tended to discourage the private sector. This is not to deny that external factors have played their part in its poor economic performance; ACP States are particularly vulnerable to fluctuations in commodity markets, international monetary conditions and debt servicing obligations.

If we take this analysis a step further and seek to pinpoint key factors that have either reduced the effectiveness of African development policies over a long period or suggest that, compared with other regions, African countries have opted for policies less conducive to growth, we find that they fall into two groups: those relating to structural disadvantages and those arising from the high-risk environment. If it is more difficult to implement an effective economic policy in Africa, if adjustment and reforms seem harder to achieve there than elsewhere, it is because, of initial handicaps and the fact that Africa is prone to more risk factors.

Among the handicaps which have dogged sub-Saharan Africa since independence, exerting a lasting influence on development conditions, two in particular have ensured that development needs outstrip the state's ability to respond: firstly, the level of education is particularly low, even when considered relative to per capita GNP and, secondly, population has been rising faster than anywhere else in the developing world.

Another factor is the relative lack of entrepreneurial spirit, which accounts for the weak response to the introduction of incentive-based policies following decades of interventionism.

Sub-Saharan Africa is also less predictable than any other region. Its climate, for example, brings great variations in agricultural output, which is still of major social and economic importance. Growth is also hampered by fluctuations in export earnings, in government aid payments and in external finance, which in turn lead to great variations in import levels and, except in the CFA states and a few other countries, to internal monetary instability.

There is a high degree of political, as well as economic instability, which adversely affects investment conditions and economic activity in general. Government's ability to do its job is limited by the lack of transparency in public affairs, the rentier mentality and the clientelism practised by ruling elites. Bad governance jeopardizes social development efforts, which demand policy continuity and long-term vision, and partly explains the delayed impact of structural adjustment, since it encourages investors to adopt a "wait-and-see" policy.

3. Political instability and the dysfunctional state

In recent years a number of ACP States have been characterized by political instability, weak government institutions incapable of implementing development policies, rising crime, organized violence and the spread of a new kind of armed conflict, with humanitarian, social, economic and environmental consequences.

The causes can be traced back, in part, to the colonial legacy of strong central planning and government intervention, and the creation of borders with no social rationale.

They can also be traced to the authoritarian leanings of the political regimes in power during the first two or three decades of independence, backed by Cold War alliances, and their frequent use of power for short-term private gain. Public services that do not work properly, swollen parastatal organizations, declining infrastructure, and problems raising revenue are the more obvious symptoms of the dysfunctional state.

Continuing economic recession, triggered in the early 1980s by falling commodity prices, rising petrol prices and international financial problems, has shrunk state revenues and real wages and altered the structure of incomes and the distribution of wealth; this has led to a rise in informal economic activity and contributed to a boom in fraud and trafficking, which is becoming linked to international networks.

As a result, over the last 15 years, three new factors have helped to weaken government structures and contributed to social breakdown:

• (1) The first attempts at adjustment and economic reforms introduced in the early 1980s threw up some unexpected problems. For example, early operations geared to slimming down the public sector and cutting budget deficits, reduced public service effectiveness and eroded not only the economic and social foundations of the state but its political authority and legitimacy. In general, external aid for economic reform had serious, unpredicted, political consequences. Only later did the IMF and World Bank in particular along with the EU in its adjustment support policy introduced from 1990 stress the need to make government institutions work better, with a view to maximising the impact of adjustment programmes. A more all-embracing view of the state's role in a new economic climate gradually developed.
• (2) The end of the Cold War and the fall of the Berlin Wall in 1989 prompted industrialized countries to rethink their geo strategic interests and changed their attitude to the ACP States, in two key respects. Firstly, many developing countries discovered that they could no longer rely on unconditional financial assistance; secondly, the international community began to take a firmer line about upholding human rights and democratic principles. The resulting strategy of "political conditionality", imposed in addition to economic strings, was probably too formalistic, and its impact insufficient to secure political stability or significant advances in the rule of law. In some cases, the international community's backing for "democratization" resulted in token representation and sham institutions.
• (3) The transition to democracy in ACP States was started up in tandem with the end of the Cold War, and proved particularly difficult. Democratization has not been matched by equal advances in the rule of law. Particularly in sub-Saharan Africa, it is also clear that there is a lack of models of political and social organization appropriate for current conditions: the style of government derives from the way African societies operate, with the group prevailing over the individual. The general interest often gives way to the particular interests of the group in power, which does not share or accept the principle of relinquishing it; in such conditions, it is difficult for the state to assume the role of promoting economic and social progress in an increasingly competitive world economy and upholding democratic principles recognized by the international community. The fact that elections in a number of countries have returned former ruling elites to power testifies to the difficulty of carrying through economic and fiscal reform, which often entails a short-term social cost that may disappoint the voters. It is a situation quite different from that of post-war Europe, where the need for democratic reform went hand in hand with social progress and the introduction of highly advanced social welfare schemes.

There are nonetheless some encouraging signs: scheduled elections, increasing press freedom, and the settingup of consultative bodies giving a voice to the private sector, grassroots communities, women's organizations, NGOs, etc. have created space for debate and paved the way to more transparent governance. The pressure for change is reflected in ACP societies' increasing demands for a style of participatory development that takes account of individual needs.

By no means every country shares the same political problems, but the problems are there, and they lend credence to a widespread unease which is not confined to the countries with the worst problems but which tends, at least in sub-Saharan Africa, to weaken confidence in the continent as a whole. It is that lack of confidence which is largely responsible for the record of slow, erratic investment, particularly foreign investment, in Africa, and which tends to undermine the legitimacy of development aid.

B. Anticipating risks and exploiting potential

1. Basic conditions for development and economic reform

The problems - in some cases severe - caused by political and social destabilization and the persistent difficulties besetting the implementation of economic growth policies, despite fifteen years of adjustment and assistance from the international financial institutions, are the two main dilemmas confronting sub-Saharan Africa today.

A number of countries lack the minimum criteria for peace and proper economic management. A mere 30% of the sub-Saharan population is living in countries which - only just - satisfy these criteria. This figure excludes countries in the throes of civil war and those which, through economic mismanagement, lack the basic prerequisites for development.

Six interdependent factors provide the yardstick by which future development prospects may be gauged:

• (i) Peace and security, minimum conditions for development

  Civil war has exacted a heavy toll in the ACP countries, with little prospect of improvement in the medium-term. Apart from their devastating direct effects in the countries concerned, these conflicts also have a "domino effect" in the sense that their repercussions, in particular the loss of confidence by economic operators, are felt throughout the region.

  Despite this bleak outlook, there is still some cause for optimism: in countries with only a minimum of social stability, economic growth, although low in relation to their potential, has still generated an increase in income per capita.

• (ii) Necessary economic and institutional reforms

  The rate of investment in many countries is still too low. Of all the factors which influence investment decisions, the evaluation of "risk" (political instability and unpredictable economic and trade policies) is often the most decisive at this stage.

  The implementation of economic reforms in an increasing number of countries since the end of the 1980s has helped reduce the risk factor. As in other regions of the world, these reforms usually undertaken in the context of a macro-economic stabilization effort go beyond the problem of short-term adjustment and embrace a whole series of economic policies and institutional changes. Apart from restoring a stable macro-economic framework, the reforms are intended, overall, to improve economic competitiveness through a more realistic exchange-rate policy, more efficient markets, trade liberalization and opening up to foreign investment. The reform of the public sector is based on a "back-to-basics" approach, with the emphasis on the provision of essential services and basic infrastructure.

  Institutional reforms take longer and are more difficult to implement than liberalization policies; they concern the development and modernization of the financial system, tax reforms, public expenditure management, the improvement of the legal and regulatory framework, the reform of public enterprises and privatization.

  These observations, which concern mainly sub-Saharan Africa, are also valid for the Caribbean countries, which are facing similar problems, albeit on a different scale. The reforms introduced in some of these countries in recent years to facilitate the development of the private sector and improve export potential still have a long way to go. Matters such as trade liberalization, the improvement of the regulatory framework, the development of the financial system, the functioning of the labour market and the need to create room for manoeuvre in social policy are thus set to dominate the economic policy agenda of the region for some time to come.

  Tangible results are already discernible in certain areas. While it is difficult to identify the precise reasons for the improvement in economic growth, particularly in countries covered by the Special Programme of Assistance for Africa, it is clear that financial support from the international community has played a vital role in helping ensure the continuity of economic policies and reforms.

• (iii) Democratization and economic liberalization

  The dual process of economic and political transition (switch to a market economy and a pluralist system) brings with it both synergies and special problems: synergies in the sense that the reforms may give rise to broad public debate between Government and civil society, in particular representatives of the private sector, thereby providing the Government with a credible mandate; problems in so far as the implementation of stabilization policies in tandem with liberalization will be hampered temporarily by the emergence of democracy. This happens mainly when progress is slow and modest, delaying the benefits derived from improved supply conditions and prolonging the period of socio-economic austerity. In these circumstances, electoral support and a mandate for reform is more difficult to maintain, jeopardizing the continuity of economic policies.

• (iv) Issues relating to the social transformation

  While there may be a consensus on minimum economic reform, structural reforms whose implications are more pervasive and distributive effects more subtle are more controversial and meet with greater resistance. In sub-Saharan Africa, this resistance is provided by the dominant groups and is rooted in one of the cornerstones of the African ethos, i.e. the repudiation of the "each man for himself" mentality. However, the mechanisms of group solidarity have failed to ensure equitable distribution of the fruits of economic activity. The result is a predatory mentality and a very selective form of solidarity to the benefit of a privileged minority close to those in power. This form of social organization has led fund donors to keep their economic policy prescriptions within bounds as it is so difficult to predict the impact and viability of reforms that go beyond a basic common minimum.

  Furthermore, the entire international community is faced with the problem of reconciling the major political commitments entered into at Rio, Cairo, Copenhagen and Beijing in support of sustainable development based on human needs with the reality of economic development in an increasingly competitive international environment.

• (v) Reducing poverty

  The recent improvement in economic growth has undoubtedly helped halt or check the spread of poverty in some countries, but has not reduced it. This would require, inter alia, more sustained economic growth. The World Bank estimates that, given the economic structures and population growth rates in sub-Saharan Africa, an increase in GDP of 5% per annum would still not suffice to stabilize the numbers living below the poverty threshold; of those countries in the region with over a million inhabitants, only six have recorded sufficient growth rates in the last ten years to reverse the trend.

  A great deal also needs to be done to improve the impact of growth on poverty: access to basic social services should be widened significantly and, in some countries, access to productive resources (education, training, land ownership, capital and credit, etc.) could be greatly improved: entire population groups are practically excluded from the formal sector of the economy. Women are particularly vulnerable and an improvement of their socio-economic situation would act as an effective lever in curbing poverty. While the informal sector is often very dynamic, it does not generally contribute much in terms of a lasting improvement in people's living conditions. Finally, any form of economic transition inevitably alters the relative positions of different sections of the population; the existing social systems, based for the most part on group solidarity but also on dependency relations, stand in the way of an effective response to these problems.

• (vi) Integration into the world economy

  The integration of the ACP countries into the world trade arena hinges on the success of domestic economic policies and on enhanced economic competitiveness and access to foreign markets.

  While globalization has reduced trade barriers and the cost of engaging in international trade, access to international markets is becoming more complex and dependent on other non-tariff barrier trade-related considerations. In the market access equation, the level of tariffs plays an increasingly reduced role and other aspects such as competition policies, technical, sanitary and phytosanitary standards, subsidies, anti-dumping and countervailing policies, environmental and social regulations, intellectual property laws, investment codes, etc, have come increasingly to the fore as major determinants of market access.

  Thus, although multilateral liberalization following the Uruguay Round agreement achieved considerable success, it remains true that many of the trade-related areas mentioned above are still insufficiently regulated by the WTO, allowing potentially uncompetitive behaviour by multinational corporations and trading nations, which may constitute effective barriers impairing access to international markets. The development of multilaterally agreed disciplines in those new trade-related areas as well as the consolidation of the credibility of the dispute settlement rules in enforcing the new agreements on TBT and other non-tariff barriers, constitutes unfinished business which will fill the agenda of the WTO for the years to come.

  Multilateral liberalization following the Uruguay Round agreement has not slowed down the surge in interest in regionalism initiated in late 1980s. Trading nations, industrial and developing ones alike, seem to see an added value in going, at a more limited geographical scope, beyond the "acquis" of the Uruguay Round which is deemed not yet to have met the accrued demand for freer trade and more certainty and harmonization in the new trade-related areas.

  North-South trading arrangements, beyond the normal static trade creation and diversion effects, increase the policy credibility of the participating LDCs and have the potential to lead to higher domestic and foreign investment, enhanced pro-competitive effects, improved access to technology and, last but not least, a degree of protection on policy developments in trade-related areas.

  But multilateral liberalization and the growing trend towards regionalism alter the economic opportunities for the LDCs. On the one hand, those that benefit from non-reciprocal preferential treatment under the GSP or other preferential regimes like Lomé, see the value of their preferences being eroded. Furthermore, LDCs which may be excluded from regional blocs, are likely to face shifts in trade and investment to their detriment. On the other hand, multilateral and regional liberalization, in so far as the latter can be expected to spur the lowering of tariff barriers not only among the partners but also vis-à-vis the rest of world, should improve the market opportunities for the LDCs.

  Developing countries lagging in growth and integration are confronted with the need to reverse those negative trends and must make difficult decisions regarding how much and how fast to liberalize and, in particular, choose the best strategy of integration into the world economy: Should they follow the multilateral way, or would unilateral liberalization be the best way to go? Should they alternatively engage in regionalism (South-South and/or North-South)? Should they follow some combination of the above options?

2. Promising results: a possible turning point?

The recent improvement in economic growth in sub-Saharan Africa (3.5% to 4% for the region as a whole in 1995 and 7% for the 31 countries of the SPA) is undoubtedly due in part to short-term factors such as the increase in raw materials prices on the international markets. But it is also encouraging as it concerns a large number of countries and can also be attributed to better socio-economic management and the adoption of reforms which are starting to bear fruit, primarily in the form of a rise in the volume of exports.

The emergence of post-apartheid South Africa is without a doubt one of the most obvious auspicious developments. The development prospects of this country are contingent on its ability to reduce the causes of social tension and to improve the employment situation, but the potential for growth is considerable and the promising developments in terms of foreign investment and trade relations should reverberate throughout the entire region thanks to the economic knock-on effects and an improvement in the domestic situation of the other countries in the region.

The countries of the franc zone in West Africa are also helping to improve the continent's overall image. The 1994 devaluation had beneficial effects, particularly in countries which were also implementing an adjustment and reform policy. The process of regional economic integration in West Africa has also improved the economic outlook for the region and could prove to be a decisive turning point for economic development by boosting trade and improving competitiveness and also by anchoring stability-oriented macro-economic policies, thereby increasing their credibility and in turn helping to attract domestic and foreign investment.

In East Africa, too, a number of countries such as Kenya, Tanzania and Uganda have seen their situation improve considerably over the past two years. These three countries have also recently embarked on a process of cooperation and regional integration which at present covers transport, communications and payments.

A number of Caribbean countries have also achieved significant progress in stabilizing their economies and were able to take advantage of the more favourable external environment in the 1980s to implement tax and monetary reforms and engage in trade liberalization as part of a process of cooperation and regional integration, which should eventually lead to their integration into the economy of the Western hemisphere (see Box 4).

The medium-term prospects of all of these countries still depend ultimately on the results of their economic policies. Structural handicaps, however, are still a major source of weakness. In the absence of the new investment required to enable these countries to diversify their exports, the terms of trade will continue to be at the mercy of fluctuating raw materials prices, which can thwart the reform process at any moment, jeopardizing any gains achieved through the adjustment programme.

Provided there are no major external crises and assuming that raw materials prices fall very gradually in the coming years against a background of social disintegration and varying degrees of political destabilization in many of the countries in the region, the World Bank's medium-term projections put annual growth for the whole of sub-Saharan Africa (including South Africa) at 3.8% per annum for the next ten years (1996-2005). This result, which is based on the assumption that the current reforms continue at a steady rate, would be a considerable improvement on the previous ten years (1.7% per annum between 1986 and 1995) and would engender a modest rise in income per capita (+0.9% per annum). It would not, however, be sufficient to bring about a significant reduction in poverty in many of these countries; this remains a major challenge for individual governments and all those involved in development cooperation.

The world economic outlook bodes well for the ACP countries on a number of counts: a sustained upswing in world trade (more than 6% per annum according to World Bank forecasts), an international trading system based on the conclusions of the Uruguay Round and the work of the WTO, major development opportunities in the service sector, in particular tourism, the emergence of new burgeoning markets in East Asia, Latin America and possibly also in Eastern Europe, will provide the ACP countries with an opportunity to diversify their economic and trade relations. The EU proposal on improving access for the poorest countries to industrialized countries' markets, approved at the recent G7 summit, should also enhance their economic prospects.

C. Implications for the future partnership

Development conditions have changed radically in terms of socio-political developments within the ACP countries themselves and changes in the international political and economic arena.

The analysis of the constraints and opportunities facing the ACP countries provides an important yardstick for planning future cooperation, based on a better targeted and more efficient approach in support of these countries' adjustment and development policies. The following factors in particular should be taken into account:

• support for adjustment policies. In much of sub-Saharan Africa, the problems identified in the 1960s will still exist in the year 2000: poorly integrated economic fabric, insufficient infrastructure and forms of social and political organization which hamper economic development. Despite the structural handicaps affecting most of the countries in the region, there are a few success stories which prove that an improvement in living standards is possible and that such success is largely contingent upon the reintegration of these countries into the world trade arena. The main challenges confronting the ACP countries are: (i) to improve their internal political and economic management to create conditions more conducive to the development of the private sector and attract foreign investment and (ii) to expand external economic relations to take account of growth in the world economy. The poorest countries will, however, continue to require foreign aid for a long time to come to help them finance investment and provide basic services;
• the importance of credibility and good governance. The reforms planned will only succeed if they gain credibility. The political and institutional aspects of the reform programme should dovetail with the economic aspects. The future partnership will fit into a long transition process which will transform not only the economic organization of the country but also society itself;
• the need for increasing attention to be paid to the environmental aspects of sustainable development. The focus should be primarily on capacity strengthening and the environmental capacities of the ACP States themselves, but attention also needs to be paid to engaging in dialogue with our partners on the consequences they are likely to suffer as a result of global environmental trends and their role in combating unwelcome changes;
• the need to adopt differentiated approaches. The role, content and methods of cooperation cannot be the same in a country in the throes of economic and social disintegration as in one implementing an economic and institutional reform programme. Conflict prevention and the rebuilding of the State and efficient institutions should figure among the major cooperation objectives. In countries with a minimum of social cohesion, cooperation can help diminish the risks and sources of instability which stand in the way of investment and growth. Trade arrangements can play an important role here in so far as they allow or impede shifts in policy. The arrangements for granting external aid and, in particular, support for reforms may serve as an incentive to recipient countries to implement necessary policy changes and assure the continuity of the reform programme. Other forms of cooperation could also be considered in an effort to quell the sources of instability, particularly in the monetary field;
• trade arrangements established in accordance with specific criteria and objectives. The new EU/ACP trade arrangements after the year 2000 should be assessed in relation to their ability to meet the challenges, the constraints and the problems the ACP countries must confront. It should:
  • achieve respect for the relevant WTO rules so as to provide the necessary security and stability on market access terms.
  • promote fuller and more active participation of the ACP countries, individually or collectively, in the WTO.
  • preserve and, if possible, expand the current level of access to European Union markets, by relaxing constraining rules and procedures and securing, as much as possible, the benefits provided through the commodity protocols.
  • mitigate the trade and investment shift to the detriment of the ACP countries, resulting from EU-centred regionalism.
  • provide an international anchor of enhanced credibility, certainty and stability for the trading and regulatory framework (import and export regimes) of the ACP countries as preconditions for better performance on exports and attracting foreign direct investment, and ultimately higher growth.
  • encourage competition, better resource allocation and competitiveness within the ACP economies in order to improve supply response to world market price incentives and to new market access opportunities.
  • promote actively, and provide the conditions for facilitating the success of regional integration processes among ACP partners.
  • help the ACP countries cope with the increase in national and international regulations on new trade-related areas which may give rise to new obstacles to market access.
  • allow the different ACP regions to join in different (overlapping) trading arrangements more convenient to their development needs while providing a counterweight to the pull they would experience from new regional blocs.
  • take account of the differentiation among ACP countries in respect of their level of integration into the global economy, their level of development and their perceived needs.
• the importance of making progress in managing the external debt. This is important for a number of countries, which need to normalize relations with their creditors in order to restore a sufficient degree of financial credibility and gain renewed access to capital markets;
• the advantages of a cooperation policy which encompasses the whole of the sub-Saharan African region. Cooperation which is open to all countries in the region, possibly in varying forms, can have positive knock-on effects, improving the image of the continent as a whole. This factor should be borne in mind when a decision is taken on the geographical scope of the new cooperation agreement(s).
• the particular difficulties of the Caribbean ACP countries and their trade strategies in a rapidly developing regional framework. The diversification of trade and economic activities hinges mainly on the prospects for regional integration, access to the North American market (NAFTA) and participation in the mooted free trade area encompassing the whole of the western hemisphere (FTAA). This transition is, however, far from certain and the move from an economy which is traditionally dependent on the primary sector, and which benefits from specific trade preferences to an open, competitive environment will not be at all easy.
• problems peculiar to the small island economies of the Pacific. These countries have every interest in gearing themselves to the booming economies of the "Pacific Rim", with the support of Australia and New Zealand. Problems relating to transport and communications, on the one hand, and the environment and preservation of natural resources as the main economic resource, on the other, will require particular attention.

The analyses expounded in the first part of this green paper show that future cooperation between the EU and the ACP countries must be seen against a radically changed international backdrop. Also, the European Union is set to undergo farreaching changes and the various ACP countries will move in widely divergent socio-economic and political directions. In the face of a loss of legitimacy for the very principle of development aid, compounded by budget constraints and a European social crisis, the lessons learned from past successes and failures should help improve the effectiveness and impact of future cooperation.

The main task facing the EU counties is to avoid the temptation to go it alone and develop basic solidarity. To that end, it should endeavour "do better" next time and to improve the prospects for successful cooperation with the ACP countries. A number of recent Community initiatives reflect this desire and an effort should be made to identify which aspects of a multi-faceted policy should be retained and which discarded. The Union has a number of options to consider as it takes its decisions on the long-term development of cooperation policy.

Contents

Chapter 1  Chapter 2  Chapter 4  Chapter 5  Chapter 6

Updated on December 19, 1996

Developer's Note: These pages were developed for use on the Netscape browser. Please address comments to Peter Ballantyne, ECDPM