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Developed Countries Ignore Africa at Their Peril, World Bank Warns

WASHINGTON, February 4, 2009 – Rich countries must resist the temptation to slash foreign aid, even in the face of the worst global financial and economic crisis since the Great Depression, the World Bank has urged.

The leadership of the U.S. government remains vital if pledges to double aid to Africa by 2010 made at the 2005 G-8 Gleneagles summit are to be honored, the Bank’s Vice President for Africa, Obiageli Ezekwesili, told a U.S. Congressional Caucus for Dialogue on the World Bank on January 30.

A U.S. pledged contribution of US$3.7 billion to last year’s record $42 billion 15th replenishment of the International Development Association (IDA) – the soft lending arm of the Bank that provides grants and interest-free credits to poor countries – is pending authorization and appropriation before the U.S. Congress.

The Bank has argued that efforts by developed nations to stimulate their failing economies should not focus exclusively or too narrowly on national challenges, if a truly sustainable and global recovery from the crisis is to be achieved. It recently set up the IDA fast-track facility, providing an initial US$2 billion in financing needed by the hardest-hit developing countries to maintain economic stability, sustain growth, address volatility, and protect the poor.

Given the enormous multiplier effect investments poor countries can produce and the untapped market potential, rich countries ignore market and investment opportunities in Africa at their peril, Ezekwesili warned.

She cited the example of a telecommunication company from a European nation that turned down offers to invest at the onset of reforms in the Nigerian telecom sector, which comprised a mere half a million telephone lines when it was still a nascent market

However, when the sector began to prosper thanks to investments from less risk-adverse countries, the firm reversed course when it realized that is was missing out on an extremely profitable market, which by then had grown to over 60 million telephone customers.

Aid channeled through IDA provides financing that would otherwise be unavailable for the building of capable states, the strengthening of the rule of law and the establishment of the ideal business environment for the private sector to flourish. Funding which targets improving infrastructure in Africa would help the continent expand its GDP growth by at least two percent and raise productivity by up to 40 percent, Ezekwesili explained.

Organized by the German Marshall Fund, which is dedicated to strengthening transatlantic cooperation, the event on Capitol Hill was attended by about 60 Congressional staff and members of the House of Representatives.

The dialogue promoted by the Caucus is intended to help deepen understanding and build a global collaboration on the work the U.S. Congress does with partners such as the World Bank in tackling diseases, food insecurity and other crises, said Rep. Betty McCollum (D-Minn.), who co-chairs the Caucus with Rep. Kevin Brady (R-TX).

Brady agreed with Congresswoman McCollum that the Caucus focuses on advancing the development agenda in a bipartisan manner.

“There are no party hats here,” she said. “There is just one hat; that of the United States.”

Ezekwesili’s remarks painted the picture of what she described as “the three faces of Africa”. The first is that of a group of fast-growing, mineral-rich countries, whose GDP growth rivaled, matched or outpaced performance in developing economies prior to the global financial crisis. The second face, she said, is that of a group of fast-growing countries, with limited or no mineral resources but of sufficiently diversified economies. The third face is that of slow-growing or stagnating economies, mostly in post-conflict and fragile states.

Regardless of which "face" one chose to look at, the region as a whole was poised to turn the corner, according to Ezekwesili. A decade of robust growth averaging 5.7 percent was closer to where growth rates are needed to begin to put a dent on poverty. Much of that growth happened thanks in part to the fiscal space created by debt relief programs, which acted as a stimulus for investments in pro-poor programs.

Aid, she argued, is also more likely to be used more effectively in this era because the continent now has a leadership which is more committed to reforms, governing more responsibly, and making the right kinds of policy choices to use any resources in transparent, efficient and accountable ways.