-
8. Lessons from Southern Africa
- Brookings Institution Press
- Chapter
- Additional Information
Lessons from Southern Africa 8 T always played a role in the economies of both developed and developing nations, although the dominance of that role has changed over time in response to globalization, privatization, and the perceived efficiencies of the private sector. The establishment of the Bretton Woods institutions was a landmark in the reshaping of the international financial system—the development financial system in particular. In the 1960s, as former colonies gained nationhood and independence from western nations, regional economic and political groups established their own development institutions, such as the African Development Bank, the Asian Development Bank, and the Inter-American Development Bank. Subregional and national development financial institutions gained prominence with the support of the Bretton Woods institutions. A number of these institutions were created for political reasons, but they also addressed development challenges related to the provision of basic services, the creation of jobs, the promotion of foreign exchange earnings, and the building of infrastructure. In most developing nations there was no dividing line between public finance and development finance, with governments often using development financial institutions as conduits for fiscal transfers—and in reverse, using them to fund budgetary deficits. The result was that over time these institutions became a drag on the treasury of many governments and were finally allowed to disappear. Their demise at national and even subregional levels was precipitated by the structural 08-1335-5-CH 08 12/9/04 3:37 PM Page 211 reforms of the 1980s and 1990s (as dictated by the Bretton Woods institutions), the privatization trends that began in the mid-1980s in developed nations, and mismanagement and corruption. As the role of the state was reduced, so was the influence of state-owned enterprises reduced, with the exception of those deemed of strategic importance to the well-being of the state. African performance has lagged behind other regional groupings, which has led to a reexamination of the challenges facing African countries in their quest for development and to the birth of the New Program for Africa’s Development (NEPAD). Politically, the transformation of the Organization of African Unity to the African Union revealed the determination of Africans to promote good governance and to resolve civil strife. Regional integration is a principal feature of the NEPAD strategy, which argues that, to improve international competitiveness, African countries need to pool their resources and enhance regional development and economic integration. NEPAD emphasizes Africanness and African responsibility while recognizing the need for support from, and partnerships with, other regions of the world. In 2003 the United Nations General Assembly accepted NEPAD as the basis for all UN engagements with Africa, in effect significantly elevating the standing and credibility of NEPAD’s approach.1 The UN resolution also implies that all multilateral and bilateral agencies and organizations that include Africa adopt the same overarching strategy. NEPAD’s strategy, it goes without saying, also affects development financial institutions in Africa. Development Financial Institutions in Perspective Development financial institutions are post–World War II, postcolonial developments designed to provide focused financial support to national and regional development efforts and to bolster economic growth.2 Development finance is that set of financial flows, largely of a capital nature, that involves investments in both public and private income-producing development projects that operate on the basis of commercial profitability and full cost recovery.3 These institutions address market, political, or bureaucratic imperfections and asymmetry arising from perceived or actual financial risk by delivering a structured package of support to their clients. Their classic role is to fill the gaps in the domestic fiscal and term-lending capabilities of underdeveloped and developing countries. They seek to address capital market inefficiencies, wherein private cap- , , , , 1. “World Body Endorses NEPAD” (2003) (www.un.org/ecosocdev/geninfo/afrec/vol16no4/ 164nepd1.htm). 2. Diamond (1957). 3. Hoffmann (1998). 08-1335-5-CH 08 12/9/04 3:37 PM Page 212 [3.81.57.77] Project MUSE (2024-03-29 07:55 GMT) ital is unwilling or unable to provide capital to countries, projects, or clients not considered creditworthy. They further seek to fill the fiscal gap between capital for pure public goods provided by the state and commercial projects for which there is cost recovery.4 This particular role in support of development finance is illustrated in figure 8-1. The figure implies that by and large pure public goods and projects that lack sufficient income-generating capability do not constitute a substantial part of the loan portfolio...