“…today’s development economics is like eighteenth-century medicine… when impoverished countries have pleaded… for help… the main… prescription has been budgetary tightening for patients much too poor to own belts…” (Sachs 2005).
Seizing opportunities in Africa
(Source: Roberts 2004)
Trade is the engine of development but, despite richness in natural resources, life in many African countries has been dominated by preventable poverty, malnutrition and disease. As the world markets open, so the disadvantages associated with poverty in many African countries are becoming more exposed.
A recent analysis of the Eastern and Southern African countries of the Common Market for Eastern and Southern Africa (COMESA) group put disparity in competitive power into sharp focus, as discussed in Box 1. Similar types of disparities have been noted by the World Bank in their comparative review of the capacities and potential of developing countries in Africa, South Asia, East Asia and Latin America for meeting the challenges of the 21st century. They found that African countries, by comparison with other countries, derive a lower level of income per capita from land resources, have lower capital stock per worker, have lower levels of human development, and that the agricultural production index for Africa whilst increasing in total was declining per capita. These findings are consistent with the disabilities that constrain the human and environmental potential of this intrinsically rich region. They do much to explain why Africa’s economy has not responded better to the international support it has received or to its own efforts at development.
However, this does not sufficiently explain the African dilemma, for Africa has also been constrained by the external macro-economic environment and the development policies that have been linked to the aid that it has received. The traditional theories of free trade have taken inadequate account of the uneven playing field that holds back Africa’s progress. In the face of these disparities, the former remedies proposed by international agencies for economic adjustment programmes to overcome poverty and debt have not worked well in Africa. The revised approach to the economics of development arising from the UN study directed by Jeffrey Sachs and his more recent commentary on reforming the framework for economic analysis for promoting growth and reducing poverty propose the use of a fresh evidence-based diagnosis for the analysis of macro-economic issues. This gives more hope for the future of Africa and more attention to its specific needs and potential.
(Source: R. Mulder/Still Pictures)
The checklist for making what Sachs refers to as a “differential diagnosis” of a country’s economic potential, is based on a clinical model of examination, putting the “patient” at the centre of attention. This contrasts with the rather simplistic economic principles used in the past, drawn from Western macro-economic experience, which has proved largely irrelevant to the needs of developing countries. Gunner Myrdal, a Nobel Prize winner in economics, 35 years ago, exposed similar fundamental flaws in Western macro-economic and development policy in Asia. To overcome these flaws, Sachs proposes that development studies should begin with a review of the local physical, human and natural capital, the social, epidemiological and demographic factors in poverty in the country under review, the capacity of the country’s business environment, the national economic and fiscal policy, the physical geography of the country, local governance, cultural barriers and geopolitics. The essential change Sachs proposes is to avoid using a “one-solution-fits-all” approach to problem-solving and thus to develop diagnoses and remedies tailored to the needs of each country and to its specific problems and potentials. That is the new method of “clinical economics”.
The results of intervention can be measured in terms of their effectiveness in attaining measurable targets such as reducing soil erosion, improving growth in crops, and reducing the burden of diseases. But results can also be valued in terms of the impact they make on wealth, economic growth, and on the value of human and natural capital. For example, disease affects economic growth by reducing healthy life expectancy, reducing parental investment in children, and adversely affecting commercial productivity, business investment, social cooperation and macro-economic stability. It has been estimated that countries that have eradicated the environment-related disease, malaria, tend to grow more than one percentage point a year compared to countries with a high risk of malaria. This can produce a long-run average effect that a country with continued malaria risk generates half the level of per capita income than one which has eradicated the disease or has not been subject to it. Telecommunications development can also boost economic growth. This finding is reflected in the strong association between levels of telecommunications and gross domestic product (GDP) per capita. Telecommunications is a key element in creating the basis for interlinkages within and between sectors at national and international level and improving the efficiency of human capital.
Such measures of the value of results incorporate use values, but the environment also has a non-use or aesthetic value. This may be reflected in its use by tourists, using a method of implied valuation, but measurement of non-use values can also be assessed by indicators of willingness to pay. The principal difference between cost-effectiveness analysis and cost-benefit analysis is in the valuation of the benefits in economic terms. In order to identify those factors which promote the best use of the environment for development, the new approach to development economics requires a detailed review of transport and trade (including ports, navigable waterways and paved roads); population density; power and telecommunications; arable land and its productivity; agronomic conditions including the length and reliability of the growing season, soils and irrigation, and climate variation; human and plant diseases, pests and animal disease. Such factors are closer to the local productive capacity, but were largely ignored in the past in macro-economic appraisals offered by Western advisers. It was the advisers, and not the local people, who became the driving forces and determined the constraints and conditions of much of the failed macro-economic aid suffered by developing countries in the past.
(Source: M. Edwards/Still Pictures)
At country level, the macro-economic planning framework also needs to be consistent with the budgeting requirements of countries, to include a separation of capital and non-capital costs, the identification of the costs of human resources linked to local pay and also the international market for specialized labour, as well as the often neglected assessments of the costs of capital maintenance, repair and renewal. Increasingly, planners need to be informed on the unit costs of developments so that scaling-up can be done to cover the size of interventions required. Scaling-up should be based on standards derived from local experience, or failing that from experience of other countries that have adopted similar interventions.
As countries move towards a medium-term expenditure framework and results-based budget procedures, so the plans for intervention need to include the links between capital and non-capital expenditure. Results should be based on using measurable and verifiable indicators of performance. Whilst broad-brush global and regional estimates of meeting the Millennium Development Goals (MDGs) can be derived from long-run average costing methods, at local level countries will need to assess the marginal costs of the steps needed in meeting these goals, and the relative costeffectiveness of making progress in different areas of intervention. As countries reach close to target levels, it is likely that the next steps in intervention will be more costly and require different technology from those required in earlier phases. In such analysis, both the costs of intervention and the opportunity costs of forgoing the value of using those resources for other ends, have to be considered. The assessment of the externalities arising, for example, from the use of fossil fuels in terms of land and air pollution, should be included in analysis and, where practical, internalized in the pricing structure of the fuels themselves. It is only then that the cost of energy derived from renewable sources can be properly assessed. Economic appraisal should not be limited to the public sector, but should also embrace private undertakings. Many companies are now responding to shareholder pressure and publishing environmental accounting statements which include the cost of environmental infringements and investment in green technology to reduce environmental damage. This is promoting a greater awareness in the private sector of environmental values and the cost and effectiveness of cleaner technologies. This is resulting in changes in design and procurement practice which should also be reflected in the public sector, which in most countries is the largest investor in new buildings, such as schools, hospitals, offices and housing, and which is the largest purchaser of equipment and furniture. Many countries have been slow to adopt environmentally friendly policies for public sector building and purchasing practices.
In addition, the use of economic and fiscal measures to supplement statutory controls and legislation is attracting more interest and could emerge as a critical new tool in promoting greater weight to be given to environmental values in Africa. What is important, however, is not the choice of instrument but the effectiveness of its use. The essential message of economics and environment for development is to establish policy and programmes on the basis of the evidence of their costs and their effects. This means building a basis of evidence to support the diagnosis and choice of remedies. Such remedies should focus on promoting better use of environmental resources for social and economic sustainable development in Africa. To achieve this will require interlinkages at the national level, between departments of government and the private sector, and at the international level to ensure recognition of the need for equity in trading relations. More equitable trade needs to take account of current disparities in capacities for development, the underlying costs of poverty and disease, and the potential of environmental resources (see Box 1).
Africa has made tremendous progress in trying to address the environment and development challenges of the past two decades. However, results are mixed.
In many countries, new environmental institutions at different administrative levels, such as environment management agencies, have been established to tackle both green and brown environmental issues. At subregional and regional levels, economic groupings have accepted the challenges to develop interlinked and forward-looking strategies to ensure that Africa achieves some of the MDG targets.
Despite such progress, the environment is yet to be fully mainstreamed in all sector-specific policies and in economic development. In particular, the relationship between the environment and continued poverty has not been fully acknowledged. The conclusion reached by the Brundtland Commission in 1987 that institutions tend to be independent, fragmented, and work “to relatively narrow mandates with closed decision-making processes,” remains true 20 years later. The 20 year-old challenge by the Commission to policymakers remains as relevant today as it was then, and it is fitting to repeat it:
“The real world of interlocked economic and ecological systems will not change; the policies and institutions concerned must.”
“The ability to choose policy paths that are sustainable requires that the ecological dimensions of policy be considered at the same time as the economic, trade, energy, agricultural, industrial, and other dimensions – on the same agendas and in the same national and international institutions” (WCED 1987).
Interlinking the environment and human development, understanding the causes and effects of environmental change and developing appropriate policy responses remain challenges facing Africa today.
- CMH, 2001. Macroeconomics and Health: Investing in Health for Economic Development. Report of the Commission on Macroeconomics and Health. Commission on Macroeconomics and Health.World Health Organization, Geneva.
- Gallup, J.L. and Sachs, J.D., 2001. The Economic Burden of Malaria. American Journal of Tropical Medicine and Hygiene, 64(1,2)S, 85–96.
- Sachs, J., 2005. The End of Poverty: Economic Possibilities for Our Time. Penguin, New York
- Myrdal, G., 1968. Asian Drama: An Inquiry into the Poverty of Nations. Penguin, London
- UN Millennium Project 2005b. Innovation: Applying Knowledge in Development. United Nations Millennium Project. UN Millennium Development Library. Earthscan, London.
- UN Millennium Project, 2005c. Investing in Development – A Practical Plan to Achieve the Millennium Development Goals. Earthscan, New York.
- UNEP, 2006. Africa Environment Outlook 2.
- WCED, 1987. Our Common Future.World Commission on Environment and Development. Oxford University Press, Oxford
- World Bank, 2000. Can Africa Claim the 21st Century? The World Bank, Washington, D.C.
This is a chapter from Africa Environment Outlook 2: Our Environment, Our Wealth (e-book).
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