Andrew Leigh

I spoke in Parliament on Monday night about the economics and politics of boosting growth in sub-Saharan Africa.

Development in Africa
21 February 2011

The Third World has shrunk. For most of the past century, the development challenge has been how to get the rest of the world up to the living standard of the top one billion. Now that challenge has been reversed. With rapid growth across much of Asia, the future looks increasingly bright for billions of Indians and Chinese. As economist Paul Collier puts it, the challenge now is to raise living standards for ‘the bottom billion’. These are the one billion or so world citizens who live in countries with stagnant growth rates, with living standards at about the level of 14th century Europe. Most of the bottom one billion live in Africa. In the 1970s, both China and India had African per capita development levels. Since then, per capita incomes in India have doubled and those in China have quadrupled, but in sub-Saharan Africa incomes barely rose from 1970 to 2000.

Yet over the decade since 2000, there are hints that things might be changing, with sub-Saharan per capita incomes rising at around three per cent per year. Although this is modest by Asian standards, economist Edward Miguel suggests that things are starting to go right for Africa. Despite the occasional step backwards, Africa has undergone a wave of democratisation. Miguel also points to rising commodity prices, increasing mobile phone usage, and fewer conflicts, notwithstanding the gut-wrenchingly awful violence in Sudan and the Congo.

For Africa, some novel development strategies have been suggested. Miguel proposes rapid conflict prevention support as a means of targeting aid to fragile states at times of drought or falling commodity prices—as a means of insurance against collapsing into war. If left unchecked, dangerous climate change could make some of the driest places on earth—like Chad and Niger—even drier. So, while we should deal with climate change here in Australia by putting a price on carbon, a 2008 Lowy Institute report by Joel Negin and Glenn Denning also suggested that Australian aid agencies can play a vital role in using our agricultural expertise to improve productivity in African farms and assist with adaptation to climate change.

Recognising that resources have more often been a curse than a blessing to Africa, some experts have proposed a natural resource charter available at www.naturalresourcecharter.org. It has 12 economic principles for governments and societies on how to best manage the opportunities created by natural resources for development.

For Australia, aid to Africa this year amounts to around $201 million. We give because this region is one of the most impoverished in the world. For the most part, our donations are driven by generosity, but it so happens that even a selfish Australia would want to donate. By raising African living standards, we create new markets for our exports and probably also reduce the threat of extremism.

Overseas aid is an area where people have sometimes focused too much on inputs such as aid as a percentage of national income rather than outputs—poverty reduction. As in other areas of the aid portfolio, AusAID are working hard to ensure that the effectiveness of our aid to Africa is maximised. Under Bob McMullan, my predecessor as the member for Fraser, AusAID created the Office of Development Effectiveness to provide what it describes as a ‘health check of the Australian aid program’. ODE has not pulled its punches, with past reports suggesting that Australia might have been overinvesting in technical assistance. Discussing evaluation, ODE has in the past emphasised the importance of carrying out more impact evaluations, asking not only whether the program was properly administered but also whether it helped improve the lives of the poor.

My personal view is that the Australian aid program should carry out more randomised trials—a rigorous evaluation tool that is becoming increasingly common in the developing world. Much as I admire the audacity of big push strategies such as the Millennium Villages project, I think we can learn more when programs can be rigorously evaluated. More recently, the Minister for Foreign Affairs has established an independent panel to undertake a review on the future direction of Australia’s aid program. The expert panel—Sandy Hollway, Stephen Howes, Margaret Reid, Bill Farmer and John Denton—are carefully scrutinising how we can improve the effectiveness of our aid program. This kind of analysis is critical if we are to maintain public support for the Australian aid program. I look forward to their report.