IMPLEMENTING THE NEW PARTNERSHIP FOR AFRICAN DEVELOPMENT (NEPAD) BY PROMOTING THE DEVELOPMENT OF THE SME SECTOR IN THE CONTEXT OF CAPITAL MARKETS IN AFRICA

by Chief Dennis O. ODIFE
(Article Reference: Document No.18, November 2002)

Abstract
The African Union (AU), which replaces the OAU (Organization of African Unity), heralded its birth with the introduction of the New Partnership for African Development (NEPAD) comprising long and short-term strategies for achieving economic growth and development with peace and prosperity for Africans, collectively and in their individual countries. The NEPAD is a new approach of partnership with the rest of the world based on a promise by African nations to be of collective good behaviour, domestically, economically and politically, and internationally. Peer pressure will be used to ensure compliance. Based on its action plan, NEPAD identifies a funding gap of over US$ 64 billion per annum, which has to come from outside Africa and be raised under favourable conditions. The success of NEPAD is also predicated on its being owned and led by Africans. The paper argues that such ownership requires more rapid eradication of poverty in Africa and possibly drastic mobilization of Africans on the continent and in Diaspora through the SME (Small and Medium-sized Enterprises) and SSI (Small Scale Industries) sector and also through existing or new African capital markets.

Introduction
This paper discusses the New Partnership for African Development (NEPAD) and its implementation through the promotion of the Small and Medium-sized Enterprises (SME) sector in the context of capital markets in Africa.

What is NEPAD? The New Partnership for African Development, or NEPAD is... a pledge by African leaders, based on a common vision, a firm and shared conviction, that they have a pressing duty to:

• Eradicate Poverty,
  
• Achieve Sustainable Growth & Development,
  
• Individually and Collectively.

In coming to this conclusion African leaders contrasted Africa's poverty and Africa's backwardness, with:

• Africa's Resources,
  
• Africa's History, and
  
• African Genius and Ingenuity.

They came to the final conclusion that what is required to mobilize these resources, and to use them properly are bold and imaginative leadership, sustained human development effort, and Global Partnership -- based on shared responsibility, and mutual interest. NEPAD is therefore a call for a new relationship of partnership between Africa and the international community, to overcome the development chasm.

The NEPAD concept places Africa's resources in four components as follows:

• COMPONENT I: Raw Materials and Minerals,
  
• COMPONENT II: Ecology and Rain Forests,
  
• COMPONENT III: Africa as Cradle of Mankind, and
  
• COMPONENT IV: African Creativity/Culture.

It then goes on to review how Africa got to its current situation of backwardness and decadence. It traces the historical impoverishment process to have arisen from Colonialism, from the Cold War, from the workings of the international economic system, and from poor domestic policies pursued over the years by the political leadership in the various African countries. We note that, with perhaps one exception, these conditions have not ceased to exist.

NEPAD is based on the belief that Africa's leaders now have a new political will under democracy, as demonstrated by the recent establishment of the African Union (AU). Under the AU as opposed to the defunct OAU (Organization of African Unity), which it replaces, African nations agree not only to surrender some of their sovereignty in exchange for collaboration in commonly owned institutions but also to pursue common programmes to foster economic growth and development for African people in their various countries, individually and collectively. The AU is thus determined not only to promote economic growth and development but also to deal with conflicts and to censure deviation from the norm through a process of peer review and pressure. NEPAD is therefore conceived as an Agenda for continental renewal, using national and regional Priorities and Plans, which should have been prepared through participatory processes involving the people. Unfortunately and for a start, it is argued that as their people mandated African leaders, they are entitled to articulate plans and lead implementation of the NEPAD Programme on behalf of their people, without following the recommended bottom-up visioning process.

From this perspective, NEPAD represents a new framework for interaction with the rest of the world, and it has the following strategic aspects:

• Conflict Prevention/Management/Resolution,
  
• Promote/Protect Democracy/Human Rights,
  
• Restore/Maintain Macroeconomic Stability,
  
• Institute Transparent Legal/Regulatory Frameworks for Financial Markets,
  
• Tackle HIV/AIDS,
  
• Promote Role of Women,
  
• Capacity to Maintain Law and Order, and
  
• Promote/Development of Infrastructure.

For its implementation to be effective, NEPAD must be owned and led by AFRICANS. The NEPAD agenda sets out the Long term Vision, comprising a set of Programmes covering what needs to be done in the short term. The objective of the programme is to develop capacity to sustain growth at required levels. There is as a result need for massive investment to bridge existing gaps for Africa to catch up. The immediate conclusion is that "…Africa needs to raise required funding under best possible conditions…" An appeal is therefore made to the development partners.

As set out in the NEPAD programme, its long-term objectives are threefold, namely:

• To eradicate poverty in Africa,
  
• To place African countries both individually and collectively on a path of sustainable growth and development, and
  
• To promote the role of women in all activities.

The Goals of NEPAD are no less ambitious. They are, to achieve:

• Average GDP growth rate of above 7% p.a. for the next 15 years,
  
• Achieve Agreed International Development Goals (IDG): namely,
  
  • Reduction of extreme poverty by half between 1990 and 2015
    
  • All children of school age to be in school by 2015
    
  • Removal of all gender inequalities up to secondary education by 2005
    
  • Reduction of infant mortality ratios by two thirds between 1990 and 2015
    
  • Reduction of maternal mortality rates by three-quarters between 1990 and 2015
    
  • Access to reproductive health for all by 2015
    
  • Reversal of loss of environmental resources by 2015 by sustainable development strategies put in place by 2005.

These agreed International Development Goals are to be achieved through the implementation of approximately six initiatives, as follows:

• Peace, Security and Political Governance Initiative,
  
• Economic and Corporate Governance Initiative,
  
• Human Resource Initiative,
  
• The Environment Initiative,
  
• Capital flows Initiative, and
  
• The Market Access Initiative.

A few of these initiatives are examined in more detail hereafter, starting with the Economic and Corporate Governance Initiative. Under this Initiative, in order to enhance quality of economic and public financial management as well as corporate governance, A Task Force from the Ministries of Finance and Central Banks will be commissioned to review economic and corporate governance practices and make recommendations for appropriate standards for consideration by the Head of States Implementation Committee within six months [Para 89]. The Recommendations of this body will go to African States for Implementation.

Another initiative worthy of review is that for Mobilizing Resources under The Capital Flows Initiative. This Initiative identified an Annual Resource gap of 12% of GDP amounting to US$ 64 billion, and concludes that this must be sourced from outside Africa.

NEPAD itself is to focus on Debt Reduction and ODA (Overseas Development Assistance) in the short run. Private capital flows are to result in the long term from the implementation of the Economic and Corporate Governance Initiative. The need to mobilize capital internally and externally was also recognized.

Regarding the low level of domestic savings in most of Africa, NEPAD notes the tragic loss of domestic savings through capital flight. It therefore recognized the need for policies to reverse capital flight, and to make Africa and African states the preferred locations for investment by Africans and foreign investors. To address the shortfall in funding, the NEPAD requests developed nations to pledge their Treasury Bills to finance the plan, and urges the rest of the world, (and probably the IMF) to establish Special Drawing Rights for Africa.

Under the Promotion of Private Capital Flows Initiative, the NEPAD proposes a long-term approach to filling the development funding gap identified earlier. Strategies will be emplaced to deal with public and international investor perception of Africa as high risk. Public Private Sector Partnerships (PPP) will be encouraged and the AU will promote the deepening of capital markets within countries as well as cross border harmonization and integration via a Financial Market Integration Task Force.

Other NEPAD Programmes are in various sectors and include :

• Transportation and Energy
  
• IT, Science and Technology
  
• Brain Drain
  
• Environment and Culture
  
• Promoting the Private Sector, and Exports
  
• Manufacturing and Mining
  
• Agriculture, Health, Education, and
  
• Regional approaches.
  

---

>> Next: Assessment of the NEPAD
>> Back to Table of Contents