Africa feels the pinch as donors slash funding

African countries face difficult times following a decision by donor nations to cut back on their funding pledges to the continent.

The revelation that rich nations will not meet pledges to commit 0.51 per cent of their national Gross National Income (GNI) to Africa comes at a time when many African economies are grappling with the aftershocks of the global financial crisis.

Kenya is already feeling the pinch as the government has not managed to obtain approximately Sh18 billion which it had factored in the current budget.

According to the half-year spending programme, the government was expecting Sh18 billion from donors but it has not managed to secure the money.

In its latest report, the Organisation of Economic Co-operation and Development (OECD) which brings together the rich nations of the world indicated that there will be a $21 billion deficit on delivery of pledges made this year to Africa.

Africa will receive $12 billion out of an estimated $25 billion envisaged at the Gleneagles Summit in Scotland in 2005.

In 2005, 15 countries which are members of both the European Union and of the OECD Development Assistance Committee (DAC) committed to reach the 0.51 per cent minimum threshold of their Gross National Income by 2010.

GNI is a measure of a country’s annual income based on the total value of goods and services produced within its territory, plus net income received from other countries in such forms as interest payments and dividends.

The expected drop in the donor funds is largely associated with the economic crunch that affected most of the OECD members forcing governments launch stimulus programmes to cushion their economies.

“There is a world out there today that is running very, very short in terms of alternatives,” OECD Secretary General Angel Gurria.

A sizeable chunk of the funds are used to finance social projects such as education, healthcare, water and sewerage services.

Locally, donor funds have also been used to supplement government spending on such projects such as Free Primary Education (FPE), subsidised medical services and secondary education.

Following the revelation of misappropriation of funds allocated for the FPE, donors such as Britain have withheld their funding for the programme.

Failure to access the funds will affect the African economies denying them critical input at a time when foreign exchange earnings have dwindled due to declining demand for primary commodities in the West.

Economists reckon that donor funds which are normally meant for development have a multiplier effect on the economy.

“External funds are productive funds as they are normally channelled to social services such as education and health and infrastructural projects such as roads, power and water,” said Linet Oyugi, a macroeconomist with the Institute of Policy Analysis and Research (IPAR) a local think tank.

“By using these funds for development expenses such as road construction, energy generation they open up the economy by improving the business environment which invariably attracts investment,” added Ms Oyugi.

Oxfam has criticised the move by the donors to cut funding to Africa.

“These broken promises are nothing short of a scandal,” Oxfam senior policy advisor Max Lawson said in a statement.

However, some of the OECD member countries are expected to meet their commitments despite the tough economic environment.

Countries such as UK, Ireland, Spain, Belgium and Japan will surpass the 0.51 per cent limit.

Other countries that are expected to meet and surpass their pledges include Sweden and Luxembourg which are set to provide 1.3 and 1.0 per cent respectively.

“Countries such as the UK, Spain and Belgium are demonstrating it is possible to show development leadership, and we still hope to see others like France, Germany and Italy stepping up in 2010,” said Lawson of Oxfam.

However, Italy, Germany, France, Greece and Japan are expected to fail to honour their pledges.

Italy and Japan economies have been hit hard by the recession forcing them to record negligible growth in the last couple of years.

In deed, Japan with previously a strong record of donating generously to Africa is expected to see its donation fall by $4 billion from its pledge of $10 billion.