Africa Economic Brief Chief Economist Complex | AEB Volume 4, Issue 4, 2013 Outline Fragile States: Taking Part in Africa’s 1 | Introduction p.1 2 | Fragile States - the Story Inclusive Growth Take-Off so Far p.2 Basil Jones1 3 | The New Deal for Engagement in Fragile States p.8 4 | The AfDB’s New Approach 1 | Introduction of Engagement in Fragility p.9 5 | How can the AfDB Better ragility and conflict are among the greatest development challenges of our time. Engage and Strengthen Fragile States? p.9 More effective and better coordinated efforts, tailored to each individual situation, 6 | Conclusion p.11 Fmust be made to assist countries affected by fragility and conflict, and countries in transition manage political, security, economic and environmental stresses that make them and their citizen vulnerable. The findings of this Brief reflect the opinions of the authors and not For the AfDB, state fragility matters because around a third of African countries, home to those of the African Development some 200 million people can be classified as fragile and are home to a growing share of Bank, its Board of Directorsor Africa’s poor that are susceptible to instability with potential consequences beyond their the countries they represent. borders2. Mthuli Ncube State fragility is a major constraint on Africa’s development. Four out of every five fragile Chief Economist & Vice President states around the world are found in Africa. For the past decade, Africa has exhibited (ECON) [email protected] strong economic growth, but this has not translated into a corresponding improvement +216 7110 2062 in the lives of the majority of its peoples. Hence promoting inclusive growth is now a mat- ter of urgency. The AfDB’s Ten Year Strategy (TYS) 2013-2022, focuses on supporting Charles Leyeka Lufumpa Director, Statistics Department (ESTA) African countries to achieve growth that is not only high, but growth that is diversified, [email protected] broad based and inclusive. +216 7110 2175 Steve Kayizzi-Mugerwa Director, Development Research Box 1 OECD Definition of Fragility Department (EDRE) [email protected] A fragile region or state has weak capacity to carry out basic governance functions, and +216 7110 2064 lacks the ability to develop mutually constructive relations with society. Fragile states are also more vulnerable to internal and external shocks such as economic crises or natural di- Victor Murinde sasters. More resilient states exhibit the capacity and legitimacy of governing a population Director, African Development and its territory. They can manage and adapt to changing social needs and expectations, Institute (EADI) shifts in elite and other political agreements, and growing institutional complexity. Fragility [email protected] and resilience should be seen as shifting points along a spectrum. +216 7110 2075 Source: OECD 2013 1 Basil Jones is Assistant to the Chief Economist and Vice President (ECON Complex). The author is grateful from comments from Prof Mthuli Ncube, Chief Economist and Vice President (ECON), Z. Brixiova (ECON) and O. Gagigo, (EDRE), J. Afele, (OSFU) and L. Kasera (CSVP), A. Workie (ORPC) and STRG. 2 17 Regional Member Countries classified as fragile states- Burundi, Central Africa Republic, Comoros, Congo, Cote d’Ivoire, Democratic Republic of Congo, Djibouti, Guinea, Guinea Bissau, Liberia, Sao Tome and Principe, Sierra Leone, Somalia, Sudan, South Sudan, Togo and Zimbabwe. 2 | Chief Economist Complex | AEB Volume 4, Issue 4, 2013 As a group, fragile and conflict affected states have grown (Table 1). Factor driven countries, including some fragile states more slowly than other low income countries and have made performed better due to rising oil and higher commodity less progress towards tackling chronic poverty, and persis- prices. tent inequality remains a key challenge. The growth registered has not always led to more and better jobs or to increased In 2013, some fragile states are now among the fastest gro- income opportunities for a vast majority of the poor, particu- wing economies in Africa (Table 2) and this is consistent with larly women and youth. In these countries, informal enterprise concept of “the catch-up effect” and post conflict rebound. and informal employment is becoming the norm. Clearly in Given that fragile states during periods of conflict lost ground fragile states, economic growth alone does not guarantee that in terms of economic growth, in some countries like Liberia the poor and marginalized will participate and benefit from GDP dropped by as much as 90% in 20 years, with peace growth. Failure to have growth that is inclusive with an equi- and stability, they are now on the growth rebound. The recent table distribution of income can pose a danger to social and high growth rates provide an opportunity for fragile states to political stability and the sustainability of the growth process make growth inclusive. itself. Table 2 Fragile States are among the 10 Fastest The objective of this paper is twofold (i) to contribute to the Growing African Economies on-going ADF-13 replenishment consultations and (ii) to pro- Country 2013/14 Country 2012/13 vide wider dissemination of the New Deal for Engagement in Libya 11.6 Libya 14.8 fragile states. Sierra Leone 9.6 Niger 8.6 Chad 9.5 Ghana 8.0 Cote d'Ivoire 9.3 Liberia 8.0 The rest of this brief is organized as follows; Section 2 sum- DRC 8.8 Mozambique 7.7 marizes recent socio economic developments, section 3 is Ghana 8.4 Angola 7.7 Mozambique 8.3 Ethiopia 7.3 on the New Deal for engagement in fragile states, section 4 Angola 8.0 Rwanda 7.3 discuss the new Bank’s proposals to engage differently and Zambia 7.6 Cote d'Ivoire 7.1 redefining fragility and section 5 makes some recommenda- Rwanda 7.2 Zambia 7.1 tions on how the Bank can better engage and strengthen fra- Source: African Economic Outlook 2013. gile states and section 6 concludes the paper. In fragile states, the inequality of opportunity that persists is “toxic’ both for sociopolitical cohesion and for long term 2 | Fragile States - the Story so Far growth. Promoting more equitable development in fragile and conflict affected states has therefore emerged as a priority for 2.1 Growth Prospects of African Countries the international community, especially as many fragile states are endowed with natural resource. The OECD 2013 analyzed Table 1 Growth by Structural Classification3 47 countries using the World Bank, African Development Bank and the Asian Development Bank harmonized list of fra- 2012 2013(p) 2014(p) gile and post conflict countries for 2012. It showed that not all All Africa 6.6 4.8 5.3 fragile states are low-income countries. In 2012, 21 countries ADF Countries 5.8 6.2 6.8 were middle income fragile states, while 26 were low income Non-ADF Countries 7.1 3.9 4.2 fragile states. A decade ago most fragile states were low-in- Fragile States 4.5 5.5 4.2 come countries, so this represents a sea change. MICS 6.7 4.6 5.0 Factor Driven Countries 9.0 6.5 6.3 Failure to adequately address poverty is increasingly a pro- Investment Driven Count. 2.8 3.1 3.9 blem of fragility. Addressing fragility as a driver of poverty and Source: AfDB 2013 Statistics Department and EDRE AFRIMOD projections. instability requires a more robust understanding of fragility, its causes and dimensions. In particular it requires seeing fragi- Structural disaggregation of economic growth in Africa in lity as a deeply political issue centered on the social contract 2012 showed variations in economic performance across the between the state and society, and it requires greater un- continent with fragile states registering low growth in 2012 derstanding of the role of stress factors. 3 Fragile states: countries with CPIA index of less than 3.2. Factor driven countries: countries with share of primary commodities in total export >75%. Investment driven/Emerging countries: countries with manufacturing exports in total exports at least half the level attained by East Asian countries. AEB Volume 4, Issue 4, 2013 | Chief Economist Complex | 3 2.2 Resource Flows to Fragile States Aid to fragile states from Non-OECD countries like China and India is growing. These countries are increasing their aid bud- Historically, fragile states have received less aid, relative to gets and will play an increasing role in fragile and conflict-af- their needs and absorptive capacity, than most developing fected states as part of a growing focus on least developed countries. The low amount of development aid to fragile countries. China’s foreign aid grew by 30% each year from states is the result of perceived and potentially real and higher 2004-2009 and in 2009 China pledged to provide USD10 bil- risks of investments and weak human capacity deficit in such lion in concessional loan to Africa between 2010 and 2012. situations. In addition aid allocation by institutions such as the India recently established the Development Partnership Ad- Bank is based on institutional strength and capacity to com- ministration as its own global aid agency with an estimated mit and utilize resources such as country policy and institu- budget of USD15 billion to be disbursed between 2012 and tional assessment score in which fragile states perform poorly. 2017 (Taneja, 2012). The DPA’s portfolio will be concentrated Aid volatility is often higher in fragile states than non-fragile in fragile states, with USD7.5 billion to benefit African coun- states, and each of the fragile states has had at least one aid tries (OECD 2013). shock (a change of more than 15% of ODA per capita) in the past 10 years.