Human Development

Improving quality of life in Sub-Saharan Africa remains a daily struggle. The region again had the lowest aggregate level of human development indicators – life expectancy, education and standard of living -- in 2011 but it had the second fastest annual increase over the period 2000-2011.

The five countries with the highest rates of improvement over this period -- Rwanda, Sierra Leone, Ethiopia, Mozambique and Mali -- are poor or emerging from conflict. They have shown that countries can significantly expand the capabilities of their people even with limited financial resources if they implement the right policies. Policy alone is not enough however. Improvements to schools, hospitals, public services and roads require vast financial resources which traditionally have come from Official Development Assistance (ODA), Foreign Direct Investment (FDI) and remittances. Reversing capital flight could produce an important source of development finance to further strengthen human development in Africa.

Africa lost about USD 700 billion between 1970 and 2008 as a result of capital flight. If flight capital had been reinvested in Africa with the same level of productivity as that of actual investment, estimates presented in this report suggest that the rate of poverty reduction could have increased 4-6 percentage points a year, on average, over the period from 2000 to 2008. African countries could as a group have reached the Millennium Development Goal of halving the 1990 level of poverty by 2015, an objective they will not achieve on the current rate of poverty reduction. The flight capital could also go into increased investment in social and economic infrastructure.

International cooperation will be crucial to reverse the flow of African capital back to the continent. Africa should continue to improve domestic governance and eliminate the practices that foster capital flight. The international community should help the continent to identify and repatriate stolen wealth using, among others, international instruments such as the “Stolen Asset Recovery Initiative” (StAR). Without an international coalition for the reversal of capital flight, Africa alone will not succeed due to the reticence of some countries benefiting from these practices.

The UN Development Programme introduced its Human Development Index (HDI) in 1990 to track the global evolution of human development across the world focusing on three key aspects: access to education, healthy life and standard of living (UNDP, 2011; AfDB et al., 2011b). The most recent HDI (Table 1) shows that in 2011, Sub-Saharan Africa continued to have the lowest aggregate level of human development. However, the pace of its improvement has kept up with the East Asia and Pacific region over the period 2000-2011.

Source: UNDP (2011)

Sub-Saharan Africa’s gains in improving lives seem to come from all three dimensions of human development. Introduction of universal access to primary education in countries such as Uganda and Lesotho have boosted schooling. Life expectancy has increased as countries adopt innovative policies to improve access to health services and the quality of those services provided. In Rwanda, for example, the government introduced a Community-Based Health Insurance (CBHI) that the health system provides affordable quality services to everyone. By  improving the scheme’s management, adhesion rates increased from 7% of the population in 2003 to 93% by June 2010. A recent study of the effect of the “Payment for Performance (P4P)” policy in  Rwanda’s primary care provision shows that it has improved the use and quality of maternal and child health services.  Twenty-three months after the introduction of the P4P pilot study, facilities in the intervention group recorded 23% more institutional deliveries, 56% more preventive care visits by children aged 23 months or younger, and 132% more visits by children aged between 24 months and 59 months. (Basinga et al., 2011).

This  illustrates the importance of implementing the right policies. If Rwanda’s rate of growth in human development could become the average for Sub-Saharan Africa  for the next 16 years, the region would reach Latin America and Caribbean’s human development level, which is currently the highest in the developing world.

Another factor that contributed to Africa’s progress is income growth. The  recent growth in human development comes as  most African countries  experience  high levels of economic growth. The African Economic Outlook has documented that Africa is experiencing its longest period of uninterrupted income growth over the last three decades. With Gross Domestic Product (GDP) growth rates averaging about 5% per year over the last 10 years, Africa now has one of the fastest-growing regional economies in the world. Income growth means that additional resources have been used to fund projects or activities helping daily lives. This is the case, for example, with spending on education or healthcare. A  second, more indirect channel is through investment. As economies grow, they  attract more investment and  generate additional resources that are reinvested in the economy, increasing income per capita. Between 2003 and 2009, GDP per capita in Africa increased by 2.7% per year. If the dip in income experienced in the 2009  international economic and financial crisis is taken out, the growth rate of GDP per capita is 3.1%. This rise in income increases the population’s purchasing power, allowing consumers to access goods and services that were out of their reach before. The increase of per capita GDP has accelerated poverty reduction in Sub-Saharan Africa. It has been estimated that on average, a one percentage increase in income per capita leads to about a one and a half per cent reduction in poverty (Fosu, 2011). In 1999, Sub-Saharan Africa’s poverty rate was 58% of the population, declining to 52% in 2005. By 2008, the rate  had fallen to  48% of the population. The rate of poverty declined by 2.2% per year over the period 1999 to 2008, an unprecedented performance since the early 1980s when comparative data was first  compiled.  As the simulations in the next section suggest, keeping up this rate of poverty reduction in coming years will take some African countries to   the first Millennium Development Goal (MDG) of halving the 1990 level of poverty by 2015.  But not all African countries will  meet the target date.

Reducing poverty and improving lives to levels in line with Africa’s human development objectives will require massive resources. The non-financial resources include a strong political commitment to human development which needs to be translated into a vision with clear objectives for its implementation, as Rwanda has illustrated. The availability of qualified staff to implement policies is also important. Delivering services also needs hospitals, schools, electricity, roads, etc. But this is costly to put in place and maintain. Some estimates suggest that meeting the gender equality and education Millennium goals by 2015 would require an extra USD 1.8 billion to USD 2.3 billion annually. In the same vein, health expenditure for the health-related MDGs would require  between USD 16.4 billion and USD 19.5 billion annually. Sub-Saharan Africa would need USD 72 billion to USD 89 billion of additional annual resources to achieve the economic growth need to halve the 1990 level of poverty by 2015 (Atisophon et al., 2011). In agriculture, developing the much needed irrigation systems in areas where they are economically viable would cost the continent about USD 54 billion, excluding the cost of rehabilitating existing irrigation (You et al., 2009). Another estimate suggests that Africa needs to invest USD 40 billion annually in new infrastructure and another USD 40 billion  each year to maintain the existing infrastructure (Gijon, 2008).

It is inconceivable that countries will make substantial progress without devoting additional finance to human development. So far, most of the extra services needed have been publicly provided, making their provision vulnerable to fluctuations in government revenue. Most African governments do not raise enough domestic resources to meet all their needs. Aid in the past has played an important role, but the needs are so important that one source alone cannot fill the resource gap. What is needed is a combination of different sources of development finance including  traditional official development assistance,, foreign direct investment, remittances, and domestic private and public resources.

Halting capital flight and repatriating the large stock capital that is held abroad could become a new source of development finance to use on services. If the billions of dollars that leave the continent each year in the form of capital flight had been directed to Africa’s human development, the region would be in a better position to meet its development objectives. Between 1970 and 2008, total capital that fled Africa has been estimated at $700 billion (Ndikumana and Boyce, 2011). Ironically, among the eight countries with average capital flight in excess of $1 billion per year over the period 2000 to 2008, five are classified as low human development countries (UNDP, 2011) which struggle to find the financial resources to improve the lives of their people.

Given the nature of illicit financial flows and the difficulties surrounding their estimation, different studies come up with different estimates. Global Financial Integrity’s estimate puts capital flight out of Africa over the period 1970-2008 at $854 billion and notes that the amount could be as high as $1.8 trillion if the computation of the figures were not constrained by unavailability or poor quality of data for a number of countries (Global Financial Integrity, 2010). It should be noted that the computation of capital flight includes licitly and illicitly acquired financial assets which leave the country illicitly. Therefore, a flow of capital qualifies as capital flight as long as it leaves a country illicitly.