# 4. Conclusion

Both official and private flows to Sub-Saharan Africa have increased in recent years, a welcome reversal of the declining or flat trend seen during the 1990s. The picture is less rosy, however, when Sub-Saharan Africa is compared to the other developing regions, and more importantly, to its enormous resource needs for growth, poverty reduction, and other Millennium Development Goals (MDGs). Sub-Saharan Africa outside South Africa continues to depend on official aid. The recent increase in ODA appears to be driven by one-off debt relief provided through HIPC and MDRI; the prospect for scaling up aid is not entirely certain.<sup>39</sup> FDI flows to the region are concentrated in enclave investments in oil-exporting countries. Portfolio bond and equity flows are negligible outside South Africa, although several African countries are considering bond issues in international markets. Private debt flows are small and dominated by relationship-based commercial bank lending; and even these flows are largely short-term in tenor. More than half of the countries in the region do not have a sovereign rating from the major credit rating agencies, and the few rated countries have sub-investment grade ratings. Low or absent credit ratings impede not only sovereign, but also private sector efforts to raise financing in the capital markets. Capital outflows appear to be smaller than in the previous decade, but the stock of flight capital from the region remains very high. Migrant remittances appear to be increasing, but a large part of the flows bypass formal financial channels.

In short, the development community has little choice but to continue to explore new sources of financing, innovative private-to-private sector solutions, and public-private partnerships to mobilize additional international financing. An analysis of country creditworthiness suggests that many countries in the region may be more creditworthy than previously believed. Establishing sovereign rating benchmarks and credit enhancement through guarantee instruments provided by multilateral aid agencies would facilitate market access. Creative financial structuring such as the International Financing Facility for Immunization (IFFIm) can help front-load aid commitments, although these may not result in additional financing in the long run. Preliminary estimates suggest that Sub-Saharan African countries can potentially raise $1-3 billion by reducing the cost of international migrant remittances, $5-10 billion by issuing diaspora bonds, and $17 billion by securitizing future remittances and other future receivables.

In raising financing via these means, African countries will face several challenges. Leveraging remittances for Sub-Saharan Africa’s development will imply efforts to significantly improve both migration and remittances data. Remittances are private flows, and governments should not try to direct the use of remittances nor should they think of them as a substitute for official aid. Instead, governments should try to reduce costs, increase flows through banking

> 39  For the literature on aid effectiveness, see Collier (2006); Easterly, Levine, and Roodman (2003); Easterly (2006); Sundberg and Gelb (2006); Radelet (2006); and Rajan and Subramanian (2005).

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