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Economic Report on Africa 2006

Capital Flows and Development Financing in Africa

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Capital flows to Africa in the form of aid, remittances and foreign direct investment have increased considerably over the past four years. However, they are unevenly distributed among countries. In addition, capital flows to Africa are highly volatile and unpredictable, increasing macroeconomic uncertainty and undermining government’s ability to design and sustain long-term development plans. The 2006 edition of the Report places capital flows at the centre of the debate on development financing and examines how external capital can help countries accelerate growth and reduce poverty.

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Capital flows to Africa and their impact on growth

Although inflows of capital to Africa have increased recently, they still fall short of the resources needed to fund attainment of the internationally agreed development goals. In both 2004 and 2005, average GDP growth in Africa reached 5 per cent, still falling short of 7 per cent, the rate required to meet the MDGs. Thus, the mobilization and more effective use of both domestic resources and international flows have been given top priority in the Monterrey Consensus. As African economies are increasingly interwoven with the global economic system, national development efforts need to be supported by an enabling international economic environment (UN 2002).

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