Development Assistance: the African Context

ECON 3510, Carleton UniversityJune 10, 2014

Arch Ritter

Source: Class notes; Collier Chapter 9

Agenda1. Definition: What is "Aid“2. Historical Evolution3. Donor Motives for Providing "ODA"4. Ethical Justification5. What Can "Aid" Accomplish? The Positives6. Possible Negative Impacts7. Magnitudes, and Patterns8. Development Assistance to Africa9. Problems of Aid Quality10. How Can Development Assistance Be

Improved?

1. Definitions: “ What is Aid and ‘ODA’ ”

• “Development Assistance” or “Aid” would include a) Multilateral or Governmental (i.e. “ODA”), b) NGO, and Private Grants plus c) the grant component of Highly Concessional Loans

• “Official Development Assistance”: Net disbursements of loans (on concessional terms) or grants by governmental agencies for development purposes

All Aimed at Transferring Resources– In Currency or In Kind;

All “ Pro-Developmental” or Emergency Relief, not “Welfare” Oriented

• Non-Commercial from Donor Perspective

Where do the following fit in?

• Donations to and through NGOs or Foundations (e.g. Gates Foundation, Oxfam, CARE, Red Cross)

• “Faith-based” organizations (Caritas, Mennonites, Vision, Aga Khan Foundation)

• “Private assistance” provided unofficially and usually without much publicity and perhaps without official awareness by individuals or groups.

2. Historical EvolutionMarshall PlanCold War impetusGradual expansion to 1990s, decline then

renewalCitizen, “Faith-based” and NGO InitiativesMillennium Development GoalsCurrent questioning of aid effectiveness:

Bill EasterlyDambisa Moyo of Zambia

3. Donor Motives for Providing ODA Political and Historic

–e.g. Commonwealth & Francophone connections

–Win friends & influence people

Strategic/military–note the impact of the Cold War

Commercial Humanitarian Ethical

4. Ethical Justification:

Should High Income Countries Provide Aid to Low-Income Countries?

“First step towards world fiscal federalism”

5. What can Aid Accomplish?Aims at “Development” not WelfareThe potential positives of aid1. “ Gap-Filling Role”:

foreign exchange, tax revenues,technological, managerial entrepreneurial gaps

2. A “Catalytic Role”?

3. Capacity-Building Role4. Direct Basic Human Needs or MDG

Filling Role 5. Emergency Relief & Reconstruction Role

– Promote Re-Construction of War-torn Lands

– Regional flood, famine, military, and political crisis relief

6. An Investment in Internationally Shared Security as well as Shared Prosperity?

The Range of Types of Assistance Organization

Multilateral: World BankNational CIDA (Africa Program)Major Foundations:

Bill and Melinda Gates FoundationNGOs: “CanAssist”;

“Academics Without Borders Canada” Faith-Based Programs:

Mennonite Central CommitteeAga Khan Foundation

Note: the above labels are hyper-linked to the organizations’ web sites

6. Possible Negative Impacts of ODA 1. May permit recipients to pursue counter-

productive or foolish policies• May support an ineffective, counter-

developmental and corrupt government

2. May Promote a “Dependency Welfare Syndrome”?

• Leadership & responsibility may be abdicated by national governments and/or taken by foreign aid agencies, NGOs …..

3. May deform domestic policies to accommodate priorities of donors

Possible Negative Impacts of ODA, cont’d

4. May permit donor to exercise inappropriate influence on recipient

5. May permit recipient country to shift resources to other undesirable areas

6. Volatility of aid flows may be hurtful to recipient

Possible Negative Impacts of ODA, continued

7. May lead to appreciation of exchange rate with damage to export activities (See Chart)

8. May provide discretionary funds for governments where officials are involved in corruption

9. May support dictatorial regimes that violate human rights in major ways

Development Assistance to Selected Countries of Africa

Selected CountriesSelected Countries

Net Aid from All Net Aid from All Donors as % Donors as % of GDP, 2003of GDP, 2003

Net Aid per Net Aid per Capita, Capita, from All from All Donors Donors

20032003

Net Aid as % of Net Aid as % of Gross Gross

Domestic Domestic Investment, Investment,

20032003

BurundiBurundiCabo VerdeCabo VerdeEritreaEritreaGhanaGhanaGuinea-BissauGuinea-BissauMalawiMalawiSao TomeSao TomeSouth AfricaSouth AfricaTanzaniaTanzania

37.637.618.018.040.940.912.112.160.860.829.329.363.263.20.40.4

16.216.2

31313063067070444498984545

23923914144747

246.1246.189.289.2

182.5182.552.452.4

490.7490.7260.6260.6210.0210.0

2.22.287.987.9

Sub-Saharan AfricaSub-Saharan AfricaExcluding South Excluding South

AfricaAfricaExcl. S. Africa & Excl. S. Africa &

NigeriaNigeria

5.65.6

8.28.2

11.211.2

3434

3333

4444

29.929.9

41.941.9

60.460.4

Aid is not always given to the poorest countries

7. Magnitudes and Patterns

Donor Efforts

Magnitudes and Patterns: Donor’s Efforts

But note:Previous “ODA” numbers do not include

• Donations to and through NGOs or Foundations (e.g. Gates Foundation, Oxfam, CARE, Red Cross)

• Nor “faith-based” organizations (Caritas, Mennonites, Vision, Aga Khan Foundation)

• Nor “private assistance” provided unofficially and usually anonymously by individuals.

8. Development Assistance to Africa

Source: OECD/DAC Statistics (2006). DAC Members’ ODA: 1990-2004 and simulations to 2006 and 2010, based on Monterrey and subsequent commitments

0.33

0.22

0.26

0.30

0.36

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.4019

90

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

% o

f G

NI

0

20

40

60

80

100

120

140

OD

A (

2004

$ b

illio

n)

ODA as a % of GNI (left scale)

Total ODA(right scale)

Total ODA to Africa(right scale)

Africa receives about 50 per cent of total aid

10

12

14

16

18

20

22

24

26

28

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

2003 US$ billion

other ODA Bilateral debt forgiveness Emergency aid

Total net official development assistance (ODA), non-aid official flows and private flows in Africa, 1993-2004.

(Source: OECD/DAC)

ODA increases have been driven by debt relief and emergency assistance

Development Assistance to Selected African Countries

Selected Countries

Net Aid from All Donors

as % of GDP, 2003

Net Aid per Capita, from

All Donors 2003

Net Aid as % of Gross

Domestic Investment,

2003

BurundiCabo VerdeEritreaGhanaGuinea-BissauKenyaMalawiNigeriaSao TomeSouth AfricaTanzania

37.618.040.912.160.83.4

29.30.6

63.20.4

16.2

3130670449815452

2391447

246.189.2

182.552.4

490.726.0

260.62.4

210.02.2

87.9

Sub-Saharan Africa 5.6 34 29.9

Macroeconomic Indicators, Some African Countries

Liberia Kenya Ethiopia Tanzania

Sierra Leone

Gross Investment % of GDP

16.4% 19.4% 10,2% 16.4% 14.7%

Foreign Direct Invest ‘t % of GDP

17.1% 0.3% 0.4% 3.6% -o.2%

Development Assistance Per capita

$329 $35 $41 $54 $66

Remittances % of GDP Per capita, $

6.9%$15

5.1%$44

1.5%$5.

0.1%$0.0

7.7%$27

Tax Revenues, % of GDP

n.a. 18.9 10.2% n.a. 10.8%

UNDP. HDR, 2010

DFAIT-Development (formerly CIDA) Countries of Focus in Sub-Saharan Africa

2007-2008

DFAIT-Development (ex-CIDA)’s Mission and Mandate Mission:

Lead Canada's international effort to help people living in poverty.

Mandate: Manage Canada's support and resources effectively and accountably to achieve meaningful, sustainable results and engage in policy development in Canada and internationally, enabling Canada's effort to realize its development objectives.

Comment re accountability and effectiveness

Example of Canadian Assistance: EthiopiaAchievements 2011-2012Children and youth

Contributed to 7.1 million children receiving essential vitamins and minerals.

Increased, by 55 percent, the detection of tuberculosis and successfully treated 85 percent of all cases reported in 314 remote villages.

Trained more than 20,000 health workers to treat childhood diseases from 2007 to 2012.

Contributed to an increase in the proportion of children vaccinated against diphtheria, whooping cough and tetanus to 88 percent and against measles to 86 percent.

Helped increase the proportion of births attended by health workers by 5 percent (to 34 percent).

Distributed anti-malarial bed nets to households in malaria-prone areas, maintaining a rate of 100 percent coverage.

Food security Supported the Productive Safety Net Program, a cash-for-work program that

helped feed 7.6 million people while at the same time addressing underlying causes of food insecurity with construction of soil conservation structures and tree planting.

Trained 3,274 health workers who contributed to improving the health and nutritional status of pregnant and breastfeeding women and of 1.5 million under-five children.

CIDA-Funded Projects in Sub-Saharan Africa – by Country and in Aggregate:

See “ Project Browser” CIDA Projects in Africa

Recent shift by Canada away from Africa in Aid Allocation and towards Latin America?

- With lots of rhetoric but not much action;

Rationale?Unclear

9. Problems of Aid “Quality”

• Predictability and volatility– During 2001-03 the gap between commitments

and disbursements exceeded 2% of GNI for 35 countries

• Conditionality

• Coordination: a problem– On average, a country in SSA dealt with more than 30

donors in 2002 – In 2002 Senegal hosted over 50 World Bank missions– In 2003 Zambia hosted 120 donor missions

7. Some Specific Issues:

• Allocation of Burden among Donors

• Allocation of Aid among Recipients

• Executing Agencies: IFIs, Bilateral, Civil Society Organizations?

• Food Aid: Impact on Domestic Agriculture

• Co-ordination of Aid Programs

• Aid, Human Rights and "Bad" Political Regimes

• The tying of aid:

– Why “Tie” Aid?– Effects of “Tying”– Positive Effects of “Tying” ?– Solutions?

Recall what can go wrong:1. Aid may “ratify” counter-productive policies2. “Dependency Welfare Syndrome”: Recipient country effort

may be reduced3. Donors priorities may dominate4. Inappropriate donor influence5. May permit recipient country to shift resources to other

undesirable areas6. Aid volatility may damage recipient7. Appreciation of exchange rate may block exports, increase

imports, & economic diversification8. Discretionary & unearned funds for government may

encourage & facilitate corrupt practices9. May support dictatorships and human rights violations

What can we realistically expect development assistance to accomplish?

Conclude: • Aid alone can not achieve sustainable

development• A useful support for domestic or national

efforts. • Responsibility rests with developing countries

themselves, not aid donors• Perhaps neither “sufficient” nor

“necessary” but useful.

Other factors are vital:• Governmental commitment to development

objectives;• Reasonably incorrupt government• Equity orientation of public policy • Sound economic policies to strengthen and

sustain an indigenous economic foundation• An “enabling environment” so that people can

improve their own situations for themselves (e.g. re the informal sector, micro-credit ….”

Question: Is representative democracy a necessary precondition or element?

10. How Can Development Assistance Be Improved?

11. Increase the Quantity of Development Assistance?

12. More grants & fewer loans13. Link Aid More Directly to Need?14. Further Debt Service Reductions?15. Donor co-ordination via “consortium

techniqueBut recall that aid is no panacea and also

creates additional problems and stresses

Can More Aid be “Absorbed” or Used Effectively? Would it lead to a collapse of domestic effort

(e.g. taxation; F. Xch. earnings etc.)? Would it promote “Dutch Disease” Would it sap indigenous efforts and initiatives Could it be used effectively? Would it permit increased corruption? Would donor priorities take over? Would high levels of aid institutionalize

dependence?

10. How Can Development Assistance Be Improved? Continued:

For the Donors: Improve the “Quality” of Aid1. A “Partnership” philosophy and approach2. Orchestrate programs to avoid chaos,

Use a “consortium” approach3. Reduce administrative burdens placed on recipient

governments4. Minimize aid volatility & unpredictability5. Reduce the tying of aid to donor suppliers6. Increase untied budget support? Increased

“Program Aid not Project Aid”7. Emphasize capacity building

How Can Development Assistance Be Improved? Continued:

(b) for the Recipients:– Pursue wise, equitable and effective

development strategies – Make a major domestic effort

– “Take Charge” & “Own” the Program– Improve budget management and accountability;

combat corruption;– Ensure effective management;– Avoid currency appreciation due to aid inflows

(“Dutch Disease”)