Development Assistance: the African Context

ECON 3510 June 15, 2010 Arch Ritter

[Note: The materials for this section are not in the textbook. ]

Official Development Assistance Official Development Assistance (ODA) or "Foreign Aid“(ODA) or "Foreign Aid“

1.1. Definition: What is "Aid“Definition: What is "Aid“2.2. Historical EvolutionHistorical Evolution3.3. Donor Motives for Providing "ODA"Donor Motives for Providing "ODA"4.4. Ethical JustificationEthical Justification5.5. What Can "Aid" Accomplish? The PositivesWhat Can "Aid" Accomplish? The Positives6.6. Possible Negative ImpactsPossible Negative Impacts7.7. Magnitudes, and PatternsMagnitudes, and Patterns8.8. Development Assistance to AfricaDevelopment Assistance to Africa9.9. Problems of Aid QualityProblems of Aid Quality10.10. How Can Development Assistance Be How Can Development Assistance Be

Improved?Improved?

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

Official (Governmental), NGO, and Private Official (Governmental), NGO, and Private Grants plusGrants plus

Highly Concessional LoansHighly Concessional Loans (grant component) (grant component)

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

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

Non-Commercial from Donor PerspectiveNon-Commercial from Donor Perspective

2. 2. Historical EvolutionHistorical EvolutionMarshall PlanMarshall PlanCold war impetusCold war impetusGradual expansion to 1990s, decline then Gradual expansion to 1990s, decline then

renewalrenewalCitizen, “Faith-based” and NGO Citizen, “Faith-based” and NGO

InitiativesInitiativesJeffery Sachs and the Millennium Jeffery Sachs and the Millennium

Development GoalsDevelopment GoalsCurrent questioning of aid effectiveness: Current questioning of aid effectiveness:

Dambisa Moyo of ZambiaDambisa Moyo of Zambia

3.3. Donor Motives for Providing Donor Motives for Providing ODAODAPoliticalPolitical

e.g. Commonwealth & Francophonie e.g. Commonwealth & Francophonie connectionsconnections

Win friends & influence peopleWin friends & influence people

Strategic/militaryStrategic/militarynote the impact of the Cold Warnote the impact of the Cold War

CommercialCommercial HumanitarianHumanitarian EthicalEthical

4. Ethical Justification:4. Ethical Justification:

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

““First step towards world fiscal First step towards world fiscal federalism”federalism”

5. What can Aid Accomplish?5. What can Aid Accomplish?

Aims at “Development” not WelfareAims at “Development” not Welfare

The potential positives of aidThe potential positives of aid

“ “ Gap-Filling Role: Gap-Filling Role: (foreign exchange, (foreign exchange, tax revenues, technological, managerial tax revenues, technological, managerial entrepreneurial gaps)entrepreneurial gaps)

A “Catalytic Role”?A “Catalytic Role”?

Capacity-Building RoleCapacity-Building Role

Direct Basic Human Needs or MDG Filling Direct Basic Human Needs or MDG Filling Role Role

Emergency Relief & Reconstruction RoleEmergency Relief & Reconstruction Roleo Promote Re-Construction of War-torn LandsPromote Re-Construction of War-torn Landso Regional flood, famine, military, and political Regional flood, famine, military, and political

crisis reliefcrisis relief

An Investment in Shared Security as well An Investment in Shared Security as well as Prosperity?as Prosperity?

6. Possible Negative Impacts of ODA6. Possible Negative Impacts of ODA

1.1. May permit recipients to pursue counter-May permit recipients to pursue counter-productive or foolish policiesproductive or foolish policies

May support an ineffective, counter-developmental May support an ineffective, counter-developmental and corrupt government and corrupt government

2.2. May Promote a “Dependency Welfare May Promote a “Dependency Welfare Syndrome”?Syndrome”?

Leadership & responsibility may be abdicatedLeadership & responsibility may be abdicated

3.3. May deform domestic policies to May deform domestic policies to accommodate priorities of donorsaccommodate priorities of donors

4. May permit donor to exercise 4. May permit donor to exercise inappropriate influence on recipientinappropriate influence on recipient

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

6. Volatility of aid flows may be hurtful 6. Volatility of aid flows may be hurtful to recipientto recipient

Possible Negative Impacts of ODA, Possible Negative Impacts of ODA, continuedcontinued

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

8. May provide discretionary funds for 8. May provide discretionary funds for government that may promote corruptiongovernment that may promote corruption

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

7. Magnitudes and Patterns

Donor Efforts

Magnitudes and Patterns: Donor’s Efforts

But note:But note:Previous numbers do not include Previous numbers do not include

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

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

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

8. Development Assistance to AfricaHyperlink: CIDA’s Program in

Sub-Saharan Africa

Hyperlink=>

2007-2008

CIDA’s Countries

of Focus in Sub-

Saharan Africa

Aid is not always given to the poorest countriesAid is not always given to the poorest countries

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.  

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

   The Canada Fund for Africa: Summary of Commitments

(Amount in millions $Cdn.)

Governance, peace, and security Parliamentary strengthening 9

Local governance 6

Public sector capacity building 28

NEPAD outreach 2.5

African Union peace and security 4

West Africa peace and security 15

Health AIDS vaccine development 50

Polio eradication 50

Agriculture, environment, and water Agricultural research 40

Centre of excellence in biosciences 30

Water resource management 50

Trade and investment Joint Integrated Technical Assistance Program 7

African trade capacity 8

African Trade Policy Centre 5

NEPAD-infrastructure Project Preparation Facility 10

Canada Investment Fund for Africa 100

Bridging the digital divide Connectivity Africa 15

Enablis 10

e-Policy Resource Network for Africa 10

Africa-Canada Youth Program Youth and the environment 12

Youth and HIV/AIDS 12

War-affected youth 6

Childhood development in refugee camps 1.5

The Canada Fund for Africa: Summary of commitments, continued:

Current shift away from Africa in Aid Allocation,and towards Latin America

Rationale?Unclear

9. Problems of Aid “Quality”9. Problems of Aid “Quality”

Predictability and volatilityPredictability and volatility– During 2001-03 the gap between During 2001-03 the gap between

commitments and disbursements exceeded commitments and disbursements exceeded 2% of GNI for 35 countries2% of GNI for 35 countries

ConditionalityConditionality

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

30 donors in 2002 30 donors in 2002 – In 2002 Senegal hosted over 50 World Bank In 2002 Senegal hosted over 50 World Bank

missionsmissions– In 2003 Zambia hosted 120 donor missionsIn 2003 Zambia hosted 120 donor missions

Tied aid:Tied 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 What can we realistically expect development assistance to accomplish?accomplish?

Conclude: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: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?

Increase the Quantity of Development Assistance?

More grants & fewer loans Link Aid More Directly to Need Further Debt Service Reductions? 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 Can More Aid be “Absorbed” or Used Effectively?Effectively?

– Would it lead to a collapse of domestic Would it lead to a collapse of domestic effort (e.g. taxation; F. Xch. earnings effort (e.g. taxation; F. Xch. earnings etc.)?etc.)?

– Would it promote “Dutch Disease”Would it promote “Dutch Disease”– Would it sap indigenous efforts and Would it sap indigenous efforts and

initiativesinitiatives– Could it be used effectively?Could it be used effectively?– Would donor priorities take over?Would donor priorities take over?– Would high levels of aid institutionalize Would high levels of aid institutionalize

dependence? dependence?

10. How Can Development Assistance 10. How Can Development Assistance Be Improved?Be Improved? Continued: Continued:

For the Donors: Improve the “Quality” of Aid

1. A “Partnership” philosophy and approach

2. Orchestrate programs to avoid chaos,

Use a “consortium” approach

3. Reduce administrative burdens placed on recipient governments

4. Minimize aid volatility & unpredictability

5. Reduce the tying of aid to donor suppliers

6. Increase untied budget support? Increased “Program Aid not Project Aid”

7. Emphasize capacity building

How Can Development Assistance Be How Can Development Assistance Be Improved? Continued: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”)

7. Some Specific Issues: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