Aid and Development Policy

Behrooz Morvaridi

This Session Covers:

Types of Aid

Importance of Aid

Aid Projects and distribution

Three perspectives on Aid:

1. Radicals2. Sceptics3. Optimisits

A New Aid Paradigm

Since the late 1990s a new Aid paradigm has emerged

Donor agencies are now concerned with the question of how to reduce poverty.

Central themes of growth but pro-poor and sustainable growth, governance (and by implication greater empowerment for the poor) and social development (leading to improved human capital).

The Millennium Development Goals (MDGs) reflect the aspirations of the donor community to halve extreme poverty between 1990 and 2015. Symbolically this is the first goal.

MDG 8: Global Partnership for Development

Since 2001 many aid donors have embarked on an expansionary phase, proposing a scaling-up of aid volumes in support of the Millennium Development Goals.

‘A global partnership for development’ (Goal 8) is considered essential to achieve the MDGs.

Effectively this means that rich nations have an obligation to transfer resources to poor countries by way of fair trade regimes, debt relief, transfer of technology, foreign direct investment and more importantly enhanced development assistance or Official Development Assistant (ODA) or Foreign aid.

MDG 8: Global Partnership for Development

Estimates of cost of reducing income poverty (Goal 1) ranges from between US54 and US$62 billion. Other goals are likely to cost between US$35 and US$76 billion a year (2000 prices) (UN 2002: 16).

When the G8 countries met at the Gleneagles summit in 2005, they promised to raise this amount by increasing aid budgets to reach the UN target of giving 0.7 per cent of GDP in aid by 2015.

Despite progress to fulfil this commitment, OECD 2006 report shows that the total aid figure still falls well short of this

Source: OECD, 2010

Types of Aid

Grants (Transfers made in cash, goods or services for which no repayment is required).Cash TransfersLoans (repayment required)Training courses Technical AssistanceEmergency Relief or humanitarianResearch ProgrammesBudget or balance of payments supportDebt ReliefFunding of NGOsGrants, loans and credits for military purposes are excluded

Aid projects

Physical infrastructure – roads, power plants, water supply, ports, railways

Social infrastructure – schools, universities, hospitals, clinics, support services

Social protection – micro-credit, conditional cash transfers, food subsidies, employment guarantee schemes

Technical assistance

Review of Paris Declaration Aid Effectiveness 2011

Aid ODA: 2010 approximately US $130 billion

Only 0.3% of donor countries GDP

Aid sums are relatively low on per capita basis

In some countries Aid is lower than remittances (eg Philippines, Pakistan, India)Colonial ties and trade links are influential eg UK and Chinese aid in AfricaAid for foreign policy agendas. E.g. The USA Millennium Challenge Account is mostly channelled to good governance programmes or ‘pro-democracy programmes’. Simple measure of Aid dependence = net Aid/national income

Aid/GNI: selected countries Aid

Eritrea 29.0%

Sierra Leon 28.7%

Malawi 22.7%

Mozambique 21.6%

Sierra Leone 19.1%

Ethiopia 12.8%

Uganda 11.7%

Tanzania 11.3%

Source: OECD, 2010

Regional distribution Sub-Saharan Africa 2008: average aid per capita $75 and share of national income 10%

South Asia (excluding Afghanistan): average aid per capita $35 and share of national income 3%

Central Asia and Eastern Europe average aid per capita $83 and share of national income 3%

Little correlation between aid per capita and GDP per capita

Strong negative correlation between share of net aid of national income and GDP per capita

Poor countries are ‘aid dependent’

Private Aid Funds from NGOs and charities are also growing –

estimated $24 billion in 2010

Remittances estimated $350 billion in 2010, 3 times amount of Aid monies

Between 10-15% of total financial flows to developing countries depend on private flows (FDI, equity, loans)

Remittances and contributions from non-state actors, such as the mega-rich and large corporations, are transforming the concept of foreign aid and gradually replacing it with a foreign aid business model based.

Suggestion that private aid is more effective than official development assistance and that solving the problem of global poverty requires a network of public-private, philanthropic and civil society partnerships.

Key Questions

How can you value foreign aid? Is it a vehicle for achieving the main development objectives of economic growth and poverty reduction?

Has aid been effective in achieving development objectives?

Has aid been harmful?

Has aid been constructed by the west to control others for their own economic and political interest?

Different Perspectives on Aid

Three Perspectives on Aid:

1. Radicals: Rejection of aid, aid and power – rejection of aid as post-colonial guilt.

2. Sceptics: Aid is harmful

3. Optimists: Aid effectiveness, ownership

ScepticsEasterly in the White Men’s Burden (2008) and Moya’s Dead Aid (2009) are critical of the way in which foreign aid is organised, managed and delivered by aid agencies. They believe that Official Foreign Aid: has failed to realize its developmental objectives

creates a dependency culture

crowds out investment by hindering the operation of free markets

encourages corruption and fosters reliance on foreign benevolence and philanthropy

sustains inefficient donor bureaucracies that contribute to the overall lack of performance of the industry.

is anti-market and represses innovation and accountability.Moya argues that there is a need to end the myth that aid is effective. ODA and its modus operandi has been a kind of ‘authoritarian paternalism

ScepticsMoya argues that there is a need to end the myth that aid is effective. ODA and its modus operandi has been a kind of ‘authoritarian paternalism’:

‘Scarcely does one see Africa’s (elected) officials or … African policymakers… offer an opinion on what should be done, or what might actually work to save the continent from its regression. This very important responsibility has, for all intents and purposes, and to the bewilderment of many an African, been left to musicians who reside outside Africa’.

She complains ‘public discourse became a public disco’, when ‘pop and movie stars’ took on Africa as a cause ‘to carve out niches for themselves’. President George W. Bush consulted with Bono on Africa in October 2005, and Bob Geldof (allegedly representing Africa’s interests) practically had equal status to national leaders attending the 2005 G-8 summit.

What is the alternative to Aid?

Support an end to the Western aid industry, that has in Moya’s view, been harmful and unproductive.

The alternative is to replace aid with development policy that focuses

on:

Market and market based policies that address the root causes of povertyCapital and remittancesFree Trade Policy and Openness that addresses inadequate trading opportunitiesMicrofinanceEncourage investment and entrepreneurial activities

Paris Declaration 2005The Declaration defines aid effectiveness in terms of five principles:

1. Ownership: Developing countries set their own strategies for poverty reduction, improve their institutions and tackle corruption.

2. Alignment: Donor countries align behind these objectives and use local systems.

3. Harmonisation: Donor countries coordinate, simplify procedures and share information to avoid duplication.

4. Results: Developing countries and donors shift focus to development results and results get measured.

5. Mutual accountability: Donors and partners are accountable for development results.

Read recent Evaluation of Paris Declaration (2011) , available athttp://www.oecd.org/statisticsdata/

0,3381,en_2649_34447_1_119656_1_1_1,00.html

Conclusions

Aid is complex

Aid dependence undermines governments Well designed projects can make a difference

But it is unlikely that the ingenious ideas (ownership) that have been proposed to improve aid effectiveness

Recent successes of some Latin American countries, China and India little to do with Aid

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