Stopping foreign aid in the next five years may not realistically be able to be implemented and it may be counterproductive. In this GEG blog series The (Dead) Aid Debate, I have argued that the debate should not be between more or less aid, but about the objectives of aid and how it is given. It is probably more radical to suggest a complete overhaul of the aid system than to argue for an end to aid, partly because it would be easier to stop giving aid than to change the current international aid architecture and the organisation and practices of bilateral and multilateral aid agencies. That being said, here are some key changes that I would make. They are followed by some pragmatic thoughts about how they could actually be brought about.
Foreign aid should be reorganised along the following three principles:
1. Make aid more humble. Rather than try to develop other countries’ economies and societies, aid should focus on more piecemeal and less utopian and more concrete, achievable objectives.
2. Make aid more honest. The different types of aid distinguished earlier should be made by stating the purpose of aid and giving it a name which reflects its purpose.
3. Make aid more pragmatic rather than ideological. Project, programs and policies supported by aid should be based on a countries’ real experiences and historical lessons from around the globe rather than on theory from economic textbooks and the false hope of generalisable ‘best practices’.
How do we go about putting this principles into practice? Although it may be counterproductive to stop development aid, or systemic aid as Dambisa Moyo calls it, it is definitely a good thing to simplify and reorient aid and aid practices. In this conclusion to the GEG blog series, I explain some of the steps which should be taken to do that.
1. Reduce the Intensity of Engagement
The current distorting and negative effects of aid dependence are due to an over-engagement of donors in African countries. The first step is to pull back, to loosen the ties and relax the relationships, rather than increase them further (as donors are want to do). Donors tend to prize that proverbial ‘seat at the table’ more than anything else, but it is time to give it up. Without a general commitment to reduce the intensity of engagement, the following steps are unlikely to work.
2. Reduce the Number of Donors in a Country
In the African countries popular among donors, like Ghana, there can be at least 20 donor agencies dealing with the government in a period of time. Although the size of donor agencies’ portfolios differs, they all show up at meetings, and governments have to deal with them constantly. The fact that the finance ministries in African countries have created individual desks for each donor is in indication of how difficult it is for governments to deal with and keep track of a large number of donors. A single country does not need 20 donors. Donor countries should reduce the number of countries in which they operate. There is a trend already in this direction among some Scandinavian countries. Of course, this reduction should be done in a coordinated manner, so that some countries do not end up still with 20 donors and some with zero.
There is also no reason for a European Union aid agency, when all European countries still have individual aid agencies. Given that individual countries are unlikely to abolish their agencies, serious thought should be given to abolishing the EU aid agency.
The Millennium Challenge Corporation, a new aid agency in the US which exists in addition to the old USAID, is unnecessary and a disaster. The MCC commits all the deadly sins of aid best summarised by Nancy Birdsall, and does so ten times over. My one piece of advice to President Obama is to shut down the MCC. This is based on detailed empirical research on implementation in Ghana, which is heralded as the best case of implementation that the MCC has!
3. Reduce the Size of Donor Organisations and Reorient Their Staff and Expertise
Stop expanding the aid system and individual aid bureaucracies. A first place to start is downsizing the World Bank. It often acts in its own interest as an organisation, rather than achieving what is good for an aid receiving country. The Bank should be streamlined to fulfil its core function of concessional lending, provision of technical assistance, and research (see point 4 below). The orientation of its research and technical expertise should return to the 1950s and 1960s when it focused on technical problems in production and its employees had technical expertise on agriculture and industrialisation, rather than macro and micro-economic theory.
Second, remove country-level offices of aid agencies. They are largely staffed by people from the recipient country, which results in poaching the best nationals who could be working in the civil service or in the private sector of that country. It does not make donor expatriate staff any more knowledgeable about the country by being in the country office. Expatriate staff are rotated after only three years, meaning that new staff have to learn country conditions and context anew and their negotiating partners on the government side have to start all over in teaching them, building trust, and negotiating things which were already informally negotiated with the previous person who has now left. Country offices also tend to be staffed by generalists who do not have the specific, technical expertise to offer or with which to evaluate the merit of project proposals and strategies put forward by government. Lastly, for most donor agencies, project proposals are designed in headquarters with missions coming to negotiate them, and major decisions are still taken in headquarters that cannot be changed at country level. So what is the point of country offices? They have huge overhead costs and give people jobs.
4. Different Types of Donor Agencies Should Give Different Types of Aid
Donors can and should specialise in providing different kinds of aid, roles determined by the organisation’s mission and its political constituency. The Bretton Woods institutions should provide balance of payments support and concessional lending. Bilateral agencies will always engage in political, military and commercial forms of aid, so it is unrealistic to expect them not to do so, but they should be honest about it. In terms of development aid, bilateral donors should stick to project aid and funding international NGOs, but commercial forms of aid can also be useful in transferring technology and expertise, providing access to export markets, and forming joint ventures–if done in the right way. The UN should focus on provided useful technical assistance.
The IMF should refocus on balance of payments support. It was originally intended to provide foreign exchange to countries with a short term liquidity crises. However, African countries ran into a situation, which emerged from the development process itself, where they had chronic balance of payments problems due to the structure of their economies. Thus, this is not a call for a complete return to the IMF’s original mandate, but definitely for significant reform. The IMF needs to give African countries balance of payments support without policy prescriptions based on theory. There needs to be a more open discussion between IMF staff and recipient country finance ministries about how to deal with the macroeconomic disequilibria which are inherent in the process of economic transformation. IMF advice is very useful, but needs to be less dogmatic and take a broader perspective on the needs of late ‘late industrialisers’.
The World Bank should go back to its role of providing concessional loans to finance big public goods projects and providing technical assistance. Technical assistance should fill needs defined by recipient countries (although these can be discussed between donor and recipient), and not be what donors have on offer or used as a way for donors to monitor governments from the inside. Bilateral aid agencies should stop providing technical assistance and leave it to the World Bank and UN organisations. Bilateral donors currently tend to have generalists, which are of little use to developing countries, and then hire so-called specialists from their own countries as technical assistants—who also may not have the knowledge needed about the recipient country and about experiences in other parts of the developing world. The World Bank has a key role to play in the provision of technical assistance due to its size, if it will hire the right expertise in-house. But technical assistance should be demand-driven, not donor-driven.
However, the best technical assistance is that which can be provided long-term. UN organisations should be able to pool the required expertise from other developing countries and people who would be willing to stay for many years. United Nations organisations such as UNDP and FAO already focus on technical assistance, but they should stop pretending that they provide anything else and aim to become better providers of technical assistance. Technical assistants should be placed within government ministries for several years, where nationals can act as understudies and learn from them. This will facilitate the transfer of expertise and enhance state capabilities, rather than undermine them by creating parallel implementation units or outsourcing to consultancy companies.
Sector wide approaches and budget support are not a panacea and have more often then not failed to achieve their goals: rather than reducing transaction costs and burden on recipient governments, they have by and large increased them; rather than pooling funds of all donors active in that sector behind a common sector strategy produced by the recipient government, only a few donors actually agree and commit to join and they are involved in producing the strategy to make sure that they can support it.
Project support is a better way to give aid, but changes need to be made in the way it is given. Bilateral aid agencies must tailor project aid to the realities of that country and its government. A good way of making sure that project aid conforms to specific country needs is to follow the Botswana model. In the Botswana model, the recipient government lays out its own needs and designs its projects, and then donors come in to support those projects. Donors negotiate individually with centralised agencies in the recipient government. Project design may change in dialogue with the donor, but only after much negotiation and approval by central planning and finance departments. This allows for coordination of separate projects to achieve an overall goal, and it allows governments flexibility to change the project as deemed necessary. Oversight in implementation should be minimal.
The Botswana model of project aid also overcomes the critique of project aid being uncoordinated and projects failing because they cannot address broader constraints. If the projects are situated within a national strategic plan, then these problems should be addressed. This is different from the PRSP approach which came with donor involvment from the beginning as well as other procedural trappings which distorted the objective of producing a national strategy. Here is where the ‘walk away from the table’ advice comes in.
As an addition to the Botswana model, donors should wait to judge whether the recipient government used the aid money ‘properly’ i.e. to achieve the intended goal within its means. This requires goals to be realistic and assessment to take into consideration factors beyond the government’s control. If there were misuse of aid, or more specifically a misuse for unproductive means, then the donor should not give aid to that country again. Note: using US aid for unintended but productive purposes was very useful in primitive accumulation in South Korea; however, the phasing out of that US aid was also important for forcing the government and businesses in South Korea to become more productive and turn towards exporting.
5. Reduce the areas of donor intervention and number of projects in a particular country and focus on giving aid for increasing production and productivity
Bilateral donor agencies have projects in every policy areas possible. There are some areas in which donors should not be involved, such as supporting the role of traditional authorities (chiefs) in development. Individual donors tend to have wide-ranging portfolios, with projects in water, health, local government, agriculture, trade, private sector development, good governance, environment, etc. Individual bilateral aid agencies should focus on one problem in a recipient country and on helping the recipient government address that problem in a holistic way with long term support. This means projects that are longer than three years, but more like ten years (with learning and revision of the project in response to learning built into its implementation—rather than starting all over with a new project in the same area after three to five years). Long-term support must also target the creation of effective bureaucratic machinery for implementation, rather than parallel implementation units. This can involve supporting ‘centres of excellence’ within the bureaucracy, as opposed to an overall civil service reform, in which existing public administration expertise is properly motivated and managed and/or new expertise hired.
When reducing the number of areas and focusing on specific problems for project aid, bilateral donors should give priority to productive sectors and addressing the constraints on production (high production costs, access to technology, etc). If people’s incomes increase, then they can pay government more for services and pay more taxes, which will allow government to provide better services. If a community has a booming rural enterprise, increased agricultural productivity and efficient marketing system, or access to export markets, then it can pay for its own health clinic, borehole, pit latrines, and primary school. Tn Ghana, both government and donors are currently more concerned with providing social services which meet immediate needs and raise living standards, but then rural dwellers are left in subsistence farming with little prospects of job opportunities and increased incomes, without migrating to the city. This type of aid is unsustainable, because it does not increase people’s incomes nor government’s self-generated revenue.
There is a move in the international aid system towards more focus on productive sectors. But thus far the focus is on agriculture and private sector development. The donor community needs to throw the whole concept of private sector development in the trash bin and start over. The private sector is not one, holistic thing. There are different types of private enterprise, some productive and some not productive. As a way of understanding economic transformation, the concept of the ‘private sector’ doesn’t get us far. It only makes sense as a way of distinguishing it from the state, or public sector. We need to rethink how to support industrialisation and increasing agricultural productivity. Focusing on production also includes the infrastructural requirements of production: roads, railways, ports, electricity (whether solar, hydro, gas, etc), water for commercial purposes.
Lastly, project aid to the productive sector must be timely and flexible. Telling a cluster of commercial farmers and their outgrowers that a project will deliver rural roads or electricity in their area to reduce production costs and then failing to deliver the roads three years later due to many layers of donor and government bureaucracy is not helpful and can even be harmful (because the business could have planned to make the investments itself but did not because it was told the project would provide it). If the same area needs a packhouse now to meet export market demands, providing it three years later is not helpful. These are real examples from the MCA project in Ghana. There are too many layers of bureaucracy in the aid system and donor organisations. The bureaucracy is a result of taking precautions. Thus, donors will have to be more risk-taking and let go of some of these precautionary measures if aid is to be useful for the productive sectors.
How Can These Changes Be Implemented?
Reform of aid agencies and aid practices has to be driven by forces within donor countries and not by internationally-driven bureaucratic processes and agreements such as the Paris Declaration. This is good, because every donor country does not have to follow the same aid practices. The attempt of all aid agencies to conform to a common set of aid practices has not worked and produced disastrous unintended consequences for recipient countries. If reforms are driven by processes within donor countries they are also more likely to actually be implemented. Thus, societies and governments in individual donor countries must seek to change their own bilateral aid agencies. If a few attempt to do so, hopefully others will follow.
For multilateral agencies like the IMF and World Bank, there is of course a more multilateral effort needed. There is a lot of international support among both academics and politicians for moving the Bretton Woods institutions back to their original mandates. It will of course be difficult to downsize an institution like the World Bank and to reorient its hiring practices and aid practices, but it is not impossible with strong political leadership.
The changes to the aid system proposed here would amount to a significant reduction in aid for aid dependent countries in Africa. However, crisis situations are also windows of opportunity for change. What one never knows is which direction the change will take. Since aid is buttressing unsustainable levels of government expenditure, by taking some of this away, governments will be forced to find new sources of revenue. It could force a government to do something about economic transformation: agrarian reform, increase exports, shift into manufacturing. But aid agencies are not just walking away. They can advise governments, while supporting production and providing balance of payments support. But this approach requires that donors (and the academics that advise donors) offer useful advice for what we call ‘late late industrialisers’ in today’s global political economy.
Lindsay Whitfield is Project Senior Researcher at the Danish Institute for International Studies and editor of The Politics of Aid: African Strategies for Dealing with Donors (2009). This blog was published as a Danish Institute for International Studies working paper. For more on the (dead) aid debate, visit GEG’s resource page.