Forgive the puff for my day job - aidinfo works to make aid more transparent and accountable.
Our web guy has done a great job on our website: http://www.aidinfo.org.
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My day job is leading the aidinfo team working to improve the transparency of international aid. Why? Because we think that when aid is more transparent it will be more effectively used and it will help people in developing countries to hold their governments to account. We also believe that if taxpayers can see where aid is really going, and see what a difference it makes, they will support more of it.
So I was dead pleased to see this by David Cameron in today’s Guardian
Transparency tears down the hiding places for sleaze, overspending and corruption. Soon enough all MPs’ expenses are going to be published online for everyone to see: I and the rest of the shadow cabinet are already doing it. And if we win the next election, we’re going to do the same for all other public servants earning over £150,000. Just imagine the effect that an army of armchair auditors is going to have on those expense claims.
Indeed, the promise of public scrutiny is going to have a powerful effect on over-spending of any variety. A Conservative government will put all national spending over £25,000 online for everyone to see, so citizens can hold the government to account for how their tax money is being spent. And we will extend this principle of transparency to every nook and cranny of politics and public life, because it’s one of the quickest and easiest ways to transfer power to the powerless and prevent waste, exploitation and abuse.
Yes, yes, and thrice yes, as Mark Kermode would say.
What’s more, with current technologies, we can do this quite easily, and unleash the creative power not only of armchair auditors, but of millions of people who are not in armchairs but are directly experiencing the effects of that spending and who can help us to understand what is working and how it can be made to work better.
Paul Kagame, the President of Rwanda, writes about aid in today’s Financial Times:
Dambisa Moyo’s controversial book, Dead Aid, has given us an accurate evaluation of the aid culture today. The cycle of aid and poverty is durable: as long as poor nations are focused on receiving aid they will not work to improve their economies. Some of Ms Moyo’s prescriptions, such as ending all aid within five years, are aggressive. But I always thought this was the discussion we should be having: when to end aid and how best to end it.
… Often, aid has left recipient populations unstable, distracted and more dependent; as Ashraf Ghani, the former finance minister of Afghanistan, has pointed out, it can even sever the relationship between democratically elected leadership and the populace.
It seems to me that Dambisa Moyo has set up a false dichotomy between aid and entrepreneurship. Many of the things Moyo would like to see - better access to financial services, a better business environment, lower tariffs - can be (and are) supported by aid. We can and should use aid to support the growth of an entrepreneurial society; and we can and should use aid to support people in developing countries to enable them live better lives while the benefits of that economic growth are coming through.
My review of Dead Aid is here.
Kagame’s position is more nuanced than Moyo’s argument. He seems to be calling for a different kind of support from outside:
We appreciate support from the outside, but it should be support for what we intend to achieve ourselves. No one should pretend that they care about our nations more than we do; or assume that they know what is good for us better than we do ourselves. They should, in fact, respect us for wanting to decide our own fate.
… While this is encouraging, we know the road to prosperity is a long one. We will travel it with the help of a new school of development thinkers and entrepreneurs, with those who demonstrate they have not just a heart, but also a mind for the poor.
This is striking stuff from the President of one of the most aid dependent countries in the world, in which foreign aid is about $55 per person per year, or more than 25% of GDP.
Bill Easterly and Laura Freschi at Aid Watch lay in to British Government aid for giving financial support directly to governments:
In 2007, the UK gave 20 percent of their total bilateral ODA in the form of budget support to 13 countries: Tanzania, Ethiopia, Pakistan, Ghana, Uganda, Mozambique, Vietnam, Malawi, Zambia, India, Sierra Leone, Nepal, and Nicaragua.
Of this list, only Ghana and India were classified as “free” by the annual Freedom House ratings on democracy (according to either the 2007 or 2008 rating). For the 11 other countries that did get British budget support, how much is there “country ownership” when the government is not democratically accountable to the “country”?
… There is nothing that says you have to give aid meant for the poorest peoples directly to their governments, if the latter are tyrannical and corrupt. With the examples above, which side are UK aid officials on, on the side of poor people or on the side of the governments that oppress them?
With all due respect to Aid Watch, I don’t think they have got this right.
For example, they say:
Ethiopia’s autocratic government, which is inexplicably the largest recipient of UK budget support in Africa, won 99% of the vote in the last “election”.
Nice point, except:
a. according to the official results of the 2005 election, the ruling party won 59.8% of the votes; the Coalition for Unity and Democracy got 19.9% and the United Ethiopian Democratic Forces got 9.5%. I have no idea if those accurately reflect how people voted, but it is nonsense to say that the government received 99% of the vote;
b. the UK does not give budget support to the Federal Government of Ethiopia. Through the Protection of Basic Services scheme, which was introduced after worries about the election, the UK Government provides finance to local government (albeit through the existing financial transfer mechanism via central government). As well as funding health and education, the project includes significant components to increase transparency and accountability of federal and regional parliaments.
Aside from getting the facts wrong, Aid Watch seem to be criticising this form of aid by slinging mud rather than by way of a proper analysis of the advantages and disadvanges. We should be asking what benefits arise from giving aid through government, and what harm may come from it. Aid Watch acknowledge the possible benefits: lower transaction costs, more coherence in development policies, building capacity of government. There is another crucial possible benefit: putting money through government budgets is also a way to make the government more accountable to its own citizens, rather than to a bunch of foreign donors.
But Aid Watch don’t try to spell out what the harm might be if aid is given to governments with unpleasant records on human rights or corruption. I personally think there is a case to be made against giving money to many governments, for example if there is reason to believe that the money will not be spent on poverty reduction, or if it will sustain in power a government which might otherwise be booted out of office. But let’s set out these reasons coherently, and let’s try to assess their importance relative to the possible benefits. Aid Watch seems to suggest that guilt-by-association is enough to damn the whole enterprise.
As it happens, the governments mentioned in this piece (Ethiopia, Vietnam and Malawi) all make demonstrably good use of the money they have received. Here in Ethiopia the expansion of public services such as free education and publich health workers financed by Protection of Basic Services is transforming the quality of lives across the country; and Vietnam has made quite staggering progress in bringing down poverty. Personally I think there are important questions to be answered about the quality of democracy in both countries: but that doesn’t mean I want to kill some of the citizens of those countries, or deprive them of basic services, by giving less effective aid.
The British Government’s approach of giving some aid in the form of budget support (too little, in my view) is motivated by evidence that in some circumstances this is an important way of building more effective, responsive and accountable institutions. Developing countries don’t want to receive aid forever, any more than industrialised countries want to give it forever. Building effective and accountable public services is a way of financing the delivery of public services in the short run, while at the same time making it more likely that countries have an exit strategy from aid in the long run.
That is not preferring governments to poor people: it is preferring poor people to giving aid in a way which maximises the publicity you get and covering your back but doing little to build accountable and sustainable public services.
Giving aid as budget support should not be promoted ideologically: it should be used where the advantages (in terms of better service delivery and the long term benefit to accountability and institutions) outweigh the disadvantages (such as the risk of sustaining a bad government in power). Equally it should not be opposed ideologically. Budget support has not been shown to be at any greater risk of corruption or of fungibility than other forms of aid (these are the two main arguments that are offered against budget support). It should be assessed case-by-case. Where it can be used, it represents a very powerful mechanism for both the short term benefits of service delivery and the long term benefits of institutional development. Where it cannot be used, donors should be focusing on what they can do to help create an environment where it can be used in future.
If Aid Watch want to be taken seriously as an aid watchdog, then (a) they’d better get their facts straight and (b) they need to do some proper analysis of the costs and benefits of different choices for aid delivery in different contexts, rather than simply asserting that it is wrong to give aid to and through governments of which they disapprove.
Incidentally, last year Easterly and Pfutze (”Where Does the Money Go? Best and Worst Practices in Foreign Aid.”) ranked the UK as the best bilateral donor. That doesn’t mean that the UK is perfect, by any means, and it doesn’t mean that they get every judgement right; but it does suggest that UK aid officials might not deserve the allegation in this blog entry that they prefer poor governments to poor people.
Declaration of interest: I used to work for the UK Department of International Development.
(Updated 23 March.)
Update: Kudos to Aid Watch. They have given me space on the Aid Watch blog to post this reply (the same as the post above) on their blog. You might also want to check out the comments there.
Interesting idea from Homi Kharas at the Brookings Institution
That is why the G20 should consider declaring a development emergency for 2009. They should urge aid agencies to take every step possible to accelerate the disbursement of already approved funds. They should support staff and managers for taking risks to speed up the flow of money. Their representatives on the boards of these agencies should monitor progress. Poor countries need the money, and they need it now. Rich countries have already paid for this. Now they just need to demand speedier results.
I can see how that would help in the short run (though presumably the financial crisis may be leading many aid agencies to do the exact opposite - shifting expenditure “to the right” is one way that donor countries may be coping with fiscal effects of the crisis.
But I can’t see how that would help in the long run. What we need is an automatic fiscal stabiliser that increases aid to poor countries in a crisis. One way to do this would be set up entitlement programmes - safety nets below which nobody can fall - and accept that the cost of these programmes will automatically go up when the economy turns down.
We predicted a “quadruple whammy” for developing countries in the financial crisis. The value of existing aid commitments will fall; donors are less likely to meet those commitments; financing needs of developing countries have increased; and non-aid finance (such as investment and remittances) will fall.
The Irish Government is first up with aid cuts:
Taoiseeach Brian Cowen announced the cuts in the Dáil today as part of a plan to secure €2 billion in savings to the Exchequer. The Overseas Development Aid budget will be cut from €891 million to €796 million.
… Minister for Foreign Affairs Micheál Martin and Minister of State for Overseas Development Peter Power defended the “difficult” decision. They said that despite the cuts, Ireland remains the sixth most generous donor internationally in per capita terms.
“The size of our aid programme is linked to our own economy, and specifically to GNP growth,” the ministers said in a joint statement.
The only thing that can be said in favour of Ireland’s announcement is that they are at least being open about their failure to meet their obligations. Other countries - namely: Italy, Germany, Portugal, Greece and France - will not meet their international commitments either but have not had the guts to say so.
And CAFOD have estimated that the financial crisis will reduce UK aid by $41bn over 7 years. (There is no sign of the paper on their website, so here is a copy.)
Here is a very interesting article by Minouche Shafik, the Permanent Secretary at the UK Department for International Development. (For our cousins elsewhere, a Permanent Secretary is the most senior civil servant in a government department, ranking somewhere just below a Minister).
Minouche makes two key points: first, social protection schemes seem to be working quite well; and second, that poor people suffer much more from volatility and shocks than others - and there is growing evidence of the permanent harm that they suffer following a temporary shock. That makes a pretty compelling case for widespread use of social protection to put a safety net under people so that temporary shocks do not reduce a family to poverty for not just one but sometimes two generations.
There is a new paper by John Page and Jorge Saba Arbache (here) which finds that child mortality, for instance, goes up when growth is low, but doesn’t come back down when growth accelerates agan. Primary school completion rates and life expectancy similarly go down when growth is low but don’t recover in periods of high growth. The paper also finds that aid goes down during decelerations, adding to the volatility.
Minouche also says something I agree with and something I don’t agree with.
Here is what I think is dead right:
… attempts to orchestrate a tailored response to protect the most vulnerable will almost always lag behind the need.
This suggests the need for an automatic safety net response so that social protection kicks in automatically in the face of a shock. I would like to see social protection schemes become “demand led” - that is, donors would agree the entitlement criteria with governments, and if, in the face of an economic shock, there are more people who fall below that threshold, then the amount of funding from donors should automatically increase. This would help to make aid counter-cyclical, instead of pro-cyclical.
Here is what I don’t agree with:
DFID does not see the money we have committed to social protection as a welfare programme, although clearly for some households it will provide this function.
Why not? I think there is a strong case for having a permanent welfare programme, which transfers money from the rich to the poor. We should see aid not as a matter of temporary charity but the beginnings of a global system of social justice. (I wonder if Minouche’s choice of words - attributing this view to “DFID” rather than herself, suggests that she secretly agrees?)
A new book The Trouble with Aid: Why Less Could Mean More for Africa
In the latest edition of the Development Drums podcast, I talk to Jonathan about his book. He explains why he thinks that we need to take a more complete view of the positive and negative impacts of aid, and he disagrees with my view that aid can be made to work better.
Last month the OECD published aid data from donors for the period up to and including 2007. With my colleagues at Development Initiatives, we have done an analysis of the figures for the House of Commons International Development Committee. The full memorandum (as .pdf) is here.
Here are some key points:
In industrialised countries the fiscal “automatic stabilisers” tend to increase spending in recession, which both dampens the macroeconomic effects of the downturn and channels additional funding to services that face additional costs. By contrast the institutional arrangements for providing finance to developing countries tend to mean that finance is reduced just as needs are increasing, which amplifies the economic downturn, increases economic instability and jeopardises poverty reduction and service delivery.
The Ethiopian Government passed a new law on Tuesday that limits the activities of foreign-funded organisations. The law prevents organizations that receive more than 10% of their funding from abroad from involvement in human rights, gender equality and conflict resolution. It has been greeted with howls of protest by international organisations.
I’m going to make myself very unpopular with lots of the ferenj here in Addis Ababa, many of whom make a good living working for NGOs with foreign funding and are up in arms about this. But I see where the Ethiopian Government is coming from, and I don’t think the law is completely unreasonable.
Now, don’t get me wrong: I would not have brought in this law. I think 15 years imprisonment (that was in the draft bill) for breaking this law is draconian. I do not think that government officials should have the right to attend internal meetings of civil society organisations.
But it is not unreasonable for the Ethiopian Government to say that foreign-funded organisations should not be able to use their funding to buy political influence and change in Ethiopia. Foreign donations to political parties are illegal in the UK - that is why there has been such a fuss about the allegations that George Osborne may have solicited donations from Russian oligarchs on a yacht. We are uncomfortable with the idea that very wealthy people should buy political power - that is why we have spending limits and caps on political donations - and in the UK we look rather pityingly at the United States, where funding by rich companies and individuals seems to dominate political life. Think what this must feel like in a very poor country, where even quite modestly wealthy organisations and individuals overseas have undreamt of wealth by comparison with Ethiopians, and try to use that disparity of wealth to buy change.
So why shouldn’t a very poor country be concerned to avoid having its politics shaped by foreign funding?
There are about 3,800 NGOs here in Addis, with a total budget of $1.5 billion a year. (That is a lot of money in a country in which the annual government budget is about $4 billion a year. The government health budget is less than $300 million a year.) The money going to NGOs could make a huge difference if it were used to improve government services directly, rather that to fund a motley collection of advocacy organisations and fragmented small scale delivery organisations.
It is important to note that the new law does not forbid civil society organisations from being involved in advocacy for human rights. It forbids organisations from being involved in political advocacy if they get more than 10% of their funding from abroad.
So while this law isn’t one that I would have introduced myself, I see where the Government is coming from. It is not completely mad. The hysterical over-reaction from donors, often under political pressure from international NGOs at home, is out of all proportion.
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