Owen abroad

Archive for July, 2008

Alex Evans at Global Dashboard

I’m currently immersed in writing the main pamphlet for my project on food prices with Chatham House (hence not much posting for the last few days) – but I have to take ten minutes out to sing the praises of the gorgeous piece of writing I’ve been immersed in for the past couple of hours.

The paper in question is Escaping Poverty Traps: the Chronic Poverty report 2008-09, from the Chronic Poverty Research Centre. The title, admittedly, makes it sound like any other international development report of the sort that fill cardboard boxfiles in great reams of unread worthiness in people’s offices around the world. But don’t be fooled. This is an edgy, push-the-envelope, fundamentally political piece of work.

Al Gore (reported in the NY times)

“We’re borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroy the planet. Every bit of that has to change.”

The Economist has reported a paper by Oya Celasun (IMF) and Jan Walliser (World Bank) which looks at the impact of unpredictable aid:

They show how unpredictable such aid flows are. The paper finds that the average absolute difference between aid promised and aid given was equal to 3.4% of each sub-Saharan African nation’s GDP between 1990 and 2005.

The paper is pretty interesting. It reiterates the difference between volatility and unpredictability; volatile-but-predictable aid (eg lumpy payments for a large infrastructure) is rarely destabilizing and is not problematic. It also reminds us of the positive reasons why we might want aid to be unpredictable (eg because project implementation is slow or because the government’s commitment to poverty reduction becomes uncertain) which they distinguish from negative reasons for unpredictability, such as bureaucratic delays, changes in donor political climate, or fickle interpretation of conditions.

The empirical findings are pretty striking. On their samples:

• on average annual aid disbursements deviated by 3.4% of GDP from aid commitments in sub-Saharan Africa (there is a trend decline in this deviation, to 2.8% in recent years, but it is still a massive economic disruption to a country to have that degree of unpredictability)
• no all unpredictability is a shortfall: sub-Saharan Africa received on average 1% of GDP more aid than was committed;
• up to 40% of the variations can be explained by changes in country circumstances; the remaining 60% is unexplained (the authors’ hypothesis is that this unexplained component is fickle donor behaviour such as administrative delays)
• budget aid disbursements fall short by about 1% of GDP from projections, representing about 30% of budget aid promised on average. Budget aid is less predictable than local tax revenues.
• Governments adjust to budget aid shortfalls by accumulating more internal debt and reducing investment spending; the losses in investment spending are not reversed in good times: budget aid windfalls lead to higher government consumption and some reimbursement of domestic debt. Thus the overall consequence of unpredictable budget aid is increased government current spending and reduced government capital spending compared to providing the same amount of aid predictably;
• if you believe (with Easterly etc) that public investment is positively and reliably correlated with long-term growth, then this means that lack of predictability of budget aid has a quantifiable and significant negative impact on long-term growth and poverty reduction.

I was struck that budget aid appears to be more predictable than other aid (though still woefully unpredictable). The mean absolute deviation in budget aid (1% of GDP, using the IMF projections) is much lower than the mean absolute deviation in overall aid (3.1% of GDP, using the DAC data). This is contrary to the conventional wisdom, which is that budget aid is more unpredictable than projects.

I also thought that Celasun & Walliser underestimate the harm done by unpredictability of budget aid. They focus on the resulting shift from government investment to government consumption, which may have costs (though I do not entirely share the fetish for investment over consumption). The costs of unpredictability go much wider: for example, within current expenditure, predictable aid could be used to restructure public service wages; whereas unpredictable aid is more likely to be used to buy in consultants to fill the gaps. There are also macroeconomic costs that are not included here (for example, higher borrowing leads to higher government interest payments, and also to higher interest rates which crowd out private investment). The agencies that give this unpredictable aid would complain like mad – and rightly so – if they did not have predictable budgets from their own Treasuries; so why would public services in developing countries be any different?

For the purposes of this paper, “predictability” is defined in a short-term sense (the gap between commitments for a given year, 0-6 months ahead, and disbursements that year). It is clearly a huge problem that in-year disbursements deviate from commitments by as much as 3% of GDP on average, and it is a problem which donors should do something to fix. But there are other dimensions of predictability – such as the ability to budget 3 or 5 years ahead – which may be just as important, or more so, and which are not discussed in this paper. My belief is that 3-year commitments which are sufficiently solid to be programmed in the budget are worth much more to developing countries than ten-year partnership agreements which are insufficiently reliable for them to be able to programme; if so, we should be emphasizing firmer commitments rather than longer time horizons.

While short term (in-year) unpredictability is a serious problem, the best solution to this may not lie in persuading donors to behave better (on which we have achieved little) but in helping to promote institutions that could help developing countries to smooth out the flows. This might take the form of insurance markets or mutual pooling arrangements, as well as improving access to financial markets. It may also be worth exploring the idea that donors could establish escrow accounts (“bathtubs”) through which aid would flow. Tackling medium term predictability, by contrast, probably does require changes in donor behaviour.

And finally, as you would expect, I strongly agree with Celasun & Walliser in highlighting the importance of greater transparency of aid data.

Obama promises to double US aid

I know development assistance is not the most popular program, but as President, I will make the case to the American people that it can be our best investment in increasing the common security of the entire world. That was true with the Marshall Plan, and that must be true today. That’s why I’ll double our foreign assistance to $50 billion by 2012, and use it to support a stable future in failing states, and sustainable growth in Africa; to halve global poverty and to roll back disease. To send once more a message to those yearning faces beyond our shores that says, “You matter to us. Your future is our future. And our moment is now.”

This is very welcome, though personally I’d settle for keeping the number the same but using it better.

Contrary to what some people expect, statistical analysis shows that Republicans tend to be more generous with aid to Africa than Democratic administration. Maybe Obama would buck that trend.

Democracy is losing ground in Africa – Los Angeles Times

In addition to disputed presidential elections in Zimbabwe and Kenya, where longtime incumbents refused to cede power after their opponents declared victory at the polls, last year’s ruling party victory in Nigeria was widely condemned as flawed. Uganda’s president changed the country’s constitution to stay in power. Ethiopian government forces killed about 200 opposition supporters after a 2005 vote.

Though there have been democratic success stories, such as Ghana and Sierra Leone, some see the coming years as a crucial period in determining whether much of Africa will move forward in embracing democracy.

“The continent right now seems caught in the middle between the good cases and bad cases,” said Chris Fomunyoh, senior associate for Africa at the National Democratic Institute, which promotes democratic reform around the world.

Sadly, this seems rather plausible. For several decades there have been shining beacons of hope across Africa, but sadly many of them appear to burn brightly for a few years and then fade. (Remember Cote d’Ivoire – stable and relatively prosperous for decades before it descended into internal conflict?).

I’d be interested to see actual data, though. I suspect that the trend is upwards, even if there are disappointments on the way.

Giving Back – The volunteers descend on Ghana

I found a travel blog website and zoned in on Ghana and the stories of this year’s volunteer troups. The diaries and accounts read just like a book. A book I’ve read so many times. The positive attitude reigns – despite being pick pocketed in a trotro, being food poisoned at the dump of a hotel, having local groups only participate in the great programs if they are paid to join in.

Rather sadly, there is something in this jaundiced look at volunteers from rich countries working in poor countries.

The one thing that most poor countries have in abundance is cheap, unskilled labour; so it is not clear how cheap, unskilled volunteer labour from abroad is going to help.

The main benefit of volunteering programmes appears to be for the volunteer: they get a life-enriching experience. They might also return home with a lifelong interest in development issues and internationalism.

Lawrence MacDonald at the Center for Global Development says we should scrap the G8

Once again the G8 has come up tragically short on climate change and a host of urgent problems affecting poor people in developing countries.

Meanwhile, over at Project Syndicate, Jim O’Neill says the G7 and G8 should be reformed by reducing European voice:

For example, why is there an international economic organization such as the G-7 without China, which is poised to overtake Germany as the world’s third largest economy and since 2000 has contributed almost as much to global economic activity as the entire euro zone? Most global economic issues today cannot be solved without policy steps in China. Indeed, how can the G-7 have the audacity to make repeated public comments about the currency of an outside country and hope for a positive response? It is almost farcical.

Meanwhile, France, Germany, and Italy are all in the G-7, even though they share the same monetary policy and currency. It would be better if the ECB and the EU finance ministers adopted a common position ahead of G-7 meetings, then allowed their joint view to be represented by a single Council representative and the ECB’s president. Because ministers meet before each G-7 meeting, this would be an easy procedure to introduce.

I think it is unlikely that the failure of the G8 to make sufficient progress on key questions such as climate change, Africa and food prices is because the European voice was too strong; the problem seems to be that the US, Japan, Russia and Canada are in denial about what is needed.

But the call for reform of the G8 is right, and it is an issue that the UK should be particularly focused on. The UK is likely to see its authority at the top tables of international diplomacy decline over time: institutions like the G7 and the Security Council will either be reformed to reflect the changing balance of global power, which means our voice will be reduced, or they will be more and more marginalized (we are already seeing this happen) and replaced by new, more relevant institutions .

Our interest now is seeing to it that new institutions are developed that protect the interests of the less powerful and smaller countries, which we are gradually becoming. If we do not invest in those reforms while we have influence, we will regret it later when we no longer have the opportunity to shape the new order.

A paper by Princeton academics says that:

It would be preferable for government to understand providing reusable data, rather than providing websites, as the core of its online publishing responsibility. Rather than struggling, as it currently does, to design sites that meet each end-user need, we argue that the executive branch should focus on creating a simple, reliable and publicly accessible infrastructure that exposes the underlying data. Private actors, either nonprofit or commercial, are better suited to deliver government information to citizens and can constantly create and reshape the tools individuals use to find and leverage public data.

The paper goes on to say:

Rather than struggling, as it currently does, to design sites that meet each end-user need, it should focus on creating a simple, reliable and publicly accessible infrastructure that exposes” the underlying data. … Data should be available, for free, over the Internet in open, structured, machine-readable formats to anyone who wants to use it. Using “structured formats” such as XML makes it easy for any third party service to gather and parse this data at minimal cost.

This is, fortuitously, exactly what my colleagues and I working on aidinfo – an initiative to improve the transparency of aid information – have been saying. (Temporary website at www.aidinfo.org)

Reference: Robinson, David, Yu, Harlan, Zeller, William P. and Felten, Edward W., “Government Data and the Invisible Hand” . Yale Journal of Law & Technology, Vol. 11, 2008

Hat tip: Power of information blog

According to Andy Grice in The Independent Gordon Brown plans to continue to press G8 leaders to live up to their commitments on Africa:

Mr Brown’s four-point plan for the annual G8 gathering includes a $60bn boost for health care in developing nations, to recruit more health workers; extra money to meet shortfalls in a $1bn fund to stop 72 million children missing out on a primary education; and a food-crisis package. [Ed: I make that a 3-point plan?]

Say what you like about Mr Brown’s domestic political standing (I personally can’t see what he is supposed to have done wrong, apart perhaps from dismantling our civil liberties) but he continues to put real energy and passion into international development. Since I think that is two orders of magnitude more important and urgent than anything in British politics, that is enough for me.

A government source quoted in the same article gets it exactly right:

“It would be very stupid to give up on Africa because of the economic downturn – a big strategic error to save a relatively small amount of money. If we invest in agriculture in Africa, we could bring down the price of food. Half of the food produced rots before it gets to the market. It could become the breadbasket for the world.”

If we can’t get an agreement on cutting food tarriffs and limiting market-distorting agricultural subsidies now, while food prices are surging (see graph), then when we will ever?

The new Chronic Poverty Research Centre website was launched today; and the second Chronic Poverty Report will be launched next week:

Four years ago, the Chronic Poverty Research Centre published the Chronic Poverty Report 2004-05. This was the first major international development report to focus on the estimated 320 to 445 million people who live trapped in chronic poverty – people who will remain poor for much or all of their lives and whose children are likely to inherit their poverty. These chronically poor experience multiple deprivations, including hunger, under-nutrition, illiteracy, lack of access to safe drinking water and basic health services, social discrimination, physical insecurity and political exclusion. Many will die prematurely of easily preventable deaths.

If the first report examined the dimensions of the problem of chronic poverty, the Chronic Poverty Report 2008-09 looks at possible solutions. Through our research we identify five main traps that underpin chronic poverty – insecurity, limited citizenship, spatial disadvantage, social discrimination and poor work opportunities – and outline key policy responses to these.

The point about chronic poverty is that, even if there is economic growth in developing countries, there are about 400 million people who will most likely remain poor unless specific measures are taken to address the causes of chronic poverty.

Justin Muzinich and Eric Werker propose “a better approach to foreign aid” in the form of tax credits for companies that invest in developing countries:

tax credits for U.S. companies promise more aid, less waste, and the hope of better institution-building than government-to-government assistance. The next question is how a system of tax credits should be designed — which sorts of investments should qualify for credits, which countries should be eligible to benefit from them, and what the total size of the program should be.

Though the argument is based on utterly false premises, there may be some merit in the idea.

The authors claim that most aid is not spent prudently because it goes on “debt service, consultants and humanitarian emergecies …. mismanagement and corruption” while “American markets reward companies if they use capital efficiently”.

It is true that about 7% of global aid goes on humanitarian relief – and so it should. Following the floods in Burma, and the earthquake in China, or the failure of the harvest in Somalia and Ethiopia, it is right that some aid is targeted at alleviating the resulting human suffering. It is also true that about 18% of aid is used for debt relief – which frees developing countries from servicing debt, and so allows them to spend that money on investment in economic growth and for social services. And consultants are often part of technical assistance (which is 21% of aid): this is righly criticised for being less effective than it should be, but most of us think that sharing knowledge is nevertheless an important and desirable part of foreign assistance. So to denounce these as not “prudent” is plain ignorant.

That said, we may be missing a trick. We tend to think that where markets fail, governments must provide. But we would get much more bang for our buck if we used aid to sweeten the deal for private firms, tipping an “uneconomic” investment (in terms of private returns) in services for poor people into an economic one. Paying the margin to make an investment worthwhile, rather than meeting the entire economic cost of the service, could enable limited aid budgets to go much further.

What we need to avoid, as ever, is state subsidies that create fat, lazy incumbent firms that are free from innovative and dynamic competitors.

According to Hugh Williamson in the FT the 8 richest countries are stepping back from the commitment they gave in Gleneagles to increase aid:

Leaders of the Group of Eight rich nations are set to backtrack on their landmark pledge at the Gleneagles summit in 2005 to increase development aid to Africa to $25bn a year. A draft communiqué obtained by the Financial Times, due to be issued at the group’s July summit in Hokkaido, Japan, shows leaders will commit to fulfilling “our commitments on [development aid] made at Gleneagles” – but fails to cite the target of $25bn annually by 2010.

To be fair, the only evidence for this given by the FT is that the draft G8 summit makes no reference to the figure. In some ways this may seem pedantic – failing to repeat the number is not the sane thing as renouncing it – but for those of us who watch summit language carefully, this is a significant ommission. If the countries meant to to keep their promises, they would make a virtue of it by restating the commitment. The only possible reason for dropping the language is that they no longer believe they will live up to it.

In some ways, however, this is more worrying:

In a further retreat, the G8 is set to abandon its Gleneagles promise to provide universal access to Aids treatment and prevention by 2010. The pledge has been a benchmark around which health campaigners and others have been organising their work, especially in Africa.

Universal access to AIDS treatment is a much better target than the aid target. In principle, we should be setting targets for what we plan to achieve, not targets for how much we plan to spend (which creates perverse incentives to spend more, rather than achieve more value for money).