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Foreign aid: Recession renews donor debate

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A growing body of development economists has ad­vanced powerful critiques of the aid industry.

They argue that the drip feed of western assistance has made African governments less willing to reform a bureaucratic and corrupt culture that has inhibited trade, investment and the growth of local businesses.

Until a few months ago, these arguments were gaining traction.

With commodity prices high, private capital plentiful and investors keen to explore new frontiers, it seemed reasonable to argue that the continent could begin to manage without charity.

But as the north’s financial crisis has evolved into a global recession, the debate has begun to look increasingly academic.

The shrinkage of export markets and fall in metals and other commodity prices has exposed the narrow base of many African economies.

Many countries are now teetering on the edge of recession and policymakers argue they will need additional support to avert a development crisis on the scale that hit the region after oil prices soared during the 1970s.

Rather than phasing out aid, it is becoming clear that western governments will be asked to increase significantly the scope of support to avoid stagnation and a reversal of recently improved social indicators.

As Jakaya Kikwete, the Tanzanian president, told the Financial Times last month: “In the 1980s and 1990s, we ended up losing almost 15 years of gains. We should not get back to that kind of situation.”

The warning is timely because aid commitments from the wealthy developed countries of the G8 are coming under pressure.

In a recent report, the International Monetary Fund warned that “potential reductions in aid flows are a serious concern”, noting that aid flows peaked in 2006 and remained broadly unchanged in 2007.

The severity of the recession in the north is partof the problem, since aid commitments are typically expressed as a percentage of a now declining gross domestic product.

The devaluation of currencies such as sterling has made matters worse by reducing the purchasing power of some aid.

But there are also signs that the commitments of governments to offer big increases in funding by 2010 are weakening.

The Millennium Development Goals – agreed in 2000 – may have served to focus attention in basic areas such as education, health and water services.

However, progress has been patchy. In a recent paper, Richard Manning, a development consultant, notes “significant areas where countries and whole regions are well off-target for many of the goals.”

Likewise, aid commitments have also been uneven. Some donors – most notably the US and the UK – appear to be on course to meet commitments made four years ago at the Gleneagles summit of the G8.

The recently installed administration of Barack Obama recently doubled its foreign assistance to help countries meet the Millennium Development Goals by 2015.

But several developed countries are falling well short of their commitments.

According to One, the London-based Africa advocacy group, France cut assistance to Africa in 2007 and its overall aid to the continent in the same year amounted to $3.32bn, less than 50 per cent of the 2010 target.

The aid extended by Italy in 2007 was, at $1.15bn, less than a quarter of its targeted amount.

At the same time, as the IMF report also points out, Africa’s dependency on development assistance is growing, as export revenues and foreign investment – as well as additional sources of foreign exchange such as tourism and remittances – all begin to shrink.

The Fund views eight African economies as highly vulnerable to a reduction in aid, and more than a dozen others as moderately vulnerable.

Mozambique is at the top of the list, with aid accounting for 42 per cent of its GDP in 2008 and aid amounts to more than 10 per cent of GDP in Burundi, Cape Verde, Malawi, Guinea Bissau, Rwanda and Lesotho.

The report also shows that the relatively weak external position of economies such as Ethiopia, Sierra Leone and Madagascar leads to high levels of dependency, even though external assistance accounts for a much lower percentage of economic activity.

Campaigners worry that some of those highly aid-dependent economies have seen living standards improve sharply in the past few years precisely because of successful programmes.

Aid offered in the form of a seed and fertiliser subsidy helped Malawi produce a surplus of maize in 2007, reversing dependency on food aid, for example.

Healthcare has improved markedly in Rwanda since 2000, largely on the back of a 79 per cent increase in aid.

Immunisation rates for children have increased to 99 per cent – the highest level in sub-Saharan Africa – and the number of people contracting malaria has dropped by two-thirds since 2006.

Duncan Green, head of research at Oxfam, the British-based charity, says there is plenty of room to improve the ways that aid is disbursed but that “must not end up becoming a smokescreen for rich governments to cut aid in the middle of a global recession.

If policymakers reduce food and health aid to poor countries at a time of rising unemployment and poverty then they are putting people’s lives at risk”.

Credit: Richard Lapper

Source: FT



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