|
By Samuel M. Wangwe |
Growing discomfort with high levels of
aid
dependence in Africa motivated the AERC collaborative research
project on Managing a Smooth Transition from Aid Dependence in
Africa. Development analysts and policy makers have been
increasingly concerned that aid dependence has potential to
generate serious consequences for African economies.In this
context, the objective of this project was to assess the nature of
the problem of aid dependence in Africa, improve the understanding
of the economic, institutional and governance impact of aid
dependence, and provide suggestions on how to manage a reduction
of aid dependence. Management of the transition to less aid
dependence is guided by the premise that reduction of aid
dependence is to take place in the context of enhanced rather than
disrupted socioeconomic development in Africa while promoting
appropriate integration of Africa into the world economy.
The project was designed as a collaborative effort between the
African Economic Research Consortium (AERC) and the Overseas
Development Council (ODC). 2
It was jointly managed by the two institutions with participation
of researchers from Africa and the developed countries.3
|
more likely to become fungible
as the number of donors increases. These findings suggest that one
needs to be cautious when assessing the differential impact of the
different types of aid (project, programme, technical assistance)
on aid dependence, as the fungibility of aid can obscure the
"real" uses of any particular aid expenditure.
The impact of aid on most macroeconomic variables exhibits more
of a mixed picture of relationships rather than clear and
significant causal relationships among them in most cases. This
outcome may be a reflection of a weakness of statistics to enable
rigorous and robust statistical analysis to be done. The causal
relationships may also be blurred by the varying policy
environments under which aid has been managed in the recipient
countries.
Over the longer run foreign aid should go beyond the rather
passive role of filling the gaps in the budgets or balance of
payments in the static sense towards a more active engagement in
the dynamicprocess of closing these gaps. This can be done by
using aid to stimulate exports, invest in expanding
infrastructure, and improve systems of domestic resource
mobilization and public expenditure management. According to
project results, a disaggregated analysis of aid and its |
situation, consideration of an exit
strategy as a policy concern is necessary from two points of view.
First, it is quite possible that aid reductions could be
influenced by factors on the donor side. Second, the recipient
country should seek to graduate from aid dependence at some point,
considering that the rationale of aid is to enable the recipient
to stand on its own feet. This rationale should not be lost sight
of.
Exit Strategies Needed
It is important that African countries begin to consider what
policies to adopt to implement an exit strategy and manage a
smooth reduction in aiddependence over time, without disrupting
their economies or deepening their poverty. This may mean that
under certain circumstances a higher level of aid dependence may
be warranted in the initial phase of the transition. The project
found that transition strategies will vary significantly from
country to country, depending on the needs, capacity and
commitment. Such strategies also depend on the capacity and
commitment of African governments to development. Four possible
typologies are considered.
First, countries with governments that are both
capable and committed should be able to handle |
|
Project Components There were
three elements to the project: framework papers, case studies, and
publication and dissemination of the research results. The eight
commissioned framework papers analysed the dimensions of aid
dependence and approaches for reducing it. They addressed several
basic questions – What is meant by aid dependence? What has been
its impact on economic variables and policies, institutional
development, and governance? How do we reduce such aid dependence
in a constructive manner?
These papers provided guidance to the second component of the
project, a set of eight commissioned case studies. The case
studies covered a cross section of countries by region, |
|
Framework papers for the
Aid Transition Project
• Jean-Paul Azam and Seraphine Fouda,
"The economic impact of aid on recipients"
• Nicolas van de Walle, "Managing aid to
Africa: The rise and decline of the structural adjustment
regime"
• Ravi Kanbur, "A framework for thinking
through reduced aid dependence in Africa"
• Stephen O’Connell and Charles Soludo,
"Aid intensity"
• Kwesi Botchwey and Deborah Brautigam,
"The impact of aid dependence on governance and institutions
in Africa"
• Shanta Devarajan, A.S. Rajkumar and V.
Swaroop, "What does aid to Africa finance?"
• Samuel M. Wangwe and Carol Lancaster,
"What is aid dependence?"
• K.Y. Amoako and Ali A.G. Ali, "Financing development in
Africa: Some exploratory results" |
|
|
language, size, resource endowment and
level of development. The countries studied were Botswana, Burkina
Faso, Ethiopia, Mali, Mozambique, Tanzania, Uganda and Zambia. To
the extent possible authors of the case studies were drawn from
the countries under study.4
The case studies aimed to show the nature and extent of aid
dependence, its impact, and strategies for managing and reducing
it in specific country contexts.
The third component involved publication and dissemination of
research results to the main stakeholders – policy makers and the
research community. In this context, two major products were
produced as key outputs of the project. ODC published a Policy
Essay 5
entitled Managing a Smooth Transition from Aid Dependence in
Africa. In addition, AERC published the report of the
conference to disseminate the project findings.6
Held in Dar es Salaam, the conference was organized by AERC in
collaboration with the Economic and Social Research Foundation (ESRF),
the World Bank, and the Norwegian Agency for Development
Cooperation (NORAD). The project findings were also disseminated
at the plenary session of the AERC Biannual Research Workshop of
May 2004.
Concepts and Definitions
Aid dependence, as defined in this project, is a situation in
which a government (or other entity) receiving concessional
external assistance would suffer serious economic and possibly
political repercussions if that aid were significantly reduced or
eliminated in a short period of time. In such a situation,
significant reduction or termination of aid would cause the
developing country partners (governments and NGOs) to disrupt or
cease certain essential activities. Aid intensity -– the amount of
aid relative to the activities it supports -– was adopted as an
indicator of aid dependence.
The project found that aid intensity in sub-Saharan Africa (SSA)
has long been the highest of any major developing region in every
category of indicators and remains so today. Among the case study
countries, only Botswana substantially reduced its aid intensity
during the 1980s and 1990s. Ethiopia, Mozambique, Tanzania, Uganda
and Zambia showed the opposite trend, shifting from low to high
levels of aid intensity, while Burkina Faso and Mali had high and
rising levels of aid intensity.
Aid in Africa is used to finance several types of
activities: discrete investment projects; technical assistance
(which is at times part of investment projects but is frequently
free-standing); budget support, often through funding associated
with macroeconomic and sectoral reform programmes; and debt
relief, through the cancellation of debt. The largest proportion
of aid worldwide is for investment projects – for example, the
construction of infrastructure and the expansion of social
services.
Uses and Impacts of Aid
In terms of the real uses of the aid, the categories of project
and programme aid can be misleading to the extent that aid is
"fungible". The project found that aid in Africa is partially
fungible and that aid is |
components and how aid is
delivered can bring out important policy implications for
improving aid effectiveness.
The study shows that aid dependence can have effects on
institutions and governance. During periods of economic reform,
many countries made improvements in the soundness of their
macroeconomic policies, but at the same time undercut ownership
and leadership in formulating their development policy agenda. In
response to these problems, new modalities of aid delivery and its
management gained attention in aid policy debates, with greater
attention being paid to the quality of aid and its management. In
one case, that of Botswana, it was found that high levels of aid
reinforced local human and institutional capacities, enabling the
country to graduate to less aid dependence. But in most other
countries aid dependence was found to have caused erosion of local
capacities and institutions, thus further reinforcing aid
dependence.
The Changing Context of Aid
A key finding of the research project is that institutions
matter in mediating the impact of aid dependence. These concerns
point to the importance of partnerships, ownership and holistic
frameworks in aid policy processes. In this regard, the study has
drawn attention to the changing context of aid – a redefinition of
partnerships and enhanced ownership. Other aspects are improved
coordination on both sides – donors and recipient; enhanced
capacity building; and capacity to manage change. Improving aid
delivery mechanisms and donor policies and practices so as to
reduce transaction costs and improving budget management systems
are other pieces of this thinking.
A new regime has thus emerged involving commitments on the part
of aid donors to four elements: selectivity, participation,
ownership and development of new modalities for managing the aid.
In addition, international peer pressure is being applied to
improve aid effectiveness, including harmonizing aid delivery
mechanisms as proposed in initiatives such as the Monterrey
Consensus (2002), the Rome Declaration (2003), and the
harmonization work of the Strategic Partnership with Africa (SPA),
the World Bank’s initiative on monitoring and measuring of
results. More recent contributions to the new regime are the
development of a Millennium Development Strategy and the
Millennium Development Goals Report (2005), the Commission
for Africa Report (2005), and the Paris Convention (2005).
These developments on the side of donor country policies
are occurring in a changed context of the trend towards
political liberalization and democratization in Africa and
endorsement of efforts to achieve good governance at the
pan-Africa level, as in the African Union and the New Partnership
for Africa’s Development (NEPAD) with its African Peer Review
Mechanism. There are indications that Africa is rethinking its
approach to development management and moving towards development
that is more inclusive and participatory and more amenable to
accountability to local stakeholders.
The new approach is also more consistent with conditions for
improved aid effectiveness. In this |
relatively large amounts of aid well.
The strategy for reducing their aid dependence would be for aid to
rise for a period as needed and then, as less external
concessional assistance is required, to taper off. The degree of
aid dependence and period of time over which that dependence will
increase and then decrease will depend on the needs of the
particular country. Second, countries with governments that
lack both capacity and commitment are more likely to benefit
from aid in the form of development ideas and capacity building
until governments with strong commitment to development appear.
Third, in countries with governments that have limited
capacity but a significant commitment to the development of their
people the strategy should focus on strengthening the capacity
of the government and civil society organizations and on adjusting
the levels of aid and, above all, the management of aid, to
amounts the recipient government can handle effectively. Fourth,
countries with governments that have capacity but lack
commitment to the development of their people should adopt a
strategy of allocation of aid towards stimulating commitment by
improving governance and raising awareness of domestic
constituencies so they can step up initiatives towards holding
their governments more accountable as a step towards using their
capacity for development of their people.
There are two major concerns in a strategy of reducing aid
dependence, the priority of each depending on the specific
circumstances of the country in question. One relates to the
achievement of the Millennium Development Goals (MDGs) and the
other to the distributional impacts of aid reduction. The first
concern is about realizing the MDGs. In order to attain these
international development goals the way forward must address the
quantum of resources, how these resources are allocated and how
effectively they are utilized. The second concern is the
distributional impact of a reduction in aid and aid dependence. A
strategy for reducing aid and aid dependence ought to consider the
extent and impact on the poor of aid reductions
and possibly methods for minimizing
that impact – for example, protecting government expenditures that
benefit the poor, providing offsetting programmes and
expenditures, creating social safety nets, and so on.
Conclusion
In summary, this project has shown that the nature of the
problem of aid dependence in Africa deserves serious concern in
policy making. The policy implication is that initiatives should
be taken by African governments and their development partners to
enhance aid effectiveness while an exit strategy is put in place
to ensure a smooth transition from aid dependence. The main
contributions of the project have been to enhance the
understanding of the economic, institutional and governance
impacts of aid dependence and to provide suggestions on how to
manage a reduction of aid dependence while promoting appropriate
inclusion of Africa into the world economy without disrupting the
continent’s socioeconomic development. Besides the restructuring
and capacity building elements considered above, and taking into
consideration the changing context of aid globally, the policy
implications of managing the |
|
Among the eight case study
countries of the Aid Dependence Project, Botswana provides a
unique case study of aid dependence in Africa. It has gone
from being one of the poorest, most aid dependent countries
to a middle-income country no longer in need of significant
amounts of external assistance and where donors have begun
to phase out aid. Four lessons are drawn from the success of
Botswana. First, the government demonstrated competence,
cleanliness, discipline and effectiveness in managing aid as
well as prudent management of the economy including
mobilization of domestic resources including those from the
extractive industry and the collected revenues have been
utilized to undertake investments in human and physical
infrastructure. Second, success has been associated with
ability to plan and implement economic policies and
programmes effectively for growth. Third, success has been
associated with reasonably good governance and political
stability. Fourth, a success factor has been the ability of
the government to manage its aid effectively making sure
that aid supported projects fit into the national
development framework carefully integrating aid into its
broader development plans and priorities. |
|
|
1This article is
a summary of a paper that was initially prepared for the
plenary session of the AERC Biannual Research Workshop,
Nairobi, 30 May 2004.
2 ODC wound up
business soon after completion of this project.
3 The project was
supported by the Swedish International Development Agency (Sida),
the United States Agency for International Development (USAID),
the Department for International Development of the United
Kingdom (DFID), the Swiss Agency for Development and
Cooperation (SDC), and the Government of Japan.
4 Botswana was
done by Dr. Gervase Maipose with Dr. Gloria Somolekae,
Burkina Faso by Prof. Kimseyinga Sawadogo, Ethiopia by Prof.
Befekadu Degefe with Dr. Alemayehu Geda, Mali was done by
Dr. Dominique Njinkeu with Mr. Massaoly Coulibaly,
Mozambique by Dr. Roberto Tibana with Mr. Pedro Couto,
Tanzania was done by Prof. Samuel Wangwe with Mr. Deo
Mutalemwa and Peter Noni, and Uganda by Prof. Germina
Ssemogerere with Mr. William Kalema, while Zambia was done
by Prof. Oliver Saasa with Dr. Inyambo Mwanawina.
5 C. Lancaster
and S.M. Wangwe (2000), Managing a Smooth Transition from
Aid Dependence in Africa, Policy Essay No. 28; Overseas
Development Council (ODC), Washington, D.C.
6 AERC (2001),
African Development Aid in the New Millennium: Conference
Issues and Papers, report of the dissemination
conference, Dar es Salaam, 3–4 April 2001
|
|
smooth transition from aid
dependence include stepping up efforts towards domestic resource
mobilization, using aid to put in place conditions for attracting
FDI, reversing capital flight and closing the foreign exchange gap
through export development.
Samuel M. Wangwe, founding director of the Economic and
Social Research Foundation, is now the Policy Advisor –
Coordination in the President’s Office Public Service Management.
With Carol Lancaster, he was the co-coordinator of the Aid
Transition Project.
|
|
|
