Aid dependence and the challenge of self-reliance in Sub
Transcription
Aid dependence and the challenge of self-reliance in Sub
Lia Quartapelle N. 183 - APRIL 2010 Aid dependence and the challenge of self-reliance in Sub-Saharan Africa The past few years have seen many claims suggesting that Sub-Saharan Africa may finally be on the way to selfreliance. As President Barack Obama graphically suggested on his first state visit to an African nation, Ghana, on 11th July 2009, «Africa’s future is up to Africans». In 2008 the authoritative weekly The Eco-nomist suggested that «despite its manifold and persistent problems of lousy governments and erratic climates, Africa has a chance of rising» 1 . The interest shown in the continent by emerging economic giants such as China and India is certainly connected with the new market opportunities opening up in Africa. This is another sign of the fact that Africa is being perceived as an interesting land of promises. The quest for self-reliance, however, clashes with the ever-increasing commitments for more and better aid that donor countries make at every international summit. Does Africa need more aid? And if so, why, given the promising economic trends that the continent is registering? Not only are donors ready to give more, they are attempting to give better aid. The adoption of innovative aid instruments however, while intended to increase country ownership of development poli1 «The Economist», There is Hope, October 8, 2008. cies, also brings the risk of donors interfering with recipient country’s decisions. This Policy Brief will take a closer look at the issue of aid dependence by considering two issues. The analysis will attempt to assess quantitatively whether, given its recent economic advances, Sub-Saharan Africa is less reliant on official development assistance as a source of capital. We shall then consider whether the new aid architecture, namely aid struc-tured in order to increase ownership and policy space for the beneficiary country, increases or rather decreases the SubSaharan countries’ dependence on aid. The Brief concludes with some policy options that take into account the issue of self-reliance when considering the dilemma of choosing better ways to deliver aid. The issue is particularly significant given the fact that the commitments taken by donors in the Paris Declaration on Aid Effectiveness are due to be implemented by 2010. Abstract High growth rates and a renewed importance of African resources suggest that Sub-Saharan Africa might be finally on the way towards self-reliance. The Policy Brief analyzes whether the new economic trends support the claim that aid dependency is decreasing in Sub-Saharan Africa and whether new aid modalities, such as budget support, are reducing de facto dependency. Economic progress, aid commitments and the financial crisis To most observers it seems that in the last ten years Africa has managed to emerge from the dire economic conditions caused by ill-management, ideological policies, the consequences Lia Quartapelle is research assistant of the Africa Programme at ISPI 2 of decolonization and structural adjustment programmes. This means that Sub-Saharan Africa has registered high growth rates since the mid 2000s (around 5% per year in the continent overall, with hikes of above 8% GDP growth per annum in 2008 in countries such as Angola, Ethiopia, Mozambique and Sudan 2 ). The other good news is that the global economic crisis has hit Africa relatively less than other areas of the world. In fact, according to the OECD African Economic Outlook 3 , real growth rates in Sub-Saharan Africa have halved between 2008 and 2009, going from a forecast of 6% GDP growth per year to 3% in 2009. At the same time, comparing the decrease in growth experienced by African countries with that in OECD countries (the latter moved from a 1% growth rate in 2008 to the expected -4% in 2009), it is clear that Africa’s economic situation is rosier than that of other regions. This is all the more remarkable if one considers that the economic conditions of SubSaharan Africa are worse, on average. The two variables affecting Africa’s ability to address the effects of the crisis are vulnerability, that «depends on how exposed countries are to adverse changes in global finance and trade» and resilience, that «refers to the capacity to cope with 4 shocks» . African countries appear to be less vulnerable and more resilient than ten years ago: they have developed 2 World Bank, The Little Data Book on Africa, Washington 2009. 3 OECD, African Economic Outlook, Paris 2009. 4 A. KWASI - W. NAUDÉ, Policy Response to the Global Economic Crisis in Africa, Policy Brief, 3, Helsinki 2009. ISPI - Policy Brief sounder public financial management, and increased their capacity to attract external flows of funds (not only aid) and diversify their exports and domestic production as far as possible. The global financial crisis has increased African demands to deliver on aid commitments 5 and to further increase available funding. There is a risk of Africa becoming the long-term victim of the crisis, as although it did not benefit at all from the financial products that generated the crisis, Africa now risks bearing the heaviest burden in terms of a sharp reduction in external (private and public) resources. These concerns have therefore motivated Africa’s increasingly vocal requests for the upholding of aid commitments. Once more, and despite progress, Africa’s fate – be it in terms of economic progress or in some cases mere survival – apparently still depends more on the benevolence and solidarity of outsiders than on endogenous policies. A new aid architecture: for better or for worse The debate on aid effectiveness in the 90s produced new aid modalities, such as common funds and general budget support, intended as a way to increase selectivity for aid giving. These forms of aid ensured that only evaluation of the “good per5 The African Union Commission has asked for the creation of a stimulus package for African demand, the recapitalisation of the African Development Bank and delivery of the commitments taken by international donors in Monterrey and Gleneagles, African Union Commission, The Impact of the Current Global Financial and Economic Crisis on African Economies and Africa’s Common Position on Reforms of the International Financial System, Addis Ababa 2009. formance” of the recipient country would trigger the decision to grant aid. Donors, in fact, would select as beneficiaries only those countries with a proven record of reforms and virtuous behaviour in the economic management and poverty reduction. Since those countries with a proven record of sound fiscal management, such as Ghana, Tanzania and Rwanda, have been rewarded with substantial amounts of aid via common funds and general budget support in the past ten years, it can be stated that these forms of aid may have contributed indirectly to the positive economic performance of the continent as a whole. Nominally, the ultimate goal of these forms of aid should be their abolition: since international funds are granted upon the adoption of policies that should help growth, at a certain stage aid flows should become superfluous as growth will assure that the country has acquired internal sources of capital to finance productive investments. These forms of aid do, however, raise some doubts regarding their contribution to augmenting Africa’s self-reliance. First of all, it seems that the introduction of new aid modalities has increased the flows available to a limited number of countries, especially in Sub-Saharan Africa. Those countries that happen to be “donors’ darlings” have registered a substantial increase in avail6 able resources after the intro6 The Joint Evaluation of General Budget Support, London 2006, which is to date the most comprehensive study on general budget support, carried out by a study team coordinated by Stephen Lister, has calculated that between 1998 and 2004 almost 4 billion dollars went to the sample of seven countries considered in the study. 3 ISPI - Policy Brief duction of new aid modalities. This is connected with a combination of two facts: on the one hand external donors are being pressured to give more aid, and on the other hand these forms of aid allow steep increases in disbursements. In fact, disbursements via budget support and common funds keep personnel and imple-mentation costs unvaried with respect to the amount of money disbursed. Secondly, as these new aid modalities are directed at the recipient’s coffers, there is a risk of their having negative macro-economic effects es7 pecially on revenue collection and monetary policy. Finally, budget support and sector support strengthen the relationship between donors and recipients, weakening in contrast the accountability of a government and its constituencies. Many observers have opposed the extensive employment of these forms of aid on the grounds that they affect a country’s independence, its sovereignty pact with its citi8 zens and its policy space . The map below shows that general budget support, the most innovative of the new aid modalities, is used extensively in Sub-Saharan Africa as a devel- 90% of this amount was concentrated in the last four years covered by the study, and seems to complement rather than substitute the resources devoted to projects. 7 M. MCGILLIVRAY, Aid, Economic Reform, and Public Sector Fiscal Behavior in Developing Countries, in «Review of Development Economics», 13, 3, 2009, pp. 526-542. 8 On the distorted link between aid and politics, see the dialogue between Richard Dowden and Dambisa Moyo, in D. JOHNSON, A Trillion Dollar Wasted?, in «Standpoint», March 2009, pp. 27-31. opment cooperation tool. In 2006 the majority of African countries employed funds disbursed via this aid modality; this was fast adoption of an aid modality that was inexistent only eight years earlier. It should be noted that in countries like Mozambique 9 , donors directly support almost half of total government expenditure. The relevance of aid for national income creation has increased since the beginning of the decade, even though these countries can increasingly rely on their own resources, thanks to the economic growth spurt experienced by a number of African countries as well as other factors. The effects of the economic crisis, that have affected the realm of wealth genFigure 1: Countries receiving general eration more than aid flows so budget support from DAC donors in 2006 far, will possibly imply an increase in the ODA/GNI ratio. Moreover, the latest analyses of the last decade of economic development in Sub-Saharan Africa suggest that aid may have played an important part in the surge in economic growth rates. Source: World Bank, African Development Indicators, 2009. African self-reliance reconsidered: how relevant is aid? The discourse on self-reliance has understandably downplayed the role that aid still performs in most African economies. As it can be seen from Figure 2, aid (Overseas Development Assistance or ODA) still represents on average over 10% of GNI (Gross National Income) in those African countries where data are available. The period chosen (2000-2007) considers the years when the new aid architecture had become fully operational. It should be added that 2003 was an exception, in that unprecedented levels of debt relief were registered that year. In Sub-Saharan Africa aid is an important source of foreign exchange to be used to “close the gap” between investments and savings, revenues and government expenditure, as Table 1 shows. This suggests that African countries are still very dependent on aid not only for their investment but also for their government spending. Remittances are often contrasted with aid as they are a source of capital that is deemed to be more self-reliant. However, Table 2 shows that aid per capita is higher than remittances per capita in the 36 African countries where data are available. Overall, one cannot under-estimate the persisting im-portance of aid as a source of capital for African countries, despite the fact that Africa has grown considerably in the last ten years. Aid flows and new aid architecture: who gains? 9 Mozambique is the only country in Sub-Saharan Africa where Italy experiments with budget support. This persistent aid dependence must be weighed against the efforts of the international aid 4 ISPI - Policy Brief Figure 2: Average ODA as a percentage of GNI in 37 Sub-Saharan African countries between 2000 and 2007 18 16 14 ODAas %of GNI 12 10 8 6 4 2 0 YR2000 YR2001 YR2002 YR2003 YR2004 YR2005 YR2006 YR2007 Source: World Bank, World Development Indicators, 2009. Author’s elaboration. Table 1: Economic variables as a percentage of GDP in 37 Sub-Saharan African countries between 1997 and 2008 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Investments as % of GDP 17.8 19.4 18.8 17.6 18.6 19.8 19.3 19.9 19.9 21.1 22.0 22.2 Domestic saving as % of GDP 17.3 15.7 16.5 21.6 19.8 19.0 19.3 21.3 22.8 25.5 24.5 25.0 Revenue as % of GDP 19.9 19.5 20.8 22.9 22.3 21.2 20.9 22.3 24.1 24.8 24.1 25.1 Government expenditure as % of GDP 24.5 24.7 25.5 24.9 25.9 23.8 24.6 23.5 23.4 23.1 24.2 24.8 Source: International Monetary Fund, IMF Data Mapper, 2010. Author’s elaboration. Table 2: ODA per capita and remittances per capita in 36 Sub-Saharan African countries between 2000 and 2006 ODA per capita Remittances per capita 2000 2001 2002 2003 2004 2005 2006 18.27 21.17 24.52 25.08 30.38 40.67 50.79 8.40 8.97 8.69 10.00 13.02 14.92 19.56 Source: World Bank, World Development Indicators, 2009. Author’s elaboration. community to innovate aid modalities in order to increase ownership and effectiveness. As stated above, since the Paris Declaration 10 international donors and recipient governments have started experimenting with aid modalities that would on the one hand ensure ownership over national policies and on the other a closer scrutiny of the overall performance of recipients in terms of poverty reduction. Budget support and com10 OECD, Paris Declaration on Aid Effectiveness, Paris 2005. mon funds for sectoral policies are increasingly employed by most donors, while projects are being reduced. The EU is leading efforts amongst its members to implement a code of conduct for the division of labour. Donors are relying increasingly on peer review initiatives. The latest G8 summit produced a first set of recommendations for policy coherence for development. Comprehensive judgement of the mixed record of these initiatives is beyond the scope of this paper. However, there are wor- rying signs in terms of the intrusiveness of these new aid modalities. In fact, new initiatives for aid effectiveness are strengthening cohesion amongst donors. Generally speaking, donors tend to relate to the recipient government as a united front, strengthening their negotiating power as a lobby. Common funds and budget support, moreover, leave recipient governments more exposed to the risk of an “atomic option”. In fact, in the event of underperformance or non compliance with donors’ requests, 5 ISPI - Policy Brief the recipient govern-ment runs the risk that its funding will be suspended. When a project is suspended the implementation of its actions is stopped. When disbursements from budget support or a common fund are withheld, the overall funding of government policies is suspended. In these cases donors are in control of more powerful leverage. In the words of Raquel C. Alvarez, «to date, budget support has been fashioned to be influen11 tial rather than effective» . The fact that donors provide money in common baskets on the implementation of certain policies reduces the policy space of the recipients. A brief analysis of the Policy Reductions Strategy Papers – the main document that grants access to debt relief initiatives and other forms of direct support – of most Sub-Saharan African countries, suggests that policy measures adopted by beneficiary govern-ments closely mirror the prescrip-tions of the Washington and postWashington consensus. These facts add to concerns that SubSaharan Africa is still heavily reliant on aid and that new aid granting mechanisms are increasing Africa’s de-pendence on aid. Policy options The Paris Declaration, signed in 2005 and the subsequent Accra Agenda for Action oblige their signatories to disburse half their aid via new aid modalities by 2010. This year, therefore, should mark an important turning point in the ways aid is disbursed. Most donors, excluding Italy, have made a great effort in order to implement new modalities that would ensure an amelioration of the quality of aid. More11 R. ALVAREZ, The rise of budget support in European development cooperation: a false panacea, Policy Brief, 31, Fride. over, international donors have signed many commit-ments 12 in order to increase aid to Africa by 2015. Thus, it is important to sketch out some criteria that will ensure that more and better aid does not hinder Africa’s efforts towards self-reliance: 9 a consistent part of aid should be destined to growth-enhancing initiatives and initiatives aimed at strengthening the private sector, in order to ensure that aid sustains national growth. This should reduce aid dependency in the long run; 9 consider moving from performance-based to cash-ondelivery aid in order to increase the ownership of policies and the seeking of alternative solutions; 9 decisions on the amount to be disbursed via budget support and common funds should be made taking into account government capacity to mobilize internal resources and collect revenues, as well as other factors; 9 decisions on aid disbursement and on the way aid should be employed should not be taken only by donors and the recipient Government; the discussion should involve associations, trade unions, local authorities and other national stakeholders. 9 The European Union and other leading donors should consider implementing these measures in order to deepen their efforts at making aid more effective and in order to go beyond the principles contained in the Paris Declaration on Aid Effectiveness. 12 The Commission for Africa in 2005 recommended the doubling of aid to Africa by 2010, and a further doubling by 2015. 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