PPC IDEAS at the IRIS Center, University of Maryland

E-Bulletin, Issue 28

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Aid in Africa

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IN THIS ISSUE:


Summary 
The Case for and Against Increases in Aid
Alternative and Complementary Approaches in the Use of Aid 
Aid and Trade

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Summary

2005 brought unprecedented attention to African development and poverty reduction. In large part, this was due to Tony Blair's chairmanship of the G8, through which he pushed vehemently for a doubling of aid for Africa . This increase in aid is in line with the arguments put forth by Dr. Jeffrey Sachs, director of the UN Millennium Project. All of the attention clearly had an impact: many wealthy countries, notably the United States , have vowed to up their promises of aid to the continent.

One year on, this eBulletin serves to bring up some of the main topics of discussion and debate regarding aid in Africa . First, is increasing aid an effective strategy for reducing poverty? We have pulled together a number of articles and news reports to illuminate both sides of the debate. Second, what are the alternatives to, or other areas that need just as much attention beyond aid? Below we have included a selection of articles that highlight different aspects of African societies that can be built on, such as human capital and religious networks. Other articles discuss areas of the economy that should be targeted to better integrate Africa with the global economy.

This analysis from BBC News highlights the actions taken within the last year to increase aid to Africa . While Tony Blair's G8 leadership resulted in more attention to African issues and promises in increased aid, this alone will not result in a substantial reduction in African poverty, as per the UN Millennium Goals. Indeed, even with an increase in aid to Africa , it will take until 2050, not the projected 2015, to halve the number of people living in poverty. While advances in aid have been made, Africa as a whole stands to benefit more from improvements in access to markets, trading infrastructure improvements and more favorable trading relations. In addition, governments in both the South and the North must be held more accountable; the former for improving transparency and the latter for sticking to their commitments.

More aid does work, especially in response to diseases

In this op-ed, Jeffrey Sachs, director of the UN Millennium Challenge Account outlines his argument that increased levels of aid can spur development. Sachs points out that the greatest need for more and better aid is in Africa. If the donors would help Africa to fight disease and to achieve a Green Revolution as occurred in Asia, Africa would finally be able to escape from the trap of extreme poverty. However, Sachs notes that current aid flows suffer from four inter-related problems: the aid is too little to solve the problems at hand; the aid is excessively directed towards the salaries of consultants from donor countries rather than investments in recipient countries; the aid is not well spread across sectors, with a particular neglect of agriculture; and the aid is not properly coordinated among the donors themselves.

In this follow-up op-ed, Fredrik Erixon , chief economist at Timbro, notes that it is hardly surprising that past development policies have failed. Merely increasing aid will only contribute to the further worsening of socio-economic conditions in developing countries. It is sound economic policies, not aid, that in the last decades have lifted millions - even billions - of Asians out of extreme poverty, and provided the resources to limit the extent of (or in some countries, eradicate) starvation, diseases, and other visible signs of poverty. Inversely, it is bad economic policies that still keep millions of Africans in deadly poverty. Thus, the author argues that donor countries and NGOs should focus on the quality of aid and its productive uses rather than being occupied with only increasing the total quantity.

Following the G8 Summit in Gleneagles (2005), this Oxfam brief takes stock of the outcomes of the summit. Although no previous G8 summit has done as much for development, particularly in Africa , the brief argues that in light of undisputed need and unprecedented popular pressure and expectation, neither the necessary sense of urgency nor the historic potential of Gleneagles was grasped by the G8. In particular, the brief highlights that the quantity of aid and the speed of its delivery fall far short of what is needed. In addition, although debt cancellation for 18 countries represents a serious step forward in ending the debt burden of the poorest countries, many were neglected. The report concludes that the G8 failed to substantially move forwards on creating a more just world trade system.

Oxfam Briefing Note. “Gleneagles: what really happened at the G8 summit?” Oxfam International. 29 July, 2005.

Aid hurts local markets

In this interview with German news source Der Spiegel, Kenyan economics expert James Shikwati says that aid to Africa does more harm than good. Shikawati, an avid proponent of globalization, discusses the disastrous effects of Western development policy in Africa , which he argues weakens local markets and only serves to sustain corrupt rulers. Halving foreign aid to Africa, he states, would have little perceivable impact on the average African, and would in fact allow Africa to “stand on its own two feet.”

Der Spiegel. Thielke, Thilo “For God's Sake, Please Stop the Aid!” July 4, 2005.

Aid is not necessary to spur growth

This World Bank paper explores the implications of two leading mechanisms that are commonly seen to generate poverty traps: low savings and low productivity at low levels of development. Based on empirical evidence derived from economic modeling, the results call into question the view that a large scaling-up of aid to the poorest countries will result in sharp and sustained increases in growth. As a result, the authors are skeptical of the popular idea that large increases in aid will have disproportionate effects on economic growth in low-income countries. This does not mean that aid does not matter for growth, or for other development outcomes, but the authors do not find evidence of threshold effects whereby high levels of aid are necessary to “jump-start” a sustainable growth process.

The World Bank, Kraay, Aart and Claudio Raddatz. “Poverty Traps, Aid, and Growth” World Bank Policy Research Working Paper 3631, June 2005.

Alternative and Complementary Approaches in the Use of Aid

To develop (like China and India ), Africa will need to be connected to the global economy in ways that defy the limits of African and donor imaginations. International donors continue to insist on pursuing development strategies that so far have not worked. The author suggests that for self-sustaining development to take hold, Africa will need a large influx of foreign investment and know-how to connect it to the global economy in productive ways. To do so would require the installation and embedding in Africa of human, social and institutional capital from abroad on a permanent basis. The human capital that Africa needs will have to be sourced from around the world — not just from Europe and the developed world but, more importantly, from the developing world, particularly from China, India and other emerging countries of Asia and Latin America. In this vein, the author argues for changes in African immigration policy, and the creation of a permanent African civil service and an international judicial service.

Mistry, Percy S., Reasons for Sub-Saharan Africa's Development Deficit that the Commission for Africa Did Not Consider, African Affairs, September, 2005

The European Union has recently launched its plans for a trust fund through the European Investment Bank (EIB) to disperse aid to Africa , independently of the World Bank. The fund, which should be operational by June, 2006 will mainly provide subsidized low-interest loans to finance water, energy, transport and telecoms infrastructure in sub-Saharan Africa , with a focus on cross-border projects. However, civil society groups critique these plans for lack of assessment procedures and lack of a comprehensive mandate.

Bianchi, Stefania. A No-Trust Fund for Africa , Inter Press Service News Agency, February 2006

The policy paper outlines ways in which using religion as a vehicle to development can address some of the broad challenges Africa is facing right now, such as conflict prevention and peacekeeping; wealth creation and production; governance, health and education; and the management of natural resources. The fact that many African states - possibly even the majority - are conventionally judged to be weak or failing (and one or two are generally considered to have failed), means that policy in the conventional sense can no longer be applied in such a vast and all-embracing field as development. This does not, however, mean that progress and development are impossible. The idea that development is a technical process, pioneered in the West and in East Asia , that can be learned by Africans, has been shown to be incorrect. Would-be developers in rich countries or employed by multinational institutions need to take more seriously the world of ideas of Africans if the development of Africa is to proceed, including religious ideas. Religious networks including those that cross international boundaries are central foci of effective governance in many African countries. They, not just the state, should be involved in partnership with donors to achieve development. Donor agencies could certainly make greater efforts to consider the role of religion in Africa through relatively simple means.

Ellis, Stephen and Gerrie ter Haar. Religion and Development in Africa, Commission for Africa , 2004.

Close to 80 percent of Africans live in rural areas and are involved in agriculture. As a result, Africa can gain significantly more from boosting nutritional diversity and crop productivity through agricultural innovations than from money aid. This article highlights the activities of international firms involved in such activities. New irrigation and seed fallowing techniques can increase productivity of the land, and different crops that can thrive in African soil have introduced new food and trade opportunities. The result can be a second “Green Revolution” for Africa .

Inter Press Service. Atarah,Linus. “ Africa Needs Crops, Not Money” November 2, 2005.

Preparing for Absorptive Capacity Challenges

This brief from the Overseas Development Institute argues that the ‘scaling up' of aid flows is likely to run up against ‘absorptive capacity' constraints, unless these are taken into account from the beginning, and adequately addressed in the design and implementation of improved aid delivery mechanisms. Most studies indicate that an ‘aid saturation point' could be reached anywhere between 15% and 45% of GDP, beyond which the marginal benefits of additional aid inflows become negative. This finding poses important questions about providing significant additional aid to Africa , where a number of countries are already highly aid-dependent. To offset these problems, the author recommends that donors invest more resources in understanding the specific dynamics which allow for the effective transformation of public resources into development outcomes; make aid processes more efficient by simplifying procedures and eliminating burdensome practices, relying more on country systems; put more aid money into infrastructural development; better understand the impact of increasing aid flows on macroeconomic variables; and design development interventions taking absorptive capacity constraints into account, rather than assuming that more resources will immediately translate into improved outcomes.

de Renzio, Paolo. Scaling Up versus Absorptive Capacity Challenges and Opportunities for reaching the MDGs in Africa . ODI Briefing Paper, May 2004.

In this paper, economist Fredrick Erixon takes issue with Jeffrey Sach's justification for increased foreign aid to Africa . Over the past fifty years, aid has largely been counterproductive: it has crowded out private sector investments, undermined democracy, and enabled despots to continue with oppressive policies, perpetuating poverty. The reason countries are poor is not that they lack infrastructure, rather; it is because they lack the institutions of the free society: property rights, the rule of law, free markets, and limited government. Thus, if the governments of the World's richest countries do increase spending on aid to Africa by $25 billion, the consequences could be devastating.

Erixon, Fredrick. Aid and development: will it work this time?, International Policy Network, June 2005

Aid and Trade

Doha Implications for Africa

This study provides a quantitative estimate of the potential economic consequences of multilateral trade reform under the WTO for Africa using a framework that explicitly incorporates issues of concern to the region, such as preference erosion, loss of tariff revenue, and trade facilitation. It also examines the impact of OECD agricultural support programs on economic welfare and specialization in Africa . In the static version of the GTAP model, the study finds that full liberalization of trade would increase global welfare (income) by 0.3 per cent, but would add 0.7 per cent annually to income in the African region. Sub-Saharan Africa and, to a lesser extent, Southern Africa, are vulnerable to partial trade reforms as they incur losses from partial reform while all other regions derive positive gains from a liberalization of minor scope.

Agricultural Economics Research Institute (LEI), The Hague . Achterbosch, T.J., H. Ben Hammouda, P.N. Osakwe, F.W. van Tongeren. “Trade liberalisation under the Doha Development Agenda: Options and consequences for Africa ” June 2004.

Impacts of US policy on African farmers

This paper considers the implications of five developments in 2004 for cotton farmers and the clothing industry in sub-Sahara Africa and asks whether their collective impact will be positive, negative, or neutral. The five developments are (1) the Millennium Challenge Act, (2) the AGOA Acceleration Act of 2004, (3) the WTO cotton initiative, (4) the Brazil-US cotton subsidies dispute, and (5) the termination of the WTO Agreement on Textiles and Clothing. The overarching theme of the paper is the lack of overall coherence in U.S. agricultural, trade, and development policies when it comes to sub-Saharan Africa, as evidenced by trade and development programs aimed at improving the lives of people in sub-Saharan Africa, on the one hand, and U.S. subsidies to American cotton producers and the injurious impact those subsidies have had on cotton growers in sub-Saharan Africa, on the other.

Kansas Journal of Law & Public Policy. Kennedy, Kevin C. “The Incoherence of Agricultural, Trade, and Development Policy for Sub-Saharan Africa: Sowing the Seeds of False Hope for Sub-Saharan Africa 's Cotton Farmers?” 2005.

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Dr. Ann Phillips, USAID/PPC
Melissa Brown, USAID/PPC
Dr. Dennis Wood, IRIS Center

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