The Political Economy of Aid and Governance

Agenda in Africa

Maputo Residential School on Governance and Development

CARLOS OYADevelopment Studies, SOAS, University of London

Email: co2@soas.ac.uk

Maputo, 6 April 2011

1

Outline

• The ‘aid effectiveness’ debate

• The contradictions in the nexus aid-governance

• Aid and state capacity de-building

• Conditionality, policy space and ideology

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3

Some key issues in the aid-governance nexus

1. Aid and state formation

2. Aid as factor affecting the nature of state institutions and practices (rentier, neopatrimonial, developmental, etc.)

3. Accountability and legitimacy: society vs donors

4. Conditionnality and policy space

5. Aid and state capacity ‘de-building’

ODA: an expanding global complex

• Despite shifting trends (eg. aid fatigue in 1990s), generally significant and systematic increase in number of official donors (around 200 now), NGOs (37,000?) and recipient countries (180 for 100 major official donors)

• Recently, over 35,000 annual official aid transactions (200 per country)

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Source: DAC

ODA trends to Least Developed Countries - constant 2006$ and % million

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

0%

5%

10%

15%

20%

25%

30%

35%

40%

LDCs, Total (Least Developed) LDCs, % of developing countries 5 per. Mov. Avg. (LDCs, Total (Least Developed))

Debt relief, PRSPs, War on Terror

Aid fatigueCold War, SAPs expansion of aid industry

Early stages

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6

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Aid effectiveness debates: aid works, it doesn’t, it depends…

– Different methodologies (McGillivray et al. 2006)

– Different time periods / samples– Different policy indicators– Different outcomes– Different explanations:

• Destination bias, geopolitics of aid• Perverse macroeconomic effects• Policy environment / ‘bad governance’• Institutional outcomes / state capacity de-building

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Aid effectiveness: perverse macroeconomic issues

• Perverse macroeconomic effects:• ‘Dutch Disease’

• Crowding out domestic savings

• Debt – aid spiral

• Aid volatility– Greater than export revenues

– Perverse pro-cyclical pattern

– Negative effects on investment and long term planning

– Unstable donor-recipient relations

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Aid volatility in Africa

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Capacity building?

‘Inadequate state capacity in Sub-Saharan Africa has been a self-fulfilling prophecy; the outcome of a bet rigged by those in a strong position to influence results. The Washington institutions have consistently demanded initiatives that impair governments’ capacity for policy formulation and implementation’

(Sender 2002)

State capacity ‘de-building’: perverse mechanisms

• Distortions in government pay structures (per diems, top-ups, etc.) uneven burden and benefits for civil servants

• Distortions in budgeting system (off-budgets, investment/ recurrent balance) loss of control over budget process

• Fragmented and complex aid delivery system inefficient time management Distraction from government programmes and necessary routines loss of capacities to think and articulate long-term strategies

• ‘Brain drain’ towards donor agencies and project/implementation units especially in countries with scarce skilled labour growing human resource mobility loss of institutional memory and technical capacities

• Reduction in domestic revenue raising capacity through multiplication of efforts to manage aid and debt deepening aid dependence

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‘Old mechanisms’ - Projects

Programme aid – SWAPs and their management units

General budget support -Donor BS review groups

Summary of the growing complexity and irrationality of aid delivery systems

Loss of policy space driven by aid flows (thanks to policy ‘advice’)

Areas of loss:

• Macro and sector policies

• …and now more on institutional development (Anglo-American governance model)

• List of conditions ↑ : IMF avg 6 in 1970s, 10 in 1980s and 26 in 1990s

Channels of shrinkage1. Imposed conditions through

‘forced consensus’ self-censorship

2. Strong influence of ‘blocs’ of few donors (dominated by WB/IMF, USA, UK and EC)

3. Gradual ideological conversion (indoctrination) of technocrats (especially in Ministries of Finance and Planning)

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  Top five donors Joint %

% top 2

UgandaWB (26%), USA (19%), EC (9%), UK (9%), Netherlands (6%)

69 44

Mozamb.WB (16%), EC (12%), USA (10%), AfDF (8%), Sweden (6%)

51 28

TanzaniaWB (30%), UK (13%), EC (10%), Netherlands (7%), USA (6%)

65 42

EthiopiaWB (27%), USA (24%), UK (7%), EC (6%), AfDF (4%)

68 51

SenegalWB (25%), France (22%), EC (8%), AfDF (8%), Japan (8%)

71 47

NigerEC (23%), WB (19%), France (12%), AfDF (8%), USA (6%)

68 42

BotswanaUSA (63%), Germany (10%), UNHCR (6%), EC (5%), France (5%)

89 73

Table – Sources of aid for selected African countries (2004-6)

Source: own elaboration from DAC data

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And list continues

The persistence and deepening of ‘structural conditionality’ (IMF)

Source: IMF website, country Senegal, letter of intent

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New aid agenda closely linked to ‘good governance’ agenda: the post-Washington consensus

• In light of SAP’s failure, focus on institutions ‘getting institutions right’

• Aid effectiveness debate in 1990s role of institutions and public sector reform

• Why ‘good governance’?

– Fiduciary aspect (need for accountability and transparency)

– Alleged positive correlation between ‘good governance’ and development

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Sector bias of aid: implications of focus on macro, social policies and governance

Aid to agriculture as a proportion of total gross disbursements (Sub-Saharan Africa)

0%

2%

4%

6%

8%

10%

12%

14%

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 200618

Sector composition of OECD/DAC aid

Distribution of aid by use - 2008        

TOTAL   World

  DAC EC Bank France Japan

Social and administrative iiiiiiiiiinfrastructure 39.2 27.3 47.1 29.7 17.4

Economic infrastructure 16.3 24.1 37.3 20.1 36.3

Production 6.5 6.3 14.8 5.7 12.4

Multisector 5.7 9.6 0.8 10.6 2.7

Programme assistance 5.0 18.7 - 11.4 4.4

Sub-total 72.8 86.0 100.0 77.6 73.2

Source: own elaboration from DAC database

World Bank lending by theme and sector to SSA: % of total lending 2003-2008

0%

5%

10%

15%

20%

25%

30%

35%

2003 2004 2005 2006 2007 2008

Rural Development

Public Sector Governance

Agriculture, Fishing, and Forestry

Law and Justice and Public Administration

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Aid and ‘good governance’ in practice: Ambiguities and contradictions

Donor consensus?

– Lack of consensus on what is meant by ‘good governance’ / myriad indicators

– Lack of consensus on ‘good enough governance’

– Tension between focus on corruption/politics vs ‘investment climate’

Contradiction

The starlets of DAC donors (Uganda, Mozambique) broadly characterised by slippage in fundamental aspects of the GG agenda

The political economy of forced consensus:From the Ministry to the IMF/WB and viceversa

• Growing ‘incest’ between BWI and African governments. Some examples of top finance bureaucrats with employment history in BWI: Antoinette Sayeh (Liberia, WB), Goodall Gondwe (Malawi, IMF, ADB), Abou-Bakar Traore (Mali, IMF), Luisa Diogo (Mozambique, WB), Makhtar Diop (Senegal, WB), Alassane Ouattara (Cote d’Ivoire, IMF) and many more since 1980s

• More importantly, even greater number of upper-middle-level technocrats have attended training programmes offered or sponsored by BWI and like-minded donors (WB, USAID, DFID) through WBI, AERC, and Anglo-American academic institutions

• The WB has complemented this with ambitious support to research capacities and data collection at govt level

Source: Van Waeyenberge (2008) http://www.soas.ac.uk/cdpr/seminars/43473.pdf

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Institutional fragmentation

From content to process conditionality

Ideology, technologies of policy processes and ‘capacity building’

•State fragmentation

•Institutional entanglement btw donors and SSA states

•Epistemic communities and shared agendas

•Shifting material priorities in allocation of fiscal resources

•Logic of ‘aid maximisation’

Strongest Weakest

Bostwana Ethiopia Rwanda Ghana, Zambia, Mozambique,

Tanzania, Mali

Spectrum of ‘government control’ over policy agenda and implemented outcomes

Source: Whitfield (2009, p. 331).

Key issues: structural conditions (economic, geopolitical, etc.) negotiating political capital

Ownership as ‘control’ and not as ‘commitment’

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Some conclusions

• Aid flows have increasingly problematic governance implications. Question is what governance capacities arfe created and/or destroyed in the process

• Loss of policy space substantial but not complete and as much a product of powerful internal dynamics and social/economic/political changes as a result of external pressures – importance of context

• Operational imperatives of aid agencies impair progress towards reforms of aid architecture so much change must come from internal dynamics