No. 847: Smart Aid for Africa

The unparalleled expansion of the global economy has lifted tens of millions of persons out of poverty throughout the world. In sub-Saharan Africa, however, the numbers of poor continue to rise. Per capita incomes have plateaued for the past three decades and persons living in poverty, based on current trends, are expected to reach 400 million by 2015. A worldwide debate of unprecedented magnitude has consequently emerged on achieving substantially higher African growth rates and sustaining these increases well into the future.

On May 12-14, 2005, this important debate was brought to Northwestern University as African, European and American experts focused on the most pressing issue: Can massive increases in international aid catapult Africa out of the trap of poverty and underdevelopment? Prompted by the widespread recognition that four decades of external aid have produced generally disappointing results, the conference on "Aid, Governance and Development in Africa" brought together forty government officials, scholars, and civil society activists who, in their deliberations, drew on wide and deep understandings of what has and has not worked in promoting African development.

Based on a comprehensive report of the Commission for Africa, the G-8 leaders will take up the bold proposal of Tony Blair and Gordon Brown on July 6-8 in Gleneagles, Scotland, for an immediate doubling of annual aid to Africa. While conference participants welcome the serious attention being devoted to the continent, they expressed concern about the heavy emphasis on massively increasing the volume of aid rather than improving its quality and effectiveness. They were also critical of the inadequate attention being paid to Africa's profound governance and institutional weaknesses and the insufficient consideration being devoted to how these weaknesses will be reversed, not exacerbated, by high inflows of new aid.

Scholars and activists who have campaigned for increased aid to Africa have been remarkably successful in pushing their case. After declining during the 1990s, aid to Africa has been steadily rising and is now twice the $12.7 billion reached in 1999. The recent decision to cancel debts of a number of the poorest African countries to multilateral agencies will provide a further net increase in financial resources. Global outlays to provide anti-retroviral drugs for AIDS patients in Africa are adding further substantive inflows of public capital.

During and after Gleneagles, a more sober and balanced approach, which could be called "Smart Aid", will be needed. Smart Aid begins with the recognition that many African countries today are effectively "aid dependencies", including the usually lauded Uganda which relies on overseas aid for over 50% of its annual budgetary expenditures. Smart Aid emphasizes the need for African countries to mobilize revenue from many sources, including the estimated 40% of the accumulated wealth of Africans that is now lodged overseas. And it would situate external financial assistance in the context of the dynamic internal processes already underway on the Continent, rather than superimposing externally derived development agendas on them.

The leaders of the two latest major donor efforts to address African underdevelopment--the U.K. Commission for Africa and the U.S. Millennium Challenge Corporation--presented their approaches at the conference. While conference participants recognized the strengths of each initiative, they also identified potential risks and areas requiring improvement.

The head of the UK Commission Secretariat, Ambassador Myles Wickstead, presented the merits of the recent Commission report. This report, which coincides with the British presidency of both the G-8 and the European Union, is a comprehensive document that addresses the multifaceted nature of underdevelopment. It recommends that Africa continue to improve its governance, and that rich countries dramatically expand aid, provide debt relief, and eliminate harmful trade barriers.

The Commission stresses the absolute necessity of improving governance in Africa before international aid can contribute to poverty reduction and economic growth. It also acknowledges that despite recent gains, quality governance has yet to emerge in most African countries. The report proceeded to call for drastic increases in aid without outlining a strategy to remove the governance deficiencies. This inconsistency may pose great risks for Africa. If increases in aid occur but do not result in demonstrable progress-a likely outcome unless governance is properly addressed--donors will resist the further increases the Commission recommends for the 2010-2015 period. There is a danger of Africa "being set up to fail" by such a contradictory strategy that squanders the unique level of international enthusiasm for eliminating extreme poverty.

Among the issues seen as receiving insufficient emphasis in the Commission report are the importance of achieving peace and security; the need for vertical as well as horizontal accountability; the development of alternative "centers of prestige" to counter-balance the predominance of the state in Africa; gender equality; and the vital importance of supporting Africa's entrepreneurs.

In his keynote address, "The Millennium Challenge Account: Building on the Lessons of Development," Paul Applegarth, former CEO of the Corporation, outlined what he saw as effective aid-a reinforcement of sound political, economic, and social policies; a development strategy oriented around country ownership; and a system of accountability that holds countries responsible for their performance and results. The MCC evaluates prospective recipient countries according to three sets of performance indicators-ruling justly, investing in people, and encouraging economic freedom-and makes grants to countries that design their own action programs in particular sectors.

The MCC seeks to encourage countries to undertake reforms by providing increased international aid. The size of the MCC compacts signed thus far, ranging between $22 million to $43 million annually, do not represent funding levels able to provide such motivation. Furthermore, disbursements from Congress indicate that the Bush administration has not yet been willing to support the MCC at the levels initially promised. It seems to Africa experts that the MCC approach must be combined with other significant inflows of development assistance, especially those aimed at building the required operational capacities.

Major donors agree that the effectiveness of aid is fundamentally tied to the strength of a country's institutions and its systems of governance. Even in sub-Saharan African countries that have experienced democratic advances, institutional capacity remains weak. Conference participants recommend the creation of new incentive structures to help African countries rebuild their civil services.

Africa's governance failures derive from patronage systems, often called neo-patrimonialism or prebendalism, in which the resources of the state are distributed by leaders to buy political support, while office holders take advantage of weak financial management systems to rob the public purse. Increasing the flow of aid without developing systems to ensure probity, transparency, and accountability risks simply reinforcing dysfunctional systems.

Closely linked to good governance and the need for effective public and private institutions is the concern captured by one conference participant when he asked: "How can Africans be helped to improve their access to international markets?" This individual answered: "We need opportunity, not compassion!" The next WTO Doha Round of trade negotiations, taking place in Hong Kong in December 2005, will be a test of the determination of industrialized countries to remove barriers to African exports in the form of agricultural subsidies and tariff barriers.

African governments encompass a wide range of systems--from failed entities entirely lacking in legitimacy and capacity to increasingly consolidated democracies committed to reducing poverty. Greater donor coordination is essential for achieving more effective assistance to all 48 countries of sub-Saharan Africa. Regular reports by international agencies on African governance, social development, levels of corruption, and democratization, together with the forthcoming African Peer Review Mechanism of NEPAD, can enable donor consortia and African countries to design multiyear assistance programs tailored to different recipient environments.

The MCC's insistence on tying new aid commitments to the performance of governments was generally supported by conference participants. Some experts suggested going further and terminating aid to countries whose presidents have been in power for more than 12 years, or those who violate constitutional term limits. On the other hand, governments that come to power through honest elections, use available resources to improve the welfare of their people, and pursue sound economic policies should receive progressively increased levels of support. The United States should, moreover, seek ways of dovetailing the Millennium Challenge Account with the initiatives of other major bilateral and multilateral donors. This would avoid the self-defeating approach of asking more of over-stressed African bureaucracies than they can deliver in preparing grant applications and periodic evaluations.

Donor strategies rarely reflect one of the key concerns of African governance experts: the very nature of African states. These states are the sovereign entities with which the donor community conducts most of its negotiations and to which most official aid is transferred. However, many governments are often distrusted by their citizens who rely increasingly on communal, civic, and religious organizations to address their material and other needs. The new global compact with Africa being promoted by the G-8 and other international meetings such as the UN Millennium Summit in September 2005 should therefore be calibrated to adjust to the real nature of African states by providing incentives to those that are building capacity and strengthening systems of accountability and inclusion, and redirecting resources to non-governmental entities where when they are not. All African countries would benefit from vigorous business sectors and civil societies. African experts have long advocated that more capable and responsive African states depend on the existence of stronger and more autonomous countervailing structures in their societies.

"But development cannot be left to states alone," noted one conference participant. Donors must therefore redouble their efforts to empower civil societies even in the most democratic states. And in the less-than-democratic, and low-performing, states--which still constitute the majority of African polities--such strategies are even more urgent. To increase the effectiveness of aid, donors will have to find an appropriate balance between supporting states and civil societies. Such a challenge can best be met through wide consultations, within particular countries as well as among the international community of policy scholars and practitioners.

Because of heavy emigration flows, many African societies have large transnational communities. These thriving African Diasporas have little sympathy for the autocratic regimes that operate the predatory systems of governance that have been so responsible for the Continent's distress. Their engagement should be a central feature of all aid strategies being devised to advance political and economic reform.

Aid agencies are seen by conference participants as unacceptably slow to change. Issues such as the over-reliance on external experts, the creation of parallel structures in recipient countries, the lack of coordination and tied aid were identified as problems decades ago. Yet they persist in one form or another. Insufficient donor coordination also imposes high burdens on African governments. Despite the creation of elaborate conditions and rules to govern the allocation of aid, the need to spend aid budgets often overrides such considerations. In view of the amount of attention devoted to improving aid effectiveness, more decisive action should be taken to design programs with a higher probability of yielding desired outcomes. Conference participants noted the significant attention being devoted by the Foreign Ministry of the Netherlands to increase the sharing of information and ideas between aid officials, the scholarly community, and recipient countries.

Amid the insistent clamor for massive increases in official development aid, what is the appropriate role of aid agencies in trying to invigorate development processes in Africa? An effective role for the donor community, as viewed by conference participants, would be defined by three characteristics: facilitative, restorative, and transformative.

Facilitative. The ultimate challenge confronting sub-Saharan Africa is that of increasing its participation in the global economy. The share that African exports represent of global trade, and Africa's share of foreign direct investment, are both around the same miniscule percentage of 1.5%. Financial transfers from international donors, now being used increasingly for budget support, cannot substitute indefinitely for the revenues that should be mobilized internally by the countries themselves. Donors must therefore query the extent to which aid programs are facilitating a developmental dynamic within recipient African countries or merely serving as an almost permanent substitute for it.

Restorative. Several conference participants noted that many African countries increased institutional capacity in various sectors in the years following independence. This observation led them to ask: What happened to this capacity? Why was it eroded? How can it be restored? They emphasized that, of all that Africa has lost, nothing matters as much as the loss of values, norms, and standards of conduct. With the departure overseas of skilled professionals, or civil servants' premature departure from the public service because of low salaries and other conditions of service, African countries were deprived of their skills and also of their professional values. African development must therefore include the acquisition of new skills and bodies of knowledge as well as the recuperation of modes of professional conduct.

Transformative. The transformative role refers to the importance of transforming behaviors and practices that undermine African institutions. These practices are often grouped under the label of "corruption". However, as several conference participants argued, the misuse of the financial resources of particular institutions has become intrinsic to how such institutions are often governed--from local government offices to large national agencies. Perhaps the greatest concern expressed by participants was that very large increases in aid inflows would reinforce existing behaviors and practices thereby deepening, rather than lessening, Africa's underdevelopment. Some of the scholars present have long given up on the likely reform of the African state and its capacity to contribute positively to socio-economic development. They therefore place greater emphasis on the activities of non-statal organizations and institutions. The majority of conference participants, however, encourage the pursuit of innovative ways of stimulating virtuous cycles of improved governance and institution building that can steadily replace the vicious cycles of misrule and institutional decay. These include the creation of ombudsman offices, anti-corruption agencies, a vigorous independent media and other civil society organizations, and increasingly democratic politics. International donors can continue to play a critical role in assisting these processes.