Aid: protection or production

On 17th-18th February I attended a workshop entitled “Aid and Development in Asia and Africa: The Role of Infrastructure and Capacity Development in East Asian Growth and its Implications for African Development”. It was co-hosted by the School of Oriental and African Studies (SOAS) and the Japan International Cooperation Agency (JICA) and held at SOAS in London.

On Tuesday 1st March, Britain’s International Development Secretary, Andrew Mitchell announced that the number of countries receiving aid will fall over the next four years by a third – from 43 to 27. The total aid budget will not decrease, in keeping with Prime Minister David Cameron’s pledge that Britain will meet the UN target of spending 0.7% of gross national income on aid by 2013. But the allocation of aid will alter. There is to be a greater focus on ‘fragile’ war-torn states which pose a security threat to the UK, such as Afghanistan and Somalia. This redistribution and concentration of funds implies an assumption that the efficacy of aid - to promote economic growth, social development and therefore stability - can be improved by increasing the volume of aid to a ‘fragile state’.

The ability of aid to foster economic growth and development, and the merits of ‘scaling-up’ aid are hotly contested issues. This debate is propelled most articulately by economists Jeffrey Sachs, Director of the Earth Institute at Colombia University and William Easterly, Professor of Economics at New York University.

In his book “The End of Poverty”, Sachs argues that poverty can be overcome by increasing aid spending on items such as water pumps to increase agricultural productivity, or mosquito nets to reduce the incidence of malaria. And increased wealth improves political transparency and governance. In contrast, Easterly argues there is no empirical evidence to show that aid leads to economic growth or political reform. He advocates local entrepreneurship and the growth of the private sector to reduce poverty and increase accountability, which he finds lacking in the aid industry.

Evidence for both arguments can be found on the ground, depending on where, and when, you look. Perhaps it would be better to acknowledge that aid does not - and cannot - have the same impact in all locations and under all political, economic and social conditions. To position yourself ‘for’ or ‘against’ aid is to ignore the local context. At the workshop I attended, there were some enlightening contributions to the ‘aid debate’ from speakers keen to examine the large middle ground between the black and white arguments.

Finn Tarp, Director of the World Institute for Development Economics Research at the United Nations University, shared research which argues that aid can have a positive effect on growth over the long-run. With no empirical evidence to suggest that increasing the volume of aid increases economic growth to the same degree, he argued that international donors increasing their aid allocations must be clear on where and how money should be spent. Local institutions are key to the achievement of economic growth through aid, and their capacity to absorb increased aid flows should receive particular consideration.

Jane Harrigan, Professor of Economics at SOAS, argued that over the last decade donor conditions have been pre-occupied with ‘good governance’ and social welfare. From 1990 to 2004, the percentage of aid allocated to governance in African countries increased from 7% to 21%, to education from 6% to 21%, and to health from 4% to 9%. The proportion to agriculture fell from 27% to 11% and to infrastructure from 42% to 30%. Whilst acknowledging the importance of contributions to social welfare, Harrigan is concerned that the relative reduction in allocations to productive sectors - agriculture and infrastructure - is hindering economic growth.

Kenichi Ohno, from the National Graduate Institute for Policy Studies in Japan, agrees that in order for aid to promote growth, a shift in emphasis to productive sectors is needed. African countries, he contends, should study East Asia’s success and adopt country-specific industrial policies. For example, as an advisor to the Ethiopian government, Ohno has proposed limited export promotion; import substitution; increasing private-public partnerships; building industrial clusters and the adoption of the Japanese philosophy of kaizen - the continuous improvement of processes in manufacturing and business.

With Britain re-embracing a closer alignment of aid programmes with foreign policy, will support be given to countries attempting to build a base for their economic growth? The rhetoric of results-oriented aid policy would seem to suggest this is a possibility. But the concentration of aid to countries deemed to pose a security threat to Britain could yet deny African countries with the highest potential for economic growth and wealth creation the support they require to establish themselves in international markets. An achievement which would reduce the requirement for aid, and help promote peaceful ties with the rest of the world.

Jenny Congrave

Policy and Publications Officer - Africa Research Institute