Aid in the 21st century: who’s in the driver’s seat?

David Hulme

David HulmeOfficial development assistance (ODA) has altered dramatically over the last ten years – more money, better directed and administered, with greater stress on reducing poverty and greater ownership of the recipients over the whole of the aid process – so the official communiques would have us believe. But has it really? Despite appearances to the contrary, donors have been hesitant to relinquish control over aid spending, slow to abandon realpolitik in favour of compassion towards distant strangers, and cautious about digging deeper into their pockets.

On paper, it looks as if the nature of official development assistance has been transformed over the last decade. Most bilateral and multilateral aid agency documents now agree that the metagoal of ODA is poverty reduction and this will be pursued through the Millennium Development Goals (MDGs), a global agreement on what is to be targeted and how a global partnership will operate. Allied to the MDGs is the Finance for Development initiative that kicked off at Monterrey in 2002. This commits the world’s rich nations to doubling ODA by 2010 and promises to identify ‘innovative’ ways (like Tobin taxes, air travel charges and global premium bonds) of channelling more money to the poorest countries. It gets better: not only will rich countries dramatically increase the quantity of aid but they will also improve its quality. The Paris Declaration of 2005 commits all the major donors to coordinating their aid programmes in ways that will make aid flows more predictable and less administratively costly for recipient countries.

At the national level dramatic changes also seem to have occurred. Most significantly, the majority of developing countries have agreed to write Poverty Reduction Strategies (PRSs), originally called Poverty Reduction Strategy Papers (PRSPs). Theoretically, these differ from earlier generations of national-level documents about development strategy in two significant ways. First, they are produced by a country’s government, not by donors or donor consultants. So, there is national ‘ownership’. Second, PRSs must involve consultation with civil society so they are ‘participatory’.

Finally, donors have pursued new modalities that are believed to be more effective and efficient and that foster national ownership of policy. Foremost among these is general budgetary support (GBS), sometimes called direct budgetary support. This means donors putting their funding straight into a developing country’s national budget, indicating their trust in that country’s government (or, perhaps, governance). This reduces the perverse incentives created by programming aid for discrete ‘projects’ or ‘programmes’ and means that donors can talk with recipients about the ‘big picture’ – the size and composition of the national budget, public expenditure tracking, national monitoring systems, public service reform – and move away from conditionalities (which have repeatedly been shown not to work). So far, so good – but what has happened in practice?

Aid quantity

Since 1990 ODA has seen a number of ups and downs (readers who want details should visit http://www.oecd.org/dac). It declined steadily after the end of the Cold War as there was no longer a need for the West to ‘buy’ support against the Soviet Bloc from poor countries. Around the millennium, there was some increase in ODA, compounded by large debt write-offs, and there were further increases associated with the Finance for Development’s ‘Monterrey Consensus’ around 2004 and 2005, fuelled by the tsunami and US investment in Iraq and Afghanistan. Again, there were large debt write-offs for Iraq and Nigeria.

Over the last two years aid volumes have started to turn down again as the ‘one-off’ increases for debt relief have been completed and fiscal problems in OECD countries, such as Germany, have led to cuts in ODA. Whether increasing aid volumes from non-OECD sources, notably China and the OPEC countries, is offsetting these reductions is unclear. Finally, the G8 nations have promised a ‘doubling of aid’ by 2010, a promise which, despite much scepticism from critics, was lately reaffirmed at the G8 Tokyo summit in July.

Aid quality

The pattern has been much the same when it comes to aid quality. Big promises were made, some improvements occurred, but then there appears to have been backtracking. Changes in processes and institutional behaviour are always slow, so short-term judgements may underestimate long-term impacts.

Poverty Reduction Strategies
 
Donors, and particularly the World Bank and IMF, have found it hard to change their control-orientated behaviour. In Uganda, staff at the Ministry of Finance joke about ‘ownership’ meaning ‘donorship’. In Bangladesh, the local consultants writing the  interim PRSP were told by World Bank officials that they must use World Bank data, not data from the Bangladesh Bureau of Statistics. But there is now an opportunity for the third generation of PRSs to be different – if donors recognize that in many countries PRS planning processes have strengthened.[1] There is also an opportunity for the multilaterals to get their act together. The World Bank, IMF and UN could explain to the world how PRSs (on the IFI websites) relate to MDG-based National Development Strategies (on the UN website).

Millennium Development Goals

The MDGs have proved an effective device for increasing media coverage in rich countries about systemic poverty and deprivation in poor countries. Some evidence suggests that this might be helping to change public attitudes, at least in Europe. They have also helped promote significant increases in aid in some countries (the UK, for instance) and modest increases in others (such as the US through its Millennium Challenge Account). They have not, however, led to ‘needs-based’ budgeting based on an endogenous poverty analysis or a dramatic expansion of education, health, water, sanitation and other services. The budgets allocated to such basic services in aid-dependent countries are specified by IFI-shaped Medium Term Expenditure Frameworks based on ‘what can be afforded’ not ‘what is needed’ – as was implied by the MDGs. In practice, The MDGs are mainly a device used in OECD countries. Developing countries had little interest in their evolution.[2]

Paris Declaration

While in theory they support aid harmonization, discussions with aid agency staff indicate that the Declaration is only slowly affecting donor countries’ preference to act unilaterally. Most staff view the Declaration as something to gradually work towards as their governments are not prepared to ‘implement’ it at a stroke (despite their rhetoric).

General Budgetary Support
 
Perhaps the biggest ‘breakthrough’ in the world of aid has been that a number of donors now provide general budgetary support to ‘partners’ (no longer called ‘recipients’. This is a quite fundamental change in the aid relationship as it means that donors no longer spell out precisely ‘how’ their aid is to be used. It reduces the numbers of donor staff engaged in planning, managing and monitoring aid, and this in turn reduces opportunities for donors to control what is happening.

Uganda was the pioneer country for GBS starting with $66 million in 1998 and increasing to $409 million in 2004, almost 50 per cent of all aid flows. A major DAC-OECD study found that the shift to GBS played a positive role in five out of seven case study countries. It concluded that ‘… the GBS relationship does differ significantly from that which subsisted under structural adjustment programmes. However, the change has tended to be gradual … and to be more significant in the eyes of the donors than in those of partner governments’.[3]

Making and breaking promises

The obvious question is why the promises about increased aid volumes, improved aid quality, and letting recipient countries have more control over aid programming have not been honoured. The obvious answers are the weak commitment of rich countries to global poverty reduction; the lack of trust that rich countries and multilaterals have in the governments of most poor countries; and the fact that, in most OECD countries, upward accounting (to rich world taxpayers) takes priority over downward accountability (justifying aid volumes and impacts to recipient countries).

Political theorists argue that there are three underlying factors shaping not only this response but the future of aid: material capabilities (control over resources, technology and organization – the ‘realist’ position); institutional processes (the ways in which international, national and subnational organizations and social movements interact); and norms (the moral positions that influence individual and collective behaviour). Inevitably, these three interact in complex ways.

Material capabilities are clearly of great significance. The end of the Cold War meant that those who dominated global material capabilities, the US superpower and its OECD allies, no longer needed to use aid to counter Soviet influence. As a result, they let aid volumes decline and shifted to a focus on the internal problems of poor countries, in the form of ‘governance’. The focus on governance, and later corruption, meant that the issue of trust in the governments and institutions of developing countries moved to the centre of the aid agenda. The threat of terrorism (declared by the US to be a ‘war on terrorism’), the economic rise of China and India, and energy insecurity in the early years of the 21st century eventually led the US and some of its allies to reluctantly start to increase aid.

We can also see institutional forces at work. In the mid-1990s the World Bank was desperate to rehabilitate its global standing. Shifting from its growth-obsessed, neoliberal fundamentalism to a more broadly based poverty reduction approach, which entailed talking up the case for aid, was a central tenet of Wolfensohn’s era as President. For bilateral aid agencies the case for increased aid was a combination of moral position and organizational self-interest. Ironically, however, it was the new kids on the ‘development’ block, civil society organizations (and particularly the network of NGOs and church-based groups mounting the Jubilee 2000 campaign) that had the greatest impact in persuading G7 and OECD countries that debt relief and increasing aid were a good idea. NGOs were often ‘winners’ in these processes as they were seen as more efficient and accountable service delivery agencies and many saw their access to aid increase. This included northern NGOs such as CARE and southern NGOs such as BRAC in Bangladesh. Indeed, some donors are now considering giving BRAC core funding – the equivalent of general budgetary support for a non-state agency in a recipient country.

Finally, one can chart a gradual shift in norms over the late 1990s and early 2000s, at least in some countries, towards what David Lumsdaine termed a ‘moral vision’ in foreign policy. This has meant that, little by little, ODA is increasingly directed towards development goals rather than the pursuit of purely self-interested diplomatic and/or commercial goals (Carol Lancaster gives an excellent analysis[4]). This shift has occurred largely because of pressure from elements of domestic civil society. In Scandinavia, this shift in norms made ODA genuinely developmental within a few decades of its initiation. In other countries, such as the US and Japan, the shift has been slower and remains contested.

A moral vision can establish itself very rapidly, however. In the UK, for example, a combination of New Labour, Clare Short, DAC’s international development goals, the MDGs, effective NGOs, Jubilee 2000 and other factors has shaped public opinion into a pro-aid position. All three of the country’s major political parties have now adopted policies of increasing aid levels to 0.7 per cent of GDP and positioning the UK as an international convenor and leader in the fight against global poverty.

The future of foreign aid

It seems unlikely that the ‘problem’ of global poverty will regain the prominence it had around the heady days of the new millennium – when world leaders and the UN sought to strengthen their legitimacy by outlining grand visions of a world without poverty. By 2005 global poverty reduction (formerly known as international development) was effectively on the reserve list for G8, OECD and EU summits and was struggling at the UN General Assembly. Rich country concerns about security, trade, climate change and energy insecurity had pushed it aside.

We can, however, identify the two main forces that will shape the future of foreign aid. The first, and increasingly the most significant, is the economic and political move from a unipolar to a multipolar world. At the minimum this means the US and China, but it may mean something more complex – the US, China, India, Russia and others, and the EU if it ever gets its act together.

Aid to Africa has transformed in the last few years as China has become a major player with massive infrastructural projects and unconditional loans. Depending on your perspective, this may be a disaster for human rights and poverty reduction or it may create the political space for African nations to select more heterodox economic policies that will generate the growth and employment that structural adjustment failed to deliver. India is starting to formulate its aid policy. In 2007 it created the Indian International Development Agency, overseeing more than US$1 billion of aid per annum. Around 98 per cent of this goes to neighbours, and Indian foreign policy and commercial interests seem to be at the core of the present programme. Russian aid is still an unknown quantity.

Such competition could mean that developing countries get more control over determining how aid will be used – but is that ‘control’ for their citizens or for authoritarian leaders? Will it improve education and health services or will it produce a new generation of high-profile ‘white elephant’ stadiums, roads and palaces?

The second force, less visible and more diffuse, is the slow and unsteady shift towards norms that place a value on assisting people who are experiencing deprivation or suffering, starting from those who live nearby but extending to ‘distant strangers’. This occurs at the individual level but ultimately has an impact at group, national and even global levels. Changes are driven by many different actors ranging from secular proponents of human rights and/or the MDGs to faith-based groups concerned about poverty and injustice.

How the changing ‘realist’ forces of nation states and their material capabilities and interests will interact with the dynamic ‘norm’ of concern about global poverty to shape aid in the 21st century is unclear, but the interaction of these countervailing forces points to a key issue for civil society. In what ways are social norms about ‘distant strangers’ changing in emerging powers such as China, India and Russia? Will the aid policies of the emerging powers mix compassion with their selfishness, as the main historical objects of the study of foreign aid – the US, G7, OECD countries and EU – have, or will they be more selfish? In coming years the emerging economic powers, the G5 (China, India, Brazil, South Africa, Mexico), the ‘Next 11’ and organizations of Arab and Islamic states are likely to be the major forces reshaping policies and ideas about foreign aid.

1 Chronic Poverty Research Centre (2008) The Chronic Poverty Report 2008-2009. CPRC, University of Manchester, UK (http://www.chronicpoverty.org).

2 David Hulme (2007) ‘The making of the Millennium Development Goals: Human development meets results-based management in an imperfect world’, BWPI Working Paper 16, Brooks World Poverty Institute, University of Manchester (http://www.manchester.ac.uk/bwpi).

3 IDD and Associates (2006) Evaluation of General Budgetary Support, Paris, DAC-OECD (http://www.oecd.org/dac).

4 Carol Lancaster (2007) Foreign Aid: Diplomacy, Development, Domestic Politics. Chicago, University of Chicago Press.


David Hulme is Professor of Development Studies at the Brooks World Poverty Institute at the University of Manchester. Email david.hulme@manchester.ac.uk

 


Comment Roy Trivedy

David Hulme’s summary of recent trends in official development assistance (ODA) is helpful in sketching out some important factors that have influenced development assistance in the past decade and are likely to do so in future. He suggests that while aid policy and thinking has undergone a significant shift over the past few years, the practice in relation to the quantity and quality of aid has lagged behind.

We agree there have been improvements in the quantity and quality of global ODA over the past decade. Since 1997, global ODA has more than doubled in real terms, from less than $50 billion to more than $100 billion, and there have been real improvements in aid effectiveness. In Africa countries such as Ghana, Tanzania and Rwanda are leading the way in this respect.

In many countries, significant efforts have also been made to improve consistency between aid and other policies that have an impact on international development. However, these processes of change have varied across different countries and institutions, and there are many remaining and emerging challenges. Progress towards the MDGs is patchy and many MDGs are off-track. Delivering the Gleneagles 2010 target of $130 billion requires rapid increases by donors. Recipient countries face new coordination issues as a result of the increased number of donors and vertical funds targeted at specific issues. Donors need to get better at demonstrating the results of aid. We also know that the impact of climate change and rising food and energy prices is having disproportionate effects on the poor, and on conflict-affected states, least able to respond. 

It is important not to underestimate the challenges. We need to continue to build global coalitions to address these and other emerging challenges. The major meetings in the second half of 2008 – the Accra conference on Aid Effectiveness, the UN meetings on the MDGs and Africa, and the Doha conference on Financing for Development all provide vital opportunities for progress. As we pass the mid point to 2015, there is a considerable amount at stake. To make faster progress internationally on reducing poverty and achieving the MDGs we must continue to press for better, more effective policies and increased aid levels.

Roy Trivedy is Head of the Civil Society Department at the UK’s Department for International Development. Email r-trivedy@dfid.gov.uk

 


Comment Atallah Kuttab

David Hulme gives an eloquent summary of official aid trends and plans for the future, especially where the UK is concerned. I would make two points in response. First – and here I will restrict myself to the Arab Region – many, including myself, are very cynical about official development aid because of its politicization (allocations following politics rather than needs) and lack of commitment to the principles and values which apparently underpin it like democracy, freedom, and the dignity of citizens. While I’m happy to see donors committed to the MDGs, and there are certainly some successful aid programmes, it is sad to see in the latest Arab human development report that most MDG indicators are slipping back.

Second, David Hulme’s account excludes other kinds of aid – from local and international foundations, from individuals, remittances, and the increasing engagement of the private sector. If such local giving becomes more strategic, there is great hope for positive change. According to Arab tradition, those able to do so should give between 2.5 and 5 per cent of their total wealth annually to their community. So we are talking about huge amounts of money being distributed (probably billions annually; surpluses from oil were around $400 billion in 2007), but at the moment there are no records of amounts donated or impact achieved. Without including the huge potential of such locally generated ‘aid’, it is very difficult to talk of trends.

Atallah Kuttab is founder of the Arab Foundations Forum and Director General of Welfare Association. Email kuttaba@awelfare.org.jo


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