How donors should cap aid in Africa
On September, the third, Ministers from developed and developing countries gathered in Accra, Ghana’s capital, for the latest high-level forum on aid effectiveness.
The main problem is not the one poor countries and NGOs usually complain about: too little aid. In fact, official development assistance has been rising modestly since the mid-1990s, in real terms.
Rather, the problem is that aid is fragmenting: there are too many agencies, financing too many small projects, using too many different procedures. “Fragmentation is the opposite of effectiveness”. According to the Organisation for Economic Co-operation and Development (OECD), 38 poor countries each had 25 or more official donors working in them in 2006.
Reformers are calling for
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more ownership by developing countries of aid relationships,
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more predictability of aid flows
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less fragmentation of aid delivery.
These reforms would give the taxpayers of rich countries better value for money and increase the benefits of aid to people in poor ones.
Some developing countries, most of them in Africa, have had high levels of aid dependence for decades. There main reason to be concerned about high aid dependence is the undermining of good governance by distortion of political accountability. Governments highly dependent on aid pay too much attention to donors and too little to their citizens. The results are confused policies, volatile aid and spending and slower growth.
Donors could collectively set an upper limit on the amount of aid they give to any developing country. It should be 50 per cent of the amount of tax revenue that the aid-receiving government raises from its own citizens, by non-coercive means and excluding revenue from oil and minerals.
- This would keep the governments of non-mineral countries dependent for revenue mainly on their citizens,
- and thus give them incentives to pay attention mainly to what citizens want, not donors.
- It would also encourage governments to raise more taxes from their citizens, since every extra dollar of tax raised would attract a matching increase of 50 cents of aid.
“No taxation without representation,” said the early Americans. Budget legislation is central to the political process, forcing governments to justify their actions in open debate. At the micro level, tax collection obliges governments to be in direct contact with most of their citizens and companies.
More challenging would be whether donors, even if most of them agreed on a limit, would be able to act collectively to implement it. There are many donors with different motives, separate delivery mechanisms and no set of common rules – these being among the problems that the Accra meeting has tried to tackle. Yet the idea is worth exploring. A lot of countries, including some in Africa, still get too little aid – well below my 50 per cent limit and below what they could put to good use – so part of the agenda should still be to increase aid. But the dangers to development of too much aid for too long are sufficiently serious that donors also need to think strategically about upper limits.
Another problem is too many aid agencies, and the challenge is co-ordinating them.
In practice, national, multilateral and NGO donors probably can’t do more themselves than they do anyway, so the best way of coping with the fragmentation of aid is for recipient countries to lay down a set of national development priorities and ask donors to fit in with their plans. Still, the picture is perfect. One of the oldest problems is the practice of “tied aid” (which means that some of it is spent in the donor country). This increases inefficiency and adds to the problem of fragmentation. So it is good news that Britain, Sweden, Ireland and the Netherlands are untying their aid and that, in Accra, the OECD revealed evidence that things are moving further in the right direction. A welcome step in changing developing countries from “projects” to “partners”.
