By Mammo Muchie: NRFDST Research Professor Chair Holder on Innovation Studies,IERI, TUT,Pretoria, So

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Development AssistanceDilemmas and Challenges?

• By Mammo Muchie NRF/DST Research Professor Chair
  Holder on Innovation Studies,IERI, TUT,Pretoria,
  South Africa, Professor, DIIPER,Aalborg
  University
• February 21,2009, Reggio, Italy

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Development Assistance overview

• Reasons for donors to give aid
• Reasons for developing countries to receive aid
• Theoretical disputes for and against foreign aid
• Types of Aid
• Changing Aid strategies
• How Different donors give aid
• EU and North Africa
• Questions to think about

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Inspiration

• A study of LDCs is to economics what the study
  of pathology is to medicine (..) the difference
  is that in economics, pathology is the rule less
  than ¼ of mankind lives in the developed
  economies. ( Joseph, Stiglitz)

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inspiration

• The causes of wealth are something totally
  different from wealth itself. A person may
  possess wealth, i.e., exchangeable value, if,
  however he does not posses the power of producing
  objects of more value than he consumes, he will
  become poorer. A person may be poor if he,
  however possess the power of producing a larger
  amount of valuable articles than he consumes, he
  becomes rich.
• The power of producing wealth is threfore
  infinitely more important than wealth itself it
  insures not only the posssession and the increase
  of whjat has been gained, but also the
  replacement of what has been lost. This is still
  more the case with entire nations who cannot
  live out of mere rentals than private
  individuals.

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inspiration

• The relationship between mans powers of reason,
  acting on the physical universe through the force
  of productive manufacturing, is not explainable
  from the standpoint of exchangeable value
• If Adam Smith had followed up the idea of
  productive power, without allowing his mind to be
  dominated by the idea of value, exchangeable
  value, he would have been led to perceive that an
  independent theory of the productive power must
  be considered by the side of a theory of values
  in order to explain the phenomenon of an
  economy.
• But he thus fell into the mistake of explaining
  circulation of goods and services as they are
  found rather than examine how knowledge as
  productive energy adds value to goods and
  services to create the wealth of nations.
• The difference between selling raw and cooked,
  agriculture or manufacture!

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Dilemma

• The unusual thing about aid as a policy field is
  not that so many organisations are involved on
  various levels what is unusual is rather the
  distance and difference between suppliers and
  users, and the way in which inequality is built
  into the relationships during the process
  (Stewart, Adjustment and Poverty Options and
  choices, RKP)
• The flow is is a one way process from donor to
  recipient
• Basic pattern remains despite coining terms like
  partnership , people-led as opposed expert led
  development, participatatory development,
  pro-poor development
• They do notchange the form and process of aid in
  any decisive way.(Martinussen, p.175)

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Dilemma

• Just as it is hard to show aid has beneficial
  results, it is difficult to prove it has negative
  ones(Tim Allan et al, Poverty in the 21st
  Century, p.209)
• Donors give recipient loses, donors don not give,
  the recipient still loses!
• Can services provided out of good will by donors
  help if they turn and become a right by the
  recipients?
• With the best will in the world, the current
  scope for using DA to transform livlihoods on a
  large scale is very small. Change may come when
  the affluent have no choice. ibid, p.215

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Dilemma

• The project of intervention is often done with
  the logic of first and foremost beneficial to the
  intervener. The intention behind the
  intervention is rarely fulfilled how else can
  one explain half a century of poverty production
  rather than poverty eradication

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Dilemma

• Aid promotes development? Does it?
• Aid creates dependency? Is it true?
• Is aid finite and on going?When does it stop?
• Is it a one way flow or a two way flow?
• What will happen to all the agencies that live
  off the job relaying donor funds to the
  recipient when poverty ends if indeed it ends?

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Dilemma- perpetuating an aid industry?

• Agencies of development become self-perpetuating
• Should not their job be temporary rather than
  permanent
• The poor must exist for the agencies to live
• When the poor become well off , will there be a
  reason to pity, condem or help the poor?
• Political economy of perpetuating aid cannot be
  ignored!

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About high time to rethink Aid

• From a one way flow to a two way flow
• Recognise there is no free giving
• Strings are always attached whether visible or
  covert
• Better to open them and deal with them
• Rethinking aid helps to reframe and
  concept-frencing the agencies of development

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Acknowledge the right of the poor their choices
and voices!

• Agencies of Aid first and foremost look after
  themselves before or as they claim to look after
  others!
• The poor are very useful, their numbers and
  existence necessary for their job to remain
  viable and justified!
• For the aid industry is self-reproducing! It can
  continue on
• Change means that the poor themselves change
  their conditions self-organising poors with a
  mandate and time specified change necessary!
• Others may wish to do the job for them, but they
  have the right to be involved in the change of
  their conditions including respecting their
  choices and their values

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Let us Continue Where We left off Yesterday
then The Economic reason behind ODA

• Capital formation is a key problem for developing
  countries
• Private and public savings insufficient to
  finance large investments to build
  infrastructure to accelerate growth processes
• Private foreign investment was far too low to
  finance development
• Not all developing countries are attractive for
  FDI
• Official foreign aid transfer is necessary
• .

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Argument Justifying DA

• The Dual-Gap model used to justify aids
  beneficial effects
• Double problemImport- export gap
  Investment-saving gap persit
• Too few resources domestically to cover the need
  for investment
• Too few resources in the form of foreign exchange
  that could finance imports of machinery and
  manufactures from foreign markets
• Either foreign exchange or direct financing of
  the imports of machinery can close both gaps
  (Rosenstein-Rodan, Rostow and others in the 50s
  and 60s)
• Also side effects of DA could potentially induce
  self-reinforcing growth
• Capital transfers in the form of grants,
  conecessionary loans

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Critics of the two gap model

• Some crtics claimed that in practice capital aid
  had rarely, or only to a limited extent,
  supplemented domestic savings.
• They claim there had been a tendency for capital
  transfers to replace public savings in
  particular, so that the beneficial effects of the
  aid were very limited, may even be
  negative(Martinussen et al, p.19)
• Others criticised the models emphasis on capital
  accumulation as an engine of growth
• It is more how money or capital is invested or
  used not the amount per se
• The conditions and policies of the recipent
  countries matter
• Capital is just one factor determing national
  income

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Foreign Aid in Theory?

• Debate since the 1950s
• No consensus yet
• One View FA or DA Neither a necessary and
  sufficient condition for growth and development
• Economic growth /development can be achieved
  without DA (See Martinussen et al for Summary,
  p.18)

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FA or DA in Theory

• A Positive View
• Investment of more capital creates growth
• Positive correlation with more investment to
  better increase in growth rates
• Aid in the form of capital transfers suplements
  other forms of k-formation by private and public
  investments

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Recipient countries

• Recipent countries differ from each other
• Share of total assistance varies
• Total gross aid in the mid-1990s was 2.5 per cent
  of the GNP of developing countries as a whole
• Variation considerable 0.3 (Latin America), 0.7
  (China India) and 11.5 Sub-Saharan Africa (
  World Bank 1997)

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Classifying the recipient countries

• LDCs low income countries very vulnerable
• LICs with GNP per capita of less than 765 in 1995
• Lower middle-income countries(LMICs) with GNP per
  capita up to US 3,035 in 1995
• Upper middle income countries(UMICs) with GNP per
  capita of up to US 9,385 in 1995
• High Income countries(HICs) with GNP per capita
  over US 9,385 in1995
• It matters very much what level a country is to
  utlise official aid effectively!

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Types of Aid

• Development assistance and emergency relief
• State and voluntary aid
• Financial, technical and commodity assistance
• Assistance in the form of grants and loans
• Bilateral and multilateral aid
• Programme and project aid

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Types of intervention

• Cooperation with stakeholders
• Aid language..assistance cooperation partnership,
  national owenership
• Project cycle from project, programme, sector,
  national to policy learning approach
• Bilateral and multilateral aid from
  technical-economic to political dialogue
• Financial, technical and commodity assistance--
  emergency relief.. Humanitarian assistance-
  development orientated emergency relief

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Aid strategies

• Trickle down in the 1960s integrated rural
  development projects and fulfilment of basic
  needs
• Redistribution with growth
• From projects to structural adjustment of the 80s
• Political, economic and instituition building

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Aid strategies of the 1990s

• Poverty eradication and environmental
  development goals for foreign aid
• Women and gender equality
• Democratisation and good governance
• Human development and poverty alleviation
• Private sector
• Instituition building
• Capacity building
• The rise of NGOs

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Political goals

• macro-economic stabilization and structural
  adjustment
• Good governance, human rights and democratisation
• Poverty reduction, human development and social
  diversity

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Donors Differ

• They differ in the way they link development aid
  with foreign policy
• The history of relations with developing
  countries(e.g. UK with Common Wealth, France with
  Franco phone Africa)
• Japan in East Asia
• Nordic countries broadly driven by a desire to be
  relevant
• USA largely motivated by national security
  concerns

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Building Coherence

• Creating better coherence in donor countries
  various forms of foreign policy
• Doing away with aid and development policy goals
  on the one hand and goals within such areas as
  national security, guidelines for weapons
  exports, trade and investment policies,
  agriculture and environment policy
• Trying to see developing countries development
  problems as a whole
• Donors need to adjust and harmonise their
  policies in relation to the total problems of
  recipient countries

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USA-DA

• Generous to European reconstruction 2 of its
  GDP!
• Aid halved and remained to same level as other
  developed countries until 1968
• Mid-1980s USA aid fell by 25 of other developed
  countries aid
• It fell further by mid-1990s
• It stands now after Moneterry from its low 0.1
  to 0.3

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National Security priority

• During the Marshall Plan East Asia , Europe and
  Canada
• During Vietnam Mobilisation Isreal, Middle East,
  South Asia, Latin America and Africa
• Vietnam settlement East Asia, Middle East,
  Isreal
• Camp David Isreal and Egypt, Middle East
• End of the Cold War, Isreal, Egypt and Latin
  America, and the remainder of Middle East and
  South asia

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Japan-DA

• Restoring Japans name after the war in East Asia
• Japan engaged in helping reconstruct destroyed
  infrastructure
• More economic linked
• Tailed US security need to contain Cold war foes
  and butress cold war allies
• Main aid zone remains ASEAN region
• More poverty orientated in beginning in the 1980s

30
Japan_DA

• In 1969 only 1 of Japanese DA went to
  Sub-Sahran Africa, in contrast to 18 of
  Japanese bi lateral aid.
• Its bilateral aid consists of 80 of its total
  aid!
• High priority to export orientation industries
• After 1993 it gave the highest donor aid 27 of
  all the Develped aiders
• 0.35 of its GDP!
• Its tied aid which was 70 in the 70s has now
  been reduced to 15-16 in the 1990s compared to
  the average donor tie up of 33
• Japan changed after criticism of its tied aid

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France-DA

• Third largest donor after USA and Japan
• Mid-1990s it dropeed below Germany
• Gave for many years
• 1999 decreased to 0.4 decreasing by 32 in the
  price of the time!
• Aid policy integrated with foreign policy
  particularly in relation to Francophone Africa
• Maintains high level aid
• Though it advoctes democratisation France says
  it is upto the states to determine the pace of
  reform

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France-DA

• France remains a regional big power in Africa
• French leaders rejected American leadership until
  Sarkhozy.. Whose foreign policy is still evolving
• French economic interests still strong in the
  former French colonies
• France has still military presence in Africa
• Emphasis on French language and culture in Africa
• Criticised by fellow donors for using aid as an
  instrument of foreign policy and advancing
  commercial interests
• Country strategies are not discussed with the
  countries nor the evaluation of French aid

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UK-DA

• DA in the colonial times through Colonial
  Development Act 1929, and Colonial Development
  and Welfare Act of 1940
• British colonies achieved political independence
• 0.5 of GDP until the 1970s
• Thatcher- the Aid Snatcher cut aid to 0.35
• Further cutbacks in 1983
• Linked Uk aid with IMF and World Bank
  Conditionalities

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UK-DA

• New Labour since 1997 produced a white paper to
  focus all our work on eliminating poverty.
• Sustainable livelihood
• Better education, health and opportunities for
  all
• Better management of the natural environment
  (ODI, 1998)
• Sector strategies and comprehensive for each
  cooperting country with budget support

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UK-DA

• Tried to harmonise its foreign policy of aid with
  country development policies claim fellow donors
  in their evaluation of the UK

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Denmark-DA

• Poverty orientation
• Multilateral orientated
• Generous above 1 of GDP
• 66 countries have received Danish aid
• But 27 of them have received more concerntrated
  aid
• Tanzania, Kenya, Bagladesh and India

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DK-Aid

• Along with poverty reduction
• Danish aid also goes to the private and
  commercial sector
• Works for commercially sustainable partnerships
• Moved from project to sector and country public
  authority cooperations
• Democratisation and human rights, administrative
  reforms with policy dialogue encouraged

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ITLAY-ODA

• In 1995, approximately 90 of all Italian
  bilateral aid was still completely or partially
  tied to purchases from Italy.
  (globenet.org/preceup/pages/fr/chapitre/etatlieu/a
  cteurs/f/j.htm - )
• 72 in 2003 targeted to Africa 63 to SSA, 9
  to North Africa, Asia 10 , Latin America 7,
  eastern Europe 5 , Middle East 6
• EU plan to increase ODA by 2010 to 0.51 , and
  0.7 by 2015 approved by Italy
• Italian aid fluctuates

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ITALY-ODA

• Since 1992, Italian development co-operation has
  faced constant decline, resulting in a 60
  reduction of the budget in 1995.
• The budget is 0.2 of the GNP.
• Italian bilateral co-operation mainly
  concentrates on former Italian colonies in
  Sub-Saharan Africa, but aid for the North African
  countries and those surrounding the Mediterranean
  is increasing, as is that for Latin America and
  Asia.
• Priority is also shifting towards the
  Mediterranean basin and Eastern Europe (Albania
  and ex-Yugoslavia).

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ITALY-ODA

• Africa Algeria, Angola, Egypt, Eritrea,
  Ethiopia, Morocco, Mozambique, South Africa,
  Tunisia and Zimbabwe
• Middle East Jordan, the Lebanon and Palestine
• Asia China and India
• Latin America Argentina, Chile and Honduras
• Europe Albania and ex-Yugoslavia
• The five largest recipients were China, Albania,
  Ethiopia, Egypt and India. Other countries
  include Brazil and Somalia. China and India were
  also involved in special commodity aid channel
  programmes.

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The Declaration of Paris 2005

• The DP is based on five major principles
• (1) ownership of aid by developing countries,
• (ii) alignment of aid policies with national
  development strategies,
• (iii) harmonization of policies by donors and the
  establishment of common intervention measures,
  (iv) management of aid focused on results
• (v) mutual responsibility for results attained.
• Italy is asignatory of the Declaration of Paris!

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Queries?

• Foreign aid policy is tied not just to project,
  programme and country strategies and policies
• It remains tied to foreign policy choices
• Globalisation sits uneasily with development
  cooperation
• Development cooperation may be necessary but has
  it worked or is it working?

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EU-North Africa Relations

• North Africa Predominantly Arab Countries.
• Some integration Arab League.
• North Africa Members of the African Union
  (save Morocco).
• North Africa Predominantly Muslim Countries.
• North Africa Under the impact of the EU more
  than SSA.

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EU-North Africa

• EU European Neighborhood Policy
• Can have big consequences.
• Introducing EU norms, building up capacities,
  e.g. veterinary standards
• (with EU support).
• EU decisions become increasingly important for
  these countries Will try to influence them,
  start turning more attention to EU-system.
• Increasingly dense network of cooperation and
  dialogue (police, energy, ).
• Morocco and Tunisia participate e.g. in Galileo
  satellite project.
• Morocco Participates at EU peace-keeping in
  Bosnia.

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ENP

• Special relations to all neighbours (Russia under
  a separate heading).
• Ring of friends
• More assistance, more dialogue, in principle
  cooperation of all fields which are part of EU
  competence.
• As far as desired Access to EUs Single Marked.
  Deep free trade, including service, (parts of)
  agriculture, fishery. Cumulated rules of origin,
  if free trade agreement Incentive for regional
  free trade.
• Participation in EU programmes (Erasmus),
  peace-keeping (Morocco)
• Agreements under this heading Not a first step
  to EU membership.
• National action plans Programmes for each
  country individually.
• (Risk Loosing comprehensive regional approach).

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EU-North Africa

• Has been an area of special interest for EU.
• Proximity, security, rather close ties France -
  Maghreb
• However, in 1960s policies patchy
• 1962 Association agreements with Greece and
  Turkey. Offer customs union and eventually
  membership possible.
• Morocco, Tunisia opening negotiations in 1965.
• Quickly sidelined, in particular Italian
  resistance (citrus exports!)
• Cooperation Agreements Some preferential trade
  and aid, no mentioning of customs union, let
  alone membership
• 1976 Algeria, Morocco, Tunisia
• 1977 Egypt.

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North Africa to Change

• More economic openness, more interaction with
  Europe.
• More European social model.
• Not yet Democratization.
• Regimes in relative terms moving to openess than
  earlier

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Issues between EU and North Africa

• Growing problem Rise of Islamic fundamentalism.
• Algeria 1992 Imminent election victory of the
  FIS, suspension of elections, civil war.
• Problem migration pressure.
• Growing awareness on European side EU should
  become active in a coherent way, EU should not
  only focus on stabilising eastern and central
  Europe.

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Barcelona, 1995

• Euro-Mediterranean Partnership,
• Multilateral process and deliberation forum for
  whole region, including Israel (Libya on ice,
  Lockerbie).
• (prospects looked good at that time, Oslo
  agreement)
• In analogy to Organisation for Security and
  Cooperation in Europe( OSCE) institutionalised
  dialogue as regards 3 baskets
• 1) Political and Security Partnership.
• 2) Economic and Financial Partnership (new
  treaties offered, long-term aim Mediterranean
  free trade area covering most products by 2010,
  date not realistic anymore).
• 3) Partnership as regards cultural, social and
  human matters.

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Barcelona

• Not much progress to democracy, stability of
  autocratic rule in whole region.
• Fear of Islamism on the rise. How to deal with
  it contested.
• Positive End of sanctions against Libya in 1999,
  gradual inclusion of Libya as observer.
• Barcelona process. Goes on with modest results so
  far, but stable in its way.

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Problems

• Rising EU funding into the region,
• But No narrowing of the economic gap .
• Slow institutional improvement and opening.
• But Treaties with EU slow.
• Again Tunisia and Morocco fastest.
• Still Very little interregional trade (2,5 of
  trade interregional), countries economically
  isolated from each other.
• Tariffs, falling tendency, falling dependency on
  trade taxes, but many tariffs still high.
  Cumbersome customs procedures.

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Question to leave you with to think about!

• For discussion in the class the main issue is
  that foreign aid has not been substantial, most
  of the resources are consumed by the agencies of
  aid, and the poor continue to grow in numbers
  even when there are some achievements in health,
  education for the poor- given such scenarios what
  is the likely way of getting out of poverty. Are
  the agencies of aid part of the problem or
  solution?