The Paradox of Foreign Aid
By Professor Arthur Mutambara
In this article Professor Arthur Mutambara stresses that despite the stated intention to assist the poor economies; ostensibly most foreign aid benefits the donor countries. The modus operandi has been that the rich West provides financial assistance or loans to poor nations to engage Western consultants or institutions to carry out unsustainable and useless projects on the continent.
While he admits that there has been abuse, incompetence, and corruption by recipients, these constitute a second order challenge. The problem is that aid and debt have become a control mechanism to ensure that oil, minerals and other natural resources were channelled to serve the interests of Western economies
Instead, aid should aim to build stronger domestic institutions and transfer skills to local leaders, managers and entrepreneurs. There has to be close alignment of aid with national priorities, working hand in glove with African institutions. This approach stresses the effectiveness of aid as transitory support, avoiding long-term dependence.
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Report of Panel discussion on Moving Out of Aid Dependency
The panel discussion â€œMoving Out of Aid Dependencyâ€ was a special event of the Second Committee organized by the Financing for Development Office on November 16, 2007 at the United Nationâ€™s Headquarters intended to provide inputs to the on-going policy discussions at the United Nations on the road to Doha in 2008 and look at a critical issue â€“ How does an aid dependent country move out of aid dependency in the long-run? By addressing key issues in the context of the development paradigm needed for a country to move out of aid dependency, governments will be better able to map out a long-term development plan and donors can map out a delivery mechanism to align aid to this development plan. Financial aid flows to developing countries represent important resources to improve socio-economic conditions. Given the multiple needs and the limited resources it is key for donor and recipient countries to make the most efficient possible use of aid, but at the same time the aid given should not prevent the creation of economic conditions so that the recipient countries eventually become less dependant of aid, and rely on its indigenous resources in the long run. The panel benefited from the rich intellectual blend and points of view of the speakers; distinguished economists, heads of non-governmental organizations, diplomats, and policy makers sat at the table to share their knowledge on aid dependency and the most effective way for developing countries to reduce such status. The panel was chaired by Mr. Peter Le Roux (South Africa) vice-chair of the second Committee. The speakers were Mr. Poul Engberg-Pedersen, Director General, Norwegian Agency for Development Cooperation; Mr. Roy Culpepper, President, North-South Institute, Ottawa, Canada; Ms. Irma Adelman, Professor, Berkeley University, California; Mr. Michael Atingi Ego, Executive Director, Bank of Uganda, Uganda; and H.E. Mr. Debpriya Bhattacharya, Ambassador and Permanent Representative of Bangladesh to the United Nations at Geneva. Benu Schneider, Chief of International Finance, Debt and Systemic Issues Unit Financing for Development, Department for Economic and Social Affairs was the discussant.
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Technical Assistance and Capacity Development in an Aid-dependent Economy: the Experience of Cambodia
Source: Cambodia Development Research Institute
Cambodia is aid-dependent: the scale of aid is of such magnitude that it distorts the economy in two important ways. First, a high proportion of Cambodiaâ€™s best-educated people either work for donor agencies or international non-government organisations (NGOs) or have been assigned to donorsâ€™ projects as counterparts. This raises the price of educated labour and hinders the development of skill-intensive production and exports. Second, donors and NGOs have virtually taken over the funding of education, health care, social welfare, rural development etc., while government spends most of its funds on defence and security. In addition, donor funding eases pressure on government both to increase collection of revenue and to raise the salaries of government employees because so many top- and mid-level officials receive salary supplements as project counterparts.
To what extent can external technical assistance develop the capacity of counterparts, whether in government or in local NGOs, in an aid-dependent economy of this kind? In 1998 and 1999, CDRI undertook extensive research to answer this question. As well as analysing data from the Cambodian Rehabilitation and Development Board, CDRI researchers undertook wide-ranging interviews with senior officials in government and donor agencies, and with past and present technical advisers and counterparts. The research also included case studies of the School of Agriculture Prek Leap (SAPL), the National Institute of Management (NIM), the National Institute of Statistics (NIS), and of HIV/AIDS and malaria programmes (in particular, those in Battambang province).
Cambodiaâ€™s experience since 1993 suggests that, although some positive results have been achieved in the development of individual capacity, most projects in such a situation are donor-driven in their identification, design and implementation, to the detriment of institutional capacity development. Connected with this is the chronic under-funding of government in such an economy, which hinders implementation of projects and threatens post-project financial sustainability. Most former counterparts have either left government or are only part-time government employees. They still benefit the economy, but it is presumably not the main intention of technical assistance to prepare government officers for non-government work. Unless donors develop a coherent strategy (rather than competitive, project-related salary supplementation) to deal with this situation, the record of TA in developing the capacity of government will continue to be disappointing, and an escape from aid dependence will be postponed.
The basis for discussions between government and donors about a code of conduct for technical assistance is suggested, including: the replacement of project-related salary supplementation by a sector-wide salary fund; two-way transparency; implementation through intermediary organisations; government ownership of projects; guidelines for the use of technical advisers by government departments; re-examination of the concept of Project Implementation Units; a rule that no external projects should by-pass government structures; and a definition of the role of government, as a facilitator, prudential regulator and coordinator of technical assistance, rather than detailed controller. Such a code would be seen as a first step towards developing a Sector Wide Approach to technical assistance in Cambodia."
Challenge of the Current Aid Architecture: Addressing the Development Needs of Africa
"African countries like many other developing countries need external resources primarily to supplement their meagre domestic resources from their economies. The assistance countries receive redress the financial gap that arises from their development needs and act as catalyst and play a complimentary role in the implementation of the national development programs as well as stretegies. The articles concludes by saying that aid architecture must address political interests of both donors and recipient as well. Aid would only work with good public institutions and if policies are nationally-owned. Other important factors include the need to address weak public finance management systems, respect public systems by donors, and the development of Partnership principles are mutually agreed. Lastly engagement with non-state actors and parliaments must be meaningful if Africa is to make head way in improving aid architecture in the continent."
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Stock taking paper on aid management
Source: Daima Associates
This report is one of three planned outputs of phase 1 of a 2 phase project commissioned by the Capacity Building Working Group, one of the three groups conducting the technical work under the SPA 7 programme. The project aims to improve the quality and quantity of aid in support of nationally owned capacity development approaches. Phase one of the project is the stocktake phase, which is the subject of this report and the second phase will draw from the findings and conclusions of the first phase. This report categorises aid recipient countries according to the level of aid management systems and effectiveness. Criteria that were considered when grouping countries included: aid policy documentation/clear aid strategy; aid management systems and procedures; Development Partner actions and expected requirements; aid harmonisation and alignment to country systems; the capacity in aid management; and capacity constraints identified and documented. The grouping exercise resulted in four categories. Group one included coutries that were rated highlu such as Botswana, Tanzania, Ghana, Uganda and Vietnam; Group two included coutnries that are doing fairl well but could still do better such as Burkino Fas, Cape Verde, Rwanda, Zambia, Ethiopia and Mozambique; group three included countries trying to improve but in fragile situations, thus with still many capacity gaps such as Cameroon; and group four included countries with critical situations largely due to recent internal conflict such as Burundi, Sierra Leone and Haiti. The report also considers to what extent the Paris Declaration has been implemented, if, and to what extent coutnries have developed explicit aid policies, how effective are aid management systems and procedures, emerging lessons in aid management with implicaitons for capacity development, expectations from the Development Partners, Development partner support to Capacity development, best practices. Finally the report provides a comparison of Capacity Development for Aid management.
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The Millennium Challenge Account: A New Chance for Ghana
Source: CDD Ghana
This report argues that the USâ€™s Millennium Challenge Account (MCA) aims to build local-level capacity so that by the end of the five-year period recipient countries are in more favourable positions to attract investment and donor support. In addition, the MCA aims to enable recipient states, like Ghana, to make better use of its own funds by building local capacity and expertise. Finally, barring any serious mismanagement of funds, political changes in the US government will not affect the MCA. Therefore, it is up to (Millennium Development Authority) MiDA and the Ghanaian government to make greater efforts in implementation, governance, and sustainability of MCA.
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