Development Development AssistanceAssistance

ECON 3508 ECON 3508 December 7. 2015December 7. 2015

Source: Textbook, pp. 747-757Source: Textbook, pp. 747-757

Development Assistance or Development Assistance or "Foreign Aid“"Foreign Aid“

1.1. Definition: What is "Aid“? What is “ODA”Definition: What is "Aid“? What is “ODA”2.2. Historical EvolutionHistorical Evolution3.3. Donor Motives for Providing "ODA"Donor Motives for Providing "ODA"4.4. Ethical JustificationEthical Justification5.5. What Can "Aid" Accomplish? The PositivesWhat Can "Aid" Accomplish? The Positives6.6. Possible Negative ImpactsPossible Negative Impacts7.7. Magnitudes, and PatternsMagnitudes, and Patterns8.8. Problems of Aid QualityProblems of Aid Quality9.9. How Can Development Assistance Be How Can Development Assistance Be

Improved?Improved?

1. Definitions: “ What is ‘Aid’ and ‘ODA’ ”1. Definitions: “ What is ‘Aid’ and ‘ODA’ ”

““Official Development Assistance”: Net disbursements of Net disbursements of loans (on concessional terms) or grants by governmental loans (on concessional terms) or grants by governmental agencies or international institutions for development agencies or international institutions for development purposespurposes

““Development Assistance” or “Development Aid” Development Assistance” or “Development Aid” would include would include

A.A. MultilateralMultilateralB.B. Governmental (or “ODA”), Governmental (or “ODA”), C.C. NGO, and NGO, and D.D. Private Grants plus Private Grants plus E.E. Highly Concessional LoansHighly Concessional Loans (but only the grant component) (but only the grant component)

All Aimed at Transferring ResourcesAll Aimed at Transferring Resources– In Currency or In Kind;In Currency or In Kind;

All “ All “ Pro-Developmental” or for Emergency Relief,Pro-Developmental” or for Emergency Relief, not not “Welfare” Oriented“Welfare” Oriented

Non-Commercial from Donor PerspectiveNon-Commercial from Donor Perspective

Where do the following fit in? Where do the following fit in?

Donations to and through NGOs or Donations to and through NGOs or Foundations (e.g. Gates Foundation, Foundations (e.g. Gates Foundation, Oxfam, CARE, Red Cross)Oxfam, CARE, Red Cross)

““Faith-based” organizations (Caritas, Faith-based” organizations (Caritas, Mennonites, Vision, Aga Khan Mennonites, Vision, Aga Khan Foundation)Foundation)

“ “Private assistance” provided Private assistance” provided unofficially and usually anonymously unofficially and usually anonymously by individuals.by individuals.

The Range of Types of Assistance Organization: Some Examples

Multilateral: World Bank

National CIDA (Africa Program)

Major Foundations:

Bill and Melinda Gates Foundation

NGOs: “CanAssist”;

“Academics Without Borders Canada”

Faith-Based Programs:

Mennonite Central Committee

Aga Khan Foundation

Note: the above labels are hyper-linked to the organizations’ web sites

2. 2. Historical EvolutionHistorical EvolutionMarshall PlanMarshall PlanCold war impetusCold war impetusGradual expansion to 1990s, decline then Gradual expansion to 1990s, decline then

renewalrenewalCitizen, “Faith-based” and NGO InitiativesCitizen, “Faith-based” and NGO InitiativesUN and the Millennium Development GoalsUN and the Millennium Development GoalsNow the UN Sustainable Development Now the UN Sustainable Development

GoalsGoalsCurrent questioning of aid effectiveness: Current questioning of aid effectiveness:

Dambisa Moyo of ZambiaDambisa Moyo of Zambia

Re-organizatation of CIDA in Canada (2013) ?Re-organizatation of CIDA in Canada (2013) ?

3.3. Donor Motives for Providing Donor Motives for Providing ODAODA PoliticalPolitical

e.g. Commonwealth & Francophonie e.g. Commonwealth & Francophonie connectionsconnections

Win friends & influence peopleWin friends & influence people

Strategic/militaryStrategic/militarynote the impact of the Cold Warnote the impact of the Cold War

CommercialCommercial HumanitarianHumanitarian EthicalEthical

4. Ethical Justification:4. Ethical Justification:

Should High Income Countries Provide Aid Should High Income Countries Provide Aid to Low-Income Countries? to Low-Income Countries?

Why?Why?

““First step towards world fiscal federalism”First step towards world fiscal federalism”

5. What can “Aid” Accomplish?5. What can “Aid” Accomplish?Aims at “Development” not Aims at “Development” not

“Welfare”“Welfare”

The potential positives of “Aid”The potential positives of “Aid”A.A. “ “ Gap-Filling Role”Gap-Filling Role”: : (foreign (foreign

exchange, savings, tax revenues, exchange, savings, tax revenues, technological, managerial technological, managerial entrepreneurial gaps)entrepreneurial gaps)

B. “Catalytic Role”?B. “Catalytic Role”?

C. Direct Basic Human Needs or C. Direct Basic Human Needs or MDG MDG Fulfillment Role Fulfillment Role

DD. Capacity-Building Role. Capacity-Building Role

E. Emergency Relief E. Emergency Relief Regional flood, famine, military, and Regional flood, famine, military, and political crisis reliefpolitical crisis relief

F.. F.. ReconstructionReconstruction Role: Role: Promote Re-Promote Re-Construction of War-torn LandsConstruction of War-torn Lands

G. G. An Investment in An Investment in Shared Security Shared Security as well as Prosperity?as well as Prosperity?

H. NH. Now including support for dealing ow including support for dealing with with climate changeclimate change..

66. Possible Negative Impacts of . Possible Negative Impacts of ODAODA

1.1. May permit recipients to pursue May permit recipients to pursue counter-productive or foolish policiescounter-productive or foolish policies

May support an ineffective, counter-May support an ineffective, counter-developmental and corrupt government developmental and corrupt government

2.2. May Promote a “Dependency Welfare May Promote a “Dependency Welfare Syndrome”?Syndrome”?

Leadership & responsibility may be Leadership & responsibility may be abdicatedabdicated

3.3. May deform domestic policies to May deform domestic policies to accommodate priorities of donorsaccommodate priorities of donors

4. May permit donor to exercise 4. May permit donor to exercise inappropriate influence on inappropriate influence on recipientrecipient

5. May permit recipient country to 5. May permit recipient country to shift resources to other shift resources to other undesirable areasundesirable areas

6. Volatility of aid flows may be 6. Volatility of aid flows may be hurtful to recipienthurtful to recipient

Possible Negative Impacts of ODA, Possible Negative Impacts of ODA, continuedcontinued

7. May lead to appreciation of exchange 7. May lead to appreciation of exchange rate with damage to export activities rate with damage to export activities (See Chart)(See Chart)

8. May provide discretionary funds for 8. May provide discretionary funds for government that may promote government that may promote corruptioncorruption

9. May support dictatorial regimes that 9. May support dictatorial regimes that violate human rights in major waysviolate human rights in major ways

Development Assistance to Selected Countries of Africa

Selected CountriesSelected Countries

Net Aid from All Net Aid from All Donors as % Donors as % of GDP, 2003of GDP, 2003

Net Aid per Net Aid per Capita, Capita, from All from All Donors Donors

20032003

Net Aid as % of Net Aid as % of Gross Gross

Domestic Domestic Investment, Investment,

20032003

BurundiBurundiCabo VerdeCabo VerdeEritreaEritreaGhanaGhanaGuinea-BissauGuinea-BissauMalawiMalawiSao TomeSao TomeSouth AfricaSouth AfricaTanzaniaTanzania

37.637.618.018.040.940.912.112.160.860.829.329.363.263.20.40.4

16.216.2

31313063067070444498984545

23923914144747

246.1246.189.289.2

182.5182.552.452.4

490.7490.7260.6260.6210.0210.0

2.22.287.987.9

Sub-Saharan AfricaSub-Saharan AfricaExcluding South Excluding South

AfricaAfricaExcl. S. Africa & Excl. S. Africa &

NigeriaNigeria

5.65.6

8.28.2

11.211.2

3434

3333

4444

29.929.9

41.941.9

60.460.4

7. Magnitudes and PatternsDonor Efforts

Links:

1.Canada’s Development Assistance Program, 2013-2014

2. CIDA’s Statistical Report, 2011-2012

““GLOBAL AFFAIRS CANADA: DEVELOPMENT” GLOBAL AFFAIRS CANADA: DEVELOPMENT” [formerly [formerly CIDA]: Mission and Mandate CIDA]: Mission and Mandate

Mission: Mission:

Lead Canada's international effort to help people Lead Canada's international effort to help people living in poverty.living in poverty.

Mandate: Mandate:

Manage Canada's support and resources Manage Canada's support and resources effectively and accountably to achieve effectively and accountably to achieve meaningful, sustainable results and engage in meaningful, sustainable results and engage in policy development in Canada and internationally, policy development in Canada and internationally, enabling Canada's effort to realize its enabling Canada's effort to realize its development objectives. development objectives.   

CIDA: Aid Recipient “Countries of CIDA: Aid Recipient “Countries of Focus”, 2011 Focus”, 2011

Example of Canadian Assistance: EthiopiaAchievements 2011-2012Children and youth

Contributed to 7.1 million children receiving essential vitamins and minerals.

Increased, by 55 percent, the detection of tuberculosis and successfully treated 85 percent of all cases reported in 314 remote villages.

Trained more than 20,000 health workers to treat childhood diseases from 2007 to 2012.

Contributed to an increase in the proportion of children vaccinated against diphtheria, whooping cough and tetanus to 88 percent and against measles to 86 percent.

Helped increase the proportion of births attended by health workers by 5 percent (to 34 percent).

Distributed anti-malarial bed nets to households in malaria-prone areas, maintaining a rate of 100 percent coverage.

Food security Supported the Productive Safety Net Program, a cash-for-work program that

helped feed 7.6 million people while at the same time addressing underlying causes of food insecurity with construction of soil conservation structures and tree planting.

Trained 3,274 health workers who contributed to improving the health and nutritional status of pregnant and breastfeeding women and of 1.5 million under-five children.

OECD, Development Advisory Committee

But note:But note:Previous ODA numbers do not include Previous ODA numbers do not include

Donations to and through NGOs or Donations to and through NGOs or Foundations (e.g. Gates Foundation, Foundations (e.g. Gates Foundation, Oxfam, CARE, Red Cross)Oxfam, CARE, Red Cross)

Nor “faith-based” organizations Nor “faith-based” organizations (Caritas, Mennonites, Vision, Aga Khan (Caritas, Mennonites, Vision, Aga Khan Foundation )Foundation )

Nor “private assistance” provided Nor “private assistance” provided unofficially and usually anonymously unofficially and usually anonymously by individuals.by individuals.

Nor “Remittances”Nor “Remittances”

8. Problems of Aid “Quality”8. Problems of Aid “Quality”

Predictability and volatilityPredictability and volatility

ConditionalityConditionality

CoordinationCoordination– On average, a country in SSA dealt with more On average, a country in SSA dealt with more

than 30 donors in 2002 than 30 donors in 2002 – In 2002 Senegal hosted over 50 World Bank In 2002 Senegal hosted over 50 World Bank

missionsmissions– In 2003 Zambia hosted 120 donor missionsIn 2003 Zambia hosted 120 donor missions

•Tied aid:Tied aid:

Why “Tie” Aid?Why “Tie” Aid? Effects of “Tying”Effects of “Tying” Positive Effects of “Tying” ?Positive Effects of “Tying” ? Solutions?Solutions?

What can we realistically expect development assistance to accomplish??

Recall what can go wrong:Recall what can go wrong:1.1. Aid ratification of counter-productive policiesAid ratification of counter-productive policies2.2. ““Dependency Welfare Syndrome”: Recipient country Dependency Welfare Syndrome”: Recipient country

effort may be reducedeffort may be reduced3.3. Donors priorities may dominateDonors priorities may dominate4.4. Inappropriate donor influenceInappropriate donor influence5.5. May permit recipient country to shift resources to May permit recipient country to shift resources to

other undesirable areasother undesirable areas6. 6. Aid volatility may damage recipientAid volatility may damage recipient7. 7. Appreciation of exchange rate may block exports, Appreciation of exchange rate may block exports,

increase imports, & economic diversificationincrease imports, & economic diversification8. 8. Discretionary & unearned funds for government may Discretionary & unearned funds for government may

encourage & facilitate corrupt practicesencourage & facilitate corrupt practices9.9. May support dictatorships and human rights violationsMay support dictatorships and human rights violations

Conclude:Conclude:

Aid alone can not achieve sustainable Aid alone can not achieve sustainable developmentdevelopment

A useful support for domestic or national A useful support for domestic or national efforts. efforts.

Responsibility rests with developing Responsibility rests with developing countries themselves, not aid donorscountries themselves, not aid donors

Perhaps Perhaps neither “sufficient”neither “sufficient” nor nor “necessary” but useful.“necessary” but useful.

Other factors are vital: Other factors are vital: Governmental commitment to development Governmental commitment to development

objectives;objectives; Reasonably incorrupt governmentReasonably incorrupt government

Equity orientation of public policy Equity orientation of public policy

Sound economic policies to strengthen and Sound economic policies to strengthen and sustain an indigenous economic foundationsustain an indigenous economic foundation

An “enabling environment” so that people An “enabling environment” so that people can improve their own situations for can improve their own situations for themselves (e.g. re the informal sector, themselves (e.g. re the informal sector, micro-credit ….”micro-credit ….”

9. How Can Development 9. How Can Development Assistance Be Improved?Assistance Be Improved?

Increase the Increase the QuantityQuantity of Development of Development AssistanceAssistance

1.1. Link Aid More Directly to Need; Link Aid More Directly to Need; i.e. cut-off the “graduates” i.e. cut-off the “graduates”

1.1. More grants & fewer loans More grants & fewer loans 2.2. Further Debt Service Reductions? Further Debt Service Reductions?

[Mainly done][Mainly done]

But note that this is no panacea and also creates additional problems and stresses

Can More Aid be “Absorbed” or Used Can More Aid be “Absorbed” or Used Effectively?Effectively?– Would high levels of aid institutionalize Would high levels of aid institutionalize

dependence? dependence? – Would it lead to a collapse of domestic Would it lead to a collapse of domestic

effort (e.g. taxation; F. Xch. earnings effort (e.g. taxation; F. Xch. earnings etc.)?etc.)?

– Would it promote “Dutch Disease”Would it promote “Dutch Disease”– Would it sap indigenous efforts and Would it sap indigenous efforts and

initiativesinitiatives– Could it be used effectively?Could it be used effectively?– Would donor priorities take over?Would donor priorities take over?

How Can Development Assistance Be How Can Development Assistance Be Improved?Improved? Continued: Continued:

For the Donors:For the Donors: Improve the Improve the “Quality” “Quality” of Aidof Aid

1.1. A “A “Partnership” Partnership” philosophy and approachphilosophy and approach

2.2. Orchestrate programs to avoid chaos, Orchestrate programs to avoid chaos,

Use Use a “consortium”a “consortium” approachapproach

3. Reduce administrative burdens placed on 3. Reduce administrative burdens placed on recipient governmentsrecipient governments

4. Minimize aid volatility & unpredictability4. Minimize aid volatility & unpredictability

5. Reduce the tying of aid to donor suppliers5. Reduce the tying of aid to donor suppliers

6. Increase untied budget support? Increased 6. Increase untied budget support? Increased “Program Aid not Project Aid”“Program Aid not Project Aid”

7. Emphasize capacity building7. Emphasize capacity building

How Can Development Assistance Be How Can Development Assistance Be Improved? Continued:Improved? Continued:

(b)(b) for the Recipients:for the Recipients:– Pursue wise, equitable and effective Pursue wise, equitable and effective

development strategies development strategies – Make a major domestic effortMake a major domestic effort

– ““Take Charge” & “Own” the ProgramTake Charge” & “Own” the Program

– Improve budget management and Improve budget management and accountability; combat corruption;accountability; combat corruption;

– Ensure effective management;Ensure effective management;– Avoid currency appreciation due to aid Avoid currency appreciation due to aid

inflows (“Dutch Disease”)inflows (“Dutch Disease”)

9. Some Specific Issues:9. Some Specific Issues:

Allocation of Burden among DonorsAllocation of Burden among Donors

Allocation of Aid among RecipientsAllocation of Aid among Recipients

Aid, Poverty and Income DistributionAid, Poverty and Income Distribution

Food Aid: Impact on Domestic Food Aid: Impact on Domestic AgricultureAgriculture

Co-ordination of Aid ProgramsCo-ordination of Aid Programs

Aid, Human Rights and "Bad" Aid, Human Rights and "Bad" Political RegimesPolitical Regimes