Global Policy Forum

More Needs to Be Done Beyond Giving Developing Countries Aid


By Godwin Muhwezi-Bonge

January 21, 2006

Many times, a lot of aid to developing countries is 'tied', whereby the recipients are told how they must spend the money they receive. All too often, they are instructed to spend it on goods and services from the very countries that donate the aid, which leaves little to be gained from the aid.

Sitting in a newly refurbished classroom, Rachael Ahabwe cannot believe what she sees. Seven years ago, when she first joined primary one at Kibale primary school in the remote areas of Ntungamo district, she barely had a desk to sit at or even a book to write in. "We sat on mats and learnt by writing words down in the dust," she recounts. The disintegrating iron sheets on their classroom block often sent them running for cover once it rained.

Now, so much has changed. Ahabwe no longer sits on a mat but has a desk. She does not have to write in the dust since she has four exercise books, one for each subject besides having access to a few textbooks. And the school now has better structures than it previously did. "When it rains, we carry on with our studies without having to worry about a leaking roof," she says. Donors have in the recent past provided both budget support and debt relief to fund poverty reduction programmes in Uganda. As a result, the aid has helped fund a huge expansion in primary school enrolment as well as fostering infrastructural-improvements.

Need to redress aid

This aid, however, is far from being effective, according to the ActionAid report: Real aid - An Agenda for Making Aid Work, released in June last year. Aid in many countries has not done an effective job of reducing poverty or protecting basic rights. According to the report, the world's richest nations greatly exaggerate their aid to poor countries. Some donor countries are known for conditioning aid, which inhibits its effectiveness to the beneficiaries.

About 60 percent of the money donated by G8 countries is phantom aid, that is, it does not represent a real resource transfer to the recipient. Phantom aid is defined as aid diverted from economically poor nations for other purposes. Much of the debt relief, for instance, provided to poor countries simply closes the gap between what countries were scheduled to repay and what they actually were able to repay, and has often done little to relieve budgetary pressure on poor countries.

Real aid stood at only $27b (Shs49b), or 0.1 percent of donor national income in 2003, with G8 donors (eight of the world's leading economies that include: Canada, France, Germany, Great Britain, Italy, Japan, United States, and Russia) at an average of 0.07 percent, only one tenth of the 0.7 percent target of national income.

Last year, there was an effort to increase aid to developing countries: the July G8 summit in Gleneagles, Scotland; the UN world summit in September and the December World trade talks in Hong Kong. Action Aid, however, notes that aid increases will not help to reduce poverty in the absence of major improvements in the quality of that aid because at present, far too much aid is driven by geopolitical and commercial objectives rather than efforts to protect the rights of the poor people.

In 2003, $18b (Shs32b) of donor money, or more than a quarter of total aid, was allocated to technical assistance. However, more often, aid has failed to reduce poverty because it has never reached the recipient country, but has instead been paid to donor country companies and consultants, often for overpriced and inappropriate goods and services that have few sustainable benefits. Technical assistance pays for consultants, either long or short term, to support and advise recipient governments on policy issues. In Africa alone, donors employ an estimated 100,000 technical experts.

For example, 25 of the 34 largest recipients of the UK technical assistance contracts listed on the DFID website are British. The other nine recipients are mostly American and Canadian, and none is from a developing country. The report noted that donor-financed technical experts, in most cases, are paid 200 times more than their counterparts from developing countries receive. "The outstanding amount spent on technical assistance does not enhance institutional capacity or quality, or improve management and absorption of resources," the report says. Technical assistance is widely used in ways that exclude policy options and steer countries towards donors' preferred reforms.

Unconditioning aid

Technical assistance also involves extra cost items, such as generous living expenses and travel. "Using local expertise in a country, or third country residents, would not incur such costs," the report says. An estimated 40 percent of all aid, excluding food aid and technical assistance, is tied to the purchase of goods and services from the donor country. Italy and the USA are among the biggest culprits of tying. In other cases, aid is strongly influenced by commercial objectives. For example, the US President's Emergency Plan for Aids Relief (PEPFAR), which has committed $15b (Shs27b) over five years, requires that funding is only provided for branded drugs. "By excluding cheaper generic drugs from PEPFAR, the initiative promises US pharmaceutical companies lucrative contracts while providing far fewer people with life-saving treatment than could otherwise be the case," the report says.

In a letter to the British secretary for international development corporation published in the East African on January 2, 2006, President Yoweri Museveni criticised the donor community for impeding the industrialisation process in Uganda. "They (donors) constrain if not banish altogether our state's possible intervention to kick start industrial enterprisesí¢-oe"

Changing policies

In an earlier interview with the Daily Monitor, the UN millennium campaign director, Salil Shetty, said the manner in which developed nations administer aid to Africa undoubtedly inhibits its effectiveness. Rather than fund programmes and projects in a piecemeal fashion, the donor agencies should aim to directly fund government budgets and take a sector-wide approach to development.

For example, the developed countries should directly fund the Ministry of Education's budget in Uganda rather than having a situation where one developed country funds the building of schools in a particular region, another country pays for textbooks and classroom materials in another region, and so on. "This uncoordinated approach to development financing has very high administrative overheads," Shetty said, adding that in addition to harmonising aid and moving to direct budget support, development financing should not come with conditions.

At present, a lot of aid to developing countries is 'tied'. "This means developing countries are told how they must spend the money they receive. All too often, they are told to spend it on goods and services from developed countries. "The Millennium Campaign feels strongly about this matter and is lobbying developed countries to 'untie' all aid that is delivered to developing countries," Shetty said.

The Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD) estimates that the value of aid would be boosted by $5-7b (Shs 9b-Shs12b) each year if aid were untied. The report noted that in real aid terms, the Norwegians are 40 times more generous per person than the Americans, and four times more generous than the average Briton. More aid is urgently needed to reach the international development goals. But equally urgently, donors must undertake far-reaching reforms to ensure that aid quality is improved so as to make a fully effective contribution to the fight against poverty.

According to Action Aid, donor agencies hold recipient countries accountable, and are in turn accountable to their own taxpayers. But donors continue to use unfair, undemocratic and inappropriate policy conditionality in a way that skews recipient accountability away from the citizens of poor countries. However, neither governments nor poor people in recipient countries are able to hold donors accountable for the quality or quantity of aid they provide. "Aid must be part and parcel of a wider redistribute agenda designed to protect basic rights. For this to happen, poor people's voices, needs and priorities must be put front and center in the design of aid programmes. This means that current patterns of accountability must change," the report says.


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