SELECT COMMITTEE ON ECONOMIC AFFAIRS
The Economic Impact and Effectiveness of Development Aid
Written memorandum by Michela Wrong
I am a freelance writer who has covered the African continent for the last 17 years, working as a reporter for Reuters, the BBC and the Financial Times before becoming a full-time author of non-fiction books on the continent. My first book, "In the Footsteps of Mr Kurtz", traced the rise and fall of Congolese dictator Mobutu Sese Seko and won the PEN James Sterne Prize for non-fiction. My second book, "I didn't do it for you", was a portrait of the Red Sea state of Eritrea. My latest book, "It's Our Turn to Eat", tells the story of John Githongo, the Kenyan anti-corruption chief who turned whistleblower in 2005. All of my books, but particularly the latest, explore the relationship between foreign donors and African governments. Grand corruption and how to fight it has become a particular interest. In 2010 I won the James Cameron Prize for journalism ‘combining moral vision and professional integrity’. I sit as a trustee on the boards of Human Rights Watch Africa, International Alert and Partnership for Transparency Fund, all non-governmental organizations active in Africa.
Below, I address the few specific questions to which I feel qualified to answer. But first I would like to make a few overall points, which concern the framing of the question the select committee has chosen to put.
Many of my remarks are critical of DFID, so I should first state that it has become clear to me, during the course of many conversations with analysts, academics, politicians and aid officials in Africa, that DFID is regarded as the most professional and effective Western development ministry active on the continent. Its behaviour is widely emulated and unashamedly mimicked by other, less effective Western agencies. For that very reason, however, it is incumbent on DFID to get a very tricky formula right.
The select committee’s emphasis on the measurable economic impact of ODA risks sidelining many issues pertinent to deciding aid policy. Paul Collier estimates that in the last 30 years aid has added only one percentage point to annual growth rates of “bottom billion” economies, as he terms them. Better than nothing, but not enough even to compensate for their annual population growth rates. But aid’s impact on developing countries is disproportionate – far larger – than its direct economic impact. In Africa this partly because of a culture of dependency rooted in the colonial experience and the superpowers interventions of the Cold War, scars which have yet to heal. Aid may actually constitute a very small part of an African government’s budget. But its granting or withdrawal is seen by a recipient administration and its public as a hugely-important gesture of international support or disapproval. One spells hope and dynamism, the other despair and decline. Such perceptions feed into the business community’s perception of risk and strongly influence investment decisions.
Secondly, ODA’s psychological, political and cultural impact -- impossible to quantify -- clearly spills over into the economic arena. The West’s aid to Mobutu Sese Seko during the Cold War convinced the population of Zaire that the regime could not be shifted and that internal dissent was therefore pointless. (In fact, Mobutu was very easily toppled by an invading rebel movement in 1997). I lived in Kinshasa from 1994-1995 and can attest to that widespread mood of passivity and resignation in a country whose elite were universally recognised to be ruthlessly looting its mineral resources. The long term economic impact of that despairing mind-frame has clearly been disastrous for both the citizens of the Democratic Republic of Congo and the rest of Africa. Recently, most African countries have embraced at least nominal forms of multiparty democracy. But ODA works to undermine that relationship of tentative accountability. In what can too often feel like a watered-down form of the colonial dispensation, recipient African governments become answerable to Western development ministries, rather than their own voters. ODA whittles away at the link between ruler and ruled, and I cannot overemphasise the extent to which many African citizens still feel the future is not theirs to mould or choose. If you believe that a vibrant democracy is a vital ingredient of longterm and, above all, sustainable prosperity – and I do - ODA’s role in encouraging this sense of paralysis should be a source of concern.
Point 3 – What lessons, if any, can be learnt from the experience of former aid-receiving countries that have graduated from reliance on ODA?
Others will be able to provide you with cheering examples of such countries. The transition outlined is simply not taking place in the area I write most about: East and Central Africa and the Horn. What I see, instead, are governments who have depended on foreign aid to provide around 40 per cent of their operating budgets for several decades and show no apparent inclination to wean themselves off such dependency. Both Western donors and the African governments concerned appear to regard this as an open-ended and indefinite arrangement. I’m thinking of Uganda, Tanzania, Ethiopia, and Rwanda. Aid should aim for its own obsolescence – the principle of ‘teach a man to fish’ -- not its own perpetuation, but that ambition has been lost on some far horizon. As Stephen Ellis says in his new book “Season of Rains”: “Development is like scaffolding that was originally put up around a house under construction. The scaffolding is still there and the builders still have not finished the house.”
Point 5. Do conditions imposed by government donors on recipient countries improve the effectiveness of ODA? What has been the British government’s experience?
The problem with ODA is not raising the necessary funds or identifying worthy recipients, it is the practical task of tamper-proof disbursement. It is massively difficult to disburse aid without falling prey to “leakage” – otherwise known as government corruption. ODA and corruption always go hand-in-hand, because aid is essentially seen by those entrusted with it as “free money”, whose loss will go unnoticed by the giver and whose appropriation is nothing like as morally reprehensible as appropriating local tax revenue, for example. Donors waste time, staff and money setting irksome conditionalities, but if they don’t, they risk seeing major corruption scandals explode on their watch. There is simply no way out of this conundrum. In an ideal world, ODA would all take the form of direct budgetary aid, empowering the administrations of developing countries to enact policies of their own choosing. In practice, that scenario has been demonstrated to be horribly naïve and irresponsible.
DFID, in my experience, routinely plays down the importance of this issue – the biggest existing challenge to ODA. This is in part because its increase in funding has not been matched by an increase in the staff numbers needed to effectively audit and police disbursement. The government of the day is more interested in assuring British taxpayers that it is getting closer to the 0.7 per cent aid target than going into the dull and unsavoury details of how that money is released and why tracking is necessary. The first part of the process woos potential voters, confirming the government’s humane credentials, the second is only likely to impress aid industry wonks.
Kenya provides many examples of this problem. While researching my book on corruption from 2005-2009, I had several conversations with DFID staff in Nairobi. I challenged their continued funding of a government that had been revealed – thanks to whistleblower John Githongo, protagonist of my book – to have perpetrated a $1 billion dollar scandal called Anglo Leasing involving 18 inflated military and security contracts. I was told that, despite this alarming track record, DFID was completely satisfied with the Ministry of Education’s handling of the funds being allocated to the free primary education programme and assured that “not a penny” of DFID money was unaccounted for. The primary education programme has been a flagship project for DFID in Kenya. A recent, long-overdue audit by the Kenyan Finance Ministry (cf attachment), triggered by an original World Bank audit, revealed that $47m was stolen by hundreds of officials at the Education Ministry during precisely this period. This discovery, a full nine years into the donor-funded programme, raises alarming questions about the level of checking and auditing performed by DFID officials who believe themselves – naively - to be fully on top of their dossiers.
Point 6. How should ODA be allocated? How far do (and should) the Millennium Development Goals (MDGS) shape aid allocations?
The NGO on whose board I sit, International Alert, has pointed out the weaknesses of the emphasis on MDGs in an excellent paper published last September.
On the plus side, the MDGs served as a developmental baseline all governments could agree to. An unintended consequence, however, was to reduce progress on development to a robotic checklist of hospital beds, school desks and vaccination jabs. Ends have been confused with means. The removal of key political and governance factors from the equation has not been helpful. It fits rather too neatly into the tradition of IMF and World Bank delegations which arrive in an African capital to decide on whether or not to renew funding and carefully weigh up dry economic indicators while excluding as irrelevant glaring human rights abuses and gross corruption taking place before their eyes.
The other problem with MDGs is that the African countries I work in are going to miss most of them. As Gordon Brown told the Royal African Society at a June 28 breakfast: “The MDGS will not be reached in one century in Africa, let alone 2015.” The MDGs therefore become not so much targets as statistical confirmations of abject failure, which helps no one. They could usefully dropped, in my view. In addition, I have yet to meet a member of the British public who knows what an “MDG” is, so they constitute an additional barrier to public understanding of the development debate.
Point 7. How useful is the UN target of rich countries giving 0.7 per cent of GNP in ODA? If the target was reached would it lead to more official development aid than developing countries could efficiently absorb?
African countries already face major problems absorbing the amount of aid theoretically available to them. The donor failure to coordinate various aid programmes is one of the main reasons for this, another is the fact that so many bright African graduates are first educated and then find jobs in the West, so skilled manpower is in short supply in the state sector. The 0.7 per cent target is surely innately problematical in that it places supply before demand – the wrong way to go about things. With an increasing number of governments rightly losing their previous status as “donor darlings” because of repressive policies, the question of who the West will be left to fund in Africa becomes pertinent here. The number of acceptable candidates is shrinking even as aid levels rise. The disparity risks encouraging DFID officials to turn a blind eye to flagrant abuse in the pressure to “get the money out of the door”.
In the unlikely event that a future British government with a stomping majority decides it does not believe in the efficacy of ODA and wants to adopt a different approach to development (favouring the private sector, for example, or focussing on dismantling trade barriers), it should surely be free to experiment with that policy. Not so, if the 0.7 per cent target is enshrined in law. The target suits itself to the kind of highly effective but simplistic sloganeering of a Make Poverty History campaign. I see its value as a campaign slogan, but not as a permanent basis for policy, where it is more likely to become a straitjacket than a help.
Point 8. Does ODA complement or inhibit private investment in developing countries?
ODA undermines the private sector in one very simple way. In any society, the brightest and best educated members will go where the best salaries are to be found. If those are to be found at a DFID-funded NGO or government ministry, that’s where they will go, instead of setting up their own business, for example. This phenomenon is at its most dramatic in post-conflict states. Virtually the only traffic on Rwanda’s roads after the 1994 genocide were white SUVs, owned by international NGOs, many of them staffed by bright, motivated, returning members of the diaspora. The aid world 198 of 200 effectively soaked up the talent desperately needed in rebuilding a traumatised state, distorting economic patterns accordingly.
Although DFID talks about wanting to liaise more closely with the private sector, I believe it goes against the philosophical grain of any government department of this nature to do so. The DFID officials I’ve met in the past tend to come from the civil service or the humanitarian world. They have not come from the private sector, they have little experience of the world of business, they do not understand how it operates or have any empathy with its players – in fact, one can detect a certain suspicion and hostility. I’d be very interested to know how many local businessmen are on nodding terms with DFID staff in Tanzania, Uganda, Ethiopia and Kenya. I doubt it is many.
This is a shame as in the time I have reported on Africa – 17 years which have witnessed enormous changes - I have registered that many of the most revolutionary agents for change have originated in the private sector, rather than ODA. Private radio stations. The mobile phone. Internet access. Telephone banking. Not one of these developments has received a penny of aid money, yet they have transformed Africa just as thoroughly as multiparty polls, the advent of constitutionality, free primary education, lower infant mortality and anti-retrovirals.
How does and how should development assistance engage with security concerns at a global level and at the level of individual (fragile) states?
The Middle East and Maghreb is currently in the grip of the “Arab Spring”, prompted by the exasperation of a generation of prospectless youngsters with a swathe of sclerotic leaders. Commentators have lambasted Western democracies for their past support of those authoritarian leaders, in the face of mounting evidence of corruption, electoral fraud and human rights abuses. My fear is that sub-Saharan Africa is going to experience its own version of the Arab Spring in 5-10 years’ time and its targets will this time include Uganda’sYoweri Museveni (25 years at the helm), Ethiopia’s Meles Zenawi (20 years) and Rwanda’s Paul Kagame (17 years), with the West quite rightly vilified for its loyal support of those regimes. In many of these countries, British aid has been spent boosting police forces and providing non-lethal military equipment. These decisions may have been taken for valid reasons at the time, but the increasingly militaristic and repressive nature of these former “donor darlings” – both in terms of crushing dissent within their own borders and, in the case of Ethiopia, in “securing” neighbouring states - should give DFID serious pause for thought.
In Uganda, the main opposition leader was tried for rape and, more recently, recently beaten by security forces and pepper-sprayed in the face. In Rwanda, an opposition leader was beheaded in the run-up to the last elections, a newspaper editor killed, and an exiled general narrowly survived an assassination attempt. Ethiopia’s 2005 elections were rigged, thousands of demonstrators were rounded up, opposition leaders jailed and the government has recently moved to close down the NGO sector. It’s striking how many of the countries which score badly on the index of press freedom published by Reporters Without Borders, an NGO, are on warm terms with our government. Rwanda is ranked 169 out of 178, Ethiopia scores only slightly better at 139. DFID support for these increasingly authoritarian regimes strikes me as a stance Britain will come to regret, undermining as it does the genuine desire to present our country as a force for progressive global change and casting Britain, in the eyes of a younger generation likely to seize power in Africa, firmly in the camp of morally-tainted “dictator’s friend”.
This is my overall concern. A more minor point is that military and security spending is always going to be a favourite area for “leakage” in a recipient government’s range of activities. Military contracts are often not put out to open tender or subject to parliamentary scrutiny - as we saw in Kenya during the Anglo Leasing scandal – on the pretext of “national security”. This makes security a prime area for top-level graft. Predatory officials can take their cuts on military spending, sure in the knowledge that ODA will provide the citizenry with many of the basic services – health, education, road-building etc etc – required to keep the population acquiescent.
I will close with one last point. It is extremely altruistic and intellectually high-minded of the Select Committee to devote its examination of ODA to its economic impact on recipients. However, any donor government must surely be accountable to two key audiences. The first is the poor of the developing world. The second – more important, surely, as its resources make ODA possible in the first place – is the British taxpayer. British taxpayers, in my experience, are largely unaware of the 0.7 per cent target or aid-related changes to the law, do not understand the difference between project and programme aid/humanitarian and development assistance and barely recognise DFID’s existence as a government department with an impressive budget (the department’s initials retain almost as low a visibility as when the department was first established). Yet opinion polls consistently show that they instinctively suspect that much of their aid money is feeding a culture of dependency and being stolen by corrupt officials abroad. Their instincts are sound. There is a tendency, in the world of aid, to embrace universal ideals and principles that arch above national concerns, soaring into an idealised moral stratosphere. But a government is answerable, first and foremost, to its funders. This applies just as much with aid policy as it does to military spending, health and education.