The Political Economy of Aid and Governance
Agenda in Africa
Addis Ababa Residential School on Governance and Development
CARLOS OYA
Development Studies, SOAS, University of London
Email: [email protected]
Addis Ababa, 27 March 2012
1
Outline
• The ‘aid effectiveness’ debate and some
background
• Aid and state capacity de-building
• Conditionality, policy space and ideology
• The contradictions in the nexus aidgovernance
2
Some key issues in the aid-governance nexus
1. Aid and state formation
2. Aid as factor affecting the nature of state
institutions and practices (rentier, neopatrimonial,
developmental, etc.)
3. Accountability and legitimacy: society vs donors
4. Conditionnality and policy space
5. Aid and state capacity ‘de-building’
3
ODA: an expanding global complex
• Despite shifting trends (eg. aid fatigue in 1990s),
generally significant and systematic increase in
number of official donors (around 200 now), NGOs
(37,000?) and recipient countries (180 for 100 major
official donors)
• Recently, over 35,000 annual official aid transactions
(200 per country)
4
ODA trends to Least Developed Countries - constant 2006$ and % million
35,000
Early stages
Cold War, SAPs
expansion of aid industry
Aid fatigue
Debt relief,
PRSPs, War on
Terror
40%
35%
30,000
30%
25,000
25%
20,000
20%
15,000
15%
10,000
10%
5,000
5%
0%
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
-
LDCs, Total (Least Developed)
Source: DAC
LDCs, % of developing countries
5 per. Mov. Avg. (LDCs, Total (Least Developed))
5
6
7
Aid effectiveness debates:
aid works, it doesn’t, it depends…
– Different methodologies (McGillivray et al. 2006)
– Different time periods / samples
– Different policy indicators
– Different outcomes
– Different explanations:
• Destination bias, geopolitics of aid
• Perverse macroeconomic effects
• Policy environment / ‘bad governance’
• Institutional outcomes / state capacity de-building
8
Aid effectiveness:
perverse macroeconomic issues
• Aid volatility
• Perverse
– Greater than export revenues
macroeconomic effects:
• ‘Dutch Disease’
• Crowding out domestic
savings
• Debt – aid spiral
– Perverse pro-cyclical pattern
– Negative effects on investment
and long term planning
– Unstable donor-recipient
relations
9
Aid volatility in Africa
10
Capacity building?
‘Inadequate state capacity in Sub-Saharan Africa has
been a self-fulfilling prophecy; the outcome of a bet
rigged by those in a strong position to influence results.
The Washington institutions have consistently
demanded initiatives that impair governments’ capacity
for policy formulation and implementation’
(Sender 2002)
11
State capacity ‘de-building’:
perverse mechanisms
• Distortions in government pay structures (per diems, top-ups, etc.) 
uneven burden and benefits for civil servants
• Distortions in budgeting system (off-budgets, investment/ recurrent
balance)  loss of control over budget process
• Fragmented and complex aid delivery system  inefficient time
management  Distraction from government programmes and necessary
routines  loss of capacities to think and articulate long-term
strategies
• ‘Brain drain’ towards donor agencies and project/implementation units
especially in countries with scarce skilled labour  growing human
resource mobility  loss of institutional memory and technical
capacities
• Reduction in domestic revenue raising capacity through multiplication of
efforts to manage aid and debt  deepening aid dependence
12
Summary of the growing complexity and irrationality of aid
delivery systems
General budget support Donor BS review groups
Programme aid –
SWAPs and their management units
‘Old mechanisms’ - Projects
Aid modalities in Mozambique
14
Conditionality and the loss of policy space
• Conditionality alive but frameworks evolve
– Expansion of conditions  from Washington consensus to
‘Washington confusion’ (Rodrik) – endless shopping list of
recommendations
– Governance conditionality and move towards ‘selectivity’
– From outcomes to process  greater interference through
participation in policy-making processes (e.g. PRSPs)
• Channels of ‘loss’ of policy space
– From imposition to ‘forced consensus’  self-censorship
– Donor ‘cartels’ driving conditionality (dominated by
WB/IMF, USA, UK and EC)
– Gradual ideological conversion of technocrats and politicians
in recipient countries
15
New aid agenda closely linked to ‘good governance’ agenda:
the post-Washington consensus
• In light of SAP’s failure, focus on institutions  ‘getting
institutions right’
• Aid effectiveness debate in 1990s  role of institutions and
public sector reform
• Why ‘good governance’?
– Fiduciary aspect (need for accountability and transparency)
– Alleged positive correlation between ‘good governance’ and
development
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Talk the talk…
"We make absolutely clear to countries that
transparency and good governance are vital.
We are prepared to withhold funding through
governments when our standards are not
met, as we have done in Malawi.”
Andrew Mitchell, International Development
Secretary, January 2012
http://www.bbc.co.uk/news/uk-politics-16410677
17
Walking the walk?
Easterly and Williamson, 2009
18
Sector bias of aid: implications of focus on macro,
social policies and governance
Aid to agriculture as a proportion of total gross disbursements (Sub-Saharan Africa)
14%
12%
10%
8%
6%
4%
2%
0%
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
19
Sector composition of OECD/DAC aid
Distribution of aid by use - 2008
TOTAL
DAC
World
Bank
EC
France
Japan
Social and administrative
iiiiiiiiiinfrastructure
39.2
27.3
47.1
29.7
17.4
Economic infrastructure
16.3
24.1
37.3
20.1
36.3
Production
6.5
6.3
14.8
5.7
12.4
Multisector
5.7
9.6
0.8
10.6
2.7
Programme assistance
5.0
18.7
-
11.4
4.4
Sub-total
72.8
86.0
100.0
Source: own elaboration from DAC database
77.6
73.2
Aid and ‘good governance’ in practice:
Ambiguities and contradictions
Donor consensus?
– Lack of consensus on what is
meant by ‘good governance’ /
myriad indicators
– Lack of consensus on ‘good
enough governance’
– Tension between focus on
corruption/politics vs ‘investment
climate’
– And many important growthenhancing governance capacities
are left out of the picture
Contradiction
The starlets of DAC donors
(Uganda, Mozambique) also
characterised by slippage in
fundamental aspects of the GG
agenda
The political economy of forced/forged consensus:
From the Ministry to the IMF/WB and viceversa
• Growing ‘incest’ between BWI and African governments. Some
examples of top finance bureaucrats with employment history in
BWI: Antoinette Sayeh (Liberia, WB), Goodall Gondwe (Malawi,
IMF, ADB), Abou-Bakar Traore (Mali, IMF), Luisa Diogo
(Mozambique, WB), Makhtar Diop (Senegal, WB), Alassane
Ouattara (Cote d’Ivoire, IMF) and many more since 1980s
• More importantly, even greater number of upper-middle-level
technocrats have attended training programmes offered or
sponsored by BWI and like-minded donors (WB, USAID, DFID)
through WBI, AERC, and Anglo-American academic institutions
• The WB has complemented this with ambitious support to
research capacities and data collection at govt level
22
Source: Van Waeyenberge (2008)
http://www.soas.ac.uk/cdpr/seminars/43473.pdf
Institutional
fragmentation
From content to process
conditionality
Ideology, technologies
of policy processes and
‘capacity building’
•State fragmentation
•Institutional entanglement btw
donors and SSA states
•Epistemic communities and
shared agendas
•Shifting material priorities in
allocation of fiscal resources
•Logic of ‘aid maximisation’
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Agency and rents matter:
despite these common problems outcomes may differ
Spectrum of ‘government control’ over policy agenda and implemented outcomes
Ownership as ‘control’ and not as ‘commitment’
Strongest
Bostwana
Weakest
Ethiopia
Rwanda
Key issues: structural conditions (economic,
geopolitical, etc.)  negotiating political capital
Source: Whitfield (2009, p. 331).
Ghana, Zambia,
Mozambique,
Tanzania, Mali
Some conclusions
• Aid flows have increasingly problematic governance
implications. Question is what kind of governance
capacities are created and/or destroyed in the process
• Loss of policy space substantial but not complete and as
much a product of powerful internal dynamics and
social/economic/political changes as a result of external
pressures – importance of context
• Operational imperatives of aid agencies impair progress
towards reforms of aid architecture so change must
come particulary from internal/domestic
dynamics/agency
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The Political Economy of Aid and Governance Agenda in Africa