The Political Economy of Aid and Governance
Agenda in Africa
Maputo Residential School on Governance and Development
CARLOS OYA
Development Studies, SOAS, University of London
Email: co2@soas.ac.uk
Maputo, 6 April 2011
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• The ‘aid effectiveness’ debate
• The contradictions in the nexus aidgovernance
• Aid and state capacity de-building
• Conditionality, policy space and ideology
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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’
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• 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)
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35,000
30,000
25,000
20,000
15,000
10,000
5,000
ODA trends to Least Developed Countries - constant 2006$ and % million
Aid fatigue
Early stages Cold War, SAPs expansion of aid industry
Debt relief,
PRSPs, War on
Terror
40%
35%
30%
25%
20%
5%
0%
15%
10%
-
Source: DAC
LDCs, Total (Least Developed) LDCs, % of developing countries 5 per. Mov. Avg. (LDCs, Total (Least Developed))
5

6

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– 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
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• Perverse macroeconomic effects:
• ‘Dutch Disease’
• Crowding out domestic savings
• Debt – aid spiral
• Aid volatility
– Greater than export revenues
– Perverse pro-cyclical pattern
– Negative effects on investment and long term planning
– Unstable donor-recipient relations
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Aid volatility in Africa
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‘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)
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• 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
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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

Loss of policy space driven by aid flows
(thanks to policy ‘advice’)
Areas of loss:
• Macro and sector policies
• …and now more on institutional development (Anglo-American governance model)
• List of conditions ↑ : IMF avg 6 in
1970s, 10 in 1980s and 26 in 1990s
Channels of shrinkage
1.
Imposed conditions through
‘forced consensus’  selfcensorship
2.
Strong influence of ‘blocs’ of few donors (dominated by
WB/IMF, USA, UK and EC)
3.
Gradual ideological conversion (indoctrination) of technocrats (especially in
Ministries of Finance and
Planning)
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Uganda
Mozamb.
Tanzania
Ethiopia
Senegal
Niger
Botswana
Table – Sources of aid for selected African countries (2004-6)
Top five donors Joint
%
% top
2
69 44 WB (26%), USA (19%), EC (9%), UK (9%),
Netherlands (6%)
WB (16%), EC (12%), USA (10%), AfDF (8%),
Sweden (6%)
51 28
65 42 WB (30%), UK (13%), EC (10%), Netherlands (7%),
USA (6%)
WB (27%), USA (24%), UK (7%), EC (6%), AfDF
(4%)
WB (25%), France (22%), EC (8%), AfDF (8%),
Japan (8%)
EC (23%), WB (19%), France (12%), AfDF (8%), USA
(6%)
USA (63%), Germany (10%), UNHCR (6%), EC (5%),
France (5%)
68
71
68
89
51
47
42
73
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Source: own elaboration from DAC data

The persistence and deepening of
‘structural conditionality’
(IMF)
Source: IMF website, country Senegal, letter of intent
And list continues
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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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14%
12%
10%
8%
6%
4%
2%
0%
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)

Sector composition of OECD/DAC aid
Distribution of aid by use - 2008
TOTAL
DAC EC
World
Bank France Japan
Social and administrative iiiiiiiii infrastructure 39.2
Economic infrastructure 16.3
Production 6.5
Multisector
Programme assistance
Sub-total
5.7
5.0
72.8
Source: own elaboration from DAC database
27.3 47.1 29.7 17.4
24.1
6.3
9.6
18.7
37.3
14.8
0.8
-
86.0 100.0
20.1
5.7
10.6
11.4
77.6
36.3
12.4
2.7
4.4
73.2

35%
30%
25%
20%
15%
10%
5%
0%
2003
World Bank lending by theme and sector to SSA: % of total lending 2003-2008
2004 2005 2006 2007 2008
Rural Development
Public Sector Governance
Agriculture, Fishing, and Forestry
Law and Justice and Public Administration
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Donor consensus?
Contradiction
– 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’
The starlets of DAC donors
(Uganda, Mozambique) broadly characterised by slippage in fundamental aspects of the GG agenda

The political economy of forced 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
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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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Spectrum of ‘government control’ over policy agenda and implemented outcomes
Ownership as ‘control’ and not as ‘commitment’
Strongest
Bostwana Ethiopia
Rwanda
Weakest
Ghana, Zambia,
Mozambique,
Tanzania, Mali
Key issues: structural conditions (economic, geopolitical, etc.)  negotiating political capital
Source: Whitfield (2009, p. 331).

• Aid flows have increasingly problematic governance implications. Question is what governance capacities arfe 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 much change must come from internal dynamics
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