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Abstract
South Africa is planning to create a development assistance agency at a time of growing consensus that traditional aid practices need fundamental change. The profusion of bilateral, multilateral and private aid agencies has created an inefficient system that ensnares recipients in a complex web of regulation and time-consuming consultation that distracts the attention of recipient country staff and undermines the ability of developing countries to develop their own priorities. These faults, widely observed since the 1970s, persist because they are reinforced by powerful but perverse incentives operating at the diplomatic, organisational, staff and recipient government levels. Political pressures within donor countries prioritise diplomatic goals over developmental ones and persistently attempt to finesse rather than genuinely resolve conflicting goals. Confronted with a multiplicity of donors, each with its own complex rules, aid-dependent recipient countries frequently surrender planning initiative to donors and find themselves with an incoherent mix of disparate projects. Avoiding the mistakes of traditional donors and ensuring that South Africa becomes part of the solution rather than a new contributor to the problem will require careful attention to the design and management of South Africa's new aid agency. It needs particular attention to well-designed monitoring and evaluation systems, significant in-house research capacity, well-crafted enabling laws, systems to focus aid in a few productive areas, and efforts to identify and confront the perverse incentives that many aid agencies have preferred to ignore.
Notes
1. The final resolution of the UN Conference on Technical Co-operation among Developing Countries.
2. The 2009 report entitled Enhancing South–South and Triangular Cooperation noted that most developing countries are still formulating policy on South–South co-operation and ‘[s]ystematic collection and compilation of information on South–South cooperation, and the reporting of this information to the public, are still limited.’ The report, based on case studies and a survey by the Special Unit for South–South Cooperation of the UN Development Programme, contains substantial similarities to the issues identified in the literature of traditional North–South co-operation. Notably, South–South participants emphasise the need for recipients to set aid priorities and formulate projects and to capitalise on the particular forms of expertise available in donor countries. Mirroring the concerns expressed about North–South co-operation, in a survey of South–South recipient countries, 100% percent of respondents felt ‘very strongly’ that their countries had ‘limited capacity … in taking leadership in strategic use of South–South Cooperation’. Two-thirds felt strongly that their countries had ‘limited capacity … to articulate needs’ and half felt very strongly that there was ‘limited participation … in programme/project development’ in South–South co-operation efforts, which bears strong resemblance to the salient issues identified through the Paris process on aid effectiveness. See <http://southsouthconference.org/wp-content/uploads/2009/12/ExSumm_English.pdf>.
3. The North–South Institute noted: ‘Exact figures are unclear because they are often not published, and there is a serious lack of reliable and comprehensive data. As a result, there are extremely wide variations between different analysts’ estimations of the scale of aid provided by some of the most important non-DAC donors. For example, China is estimated to provide anywhere between $731 million and $8.1 billion per year, and India between $150 million and $1 billion per year. … One UN-commissioned study estimates that in 2006, Southern contributors disbursed between $9.5 billion and $12.1 billion, representing between 7.8 percent and 9.8 percent of total aid flows.’ See Hammad L & B Morton, ‘Non-DAC donors and reform of the international aid architecture’, Issues Brief: Development Cooperation Series. Ottawa: North–South Institute, July 2009, <http://www.nsi-ins.ca/english/pdf/Non-DAC%20donors%20&%20aid%20architecture.pdf>.
4. Amar Bhattacharya notes that while traditional donors increasingly rely on grants, donors outside of the Organisation for Economic Co-operation and Development's (OECD) Development Assistance Committee (DAC) provide the bulk of development finance through loans with varying degrees of discount from market rates. He also notes that these non-DAC donors are placing particular emphasis on financing infrastructure and may account for 40% of aid-funded infrastructure. See Bhattacharya A, ‘The changing landscape of development finance’, in Canadian Development Report 2009: Financing Development in Times of Global Crisis. Ottawa: North–South Institute, 2009, <http://www.nsi-ins.ca/english/pdf/CDR_2009.pdf>.
5. Based on net official development assistance from 1950 to the end of 2008 based on OECD DAC data. Easterly and Pfutze put the amount at $2.3 trillion. See Easterly W & E Pfutze, ‘Where does the money go? Best and worst practices in foreign aid’, Brookings Global Economy and Development Working Paper Series, 21. Washington, DC: Brookings Institution, 2008.
6. Commission for Africa, Our Common Interest: Report of the Commission for Africa. London: Commission for Africa, 2005, p. 133.
7. Clemens, Radelet and Bhavnani review the literature and note that most studies have found little positive correlation between overall aid levels and economic growth, but there is a positive correlation when one evaluates only forms of aid explicitly aimed at growth or economic infrastructure. See Clemens M, Radelet S & R Bhavnani, ‘Counting chickens when they hatch: the short term effect of aid on growth’, Center for Global Development Working Paper, 44. Washington, DC: Center for Global Development, 2004.
8. Moyo D, Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa. New York: Farrar, Straus & Giroux, 2009; Dichter T, Despite Good Intentions: Why Development Assistance to the Third World Has Failed. Boston: University of Massachusetts Press, 2003; Calderisi R, The Trouble With Africa: Why Foreign Aid Isn't Working. New Haven, London: Yale University Press, 2007. See also Bauer P, Dissent on Development. London: Weidenfeld & Nicolson, 1971; Hancock G, Lords of Poverty: The Power, Prestige, and Corruption of the International Aid Business. New York: Atlantic Monthly Press, 1989; Boone P, ‘Politics and the effectiveness of foreign aid’, European Economic Review, 40, 2, 1996, pp. 289–329; Bräutigam D, Aid Dependence and Governance. Stockholm: Almqvist & Wiksell International, 2000; Bräutigam D & S Knack, ‘Foreign aid, institutions, and governance in sub-Saharan Africa’, Economic Development and Cultural Change, 52, 2, 2004, pp. 255–85; World Bank, Assessing Aid: What Works, What Doesn't and Why. New York: Oxford University Press, 1998; Chabal P & J-P Daloz, Africa Works: Disorder as Political Instrument. Oxford & Bloomington: James Currey & Indiana University Press, 1999; Easterly W, The Elusive Quest for Growth: Economists' Misadventures in the Tropics. Cambridge, MA: MIT Press, 2001; Easterly W, ‘The cartel of good intentions: the problem of bureaucracy in foreign aid’, Policy Reform, 5, 4, 2002, pp. 223–28; Easterly W & T Pfutze, op. cit.; Knack S & A Rahman, ‘Donor fragmentation and bureaucratic quality in aid recipients', Journal of Development Economics, 83, 1, 2007, pp. 176–97; Lancaster C, Aid to Africa: So Much to Do, So Little Done. Chicago & London: University of Chicago Press, 1999; Riddell RC, Does Foreign Aid Really Work? Oxford & New York: Oxford University Press, 2007; and Van de Walle N, African Economies and the Politics of Permanent Crisis 1979–1999. Cambridge: Cambridge University Press, 2001.
9. OECD (Organisation for Economic Co-operation and Development), Improving Incentives in Donor Agencies: Good Practice and Self-assessment Tool. Paris: OECD, 2009a, p. 3.
10. South Africa is currently part of the ‘enhanced engagement’ process that the OECD has initiated with a number of developing countries, including China, India and Brazil.
11. Reisen H, ‘The multilateral donor non-system: towards accountability and efficient role assignment’, Economics Discussion Papers, 2009–18, Kiel Institute for the World Economy, p. 3.
12. OECD (Organisation for Economic Co-operation and Development), 2009 Development Co-operation Report. Paris: OECD, 2009b.
13. Kharas H, Action on Aid: Steps toward Making Aid More Effective. Washington, DC: Brookings Institution, 2009.
14. Herbert R, ‘A new face for US aid?’, eAfrica. Johannesburg: SAIIA, p. 2.
15. OECD (Organisation for Economic Co-operation and Development), Canada Development Assistance Committee Peer Review. Paris: OECD, 2007.
16. Easterly W & T Pfutze, op. cit.
17. Lancaster C, op. cit., 1999, p. 3.
18. In its survey of progress toward the Paris goals, the OECD found only 22% of aid given in the form of budget support, and in Africa aid in budget or other types of programme support was 40% in 2007. OECD (Organisation for Economic Co-operation and Development), 2008 Survey on Monitoring the Paris Declaration: Effective Aid by 2010? What It Will Take. Paris: OECD, 2008, pp. 39 & 85.
19. The OECD found only one in four recipient countries had a sound, prioritised, long-term development plan linked to the national budget, and less than 10% of countries had a sound framework to assess development results. Paris: OECD, 2008, pp. 10–11.
20. Kharas H, op. cit., p. 3. The unpredictability of aid flows is another important form of transaction cost, which is caused by complex rules and delays over disputes. In 2007 only 46% of aid pledged was recorded as received in recipient government accounts in that year.
21. Jepma CJ, The Tying of Aid. Paris: OECD, as cited in Riddell RC, op. cit., p. 100.
22. Useful guides in this area include Carlsson J & L Wohlgemuth (eds), Learning in Development Co-operation. Stockholm: Expert Group on Development Issues, 2000; Evaluation Group Working Group, When Will We Ever Learn? Improving Lives through Impact Evaluation. Washington, DC: Center for Global Development, 2006; Dichter T, Despite Good Intentions: Why Development Assistance to the Third World Has Failed. Boston: University of Massachusetts Press, 2003; Edgren G, ‘Fashions, myths and delusion: Obstacles to organisational learning in aid agencies', in Carlsson J & L Wohlgemuth (eds), Learning in Development Co-operation. Stockholm: Expert Group on Development Issues, 2000; Eicher CK, ‘Flashback: fifty years of donor aid to African agriculture’, InWEnt, IFPRI, NEPAD, CTA Conference on Successes in African Agriculture. Pretoria: InWent, 2003; Forss K, B Cracknell & N Strömquist, ‘Organisational learning in development cooperation: how knowledge is generated’, Expert Group on Development Issues Working Paper, 1998(3). Stockholm: Expert Group on Development Issues, 1998; and Uma L, Aid to African Agriculture: Lessons from Two Decades of Donors' Experience. Washington, DC: World Bank, 1991.
23. See OECD, 2009a, op. cit.
24. Peters T & R Waterman, In Search of Excellence. New York: Warner Books, 1982, p. 67.
25. Senge P, The Fifth Discipline: The Art and Practice of the Learning Organization. New York: Currency/Doubleday, 1990.
26. Chambers R, ‘The self-deceiving state’, IDS Bulletin, 23, 4, 1992, pp. 31–42.
27. Eicher CK, ‘Institutions and the African farmer’, CGAIR Issues in African Agriculture, paper 14, 1999, Consultative Group on International Agricultural Research, p. 31.
28. Wane assessed the quality of World Bank lending and found that bank staff worked harder and produced better quality work when facing more capable recipient countries, while poorer, less capable recipients were less demanding and received poorer support. See Wane W, ‘The quality of foreign aid: country selectivity or donors’ incentives?’, World Bank Policy Research Working Paper, 3325. Washington, DC: World Bank, 2004.
29. Berg, E ‘Why aren't aid organizations better learners?’, in Carlsson J & L Wohlgemuth (eds.) Learning in Development Co-operation. Stockholm: Expert Group on Development Issues, 2000, p. 37
30. The other is conflicting goals; see Lancaster C, op. cit., 1999, p. 4.
31. Herbert R & S Gruzd, The African Peer Review Mechanism: Lessons from the Pioneers. Johannesburg: SAIIA, 2007.
32. Herbert R, ‘Africa after aid: engineering an end to dependency’, in Holger BH, G Mills & G Wahlers (eds), Africa Beyond Aid. Johannesburg: Brenthurst Foundation, 2008.
33. OECD, 2008, op. cit., pp. 10–11.
34. Easterly W, 2002, op. cit.; Easterly W, ‘Freedom versus collectivism in foreign aid’, in Gwartney J & R Lawson (eds), Economic Freedom of the World: 2006 Annual Report. Washington, DC: Cato Institute, 2006.
35. Bates R, Essays on the Political Economy of Rural Africa. London: Cambridge University Press, 1983; Chambers R, Rural Development: Putting the Last First, Essex: Pearson Education, 1983.
36. Gunnarsson C, Capacity Building, Institutional Crisis and the Issue of Recurrent Costs. Stockholm: Expert Group on Development Issues, 2001, p. 6.
37. Djankov S, JG Montalvo & M Reynal-Querol, ‘The curse of aid’, Economics Working Papers Series, Pompeu Fabra: Department of Economics and Business, University of Pompeu Fabra, 2005.
38. APRM (African Peer Review Mechganism), Country Review Report of the Republic of Kenya. Nairobi: APRM, 2006, p. 93.
39. Bräutigam D, op. cit., p. 40.
40. European Union Court of Auditors, Special Report No 6/2007 on the Effectiveness of Technical Assistance in the Context of Capacity Development Together with the Commission's Replies. Brussels: European Union, 2007, p. 8.
41. For discussion of the dynamics and impact of donor incentives and poaching of recipient government staff, see Wilson L, ‘Kenyanization and African capacity “shuffling”’. Public Administration and Development, 13, 5, 1993, pp. 489–99. Bräutigam D, op. cit.; Carlsson J & L Wohlgemuth, op.cit., 2000, and Knack S & A Rahman, op. cit.
42. Berg E, op. cit., p. 26.
43. World Bank, Public Sector Reform: What Works and Why? An IEG Evaluation of World Bank Support. Washington, DC: World Bank, 2008, p. xv.
44. Bräutigam D, op. cit., p. 62.
45. World Bank, 2008, op. cit., p. xiv.
46. World Bank, 2008, op. cit., p. 23.
47. OECD, 2009a, op. cit.