Aid and the Millennium Development Goals

Whatever the philosophical shortcomings of the Millennium Development Goals (MDGs), they do create a disciplined framework within which the global aid industry can be assessed. Pressure on the international donor community to focus on shared objectives related predominantly to poverty reduction has been particularly important for the World Bank and other multilateral institutions which have been criticised for their obsession with impersonal economic indicators at the expense of human development.

The MDG Africa Steering Group convened in 2007 by the UN Secretary-General seeks an aid contribution of $72 billion pa to achieve the MDGs in Africa by the target date of 2015. The figure appears modest in comparison with the $362 billion of farm subsidies paid by rich countries in 2006 and the Steering Group asserts that its estimate is within the scope of aid commitments already made. The 2007 UN MDG Report on progress also reminds developed countries that the Goals are dependent on the fulfilment of aid promises.
Aid Commitments

There is a long track record of rich government commitments to increase aid and an equally long record of backsliding. The most recent substantive announcement came at the G8 Gleneagles summit in 2005 when leaders made a commitment that, including contributions from other donor countries, aid would increase by 60% (a rise of $50 billion pa) between 2004 and 2010, with annual aid for Africa doubling from its 2004 level of $25 billion. These figures were cautiously welcomed by campaigners as approaching MDG needs.

Make Poverty History © Peter Armstrong

Yet within two months of that meeting, delegates at the New York UN summit found themselves battling against US resolve to expunge from the final declaration any references either to the MDGs or to aid commitments. The Gleneagles promises were salvaged but this pattern of brinkmanship has continued at subsequent G8 summits. The lack of conviction is reflected in preliminary figures published for 2007 which show that, halfway through the commitment period, aid from OECD countries has increased by only 15% at global level and only a little more for Africa. Indeed the headline figure for total global aid has fallen for the second successive year. The depreciating dollar makes further inroads into the real value of these figures and the OECD says that donors “will need to make unprecedented increases to meet the targets they have set for 2010”. It is little surprise that international campaigners are energetic in monitoring the slippery politics of global aid. Demands to increase aid to promised levels are central to the Make Poverty History campaign and other international activism.

SIDA

Contributions of individual countries towards global commitments are assessed by reference to a UN Resolution passed as long ago as 1970 - and renewed recently in the Monterrey Consensus of 2002 - in which the richest countries agreed to increase aid budgets to 0.7% of national income. So far only five countries, led by Sweden with over 1%, have exceeded this commitment, the remainder being so far behind that the average for 2007 was an embarrassing 0.28%, less than the equivalent figure for 1990. There are however some signs of greater determination - the European Union has agreed on a collective target of 0.56% by 2010, and 0.7% by 2015; with the UK issuing a fresh commitment to reach the target by 2012. By contrast the US at 0.16% props up the bottom of the table.
Aid Statistics Unbundled

Queuing for food aid in Somalia © Derk Segaar/IRIN

Behind the simple statistic that total aid for 2007 amounted to $103.7 billion lies a hornets' nest of definitions and terminology. The complexity has enabled politicians to become adept at announcing new aid initiatives which on close examination turn out to be repackaging of existing commitments. For example, the cost of debt relief is included in aid figures, so that "good news" about debt can be duplicated as "good news" about aid. Over 9% of total 2007 aid related to costs of debt relief.

There is an important distinction between emergency relief (known as "humanitarian aid"), which deals with short term expediency and aid for long term development programmes. The increasing incidence of extreme weather events driven by climate change, conflict-related emergencies, and natural disasters ensure that humanitarian aid is much in demand, accounting for about 6% of all aid in 2007.

West Kabul © Brandy Bauer

The cost of reconstruction of war zones is a rather more controversial inclusion in aid statistics, given the overlap with security issues, and given that its volume is currently on a similar scale to humanitarian aid. US reconstruction in Iraq and Afghanistan has created a tendency for misleading statements about "new" aid commitment - 30% of US aid in 2007 was destined for Iraq.

Next there is technical cooperation, a controversial area which is poorly defined and measured. It refers to a core component of capacity building, the transfer of skills and knowledge, typically carried out by individuals from the donor country. These “consultants” are a common target of criticism for the amount of funding that they absorb, just under 15% of total aid in 2007.

What remains in aid statistics after these four categories relates to genuine “programme” aid but the presumption that it is rigorously targeted to help poor people in the poorest countries is false. Generous US aid to countries such as Israel, Colombia, Egypt and Pakistan has more to do with the maintenance of stable and friendly governments than concern for poverty. So-called national interest can be a far more powerful stimulant for aid budgets than the moral sentiment of the Millennium Declaration. Aid for development of the poorest countries of sub-Saharan Africa (including technical cooperation) therefore accounts for just over 20% of the total.
The Donors

Over 90% of international aid comes from 22 OECD countries on whose behalf the Development Assistance Committee (DAC) takes responsibility for coordination. Aid reported by DAC is known as Official Development Assistance (ODA). In 2007 over 30% of ODA was "multilateral aid" channelled through agencies such as the World Bank and regional development banks; the balance was "bilateral aid" paid direct to individual countries. Most bilateral aid is in the form of grants whilst the multilateral banks generally offer low-interest loans to countries whose poor economic performance renders them incapable of borrowing on reasonable terms in open international markets.

Multilateral agencies pursue their programmes on a reasonably neutral country-by-country basis, whilst bilateral donors adopt selective strategies, for example to support former colonies. The five largest donors by volume in 2007 were US, Germany, UK, France and Japan. Together they contribute over 60% of total ODA. Countries such as China, India, Brazil and Thailand which have been major recipients of aid are themselves now developing strategic aid programmes, as yet outside the ODA structure. The $500 million donation by Saudi Arabia to the World Food Programme’s emergency appeal in 2008 represented a breakthrough in UN efforts to persuade oil-rich Gulf states to accept a share of international obligations.
Conditionality

Elections in Rwanda

The inherent imbalance of aid contracts encourages the imposition of conditions which reflect donor prejudices for appropriate social, political and economic management. The most notorious conditionality has imposed the western model of minimum state control over an economy, closely followed by the demand for "good governance", a political template involving free and fair elections, an assault on corruption and human rights violations, and an unencumbered press, judiciary and civil society.

Iraqi boy sits on food aid © Environment News Service (ENS)

Critics have been concerned that such conditions infringe on the sovereignty of the recipient country but donors point to evaluations which conclude that aid works best in countries which pursue sound economic policies backed by transparent institutions of government. This argument cannot however justify the practice known as "tied aid" which lnks donor country corporations to implementation of the aid project, opening the way to inappropriate or overpriced contracts. A 2005 Oxfam/ActionAid report suggested that 40% of ODA remains "tied". One extreme example is the continued US insistence that food aid be sourced from its own farmers rather than cash, thereby incurring expensive shipping costs and delivery delays. Such circularity draws attention to the potential for aid to turn in on itself and generate greater benefit to the donor than the recipient.

Other conditions are more insidious; it is believed that the US has obliged over 100 recipient countriesto grant immunity to US nationals from prosecution by the International Criminal Court. Likewise, generous US funding of HIV/AIDS programmes is rarely separated from its government’s perspective on family and sexual morality. In many countries the sudden development of a sports stadium or government building as a "gift" may have more to do with promises of support in a crucial UN vote than altruism. Such are the vicissitudes of converting the human concept of charity into the international domain.

Chinese President Hu Jintao visiting Kenya

Ironically the most recent dramatic change in aid flows threatens to undermine the whole panoply of aid conditionality. The massive investment of China in Africa is explicitly unconditional, whilst wholly tied to its commercial interest in natural resources. This lack of small print has alarmed the international aid establishment but gained the gratitude of African leaders such as Abdoulaye Wade of Senegal who has written of the “slow and sometimes patronising approach of (western donors)”.
Aid Effectiveness

The uncertain relationship between conditionality and aid effectiveness has been the source of longstanding anxiety amongst the international donor community. The 2005 Paris Declaration made by DAC countries and the multilaterals, together with its review, the 2008 Accra Agenda for Action, represents a determined attempt to rebalance the relationship between donor and recipient, to overcome the notorious duplication of aid programmes, to support sectors prioritised by the government, and to create transparent benchmarks for assessing aid performance. The Declaration stresses the need to achieve by 2010 “harmonisation” of donor programmes, “alignment” with budget and reporting systems of recipient countries, supported by principles of “country ownership” and “mutual accountability”.

Polio vaccine © United Nations Children's Fund

In practice this involves donors working together in direct budget support in which their aggregate funds are merged into government budgets, enabling governments to concentrate on domestic rather than donor accountability. Such an approach demolishes many cherished principles of bureaucracy and involves greater tolerance of political and economic risk. A joint NGO report published in 2008 by the European Network on Debt and Development concludes that donor countries are proving extremely reluctant to embrace the concept of recipient country ownership, with only about 5% of aid flowing into direct budget support. The report describes the notion of mutual accountability as “not real”, pointing to incompatibility between the African political model of patronage and western reliance on institutions.

Hambantota house destroyed by tsunami © Peter Armstrong

Away from these relationship management issues, economists question whether aid can remain effective if it grows into a significant proportion of a national economy - 13% of the average African country budget is already financed by aid. Further increases might distort important parameters such as exchange rates and wage levels. Large flows associated with humanitarian and reconstruction aid are also notoriously prone to inefficient results. The outpouring of public sympathy for the victims of the 2004 tsunami has not been rewarded with cost-effective returns on donations. And the inefficiency and corruption associated with reconstruction programmes has been brutally exposed by events in Iraq and Afghanistan.
Role of Civil Society

Where donors are reluctant to offer direct budgetary support, alternative channels may involve international NGOs, often in partnership with local government entities and community-based organizations. As a result, international NGOs such as Oxfam and Save the Children receive increasingly substantial tranches of bilateral aid, amounting to just over 2% of all international aid but representing a significant proportion of their own total income.

Unfortunately, the task of managing the complexity of the wide range of stakeholders involved in development programmes leads to inevitable tensions with governments which will become even more acute in countries in a state of crisis. In Eritrea and Zimbabwe, for example, the work of international aid agencies has been suspended just at a time when their services are most needed.
New Sources of Aid

James Tobin

With the continued reluctance of rich countries to commit to more decisive aid programmes, there is a constant stream of alternative ideas for generating funds of which the best known is the 'Tobin tax' on currency transactions. Rarely do such proposals gain support at the highest level - initiatives such as the International Finance Facility, a creative UK proposal to front load future aid payments, and French advocacy for an airline travel tax idea have been allowed only token pilot implementation.

Private foundations and charities have grown so fast in our era of great personal wealth that their contribution to overseas development has become significant. Exact figures are uncertain but these foundations may have contributed as much as $15 billion in 2006. Together with new countries entering the bilateral aid domain, these sources are however adding to the complexities of tracking programmes and performance. A recent DAC survey reported that "in 2005, the 34 developing countries covered by the survey received 10,507 donor missions, more than one for each working day". Tanzania faces demands from multilateral development banks for 8,000 audit reports each year. Aid is a troubled and imperfect science.

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