International Aid Africa in the Global Economy Dr. Renata Serra – April 17 th 2007

Official Development Assistance  ODA definition: bilateral grants and loans on concessional terms, and official contributions to multilateral agencies from 22 OECD members (DAC)  ODA includes: Non-financial components (technical cooperation) Food aid and emergency aid e.g. non-development aid Agencies’ own administration costs Debt relief Transfer to multi-lateral aid agencies  ODA excludes: Aid from non OECD member governments – e.g. China Private charity giving (e.g. foundation like Bill and Melinda Gates)

OECD Countries’ Net ODA (and projections until 2010)

The debate on aid levels  Aid should increase considerably MDGs; UN system; British DfID and others J. Sachs ‘The end of poverty’: $70 per person Arguments:  Renewed confidence in the effectiveness of aid  Better conditions in recipient countries  Aid is too much W. Easterly “The white man’s burden” Arguments:  Aid maintains corrupt and non-legitimate governments  The ills of aid are greater than its benefits  Aid is ineffective or even counter-productive

The debate on aid effectiveness  What does figure 8.2 tells us about aid effectiveness?  What should aid be effective for?  How can the effectiveness of aid be demonstrated?  Ex: the paradox of US food aid! Aid for whom?

Aid effectiveness (cont’d)  Aid and the culture of dependency: Are countries and societies like people?  Perverse aid regimes and biased donors- government relationships The politics of aid: van de Walle  Little relationship between aid flows and developing countries’ long term needs:  Food aid which disposes of agricultural surpluses  Provision of surplus commodities of little economic value  Administrative costs  Grants to NGOs and to domestic agencies  Technical co-operation grants which pay for the services of nationals of the donor countries

Distribution of aid Use of $30 p.c. of aid to SSA in 2002: USA: Out of $3 p.c. to SSA, the aid per African is 6 cents Source: J Sachs “The end of poverty” p. 310

When is aid effective?  Aid can be effective for economic growth and poverty reduction if: It is sustained over time and is predictable Recipient countries have effective institutions It is based on true partnership and inclusive processes Policies are owned and have domestic support  Hence the current emphasis on governance, public policy and institutional capacity building

No single blueprint  Assessing aid effectiveness is a difficult exercise because: There are other objectives for aid other than development Aid and money are fungible Development is itself a complex and elusive goal Successes are shared between many actors and merits are very difficult to attribute  Aid must differentiate among countries  There is no single recipe for promoting development

Should aid flows increase?  Yes, but: Aid should go where the needs are the greatest Aid should reward good performance Aid should respect local absorptive capacities  Aid-per capita is the highest in small countries and post-conflict societies Focus on proven effective types of aid  Aid may not be the main channel of support from rich to poor countries: Trade, debt, FDI, and other global issues

Useful tools  Recommended websites for the aid topic: usaid.asp