The Political Economy of Aid and the Good Governance Agenda in Africa

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Abner Oliver
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1 The Political Economy of Aid and the Good Governance Agenda in Africa Residential School on Governance and Development CARLOS OYA Development Studies, SOAS, University of London Kigali, 25 th April 2018

2 Outline The aid complex, aid effectiveness debates and some background Aid and state capacity de-building Conditionality, policy space and ideology The pitfalls and contradictions in the nexus aid-governance 2

3 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. Conditionality and policy space 5. Aid and state capacity de-building 3

4 Quantitative trends: aid to Africa ,000 50,000 40,000 30,000 20,000 10, Net ODA current million $ Net ODA constant 2014 million $ 4

5 The political economy of aid from the donor s perspective Aid as instrument of foreign policy and geopolitical priorities: examples? Aid as economic instrument to further national business interests: examples? Aid as instrument of domestic policy (e.g. national security): examples? 5

6 And why do recipient countries need aid? Foreign exchange Imports of technology / K Government revenues Economic infrastructure Healthcare 6

7 Various reasons why aid might not as effective as expected (NOTE: this does not mean it doesn t work ) Insufficient levels (threshold effects) Negative macroeconomic effects Wrong motivations among donors Bad policies in recipient countries Wrong institutions in recipient countries, including various manifestations of bad governance Wrong priorities (donors and recipients) Wrong conditionality? 7

8 Is there an aid-institutions paradox? 8

9 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 systems (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 project success at the expense of long-term transformation 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 9

10 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

11 Aid modalities in Mozambique 11

12 Using country systems? 12

13 Aid volatility is a major challenge 13

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 Gradual ideological conversion of technocrats and politicians in recipient countries 14

15 New aid agenda closely linked to good governance agenda: the post-washington consensus In light of failure of structural adjustment reforms in 1980s-90s, focus on institutions getting institutions right Why good governance? Fiduciary aspect (need for accountability and transparency) Alleged positive correlation between good governance and development argument of preconditions for development 15

16 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

17 Walking the walk? Easterly and Williamson,

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%

19 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 Contradictions and incoherence Some of the preferred (and frequently hailed) recipient states for DAC donors (Uganda, Mozambique) also characterised by slippages in fundamental aspects of the GG agenda good enough governance, best fit not best practice and working with the grain - favouring incumbent elites? Or developmental autocracies?

20 The political economy of forced/forged consensus: From the Ministry to the IMF/WB and viceversa Shared sovereign space between BWIs and African governments in key institutions: finance ministries, planning departments and central banks 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 government level 20 Source: Van Waeyenberge (2008)

21 Ideology and training: Evidence from Senegal and Mozambique Large proportion of training available at MEF in IMF or WB-supported programmes, especially IMF for Senegal Academic qualifications and aspirations: mainstream economics institutions (esp. USA or top mainstream schools in France / Portugal / UK / South Africa) In-country training designed to focus on aid management technologies A common language and shared set of assumptions and priorities as a result 2 1

22 ALTERNATIVES? FROM WITHIN FROM OUTSIDE 22

23 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 Weakest Ethiopia Rwanda Ghana, Zambia, Mozambique, Tanzania, Mali Key issues: structural conditions (economic, geopolitical, etc.) negotiating political capital Source: Whitfield (2009, p. 331).

24 Some conclusions and questions 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. How to further limit loss of policy space? But, also, policy space for what? Operational imperatives and incentives in aid agencies impair progress towards reforms of aid architecture so change must come particularly from internal/domestic dynamics/agency. How can incentive structures change and be compatible across institutions? 24

Towards a Beijing consensus for Africa? CARLOS OYA Development Studies, SOAS, University of London

Towards a Beijing consensus for Africa? Exaggerations, realities and hypocrisy about Chinese aid to Africa CARLOS OYA Development Studies, SOAS, University of London Email: co2@soas.ac.uk KwaZulu Natal