The Political Economy of Aid and the Good

Governance Agenda in Africa

Mauritius Residential School on Governance and Development

CARLOS OYADevelopment Studies, SOAS, University of London

Email: co2@soas.ac.uk

1st April 2014

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

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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. Conditionality and policy space

5. Aid and state capacity ‘de-building’

ODA: an expanding global complex

• 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 reported in one year (200 per country)

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The political economy of aid from the donor’s perspective

• Aid as instrument of foreign policy and geopolitical priorities

• Aid as economic instrument to further national business interests

• Aid as instrument of domestic policy (public opinion, migration, security, etc.)

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Aid effectiveness debates: aid works, it doesn’t, it depends…

– Different methodologies– 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 and paradoxes

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Aid volatility in Africa

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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 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

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‘Old mechanisms’ - Projects

Programme aid – SWAPs and their management units

General budget support -Donor BS review groups

Summary of the growing complexity and irrationality of aid delivery systems

Aid modalities in Mozambique

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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– Donor ‘cartels’ driving explicit and implicit conditionality (dominated

by WB/IMF, USA, UK and EC)– Gradual ideological conversion of technocrats and politicians in

recipient countries

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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’

• Why ‘good governance’?

– Fiduciary aspect (need for accountability and transparency)

– Alleged positive correlation between ‘good governance’ and development

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Talk the talk…

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 "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 2012

http://www.bbc.co.uk/news/uk-politics-16410677

Walking the walk?

16Easterly and Williamson, 2009

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)

0%

2%

4%

6%

8%

10%

12%

14%

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 200617

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 growth-enhancing 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

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

Source: Van Waeyenberge (2008) http://www.soas.ac.uk/cdpr/seminars/43473.pdf

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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

• Several examples of cross-over between BWIs and MEFs (from BWIs into MEF and viceversa, the latter being more common nowadays)

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Mapping the aid-governance nexus

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Institutional fragmentation

From content to process conditionality

Ideology, technologies of policy processes and ‘capacity building’

•State fragmentation

•Institutional entanglement between donors and recipient states

•Epistemic communities and shared agendas

•Shifting material priorities in allocation of fiscal resources

•Logic of ‘aid maximisation’

Strongest Weakest

Bostwana Ethiopia Rwanda Ghana, Zambia, Mozambique,

Tanzania, Mali

Spectrum of ‘government control’ over policy agenda and implemented outcomes

Source: Whitfield (2009, p. 331).

Key issues: structural conditions (economic, geopolitical, etc.) negotiating political capital

Ownership as ‘control’ and not as ‘commitment’

Agency and rents matter: despite these common problems outcomes may differ

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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?