The Political Economy of Aid and Governance Agenda in Africa

1. The Political Economy of Aid and Governance Agenda in Africa Maputo Residential School on Governance and Development CARLOS OYA Development Studies, SOAS, University of London Email: co2@soas.ac.uk Maputo, 6 April 2011

2. Outline • The ‘aid effectiveness’ debate • The contradictions in the nexus aid-governance • Aid and state capacity de-building • Conditionality, policy space and ideology

3. Some key issues in the aid-governance nexus • Aid and state formation • Aid as factor affecting the nature of state institutions and practices (rentier, neopatrimonial, developmental, etc.) • Accountability and legitimacy: society vs donors • Conditionnality and policy space • Aid and state capacity ‘de-building’

4. 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 (200 per country)

5. Source: DAC

8. Aid effectiveness debates: aid works, it doesn’t, it depends… • Different methodologies (McGillivray et al. 2006) • 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 / state capacity de-building

9. Perverse macroeconomic effects: ‘Dutch Disease’ Crowding out domestic savings Debt – aid spiral Aid volatility Greater than export revenues Perverse pro-cyclical pattern Negative effects on investment and long term planning Unstable donor-recipient relations Aid effectiveness: perverse macroeconomic issues

10. Aid volatility in Africa

11. Capacity building? ‘Inadequate state capacity in Sub-Saharan Africa has been a self-fulfilling prophecy; the outcome of a bet rigged by those in a strong position to influence results. The Washington institutions have consistently demanded initiatives that impair governments’ capacity for policy formulation and implementation’ (Sender 2002)

12. 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 system (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 • Reduction in domestic revenue raising capacity through multiplication of efforts to manage aid and debt  deepening aid dependence

13. 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

14. Areas of loss: Macro and sector policies …and now more on institutional development (Anglo-American governance model) List of conditions ↑: IMF avg 6 in 1970s, 10 in 1980s and 26 in 1990s Channels of shrinkage Imposed conditions through ‘forced consensus’  self-censorship Strong influence of ‘blocs’ of few donors (dominated by WB/IMF, USA, UK and EC) Gradual ideological conversion (indoctrination) of technocrats (especially in Ministries of Finance and Planning) Loss of policy space driven by aid flows (thanks to policy ‘advice’)

15. Top five donors Joint % % top 2 Table – Sources of aid for selected African countries (2004-6) Uganda WB (26%), USA (19%), EC (9%), UK (9%), Netherlands (6%) 69 44 Mozamb. WB (16%), EC (12%), USA (10%), AfDF (8%), Sweden (6%) 51 28 Tanzania WB (30%), UK (13%), EC (10%), Netherlands (7%), USA (6%) 65 42 Ethiopia WB (27%), USA (24%), UK (7%), EC (6%), AfDF (4%) 68 51 Senegal WB (25%), France (22%), EC (8%), AfDF (8%), Japan (8%) 71 47 Niger EC (23%), WB (19%), France (12%), AfDF (8%), USA (6%) 68 42 Botswana USA (63%), Germany (10%), UNHCR (6%), EC (5%), France (5%) 89 73 Source: own elaboration from DAC data

16. The persistence and deepening of ‘structural conditionality’ (IMF) And list continues Source: IMF website, country Senegal, letter of intent

17. 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’ • Aid effectiveness debate in 1990s  role of institutions and public sector reform • Why ‘good governance’? • Fiduciary aspect (need for accountability and transparency) • Alleged positive correlation between ‘good governance’ and development

18. Sector bias of aid: implications of focus on macro, social policies and governance

19. Sector composition of OECD/DAC aid Source: own elaboration from DAC database

21. 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’ Contradiction The starlets of DAC donors (Uganda, Mozambique) broadly characterised by slippage in fundamental aspects of the GG agenda

22. The political economy of forced consensus:From the Ministry to the IMF/WB and viceversa Growing ‘incest’ between BWI and African governments. Some examples of top finance bureaucrats with employment history in BWI: Antoinette Sayeh (Liberia, WB), Goodall Gondwe (Malawi, IMF, ADB), Abou-Bakar Traore (Mali, IMF), Luisa Diogo (Mozambique, WB), Makhtar Diop (Senegal, WB), Alassane Ouattara (Cote d’Ivoire, IMF) and many more since 1980s 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 govt level Source: Van Waeyenberge (2008) http://www.soas.ac.uk/cdpr/seminars/43473.pdf

23. Institutional fragmentation • State fragmentation • Institutional entanglement btw donors and SSA states • Epistemic communities and shared agendas • Shifting material priorities in allocation of fiscal resources • Logic of ‘aid maximisation’ From content to process conditionality Ideology, technologies of policy processes and ‘capacity building’

24. Spectrum of ‘government control’ over policy agenda and implemented outcomes Ownership as ‘control’ and not as ‘commitment’ Strongest Weakest Bostwana Ethiopia Rwanda Ghana, Zambia, Mozambique, Tanzania, Mali Key issues: structural conditions (economic, geopolitical, etc.)  negotiating political capital Source: Whitfield (2009, p. 331).

25. Some conclusions • Aid flows have increasingly problematic governance implications. Question is what governance capacities arfe 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 • Operational imperatives of aid agencies impair progress towards reforms of aid architecture so much change must come from internal dynamics