The Political Economy of Aid and Governance Agenda

The Political Economy of Aid and Governance Agenda in Africa Addis Ababa Residential School on Governance and Development CARLOS OYA Development Studies, SOAS, University of London Email: co 2@soas. ac. uk Addis Ababa, 27 March 2012 1

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

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. Conditionnality and policy space 5. Aid and state capacity ‘de-building’ 3

ODA: an expanding global complex • Despite shifting trends (eg. aid fatigue in 1990 s), 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) 4

Source: DAC 5

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Aid effectiveness debates: aid works, it doesn’t, it depends… – Different methodologies (Mc. Gillivray 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 8

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

Aid volatility in Africa 10

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) 11

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 12

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

Aid modalities in Mozambique 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 – Donor ‘cartels’ driving conditionality (dominated by WB/IMF, USA, UK and EC) – Gradual ideological conversion of technocrats and politicians in recipient countries 15

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 1990 s 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 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 2012 http: //www. bbc. co. uk/news/uk-politics-16410677 17

Walking the walk? Easterly and Williamson, 2009 18

Sector bias of aid: implications of focus on macro, social policies and governance 19

Sector composition of OECD/DAC aid Distribution of aid by use - 2008 TOTAL DAC EC World Bank France Japan Social and administrative iiiiinfrastructure 39. 2 27. 3 47. 1 29. 7 17. 4 Economic infrastructure 16. 3 24. 1 37. 3 20. 1 36. 3 Production 6. 5 6. 3 14. 8 5. 7 12. 4 Multisector 5. 7 9. 6 0. 8 10. 6 2. 7 Programme assistance 5. 0 18. 7 - 11. 4 4. 4 Sub-total 72. 8 Source: own elaboration from DAC database 86. 0 100. 0 77. 6 73. 2

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

The political economy of forced/forged 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 1980 s • 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 22 Source: Van Waeyenberge (2008) http: //www. soas. ac. uk/cdpr/seminars/43473. pdf

Institutional fragmentation From content to process conditionality Ideology, technologies of policy processes and ‘capacity building’ • 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’ 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 Bostwana Weakest Ethiopia Rwanda Key issues: structural conditions (economic, geopolitical, etc. ) negotiating political capital Source: Whitfield (2009, p. 331). Ghana, Zambia, Mozambique, Tanzania, Mali

Some conclusions • 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 • Operational imperatives of aid agencies impair progress towards reforms of aid architecture so change must come particulary from internal/domestic dynamics/agency 25