SuasSuasThe Aid IndustryThe Aid Industry

Carol Healy, DERNCarol Healy, DERN

Carol.healy@nuigalway.ieCarol.healy@nuigalway.ie

www.nuigalway.ie/dernwww.nuigalway.ie/dern

SynopsisSynopsis

►Definitions and StatisticsDefinitions and Statistics►Current Aid PolicyCurrent Aid Policy► Issues in AidIssues in Aid►Case StudiesCase Studies►DiscussionDiscussion

Definitions and StatisticsDefinitions and Statistics

► ODA – official development assistanceODA – official development assistance► DAC: Development Assistance CommitteeDAC: Development Assistance Committee► 1950s- 1970s: the objectives of aid evolved from a 1950s- 1970s: the objectives of aid evolved from a

focus on industrialisation to a broader focus on focus on industrialisation to a broader focus on poverty and welfarepoverty and welfare

► 1980s: debt crises: aid strategies to induce 1980s: debt crises: aid strategies to induce economic reforms through policy conditionalities economic reforms through policy conditionalities (SAPs)(SAPs)

► In 2000, aid from DAC states was lower than at any In 2000, aid from DAC states was lower than at any time since the 1940s.time since the 1940s.

► From 2001, huge increases in aidFrom 2001, huge increases in aid► Irish Aid aiming to achieve 0.7% GNP by 2012 Irish Aid aiming to achieve 0.7% GNP by 2012

Irish AidIrish Aid

► Irish aid spends:Irish aid spends: 54% of its budget on social sectors (above the 54% of its budget on social sectors (above the

30% DAC average)30% DAC average) 20% of its budget on health (DAC average 3.8%)20% of its budget on health (DAC average 3.8%)

► Emergency assistance has been increasingEmergency assistance has been increasing► Funding for local government and civil Funding for local government and civil

society organisations increasing: 2% in 1995 society organisations increasing: 2% in 1995 to 15% in 2005 (mostly on Irish-based to 15% in 2005 (mostly on Irish-based NGOs: €1million in 1995 to 129million in NGOs: €1million in 1995 to 129million in 2005) 2005)

Aid PolicyAid Policy

►Driven by the Monterrey Consensus Driven by the Monterrey Consensus 20022002

►Paris Declaration in 2005Paris Declaration in 2005

Reasons for aidReasons for aid

► In pairs, think of as many reasons as possible as to In pairs, think of as many reasons as possible as to why people/countries give aidwhy people/countries give aid

► Guilt – a type of distributive justiceGuilt – a type of distributive justice► Self interest – military or politicalSelf interest – military or political► Morality – Justice demands equitable resource Morality – Justice demands equitable resource

distribution, obligatory for rich to help poordistribution, obligatory for rich to help poor► Equality – to create equality among partnersEquality – to create equality among partners► Charity – the benevolence of the rich – Recipients Charity – the benevolence of the rich – Recipients

do not receive as a right and donors do not give as do not receive as a right and donors do not give as a dutya duty

► Empathetic altruism – uses emotional and rational Empathetic altruism – uses emotional and rational argumentargument

Does aid work?Does aid work?

► US $1 trillion of foreign aid has been spent since the US $1 trillion of foreign aid has been spent since the 1950s1950s

► Low income countries that had been receiving aid for half Low income countries that had been receiving aid for half a century are still experiencing deteriorating standards of a century are still experiencing deteriorating standards of living, poverty, conflict and poor economic growthliving, poverty, conflict and poor economic growth

► Aid has failed to improve economic growth rates of low-Aid has failed to improve economic growth rates of low-income countries. For the last 25 years, growth rates in income countries. For the last 25 years, growth rates in Africa have been less than the nearly 3% annual increase Africa have been less than the nearly 3% annual increase in population in population

► Between 1990 and 1998, the absolute number of people Between 1990 and 1998, the absolute number of people living in extreme poverty around the world only fell from living in extreme poverty around the world only fell from 1,276 million to 1, 175 million and the proportion of 1,276 million to 1, 175 million and the proportion of people suffering from hunger is still at approx 826 million. people suffering from hunger is still at approx 826 million.

Does aid work?Does aid work?

►Ethiopia: received more relief aid than Ethiopia: received more relief aid than any other country. any other country.

►9 million people still dependent on food 9 million people still dependent on food aid in Ethiopiaaid in Ethiopia

►18 countries with a combined 18 countries with a combined population of 460 million had a lower population of 460 million had a lower human development index (HDI) in human development index (HDI) in 2005 than in 1990; (Reality of Aid 2005 than in 1990; (Reality of Aid 2006)2006)

Issues in AidIssues in Aid

►Tied aidTied aid 40% of global aid is tied40% of global aid is tied Increases the cost of purchased itemsIncreases the cost of purchased items Skews development prioritiesSkews development priorities Undermines the development of the local Undermines the development of the local

economy. EU: Italy, Austria and Spain give economy. EU: Italy, Austria and Spain give very high proportions of tied aid.very high proportions of tied aid.

Issues in AidIssues in Aid

►Technical AssistanceTechnical Assistance Constitutes 25% of global aid (consultants Constitutes 25% of global aid (consultants

working in the country, training and working in the country, training and research). Expat consultants more research). Expat consultants more expensive than local onesexpensive than local ones

Issues in AidIssues in Aid

►Poorly coordinated aidPoorly coordinated aid►Flag-wavers problemFlag-wavers problem►Parallel FundsParallel Funds►Budget Support, Donor HarmonisationBudget Support, Donor Harmonisation►Short termShort term►Volatile Aid flowsVolatile Aid flows►Aid DependencyAid Dependency

Issues in AidIssues in Aid

►ConditionalityConditionality Since 1990s, aid has been conditional on Since 1990s, aid has been conditional on

good governance and on countries good governance and on countries carrying out market reformscarrying out market reforms

Harmonisation may lead donors to apply Harmonisation may lead donors to apply more conditionality as they align more conditionality as they align themselves to IMF and WB prioritiesthemselves to IMF and WB priorities

Issues in AidIssues in Aid

►Aid not focused on Poverty ReductionAid not focused on Poverty Reduction►Macro-micro paradoxMacro-micro paradox►Military SpendingMilitary Spending►AccountabilityAccountability

Debate around concepts and Debate around concepts and definitions of Aiddefinitions of Aid

► ‘‘Real Aid’ – aid that is neither inflated, nor Real Aid’ – aid that is neither inflated, nor phantom aid and therefore makes a difference. phantom aid and therefore makes a difference. Action Aid (2003): 39% of ODA is ‘real aid’. Action Aid (2003): 39% of ODA is ‘real aid’.

► Inflated aid: debt cancellation, foreign student Inflated aid: debt cancellation, foreign student costs, refugee spending in the donor country – costs, refugee spending in the donor country – do not directly reduce poverty in the South. do not directly reduce poverty in the South.

► Phantom Aid: inflated aid + aid that reaches Phantom Aid: inflated aid + aid that reaches poor countries, but is of bad quality EG tied poor countries, but is of bad quality EG tied aid, technical assistance, poorly coordinated aid, technical assistance, poorly coordinated aid, aid that is heavily conditional, aid that is aid, aid that is heavily conditional, aid that is not focused on poverty reduction and military not focused on poverty reduction and military spending. spending.

The Real Motives of AidThe Real Motives of Aid

►Moral and humanitarian motives the Moral and humanitarian motives the ‘official’ reasons‘official’ reasons

►Reality: political, strategic and welfare Reality: political, strategic and welfare interests of donor countries are the interests of donor countries are the driving force behind the aid programsdriving force behind the aid programs

Political MotivesPolitical Motives

►Aid from the US during the Cold War was Aid from the US during the Cold War was based on considerations of national based on considerations of national security and preventing the spread of security and preventing the spread of communismcommunism

►Collapse of SU – decline in US aid flowsCollapse of SU – decline in US aid flows►Post 9/11 environment: Bush increases Post 9/11 environment: Bush increases

bilateral aid once again. bilateral aid once again. ►EU explicitly expresses its commitment to EU explicitly expresses its commitment to

using aid to promote democracyusing aid to promote democracy

Economic MotivesEconomic Motives

►Privileged access to resources and Privileged access to resources and marketsmarkets

►Opportunities through TradeOpportunities through Trade

Should aid flows be Should aid flows be increased?increased?

► Oxfam: Conflicts in Africa since the end of the Cold Oxfam: Conflicts in Africa since the end of the Cold War have cost the continent $US300 billion, War have cost the continent $US300 billion, equivalent to all the foreign aid it has received over equivalent to all the foreign aid it has received over the same periodthe same period

► Botswana, Indonesia, Bolivia and Uganda are some Botswana, Indonesia, Bolivia and Uganda are some of the countries that have gone from crisis to rapid of the countries that have gone from crisis to rapid development over the last 50 years with the help of development over the last 50 years with the help of foreign aid.foreign aid.

► Need for more aid : Achieving the MD of halving the Need for more aid : Achieving the MD of halving the proportion of people living in extreme poverty by proportion of people living in extreme poverty by 2015 is estimated to require a doubling of world aid 2015 is estimated to require a doubling of world aid at a minimumat a minimum

► Who are we asking – is aid working? Are we asking Who are we asking – is aid working? Are we asking the givers and the takers of aid? Are we asking those the givers and the takers of aid? Are we asking those who need the aid most?who need the aid most?

Should aid flows be Should aid flows be increased?increased?

►Need for “country ownership” of policies Need for “country ownership” of policies and strong domestic commitment to and strong domestic commitment to changechange

►EU and Japan are the products of aidEU and Japan are the products of aid► Issue of aid quality and the way it was Issue of aid quality and the way it was

givengiven►Aid is needed, but it should be Aid is needed, but it should be

structured to focus on infrastructure structured to focus on infrastructure and on human capitaland on human capital

Should aid flows be Should aid flows be increased?increased?

► Need for better accountability? Need for better accountability? ► Aid is a catalyst towards a country get on its own Aid is a catalyst towards a country get on its own

feetfeet► Aid alone is insufficient. Also need domestic and Aid alone is insufficient. Also need domestic and

international investment, trade issues, more international investment, trade issues, more participation in the global arenaparticipation in the global arena

► Africa is changing – forecasts of 6-7% growth in the Africa is changing – forecasts of 6-7% growth in the coming years: is this because of aid? coming years: is this because of aid?

► Aid has a positive effect on growth but only when Aid has a positive effect on growth but only when good policies are present in the recipient country. good policies are present in the recipient country.

► WB “Low income countries with bad policies should WB “Low income countries with bad policies should receive ideas rather than money”receive ideas rather than money”

► Criticisms: Shouldn’t focus on ‘good or bad’ policies, Criticisms: Shouldn’t focus on ‘good or bad’ policies, but instead on stability of aid flowsbut instead on stability of aid flows

Case StudiesCase Studies

►Scenario 1: The Ethics of Aid without Scenario 1: The Ethics of Aid without JusticeJustice

►Scenario 2: The Ethics of Humanitarian Scenario 2: The Ethics of Humanitarian DisengagementDisengagement

►Scenario 3: Truth Telling versus Scenario 3: Truth Telling versus Humanitarian AidHumanitarian Aid

Topics for debatingTopics for debating

►Local staff and international staff Local staff and international staff should be paid the same salaryshould be paid the same salary

►There is no role for international staff There is no role for international staff in the Southin the South

►Business and Trade, not aid is required Business and Trade, not aid is required for developing countriesfor developing countries

Useful WebsitesUseful Websites

►http://betteraid.orghttp://betteraid.org►www.eurodad.orgwww.eurodad.org►Reality of aid: Reality of aid: www.realityofaid.orgwww.realityofaid.org►www.oecd.org/dacwww.oecd.org/dac►www.dochas.iewww.dochas.ie►www.irishaid.gov.iewww.irishaid.gov.ie