A new report by the World Bank’s Development Research Group on the links between foreign aid and economic policy reform in Africa has revealed that aid has in some countries has been effective in supporting policy reform, but that, in general, donors have not discriminated effectively between different countries. “Large amounts of aid to countries with bad policies sustain those poor policies,” the report said.
The report is based on case studies of 10 African countries - Cote d’Ivoire, Democratic Republic of the Congo, Ethiopia, Ghana, Kenya, Mali, Nigeria, Tanzania, Uganda and Zambia - which examine the nature of external assistance, the causes of reforms in different policy areas and whether there is any relationship between the two.
The new report, “Aid and Reform in Africa: Lessons from Ten Case Studies”, says that where political leaders are committed to reform, and capable civil servants and community groups can implement change, aid increases public confidence in the reform process and attracts greater private investment in national economies. In this way, foreign aid can help deepen reform commitments and support high growth rates. [The full report is available at: http://www.worldbank.org ]
“Reform really requires country ownership; conditionality cannot substitute for commitment,” said David Dollar, Head of the Macroeconomics and Growth Team in the World Bank’s Development Research Group. “When I say commitment, we mean really both the commitment of the government - the political leadership - but what we really see in successful reformers is a much deeper commitment from the larger society. We see a lot of consultation and participation of different interest groups and stakeholders in successful reforms... Reform is largely home-grown.” In light of the potential for reform and economic growth, the World Bank reiterated that rich countries should honour a commitment to the UN to devote 0.7 percent of their annual GDP to overseas aid, and to open their markets to exports from developing countries. Development assistance to Africa has fallen drastically from US $32 per head in 1990 to just US $19 in 1998, despite clear evidence of the effectiveness of aid in countries with effective economic and social policies. “It is painfully ironic that just at the time when many African governments are putting in place effective social and economic policies, and committing to reform, development aid is being cut. This is exactly the wrong message for donors to send,” said World Bank President James Wolfensohn, who returned recently from meeting with 22 African heads of state. “African leaders are determined as never before to lead their own renaissance, but what they also need is increased development assistance to support those reforms and access to developed country markets. Rich countries need reminding that their current levels of foreign aid, at some 0.24 percent of yearly GDP, fall far short of the 0.7 percent target they promised to meet. “The difference between these figures is worth a hundred billion dollars a year. For millions, this is the difference between life and death,” Wolfensohn added. In two sustained economic reformers: Ghana and Uganda, aid played a significant and positive role as it helped to generate ideas in the initial phase, according to the World Bank report. “Financial assistance grew as policy improved and increased the benefits of reform, helping sustain political support,” the report said. The Ugandan reform programme was broadly consultative at every step of the way, the report stated. President Yoweri Museveni established the Presidential National Forum to debate reform issues in 1987. The Ugandan Manufacturers’ Association sponsored seminars and discussion papers between 1987 and 1989. The Presidential Economic Council had open debates on reform and sponsored a December 1989 conference on trade liberalisation that has been described as a turning point in public opinion, according to the World Bank. When Ghana was dealing with macroeconomic crisis in the early 1980s, it had well-trained economists to develop policy proposals, and these technocrats found the policy dialogue with the international financial institutions to be helpful in working out plans. By contrast, the Bank stated, policy-making in Kenya appeared to be restricted to a small circle. As a result, the reforms were not always “owned” by even the line ministries, and other stakeholders were not consulted, it added. Capacity building was not going to have a large pay-off as long as vested interests blocked serious reform, but it was an essential foundation if a political movement for change developed. Where donors failed to heed this advice and to differentiate between effective and weak national performers, large amounts of foreign aid can sustain poor policies, and delay key social and economic reforms. Attaching conditions to the aid in these cases has not successfully led to policy change, nor has it delayed the disbursement of funds. The report adds that the composition of aid is also important. “In the pre-reform period, technical assistance and policy dialogue are most supportive of reform. During periods of rapid reform, policy dialogue is important, as is finance. This is the phase in which conditional loans tend to be useful and effective. Once the reform movement is well entrenched, however, “conditionality” becomes less useful, because it limits participation and disguises ownership, both of which are essential for the difficult, “second-generation” changes, such as civil-service reform and public management reform. “This report shows that aid cannot ‘buy’ reform in poor countries that are flatly opposed to it,” according to Shanta Devarajan, co-author of the new report and Chief Economist of the World Bank’s Human Development Network. “Without country-ownership of a national development strategy, even the most generous and well-intentioned aid packages will have little or no impact in improving the quality of people’s lives. This is why country-ownership is at the heart of the Poverty Reduction Strategy Papers or PRSP process where poor countries devise their own social and economic priorities - with the World Bank, the IMF, and international donors playing a supporting role.”
“Reform really requires country ownership; conditionality cannot substitute for commitment,” said David Dollar, Head of the Macroeconomics and Growth Team in the World Bank’s Development Research Group. “When I say commitment, we mean really both the commitment of the government - the political leadership - but what we really see in successful reformers is a much deeper commitment from the larger society. We see a lot of consultation and participation of different interest groups and stakeholders in successful reforms... Reform is largely home-grown.” In light of the potential for reform and economic growth, the World Bank reiterated that rich countries should honour a commitment to the UN to devote 0.7 percent of their annual GDP to overseas aid, and to open their markets to exports from developing countries. Development assistance to Africa has fallen drastically from US $32 per head in 1990 to just US $19 in 1998, despite clear evidence of the effectiveness of aid in countries with effective economic and social policies. “It is painfully ironic that just at the time when many African governments are putting in place effective social and economic policies, and committing to reform, development aid is being cut. This is exactly the wrong message for donors to send,” said World Bank President James Wolfensohn, who returned recently from meeting with 22 African heads of state. “African leaders are determined as never before to lead their own renaissance, but what they also need is increased development assistance to support those reforms and access to developed country markets. Rich countries need reminding that their current levels of foreign aid, at some 0.24 percent of yearly GDP, fall far short of the 0.7 percent target they promised to meet. “The difference between these figures is worth a hundred billion dollars a year. For millions, this is the difference between life and death,” Wolfensohn added. In two sustained economic reformers: Ghana and Uganda, aid played a significant and positive role as it helped to generate ideas in the initial phase, according to the World Bank report. “Financial assistance grew as policy improved and increased the benefits of reform, helping sustain political support,” the report said. The Ugandan reform programme was broadly consultative at every step of the way, the report stated. President Yoweri Museveni established the Presidential National Forum to debate reform issues in 1987. The Ugandan Manufacturers’ Association sponsored seminars and discussion papers between 1987 and 1989. The Presidential Economic Council had open debates on reform and sponsored a December 1989 conference on trade liberalisation that has been described as a turning point in public opinion, according to the World Bank. When Ghana was dealing with macroeconomic crisis in the early 1980s, it had well-trained economists to develop policy proposals, and these technocrats found the policy dialogue with the international financial institutions to be helpful in working out plans. By contrast, the Bank stated, policy-making in Kenya appeared to be restricted to a small circle. As a result, the reforms were not always “owned” by even the line ministries, and other stakeholders were not consulted, it added. Capacity building was not going to have a large pay-off as long as vested interests blocked serious reform, but it was an essential foundation if a political movement for change developed. Where donors failed to heed this advice and to differentiate between effective and weak national performers, large amounts of foreign aid can sustain poor policies, and delay key social and economic reforms. Attaching conditions to the aid in these cases has not successfully led to policy change, nor has it delayed the disbursement of funds. The report adds that the composition of aid is also important. “In the pre-reform period, technical assistance and policy dialogue are most supportive of reform. During periods of rapid reform, policy dialogue is important, as is finance. This is the phase in which conditional loans tend to be useful and effective. Once the reform movement is well entrenched, however, “conditionality” becomes less useful, because it limits participation and disguises ownership, both of which are essential for the difficult, “second-generation” changes, such as civil-service reform and public management reform. “This report shows that aid cannot ‘buy’ reform in poor countries that are flatly opposed to it,” according to Shanta Devarajan, co-author of the new report and Chief Economist of the World Bank’s Human Development Network. “Without country-ownership of a national development strategy, even the most generous and well-intentioned aid packages will have little or no impact in improving the quality of people’s lives. This is why country-ownership is at the heart of the Poverty Reduction Strategy Papers or PRSP process where poor countries devise their own social and economic priorities - with the World Bank, the IMF, and international donors playing a supporting role.”
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