The Politics of Aid and Poverty Reduction

Over here Teddy Brett, Associate Director of the London School of Economics' Development Management Program, makes some very valid points about development aid that are frequently swept under the rug or simply ignored as inconvenient truths by project designers in the various aid agencies. In short, he correctly points out that politics in recipient countries often kills off poverty reduction efforts when the implementation of the effort touches political sensitivities of the corrupt elite.

The problem is endemic and donor agencies are incapable of addressing the issue, choosing rather to ignore corrupt government officials and elites, rather than simply cutting off the funds and allocating those to less corrupt governments. It is a choice of evils.


Furthermore, for some countries, finding substitute donors is somewhat easier, particularly if there is a geo-political or resource reason for investing the money. The Kyrgyz Republic, for example, has already been promised $300 million in aid from Russia which correctly sees the recent revolution, where evidence is mounting that it orchestrated, as an opportunity to establish a stronger foothold in the region - nothing wrong with that from their strategic interest point of view.

Then there is Sudan and other African countries with resources that China wishes to secure. Non-democratic or corrupt regimes are ignored merely because China sees no upside in political interference or moralizing. And in any event, that is a pot and kettle situation.

There are only two reasons for the enormous amount of aid rained on Armenia by the United States. The first is an incredibly powerful lobby in Congress (these aid funds are largely earmarked).  The second is purely geo-political: to counter Russian influence in Armenia.  In regard to the latter, purely political reason, the US has been singularly unsuccessful.

Let's be realistic. Aid is an arm of foreign policy and when that aid involves economic and structural reforms it will run smack into local politics and power centers which will either support or obstruct it depending on self-interest. That should not be a shock to anyone.

Poverty reduction is like apple pie and no one is going to say that they are not interested. How that poverty reduction is implemented is the difference. But in the end, it is all political and foreign aid assistance needs to be better formulated to address this fundamental.

Time to re-think development aid

One of the purposes of this blog is to try and propose alternatives to the accepted wisdom of development aid implementation. A key problem with development aid is that little of the aid is spent on the target country contractors and suppliers and even if they are not available – always a suspect report from an “implementing partner” – there is little effort to actual developing local entrepreneurial firms. This has been particularly true in Afghanistan, of course, and has been well documented. In that regard, I hope that the Obama administration will alter the way USAID and associated US aid donors (including the Defense Department) design their terms of reference.

Since I believe in finding root causes – not just proximate causes, it may be that the principal mistake may be the manner in which development aid programs are designed and implemented. The assumptions made at the very initial stage of design then embed themselves in the terms of reference and contract. Any modifications are made at the edges.

A root problem is that both the EU and the US award development aid contracts to national firms in the vast majority of cases. Since that is unlikely to change, some effort must be made to encourage the use of local contractors, suppliers and experts. Encouragement does not mean to simply “try your best, fellas”. Contracts should affirmatively provide for levels of funding specifically for local firms. It should not be left to the US or EU contractor to inform the prime donor that such local talent is not there simply because that fact should have been discovered during the planning stage of the project. In that case, provision should be made to develop local human and business resources so that at least some sustainable development would be built into the project.

In my experience, where funding has been structured to actually promote development, it has thankfully only peripherally involved the active involvement of the recipient government whose otherwise primary goal is to make sure its fingerprints are all over the project. Allowing fund disbursement to be controlled by the recipient governments involved is, I believe, a mistake unless there is a clear commitment to actually accomplishing the goals of whatever program is involved tied to iron clad conditionalities.

Another issue that deserves another look is the way of determining indicators for success or progress. In the US, Congress is impressed with statistics – how much was spent, what units (of whatever) were built, created, reduced, changed etc. In one example I experienced, the indicator for a successful land tenure program was an increase in transactions – a largely meaningless number unless taken in context of the economic environment. It is hardly a success in such a case if the only result is a massive sell-off at fire sale prices leading to a sinking economy. Much better to have fewer transactions that result in positive economic activity – including increased values and investments. Overall, it is necessary to take a much broader, long term view and develop indicators of sustainability that do not result in dependence on donors.

Three year or five year contracts to accomplish a wish list of deliverables may not deliver much in reality. Depending on the type of initiative longer contract terms should be considered to allow for change. Some consideration needs to be given to changing economic, social and political environments even before contracts are awarded, making the terms of reference obsolete. To help avoid this prospect, the process for determining feasibility, developing a plan of intervention and deciding on targeted outcomes needs to be significantly accelerated from, in the case of USAID, the usual 145 days.

Contracts should also avoid a “buy” American or EU requirement. Too frequently, this results in more money being spent than would otherwise be the case and, not surprisingly, does nothing to assist the local economy.

In construction and supply contracts every effort should be made to contract locally. If long term construction is required, then components should be added to develop, for example, TVET schools of a permanent nature with a guarantee that whatever construction is being planned, the graduates would have a job.

One final note about NGO support. In many political environments certain NGOs are not welcome and not sustainable. That does not mean they should not receive donor support. Just don't expect any sustainability once the donor goes away. In many situations, civil society NGOs are simply not effective. If the economy is or has been cratering, those trying to raise awareness for civil society initiatives are preaching to the families desperate to put food on the table. They don't care which particular oligarch of the moment runs the local paper.

Finally, the structuring of aid programs should include an investigation of the possibility of calving off a portion of program funding to act as a form of venture capital, providing either outright grants to support existing or develop new businesses within the framework of the program – something that worked in Armenia – or recoverable grants.

Many suggestions have been made in numerous published articles regarding improving the impact of foreign development aid. Hopefully, changes are coming as a result of political pressure and less ideological proclivities of those in charge of targeting that aid.

Nation Building

The US is indulging in nation building in Afghanistan, which never was and never will be a nation. Spending funds to provide schools, roads and livelihoods is fine, and if military protection is needed to support this effort and help make it sustainable, then so be it.

But, the world now has two more governments, Iraq and Afghanistan, whose social and political foundation is based on the denial of human rights to large segments of their populations. The denial of rights, often brutal and deadly, is based on a twisted version of basic human rights that asserts the priority of traditional ways and which cannot be criticized, particularly if those actions are based on religion. Taken to the extreme (or not in the case of Afghanistan)religious beliefs can allow anything, including murder and torture, so long as they are grounded in past practices sanctioned by those in power. To point out that this might somehow be wrong is to be branded as prejudiced.

Sorry. I do not believe that we should respect, tolerate, much less fund, any belief that advocates denial of basic human rights whether in the name of religion, tradition or anything else that smacks of "this is our way". It is merely an excuse for brutal discrimination to maintain or re-establish the status-quo ante.

The US and other nations have been spending billions of development aid in Afghanistan, yet the government has recently enacted a law that forbids women to leave the home without obtaining the permission of their husband. Iraq now has a full fledged fundamentalist regime that has dismembered the rights of women and other religious groups. Is this why the US and the rest of the world are pouring money into these newly minted 12th century regimes? Whatever happened to conditionalities?

I apologize for the rant which was caused by reading this today. The tacit approval implied by failure to tie funds to behavior through conditional funding that subsequently results in the re-deployment of abusive beliefs and actions, is outrageous. In fact, all - all of Central Asia was socially better off under the Soviets because at least they enforced equal treatment of women and men and held these perverted religious ideas in check. Let the Russians take back Central Asia for the sake of civilization.