“Mzungu – Give me Money…” ($138bn please)

Should the UK (& other nations) be spending 0.7% of GNI on AID?

As I highlighted in my last blog, the aid debate is probably the most contentious issue surrounding Africa development, highlighted by the recent spat between Bill Gates and Dambisya Moyo. Since then, we’ve travelled through Rwanda into the DRC and are now in Tanzania. All three countries have been recipients of vast sums of overseas aid and I’ve met and spoken with many stakeholders, including several people asking me for money - “Mzungu - give me muni’ is the usual catchphrase that I’ve been  trying to ignore. On a macro level, meanwhile, the UK has been leading the way in meeting the UN commitment for countries to spend 0.7% of their gross national income (GNI) on official development assistance (ODA). In the UK, the majority of this money is spent by DfID, the Department for International Development and we were lucky to be hosted by its Rwanda chief, the impressive Laure Beaufils and her lovely family in Kigali…..

African countries are the major recipients of ODA; A sustainable commute with the Head of DFID, Rwanda

Efforts to enshrine the 0.7% commitment in law have been protracted due to plenty of opposition, including within the government.  Phillip Davis, a Tory backbencher, memorably described it as little more that a way to placate “Guardian-reading, sandal-wearing, lentil-eating do-gooders with a misguided guilt complex”. Laure certainly does not fit this description!

Aid can take a variety of forms including some of the excellent work that NGOs and charities such as those that Beyond the Bike are supporting - Beyond Ourselves in Zambia and United World Schools in Asia. In this blog, I’m going to concentrate on Official Development Assistance (i.e. from governments) which is worth nearly $140bn per year, according to the Washington based Centre for Global Development. DfID itself spends over £10bn (= c. $15bn) each year, channeled through both bilateral and multi-lateral spending. Its bilateral spending is channelled through recipient government spending or NGOs working in those countries, thus avoiding the costly set-up costs of putting in its own infrastructure. It spends nearly £1m per day in the DRC, for example, a country that is heavily reliant on ODA (Chart above)

Aid in Africa comes from many different donors, both East and West

DfID  was formed in 1997, the latest acronym in the relatively short history of UK development spending. International development is effectively a post colonial construct and thus has only been an ‘industry’ since the 1960s. Before that, what now might be considered ‘aid’ was carried out in a more imperialistic fashion.

Either way, DFID has made some impressive strides. ‘Under Claire Short (Secretary of State for International Development 1997-2003), DfID was very very progressive’, noted Laure as we pedalled up the hill to her office in Kigali and it continues to an extent in that vein: ‘We’re effectively trying to put ourselves out of business in the long-term’, citing Ghana as an example of a clear exit strategy. Certainly, with the 2008-09 financial crisis in the West and the more recent crisis in the eurozone, there are growing calls for money to be focused more domestically.

Nonetheless, there are some valid arguments for development spending, which Laure clearly articulated.  One that is being emphasised  by the current government is that there is not just a moral case for eradicating poverty but a case of self-interest too: reducing poverty helps to reduce the international security threat. Young people are less likely to turn to crime or terrorism if they have a decent job. Moreover, the post 2015 development agenda acknowledges the need to work together with other departments on global concerns, namely the planet’s environmental limits and the need to invest in greener growth and more equitable development. These issues require a multi-lateral approach with significant funding that could not be achieved by single governments’ and politicians’ short-term agendas.

DfID has also been instrumental is some serious success stories in East Africa. M-PESA, the mobile money service started in Kenya that I highlighted on my last trip, and now channels more that one-third of it’s GDP money flows, was seed funded by DfID. It is also ubiquitous in Tanzania and many of the other mobile giants have adapted its model. More recently, DfID has been helping to develop the highly successful M-KOPA, harnessing the power of mobile and solar technology.

M-PESA (meaning mobile money in Swahili) is ubiquitous in Kenya & Tanzania

Meanwhile, in Rwanda, Laure highlights that there is ‘no way it would be where it is today without aid or the strong government (led by Paul Kagame)’. Certainly, the country has made amazing progress since the tragic genocide just over 20 years ago and the strong government with a pro-poor, anti-corruption agenda means that Laure can be confident that she knows where most, if not all, of the UK taxpayers money goes that she oversees.

Finally on the pro-aid side of the debate DfID is relatively research based, echoing the view of prominent pro-aid academic Jeffrey Sachs from Columbia University who emphasises that ‘Aid works, when it is practical, targeted, science based and measurable’.

Whilst there is undoubtedly a case for aid, there are vociferous critics such as the aforementioned Dambisa Moyo in her polemic “Dead Aid” and even the strongest defenders accept that it hasn’t been wholly successful, especially in Africa. As well as questioning its overall effectiveness, my observations and conversations on this trip and the last highlight three main criticisms:

Firstly, there is the ‘dependency’ issue:

Between 1970 and 1995 aid to Africa increased rapidly and aid dependency (measured as the aid-to-GDP ratio) stood at nearly 20% in the early 1990s. Measured differently, the mean value of aid as a share of government expenditures in African countries was well above 50% between 1975 and 1995.Thankfully, this is less of an issue in the 21st century as the chart below shows, a point echoed by Laure. ‘We should be more concerned about distorting local markets than dependency’.

Aid-Dependency is less of an issue in 2015

Secondly, and more prevalent, is that aid is excessively directed towards the salaries of consultants from donor countries rather than investments in recipient countries. On our trip across to the DRC, the NGOs and government agencies were driving around in $40,000 land cruisers whilst a more common form of local transport was a bicycle with wooden wheels.

Photo: 1st & 21st Century transport modes on the same road in Goma, DRC

Finally, there is plenty of evidence of failed projects and wasted money. A trip around Kigoma with our Aussie/Canadian hosts Alex & Beatrice who run a small scale but very impressive agricultural NGO - (https://www.seedchangetanzania.org/who-we-are/), highlighted several ‘white elephants’ projects that were clearly not thought through, wasting several million euros in the process. (One example was a large, brand new fish market, which lies empty as the locals do not want to use it, especially as it is in totally the wrong place!).They have also experienced much bureaucracy and ‘jumping through hoops’ from their own funder in the Danish Government.

Of course, there are many other factors that have limited development including corruption (less of an issue that 20 years ago); poor policy rather than aid and a lack of access to developed markets, limited by protectionism policies such as the Common Agricultural Policy in the EU. Certainly, the amount of money spent subsidising EU & US Agriculture ($100bn+) puts the $138bn of aid into perspective and highlights the distorted world that we live in.

So should the UK continue to spend 0.7% of its GNI on ODA?  As I’ve hopefully highlighted above, there is not a clear yes/no answer. Certainly, the people I’ve met at DfID in the UK, Uganda & Rwanda are worthy of my taxes and Alex & Beatrice are big fans of DfID. I guess that is praise coming from an Aussie! As an economist, I’d suggest that trade has proven to be instrumental to poor countries’ development whereas aid’s effect has been ambiguous.

As the global geo-political landscape changes and the West becomes less influential - we’ll be looking at the role of China in Africa in our next blog from Zambia - the debate around aid will change with it.

African countries are increasingly looking East for investment as this newspaper article highlights

As both Laure and Alex highlighted separately, the role of education will be key, both in developing countries (helping to boost human capital and the ability to grow sustainably) and in developed countries so that tax-payers can make better informed decisions rather than having to listen to the likes Mr Davis quoted above and some of the subjective media on both sides of the debate.

With this is mind, please do support Beyond Ourselves and United World School and help incentivise us through some of the tough kilometres ahead. Don’t worry, 100% of all the monies raised are going to the charities and we’re very confident that the money is being used effectively. Sadly, we can’t be so confident about the $138bn of aid likely to be spend over the next 12 months!