Good news on aid: dependency is falling, and quality (slowly) improving (but France is still rubbish)

September 27, 2011 2 By admin

Real Aid: Ending Aid Dependency is a smart new aid-report-with-a-difference from ActionAid:

“There is good news. Developing countries are getting less dependent on aid. Over the last decade [aid dependency] has fallen on average by a third in the poorest countries. In Ghana aid dependency fell from 47% to 27%, in Mozambique from 74% to 58% and in Vietnam from 22% to 13%. Although aid levels increased, economic growth and the countries’ ability to mobilise their own resources increased faster.

Aid dependency

For Rwanda, real aid has helped transform the country. Aid as a percentage of government spending dropped from 85% in 2000 to 45% in 2010. “We have shown donors that when we are in the driving seat – deciding how to allocate aid money ourselves – we spend donor money more effectively. Donors have responded to the results we have delivered by giving us more and more say over how we use their aid,” Ronald Nkusi, Director of the External Finance Unit in the Finance Ministry, Rwanda.

To ensure aid helps to reduce their dependency on it, developing countries are implementing systems to hold donors accountable. In Rwanda a traffic light system scores donors on factors such as how much they use the country’s own finance systems, and use of budget support for procurement and governance. Developing country governments are also becoming more accountable to their own people, rather than donors. In Ghana ActionAid supports a community in the village of Mampehia to track the school budget, which is financed out of Ghana’s national budget, which in turn is substantially boosted by budget support aid.

Another key factor in the improving situation is that many countries have boosted their tax revenue by between 4 and 8% of GNI in recent years. Donors can support this process by giving more real aid, which allows developing countries to make their own decisions. In Ghana donors have pooled a third of all aid to the country in a flexible programme which reduced the cost of mobilising resources.

Donors can also be transparent and accountable themselves, by publishing details of their work in an internationally agreed form, and they can give aid which supports domestic resource mobilisation. In a very clear example, aid from the UK supported Rwanda to quadruple its own taxes between 1998 and 2006.”

The report examines the way success stories such as South Korea, Botswana and Taiwan used aid to achieve economic take off, and in turn reduce their aid dependence, and sees similar approaches working now (assertive recipient governments with a clear national strategy, making aid donors fall into line rather than impose the latest developmental fads).

It then goes on to rank the aid quality of different donors, estimating how much of their spend constitutes what ActionAid calls ‘real’ (i.e. good quality) aid. Ireland and the UK come out top, with Greece and France at the bottom of the class. Here’s where the ‘bad aid’ goes:Bad Aid breakdown

Overall, hats off to AA for the focus on improving aid quality, positive message, and acknowledgement that reducing aid dependency is a vital task (and one that aid itself should aim to facilitate). [h/t Jonathan Tench]