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Abstract
After almost forty years of development aid most commentators agree that aid as we know it has not worked. Aid fatigue is suffered on both the donor and recipient sides, with a wide divergence between those who call for a radical overhaul of aid delivery methods, those who advocate a complete end to development aid and those who continually demand significant increases in aid flows.
David Fee provides a refreshing, insightful and comprehensive analysis of how an exit may actually be possible - drawing on real experience and as such supplying a simple summary of recommended policy steps. The author thoroughly reviews aid for trade, regional integration and microfinance and a host of other solutions that have been proposed - arguing that an exit strategy for both donors and the least developed countries will have to consider the optimal combination of these specific initiatives to best satisfy the necessity of development and at the same time solve the problems of conventional aid.
'To develop successful strategies and tactics for the future one has to know the present situation and that is not possible without knowing the past. To that end this book is a great help. It provides a thorough contribution to a debate that should not be limited to the in crowd of experts. Development cooperation is paid for by all taxpayers, who should all have a genuine interest in getting value for money. The same would, of course, be true for those at the receiving end of the aid.'
Koos Richelle, former director general of the EuropeAid Cooperation Office
'Derek Fee's book is a must-read for development practitioners and policy makers who are seeking a new paradigm to the conventional aid model, one that can work for the poor and that will lay the basis for aid dependent countries to exit from aid . A marvellously insightful book on the politics and economics of the relationship between the aid recipient countries and donors of all colours.'
Sindiso Ngwenya, COMESA Secretary-General
'I congratulate Derek Fee on his high-quality and extremely detailed book that has not only the merit to be an update on development aid but also asks pertinent questions on the future of our relations with developing countries. He does this with tact and success, based on his long experience of Africa. Derek Fee is one of those men, visionaries, open to dialogue, reforms and changes. I congratulate him on this most valuable book, which finds its place among all the lovers of Africa.'
Louis Michel, MEP, former European Commissioner for Development
Derek Fee holds BE, MSc and PhD degrees from University College Dublin and an MBA from Trinity College Dublin. He is the author of six non-fiction books and one novel. He was the EU Ambassador to Zambia and the EU Representative to COMESA. He is currently the Managing Partner of DevAid Partners.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| About the author | i | ||
| Figures\r | vi | ||
| 1.1 Total ODA and ODA to Africa | 12 | ||
| 1.2 FDI inflows to Africa, 2000–10 | 17 | ||
| 1.3 FDI developing countries and Africa | 18 | ||
| 1.4 Barriers to investing in Africa | 18 | ||
| 2.1 Aid flows, 1965–2010 | 30 | ||
| 2.2 Growth rates in developing Asia, Latin America and the Caribbean, and sub-Saharan Africa | 32 | ||
| 4.1 Tax mix of a group of African countries | 67 | ||
| 4.2 Tax effort of a group of African countries | 68 | ||
| 4.3 VAT and corporation tax rates in a group of African countries | 70 | ||
| 5.1 Share of world trade, 1948–2006 | 90 | ||
| 5.2 Total 'aid for trade' volumes | 106 | ||
| 5.3 'Aid for trade' financial flows to Africa | 106 | ||
| 6.1 Chinese FDI to Africa | 116 | ||
| 6.2 South Africa’s outward FDI stock | 128 | ||
| 7.1 The East Africa RIO spaghetti bowl | 135 | ||
| 9.1 Overseas development aid, foreign direct investment and remittances for developing countries, 2002–09 | 175 | ||
| 10.1 Core support from DAC donors to NGOs | 196 | ||
| 10.2 Private flows, ODA and private grants, 2001–10 | 196 | ||
| 11.1 Elements of an aid exit strategy | 209 | ||
| Table\r | vi | ||
| 7.1 Details of regional integration organizations | 133 | ||
| Boxes | vi | ||
| 2.1 The World Bank | 26 | ||
| 2.2 The Millennium Development Goals | 35 | ||
| 4.1 Mining taxation in Zambia | 78 | ||
| 4.2 Disadvantages associated with an Autonomous Revenue Authority | 81 | ||
| 5.1 A trade facilitation project in Tunisia | 104 | ||
| 7.1 Functions of a regional organization | 134 | ||
| 7.2 Evolution of PTA/COMESA | 136 | ||
| 7.3 The North–South Corridor project | 140 | ||
| 7.4 The RIO and inter-regional justice | 146 | ||
| 8.1 A case study of Compartamos | 158 | ||
| 8.2 Alternative mechanisms for financing the poor | 160 | ||
| 8.3 Regulation of MFIs in Tanzania | 168 | ||
| 9.1 Maria's story | 184 | ||
| 10.1 Two NGOs: Save the Children and Build It International | 194 | ||
| Abbreviations | viii | ||
| Preface | x | ||
| Acknowledgements | xiii | ||
| 1 | The state of aid | 1 | ||
| Development aid is in trouble | 1 | ||
| The aid crisis is deepening | 2 | ||
| Who has exited from aid, and how did they do it? | 7 | ||
| Africa and development aid | 11 | ||
| Figure 1.1 Total ODA and ODA to Africa | 12 | ||
| Africa in an aid exit scenario | 12 | ||
| Foreign direct investment (FDI) in Africa | 17 | ||
| Figure 1.2 FDI inflows to Africa, 2000–10 | 17 | ||
| Figure 1.3 FDI developing countries and Africa | 18 | ||
| Figure 1.4 Barriers to investing in Africa | 18 | ||
| Conclusion | 19 | ||
| 2 | A short history of development aid | 21 | ||
| The genesis of development aid | 22 | ||
| The period 1900–1955 | 23 | ||
| Box 2.1 The World Bank | 26 | ||
| 1955–2011 – the golden age of development aid? | 29 | ||
| Figure 2.1 Aid flows, 1965–2010 | 30 | ||
| Figure 2.2 Growth rates in developing Asia, Latin America and the Caribbean, and sub-Saharan Africa | 32 | ||
| Development aid and the crusade to end poverty – the road to and from Gleneagles | 33 | ||
| Box 2.2 T he Millennium Development Goals | 35 | ||
| G8 meeting at Gleneagles 2005 | 37 | ||
| Conclusion | 42 | ||
| 3 | The development aid business | 44 | ||
| Developing a country strategy | 47 | ||
| The project approach | 48 | ||
| Sector-wide approaches (SWAPs) | 52 | ||
| Programme sector budget support (PSBS) | 53 | ||
| From structural adjustment loans to general budget support | 55 | ||
| Development aid interventions – new wine in old bottles | 59 | ||
| 4 | Domestic resource mobilization | 64 | ||
| Africa and trends in domestic resource mobilization | 65 | ||
| Figure 4.1 Tax mix of a group of African countries | 67 | ||
| Figure 4.2 Tax effort of a group of African countries | 68 | ||
| The challenges in improving domestic resource mobilization | 69 | ||
| Figure 4.3 VAT and corporation tax rates in a group of African countries (per cent) | 70 | ||
| Areas where resource mobilization can be effective | 72 | ||
| Transfer pricing – the thief in the night | 73 | ||
| Tax incentives | 75 | ||
| Box 4.1 Mining taxation in Zambia | 78 | ||
| Tax administration | 80 | ||
| Box 4.2 Disadvantages associated with an Autonomous Revenue Authority | 81 | ||
| The political characteristics of taxation | 82 | ||
| Is resource mobilization a magic bullet? | 84 | ||
| 5 | Trade liberalization | 85 | ||
| GATT, the WTO and the Doha Development Agenda | 86 | ||
| Figure 5.1 Share of world trade, 1948–2006 | 90 | ||
| Economic Partnership Agreements | 90 | ||
| What problems do developing countries face with trade liberalization? | 92 | ||
| Aid for trade | 98 | ||
| Box 5.1 A trade facilitation project in Tunisia | 104 | ||
| ‘Aid for trade’ financial volumes | 106 | ||
| Figure 5.2 Total ‘aid for trade’ volumes | 106 | ||
| Figure 5.3 ‘Aid for trade’ financial flows to Africa | 106 | ||
| Conclusions | 107 | ||
| 6 | The BRICS | 109 | ||
| The Chinese model | 112 | ||
| Figure 6.1 Chinese FDI to Africa | 116 | ||
| The Indian model | 117 | ||
| India International Development Cooperation Agency (IIDCA) | 120 | ||
| The Brazilian model | 123 | ||
| The Russian model | 125 | ||
| The South African model | 126 | ||
| Figure 6.2 South Africa’s outward FDI stock | 128 | ||
| A BRICS collaborative model | 129 | ||
| The BRICS and an aid exit strategy | 131 | ||
| 7 | Regional integration | 132 | ||
| Regional integration organization or regional economic communities? | 132 | ||
| Box 7.1 Functions of a regional organization | 134 | ||
| Figure 7.1 The East Africa RIO spaghetti bowl | 135 | ||
| Box 7.2 Evolution of PTA/COMESA | 136 | ||
| Why join an RIO? | 137 | ||
| Box 7.3 The North–South Corridor project | 140 | ||
| Box 7.4 The RIO and inter-regional justice | 146 | ||
| Conclusion | 152 | ||
| 8 | Microfinance | 155 | ||
| The genesis of microfinance | 155 | ||
| The microfinance industry today | 156 | ||
| Box 8.1 A case study of Compartamos | 158 | ||
| Box 8.2 Alternative mechanisms for financing the poor | 160 | ||
| Who are the clients of microfinance? | 161 | ||
| Does microfinance empower women? | 165 | ||
| Regulating the MFI | 166 | ||
| Box 8.3 Regulation of MFIs in Tanzania | 168 | ||
| Microfinance and mobile banking | 171 | ||
| Conclusion | 171 | ||
| 9 | Remittances | 174 | ||
| Figure 9.1 Overseas development aid, foreign direct investment and remittances for developing countries, 2002–09\r | 175 | ||
| Remittances and poverty alleviation | 176 | ||
| Remittances and economic development | 177 | ||
| Remittances and inequality | 179 | ||
| Remittances and food security | 181 | ||
| Remittances and gender | 182 | ||
| Box 9.1 Maria’s story | 184 | ||
| Remittances and microfinance | 186 | ||
| Conclusions | 187 | ||
| 10 | Non-governmental organizations and philanthropic foundations | 190 | ||
| NGOs, civil society and development: a case of schizophrenia? | 190 | ||
| Box 10.1 Two NGOs: Save the Children and Build It International | 194 | ||
| Funding the NGOs | 195 | ||
| Figure 10.1 Core support from DAC donors to NGOs | 196 | ||
| Figure 10.2 Private flows, ODA and private grants, 2001–10 | 196 | ||
| The allocation and management of funding by NGOs | 198 | ||
| NGO accountability | 201 | ||
| The future of NGOs in development | 202 | ||
| The philanthropic foundations | 203 | ||
| Conclusion | 205 | ||
| 11 | Towards an aid exit strategy | 207 | ||
| The elements of an aid exit strategy | 209 | ||
| Figure 11.1 Elements of an aid exit strategy | 209 | ||
| Institutional development | 210 | ||
| Domestic resource mobilization | 213 | ||
| Economic diversification | 215 | ||
| A Global Fund for Infrastructure | 220 | ||
| Self-help aid | 224 | ||
| Does this aid exit strategy respond to the problem of long-term aid? | 226 | ||
| Does the proposed model go too far? | 228 | ||
| Is the time right for an aid exit strategy? | 231 | ||
| The future of aid | 232 | ||
| Bibliography | 234 | ||
| Index | 247 | ||
| About Zed Books | 258 |