Whether foreign aid works has been polarized between the “Oh yes it does” camp and those who respond “Oh no it doesn’t.” That’s too simplistic a juxtaposition.
Some might say that the fact that we are still asking this most basic question about aid over 60 years since official aid started to flow in the late 1940s is an indication of how relatively little we sometimes seem to know about aid’s impact and influence.
In the UK, we don’t however have such existentialist doubts.
The UK alone amongst the world’s largest economies has reached the UN target of giving 0.7% of GNI in overseas development assistance (ODA). That’s around £12bn this year of UK aid worldwide, or getting on for US$20bn, which means about half the size of Ghana’s whole economy.
And in Ghana, if you add up our bilateral aid through DFID and our contributions to multilateral institutions like the World Bank, African Development Bank, UN agencies, the EU and Global Fund, then the UK alone gave well over £100m to Ghana in 2013, the last full year for which figures are available, and at least the same since.
Why do we do this? Because we believe it’s the right thing to do, both morally as a good global citizen and, in this case, because of the responsibilities we take from our own history and colonial involvement in Africa.
That responsibility works in the other direction too though: we have a responsibility to spend that money well and account for it properly – to the British taxpayer who funds that aid. And there are opponents of aid per se in the UK too.
Let me recast my opening sentence. Claims that aid alone is responsible for impressive improvements in human development over the past couple of decades are clearly not credible. Yet, equally difficult to sustain are claims that aid has been entirely useless.
And, remember, L & G, before we get further into this debate. No country and nobody is somehow forced to accept development aid. It is any sovereign country’s right to say ‘no’. If any country we had wanted to help doesn’t want that help, then fine – there are many others that do.
And if aid is so bad, why do we so frequently receive requests for more of it, and by the way, not just from government ministries and agencies, but also from civil society and NGOs, one or two of whom are sometimes happy to receive privately what they then trash publicly?
Again I’ll return to where I started.
‘Aid is useless’ versus ‘aid is brilliant’ is a false dichotomy.
And, let’s face it, when you call aid ‘aid’ some people don’t like it or get upset. But call aid “economic assistance” or, better still, “development cooperation”, then not so much.
But, whatever you call it, I contend that it’s more useful to ask when aid works, not whether.
But in asking that question, it is worth noting that aid is constantly changing: it has been provided in different forms to address a succession of different problems. In the 1950s, it was physical infrastructure and technical skills; in the 1960s, it was the savings and investment gaps; in the 1970s, meeting basic needs; in the 1980s, the productive sector; in the 1990s, governance, human rights and human development; and today (not unlike the 1970s), assistance is targeted at the achievement of key Millennium Development Goals which are about to be succeeded by the Sustainable Development Goals.
More recently, people have wanted answers to the broader question of whether aid makes a lasting difference to the incomes and well-being of poor people, and if it helps to lift them out of poverty.
To provide those answers, we need to look at the data, provided by robust and empirical studies that have been peer reviewed.
Now, there are more studies on aid in the health and education sectors, than there are on social welfare, so it is not always easy to find good studies that can tell us what the impact of aid has been.
However some key lessons come out of the desire by all countries and peoples to understand what aid works and what doesn’t. Some of these conclusions come from the Centre for Global Development, one of the most respected think tanks in the field.
Most importantly, the majority of studies on aid are positive — but the impact of aid is often modest.
Secondly, aid is more likely to work in the correct dosage but is ineffective if too high or too low. Aid is likely to have diminishing returns as it grows relative to the size of the economy and those returns can even turn negative.
Thirdly, domestic political institutions matter – a lot: aid is more likely to work if the institutions are in place — for example, political stability and not too much decentralisation.
And here I also have to raise the thorny issue of corruption. And corruption by the way means stealing, robbery, theft – it is thieving from resources that should belong to all by individuals for personal gain. Sadly it happens a lot. Aid given to country x or y may intrinsically achieve good things, but if, say, a well spent US$ 100m of aid is then undermined by another US$ 100m being stolen by the politicians and civil servants of that country from the State’s budget – what’s the point?
I was very struck last weekend by Mo Ibrahim during his Foundation’s annual prize-giving event here in Accra. He said that illegal money transfers from the continent Africa, much of it the direct result of corruption, now exceed the receipts from aid. Think about it: however much we have been giving in development assistance to Africa, even more has been stolen from Africa. That’s to say stolen from African citizens by African leaders and elites.
While the UK Government would be first to say that development is about a whole lot more than aid, we can say that shifting the debate from whether aid ‘works’ to when aid works and how it can work better would contribute to better aid policy decisions in the real world, move away from mostly theatrical claims and counterclaims, and might even serve to reinvigorate global support for aid.
Of course we have to recognise that countries are complex entities, and many different factors influence how a country develops. For example, the last decade was relatively benign for some poor countries. High growth rates in Sub-Saharan Africa generated new optimism about prospects for sustained growth and poverty reduction. In the ten years after the Millennium, Africa experienced large-scale debt relief, an unprecedented rise in commodity prices, made new resource discoveries, and accessed cheap capital for new borrowing.
At the same time, aid flows went up, and for Ghana, like other African countries, the combination of these conditions helped Ghana make startling progress in reducing poverty during this time. Between 1991 and 2012, the poverty rate in Ghana fell by more than half. Did aid play a role in that? I’m convinced it did. Nothing the gainsayers have said here tonight has convinced me of the opposite. But, equally, aid was just one factor in that success story.
Sadly, in many parts of Africa, many of the factors that supported this growth have collapsed. Government debts are back at historic levels, the commodities boom has ended and falling export prices have reduced government revenues and squeezed budgets; international capital markets are shutting their doors, and investment is falling.
So, Africa now faces its toughest period for a decade. And around the world about 1 billion people still live on less than $1.25 a day – the official World Bank measure of poverty – and more than 800 million people do not have enough food to eat. Women – one half of the population - are still fighting hard for their legitimate rights, and millions of women still die in childbirth. The gap between the domestic rich and domestic poor is growing.
For our part, we recognise aid’s shortcomings and now have more knowledge about what to do to make it work better. We want to make our aid transformative by helping to unlock the private sector investment that Ghana needs to deliver the infrastructure in water, agriculture, transport, power that is so badly needed. We want to help the agricultural sector so that poor farmers have access to markets and see the commercialisation of agriculture to feed the growing cities. We want Ghana to be a business hub for the region, building on its strengths as a democracy with a strong rule of law and a free press. Above all, we want to see Ghana meet the new SDGs in full by 2030.
For Ghana to grow and prosper is going to cost money. Globally, the UN thinks that meeting the world’s infrastructure needs will cost $7 trillion. We may not be able to lift all Africans today out of poverty, but we must secure the future for the next generation. Rich and poor nations can only achieve this together, through the aid budget, through trade, through good governance, through partnering with the private sector and through domestic and international reforms that crackdown on illicit financial flows and corruption.
In other words: development isn’t just about aid – far from it.
I think the future partnership between the UK and Ghana, both in aid and in our broader trading and cultural relationship, is of trusted friends working together. It has to be a win-win for us both. And we believe that aid, or economic assistance or development cooperation – whatever your preferred term – with the right underlying rules and linked to shared goals can still be transformative.
I finish by making a point I hope is self-evident. The point of any aid programme ought to be to help the recipient country develop and prosper to the point where it doesn’t need aid any more. Aid alone never made any poor country rich, but I reject the notion of some here tonight that aid makes rich countries poor, or poor countries poorer. Aid makes countries less poor than they would otherwise be. But what makes countries really rich, in my opinion, is a free society in its widest sense.
That means a private sector set free to create jobs; a fair tax system that works; free trade, private investment and capital flows. It means solid state institutions, an honest civil service, a clean judiciary and a transparent set of rules, based on good norms and values, not on the arbitrary whim of leaders. And it means the reduction of corruption to the absolute minimum that is humanly possible, not least so that any aid received is a net addition to the resources spent on the people, not a kind of subsidy to replace the resources stolen from the people.