Public funding private projects?

Development finance like aid, technical assistance and concessional financing is meant to advance broad human and social welfare objectives in developing countries. 

Aid is used to support policy reforms, secure livelihoods and catalyse mobilisation of additional and critical resources, such as domestic resources. No form of technical cooperation is ever provided to fund private projects and personal interests — something that remains unclear in Kenya.

Development partners are expected to ensure that the resources they provide support public interests. Lack of transparency around major public projects, and occasional revelations that they may be intentionally overpriced, are raising doubts to the optimality of these investments. 

Foreign aid has failed in Africa because of widespread corruption, misappropriation and mismanagement of funds by recipient governments and development agencies themselves. There have been efforts to mitigate against this failure by suggesting changes in the way development cooperation is practised. 

Paris-based OECD, the United Nations Development Cooperation Forum, and the United Nations Office for South-South Cooperation are some of the organisations that have been working on this agenda.

Groundbreaking findings

No studies have been more influential in shaping the global discourse on aid effectiveness in this millennium than the “Aid, Policies, and Growth” paper by Craig Burnside and David Dollar. Using aid data for 56 developing countries, spanning 64 years, the 2000 paper found that aid had a positive impact on growth in countries with good fiscal, monetary and trade policies. 

Conversely, aid had no positive effect on growth in countries with poor policies. This work has been cited as definitive evidence that aid can and does promote growth in developing countries. Its second implication is more controversial yet equally important: Aid needs to be distributed more selectively to countries that have adopted sound policies. 

Although these groundbreaking findings supported the conditioning of aid on good policies, the paper faced criticisms and resistance. Opponents of aid, like William Easterly, were quick in discrediting it by publishing counter-studies that reached different conclusions. Others criticised it for advocating the selective and systematic punishing of people in the weakest and poorest nations that suffer perennial and structural policy deficiencies.

Based on its recommendation, Kenya, which enjoyed a relatively strong policy environment under President Kibaki, was to receive more development assistance than DR Congo. Clearly, this was an affront to the very concept of development assistance, which seeks to provide greater assistance to those furthest behind. 
Others rejected it as a neoliberal attempt at providing empirical justification for the use of aid as a tool for imposing harmful trade and economic models on countries of the global south.

In subsequent years, OECD, essentially an exclusive club of donor nations, committed considerable resources and time on developing what it termed “principles of aid effectiveness”. This work was done through a series of multi-stakeholder discussions, or high-level forums that began in 2003 in Rome and concluded in Busan, South Korea, in 2011. 

Transparency and accountability

The stated goal of these discussions was to modernise, deepen and broaden development cooperation and the delivery of foreign aid. In 2005, its Working Party on Aid Effectiveness proposed a set of guiding principles at the its High Level Forum in France, later known as the Principles of the Paris Declaration on Aid Effectiveness. 

While these principles failed to garner universal support, with some countries like China refusing to engage with OECD, they nevertheless remain relevant. They have the potential of transforming and improving the way development cooperation is provided and experienced. These principles are ownership, alignment, harmonisation, managing for results, transparency and mutual accountability.

The need to provide adequate, long-term and predictable development support, as well as technical and capacity building support to civil society groups, were raised as additional requirements for getting aid to work. These discussions reaffirmed the need for developing countries to own and determine their development priorities.

Aid was to be demand-driven, not supply-based. Donor nations were to avoid competition and duplication by rallying around the development agenda set by developing countries. Managing for results requires parties to place a greater focus on the tangible and demonstrable improvements in the welfare of poor people. 

While development cooperation should be demand-driven, we must ask: Whose demand is it? Donor resources should never be used to fund private interests of political elites.

Mr Chesoli is a New York-based development economist and global policy expert. [email protected]