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Has Africa outgrown Aid?

Wolfgang Fengler's picture

Africa’s emergence is the new consensus. For the second time in a just few months, a major international journal has run a cover illustrating newfound optimism about the continent. After The  Economist’s mea culpa (correcting its previous assessment of a “hopeless continent”), TIME magazine just re-ran an earlier title: “Africa rising”.

This is no fluke: Africa’s economies are growing and the continent is much wealthier today than it ever was – even though, collectively, it remains the poorest on the planet. Many African nations (22 to be precise) have already reached Middle Income Country (so called “MIC”) status and more will do so by 2025. Today, Africa includes a diverse “mix” of countries, ranging from the poorest in the world to the fastest growing; from war-torn countries to vibrant democracies; from oil-rich economies to ICT champions, and the list goes on.

This has important implications for the “aid architecture”.  Until now, Africa was at the center of global aid attention. But what if Africa continues to grow strongly and steadily? What will be the role of international partners (often called “donors”) in this new configuration? Is aid becoming obsolete? I don’t think so, rather the opposite! Many Africans still experience deep poverty. The challenge is so huge that ten years of moderately strong growth are just a down-payment in the fight against poverty. Today, some 400 million Africans (roughly 40% of the total population) still live on US$ 1.25 a day or less. Newfound wealth means little to them if it is not equitably spread out. Some countries are becoming richer, often as a result of oil discoveries, with very little changes in the lives of average citizens.
 
Fundamentally, if the poor remain neglected, a country’s development outlook has not changed. What is new, however, is that some of these MICs no longer need aid money to fill development gaps. In principle, they have enough internal resources. Yet they still need assistance in designing programs that help them spend their new resources efficiently, especially if they wish to target the poor. Aid programs, if designed well, can help do precisely this.
 
Kenya is a perfect illustration of this new aid reality. Today, Kenya’s budget is roughly US$ 12 billion, about 30 percent of the country’s economy. This share is one of the highest in Africa, making the state the biggest player in the economy. Donors are small players in comparison even though the amount of aid recovered over the last ten years after a sharp decline in the 1990s (see figure). Today, aid to Kenya is around US$ 1.5 billion (amounting to a little over 10 percent of total expenditures) of which only half is reflected in the budget. Bilateral partners like the USA and China still prefer to implement their programs outside of government systems; likewise new players, especially NGOs, typically choose to execute their programs directly (rather than through the administration).

Figure – Despite absolute increases, Kenya’s aid remains at 5 percent of GDP (Click on the graph to see it larger)

Source: World Bank estimates

So what needs to change in the way aid is being delivered? How can it be made not only relevant still but even more effective than in the past?

First, we need to acknowledge (and celebrate!) the demise of the old North-South paradigm.  With Asia’s emergence – and China’s spectacular turnaround – former recipients of aid are now new donors. The previous regime, with rich countries in the North supporting poor countries in the South through government-to-government and multilateral relationships, is changing rapidly. Today, relationships are much more complex and varied, and there is a host of new players on the pitch.

Second, aid will be increasingly about transferring knowledge rather than money. No matter how significantly some donors may scale-up their financial commitments, aid money will remain small compared to domestic resources in recipient countries. If current trends continue, most of today’s stable low-income countries will reach MIC status by 2025. Going forward “traditional aid” (of the brick-and-mortar type) will focus increasingly on emergencies and fragile states.  In others, transferring know-how and skills will be the name of the game.

Third, innovation and support to country systems will drive the impact of future aid. By 2025, Africa will have a majority of MICs. But as countries climb up the income ladder, they will face new and more complex policy challenges. In order not to stay stuck in the “Middle Income Trap”, African countries will need to innovate, including in traditional sectors, such as education, health or transport. The resources will be there but the challenge will be to make sure services are actually delivered and at good quality. In these countries, aid should move from building monuments (schools, clinics and roads) to improving the machine room (the systems through which education, health and transport are being provided).

Simply put: If we continue to equate aid with money only, then it will become obsolete in most countries over the next decade or two – except perhaps in fragile states. However, if it is focused on transferring the knowledge countries need to catch up and compete with each other, it will remain indispensable.
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Follow Wolfgang Fengler on Twitter@wolfgangfengler.

Comments

Submitted by Liz on
I cannot agree more. Take for example Kenya; CDF (read government) has built more health centres but the same have no personnel and equipment to make them functional. We therefore continue to see deaths that could have been avoided. The same with our schools. The list goes on and on...

Submitted by KiraguTK on
Africa has not outgrown aid yet but the channeling is changing. If the current economic growth of SSA (I wish there was another term) countries is sustained, them more of the aid will go to off-budget programs. Even if countries are able to 100% finance budgets and have surplus money to go out of the government system, I don't think it is likely to happen that every other NGO program is funded adequately. True, there will be an increase in non-monetary aid, which is already starting, but monetary aid will only change from government to non-government.

Submitted by Masoud Hashemi on
Very interesting. Transferring know-how and use of the ICT for capacity building and for increasing data quality (to ensure decision making) will be among the key issues.

Submitted by Anonymous on
Do African countries have to depend on donor countries for the rest of their life? When are we going to be grown ups and stnd on our own? I think, These donor countries have hidden agendas that is why they continue donating. Take an example of a family context, a parent will enable a child to reach a point to be independent grown up. I am curious to know how these "donor" countries benefit from the aid they give to our countries. I think our leaders either know the answer or share the cake with them!

Submitted by Wolfgang on
Well the main pint of my blog was that more and more African countries don’t need donors anymore, but many may want to have them if they can help them provide solutions to their development problems. My prediction: In most countries, financing remain part of the mix but not the dominant one.

Submitted by Leeosis on
As you simple put it, if we look at AID as only $$ Totally in agreement Though it is more(import of machinery, technology, foreign exchange, skills required etc) The other thing I cannot wait for is a demand from the citizens for a higher living standard; this will of course push HQOS(Higher quality of service) in the institutions like health and education, infrastructure etc. If part of the healthy economic cycle.

A considerable amount of aid goes directly to the beneficiaries through monetary aid or more often through education, transfer of know how and capacity building by private sector initiatives related to their business. It is a direct and efficient aid that should be encouraged and supported.

Submitted by Lydia on
It sounds self serving for development sector people to.say, "Okay, they no longer need our money but we still need to stay around to show them how to use theirs."

Submitted by emmanuel adol aggrey on
I think that is not the actual way of getting things twisted, for sure to some extend Africa still need foreign aids but it should be in terms of providing capacity building in areas of African concern but in terms of giving money I think it is not workable reason is because these so called international NGOS where donors channel their contributions have became business ventures they do not implement programs as they did present them to donors .

Submitted by Wolfgang on
Dear Lydia Good point. You may see it from the perspective of some of the world’s main emerging economies: Brazil. China, India, Indonesia, Turkey. In these countries, you don’t get the impression that “donors” are in the drivers’ seat. It is the opposite. They are only welcome at the table if they can genuinely contribute with humility to these countries’ development. In many cases even poor countries can teach richer countries: Think of mobile money. Wolfgang

Submitted by Pauline Rose on
The argument that is increasingly being put forward that aid money is no longer needed is dangerous for poor people living in the poor countries (including low income and some lower middle income countries). Our recent Education for All Global Monitoring Report found that, for some of these countries, a quarter of their education budget was from donors. And even this is not nearly enough to ensure quality education for all. These countries receive less than $2billion in aid, yet they need for $16billion per year. See chapter 2 of the Report: http://unesdoc.unesco.org/images/0021/002180/218003e.pdf It is vital to move towards greater domestic mobilisation of resources, but until this becomes a reality, it is not yet time to let donors off the hook for commitments they have made to ensure no country is left behind in education due to lack of resources.

Submitted by Bolormaa on
Agree with you, Pauline. I work in South Sudan and there most of the services are provided by donors and NGOs.

Submitted by Wolfgang on
Dear Pauline and Bolormaa, Indeed, many fragile states may remain aid dependent for some time (even though those with natural resources (incl. South Sudan) would in principle have enough resources themselves. However, if the trends of the past decade hold the large majority of African countries (and almost all other previously poor countries in other parts of the world) will have reached Middle Income status in another decade. Even if aid will continue to rise in line with global growth (which it has over the last 20 years) it will never be enough to close the funding gaps you describe if it is up to aid alone to fill them. Government budgets need to come in forcefully as well. For example, Kenya spends some 20 percent of its budget on education. Few argue that the sector has too little money. However, students and parents are not often seeing the desired results. Why? Teachers are absent from class more than 40 percent of the time they are meant to teach. Should aid try to close this 40 percent gap or should it try to help create systems that reduce teacher absenteeism? Best Wolfgang

Africa still needs aid, just that the aid should be given following a new model. Incomes have improved, yes, but a lot still needs to be done before African countries can move into serious production and manufacturing to compete in a global marketplace. We do not need donors so much as development partners. But it is countries in Africa not the donors that have to craft this new aid model.

Submitted by Angie on
I am keen as to how the transfer to know how and skills will be effected in Kenya. Are we going to see another wave of "expatriates" seconded from the West like it was in the 70s and 80s? If SSA can get to the point where they do not need monetary aid, surely that is an indicator that they have the skillset already!

Submitted by Max Norton on
This is a positive article and I applaud it and most of the constructive comments. The one thing that I struggle with is the reality of having the majority of countries anywhere near 'Middle Income' classification by 2025. From the many years I've spent in Africa, and respecting the research underpinning the prediction, it just doesn't ring true. I don't want to dampen any much-needed positivity, but this just doesn't seem credible.

Submitted by Wolfgang on
Dear Max, I was suprised myself but today, there are already 22 African countries countries (representing 400 million people) that have passed the Middle Income Threshold (here is a previous blog, based on an article with Shanta Devarajan, which illustrates Africa’s road to Middle Income: http://blogs.worldbank.org/africacan/africas-mics). However, you have a point: Middle Income does not mean that these countries have fewer problems. For example, Gabon is notionally one of the wealthiest countries in Africa but 70 percent of its people are below the poverty line and its immunization rates are worse than most fragile states. However, one thing changes when you reach Middle Income (sometimes even earlier): Donor money typically becomes less important which means that at least the international partners need to adjust to a new reality. Best Wolfgang

Submitted by Matths Apochi on
Africa is dear need of Aid but this time in a different pattern. The kind of Aid needed in Africa now is the Aid towards Human Capital development. The high profile cases of curruption in Africa now makes it literarily impossible to believe in the leadership of Africa. Aid now is to be tailored towards building a world class man power and campaign against looting and wealth gathering. Aid is also to strenghten the legal system. An equitable legal system.

Submitted by Anonymous on
As a young African living in Africa and putting my everyday energy toward the development of our continent, i strongly believe that only Education can save this beautiful continent...the rippling effect of an educated people helps avoid the many unpleasant situations this land finds itself in.

Submitted by siyanda on
i strongly support the above statement because the education is the key to any closed door

Submitted by Giedre on
I read the article and the numbers sound convincing, but we all know the reality is very different from statistical analysis. Perhaps the major issue remains major disparities within societies themselves, in which a lot of aid is needed in order for at least a little bit to reach those that really need it.

Submitted by Samuel Maina on
I think the goal should not just be growth, but spreading the benefits so that everyone enjoys them. In Africa, growth seems to benefit the elite, while ordinary people suffer.

Submitted by Emerson Jackosn on
I strongly believe that Africa will start seeking somelevel of growth in terms of development once sufficient investment is made on its human development caapacity. The continent is rich with natural resources and hence the only way of attracting investment is or individual governments in the continent to invest heavily in the people through proper education and particularly middle skilled man-power which is the base for development, particularly in meeting the needs of agro-base and other sectors like mining. Other areas such as good transportation network, sustained electrical powe system and good governance will also pave the way for foreign investors to feel confident in transferring their investments in the region. Highly industrialise countries in the far East are now feeling the pressure of the need to transfer technology to new-found lands simply as a way of taking advantage of cheap labour and also low cost resources.

Submitted by Chelsea Rediger on
Mr. Fengler, I appreciated the approach your blog took in discussing the topic of aid, which recently has been controversial. Your post accurately addresses a gray area that is often presented as black or white, an act that typically does not do justice to a complex issue such as pouring aid into developing nations in Africa. Two things I question: your assessment that Africa is growing strongly and steadily, and what I felt to be your proposal that reaching the status of “middle income” was desirable [do not mistake me, I did notice and acknowledge your third point of suggestion for innovation and support to country systems to prevent the middle income trap]. Quantitatively, it is possible to see economic growth. I think it is key, however, to look to the disparity between rich and poor and the growing inequality rate. In South Africa, for example, as of 2011 almost half the population was living below the poverty line – that number in itself is an improvement from what it previously was, but can it be considered progress if half a nation is living on about $53 a month? While objectively poverty is on the decline, a more pertinent issue is the fact that inequality is rising as the poor get poorer and the rich get richer. I say this to suggest that just because a country has reached the status of MIC does not mean it is no longer in need of aid, nor is the status of MIC necessarily desirable with a GDP per capita income at a mere $1,000. Will the achievement of MIC status alleviate and/or eliminate poverty, uneducated children, HIV/AIDS, orphans, or political corruption from the societies of African nations? Zambian economist, Dambisa Moyo, points to the fact that in spite of aid, “Africa continues to have poor infrastructure, bad education and a lousy health care system.” You mentioned that MIC countries have enough internal resources to function without external aid. By this standard, are you asserting that the only reason said countries are not functioning as such are because they do not have the tools to effectively manage and distribute their resources? Which leads me to your second proposal. I was intrigued by your suggestion of “transferring knowledge rather than money” as a form of aid; intrigued because I agree but find myself asking the question, “How?” What does this look like on a practical and feasible scale? A huge hindrance for humanitarian intervention in the face of humanitarian crises throughout the past few decades, was the issue of sovereignty and the cyclical debate over when it is acceptable to infringe on the right to sovereignty of another nation. My question for you, then, is how does a developed and well endowed nation transfer its knowledge and skill-set in the form of aid to a developing or middle income African country in need of good governmental and economic policies?

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