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Three myths about aid to Kenya

Wolfgang Fengler's picture

The World Bank and IMF have received much press attention in recent weeks in Kenya.  The Kenyan Kazi Kwa Vijana (“work for youth”) initiative, which the Bank was supporting through its Youth Empowerment Project, and Government’s decision to request substantial IMF funding to support macroeconomic stability have been the source of heated debates in parliament.

This gives me an opportunity to share some thoughts which are influenced by “Delivering Aid Differently”, a book which Homi Kharas and I co-authored and launched in Nairobi and Washington a year ago.

In recent years, the aid industry has been a focus of critical examination and the object of debate. On the one hand, aid experts such as Peter Singer and Jeffrey Sachs advocate a huge increase in foreign aid and see enduring poverty as a direct by-product of the West’s stinginess. Their message: aid works, only we don’t provide enough of it.  On the other hand, aid critics, such as William Easterly and Dambisa Moyo, claim that aid has actually stifled progress in poor countries by undermining the accountability link between aid-receiving governments and their citizens. Somewhere between those two extremes, aid practitioners argue that foreign aid could work if only it were done right. 

Today, the main paradox of aid is that, despite increasing flows and more players, aid has declined in relative importance in most countries. Kenya is a case in point: there are many new players on the aid scene in Kenya and increasing aid fragmentation is a result. In addition, Kenya has been exposed to a high degree of aid volatility due to the “stop-and-go” behavior of many donors. The relationship between the Kenyan government and the international community has often been contentious and is based on three misperceptions of the role of aid in East Africa’s largest economy.

Myth number one: Kenya needs donors to finance its budget. Kenya doesn’t really need donors – although it certainly could use donor funds to bolster its development spending, as many emerging economies have demonstrated.  Kenya is not aid dependent.  Only some 15 percent of Kenya’s public expenditures are foreign-financed, compared to more than 40 percent in other EAC countries (see figure). Kenya boasts one of the strongest revenue performances in Africa and most of Kenya’s public services are financed with Kenyan taxpayer’s money.

Figure: Uganda and Tanzania are aid dependent – Kenya is not

Source: World Bank staff estimates

Myth number two: Kenya’s financial management systems are too weak to permit direct budget support.  Donors typically channel their resources in two ways: project financing, which is tied to a specific activity (such as constructing a road or energy plant), or budget support, which is a direct infusion of cash into the Treasury in support of government spending through the national budget. Most developing countries receive a combination of project financing and budget support. Even countries with relatively weak governance, such as Afghanistan, Iraq or Burundi, have benefitted from budget support in recent years. But Kenya, even though it performs better than its peers on most public financial management benchmarks, has been left out. Clearly, there are still major weaknesses in Kenya’s budget system, and many of these have in fact been exposed by Kenyan institutions. The sticking point for donors is their perception that “corruption with impunity” still flourishes in Kenya, despite a public financial management architecture that has been greatly improved over time.

Myth number three: to deliver outcomes, make your projects small and “ring-fence” them tightly from government processes. Small projects can deliver many benefits. They can spur innovation and reach isolated communities. But they also contribute to aid fragmentation, multiplying administrative costs and complicating donor coordination by recipient governments. Moreover, they are almost never able to achieve transformative change.  Unfortunately, although aid volumes have been growing in recent years, average project size has been shrinking.

Moreover, ring-fencing donor funding almost guarantees that even successful projects will leave no lasting improvements in government capacity to deliver key services, since the government will have been bypassed rather than engaged in service delivery. Ring-fencing also won’t help to ensure that development spending, on the whole, achieves better results because money is ‘fungible’. In Kenya, the health sector is still receiving a substantial amount of international support, most of which bypasses government systems. As a result, donors feel confident that their money is well-spent, but they are making no contribution to improving the quality of the much larger government spending in the health sector.  In addition, large “off-budget” donor contributions to the health sector are freeing up government resources that might have been spent on health for other expenditures that may or may not be achieving results for Kenyans.   By contrast, when donors provide funding that is on budget, their interests are aligned with the interests of Kenyan taxpayers to ensure that all resources are spent for the purposes intended.

So how can we deliver aid differently?

In Kenya as in other emerging economies it is high time to rethink the old aid model, where the North channels money to the South to finance discrete development projects. Today, this model is increasingly irrelevant because strong growth in developing countries, including in Africa, has reduced the financial prominence of aid. Instead, aid should catalyze and leverage itself into larger transformative programs inside and outside government. Donors should not seek to build their own successes but instead to identify local success stories and help amplify them.

In Kenya, the best way to do so is to use information technology, which can also create pressures to hold local leaders accountable. Big players with global experience should also focus on knowledge services to help governments leverage their overall development program. They should help out in the “machine room”, behind the scenes, instead of building their own monuments.

Comments

With respect to shrinking project size while aid grows, is this entirely due to "monument building"? With the explosion in information and information technology, I wonder if this is a symptom of the times and will likely increase. For example, one of the blogs I visit is asking for donations to a charity they support, someone can donate right away using paypal. Replicated many times, this lowers the amount available to those who might be larger contributors (United Way, Red Cross, etc.) with enough scale to achieve some of what is suggested here.

Submitted by Anonymous on
David, Thanks for raising good points. You are right to point out that fragmentation and "monument building" are connected because many new small emerging players have to show concrete results. And there is also nothing wrong with that. You are also correct that fragmentation is due to the large number of new emerging players, especially NGOs, many of which are naturally smaller projects than traditional players. What is disturbing, however, is that traditional players have actually reduced the sizes of their projects as well and have been increasingly moving into the direction of "monument building". Ideally they should do the opposite in order to complement the strength of the new players. Wolfgang

Submitted by Titus Syengo on
It is true, Kenya also has some of the best institutions that hold the governement and private sector to account. The vibrant civil society and media sectors also contribute immensely to accountability. As a matter of fact, Kenya has improved in its corruption index. It is hard to find a country that is as open in its governance in this region. Donors should provide budget support or ship out. But again, the climate is top of the range and most donors enjoy it even if they do nothing.

Submitted by Abdishukri Osman on
I wish to first of all thank all the donors helping Kenya in any form, be it food, education, water and sanitation, name them. what Kenyans always know about these donars is that they are doing all this, in exchange for something. we need to change this attitude towards the charity that has been extended to our Country. two, institutions like World Bank have played very crucial roles in developing policies and processess that have in the long run offered permanent solutions to our problems. but we need to do more, especially in capacity building, raise awareness and also enhance the overall relations with community based organizations. we really dont get to know what such donors do, or give, till some scandal is out, either on education or kazi kwa vijana. coming to my point, te use of IT in our systems have proven much improvement in transparency and accountability. i do support that idea.

Submitted by Yemane Abselom on
So how can Kenya deliver aid differently? Perhaps a critical and non prejudiced look at Eritrea's struggle with aid would help. Eritrea is often criticized for rejecting all aid. Which is not true. Eritrea asks for and accepts aid that support its development goals. Eritrea has strict guidelines on how and where aid money could be spent. Above all, Eritrea insists aid should not lead to dependence. But Donor countries and agencies have their own agenda. Donors seek to build their own success stories that fit their contributor's goals and agendas. To believe aid is good will money with no strings attached is foolish. There is no free lunch and Africans are better off without it. However, rejecting aid or putting limits on it comes at a price. Aid agencies were the first to tarnish Eritrea's image and call the country a beggar with an attitude. As the American saying goes, buyers be aware.

Submitted by Wolfgang on
Dear Yemane, On Kenya, I hope indicated some of the avenues for delivering "aid differently". Let me highlight two of them: First, big players should do big projects and they should not just focus on earmarked projects but also support the overall reform process through policy-based lending. Second, foster innovation (as DFID did when M-PESA started), share and provide knowledge (including lessons from emerging economies, and use modern information tools for monitoring, evaluating and scaling up projects. Eritrea is an interesting case I spent some time on the country at the end of the 1990s. At that time, many were impressed by the government’s development efforts but this perception changed dramatically over the last decade. From my perspective, countries should neither isolate themselves from international developments nor become aid dependent. Fortunately, there are many countries in the world today where aid has been effective and reinforced government ownership. Please have a look at this Op Ed by our Managing Director in preparation of the Busan summit: http://www.project-syndicate.org/commentary/indrawati2/English Wolfgang Wolfgang

Submitted by Jan-Hendrik van... on
M-PESA is a good example of a relatively small, ring-fenced project.

Submitted by m88 on

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Thank you for calling attention to the importance of donors helping to amplify local success stories. Historically, one of the failures of aid, and all charitable giving, in my opinion, has been that donors act based on their own interests or on what they perceive the needs of the recipients to be. There have been too few instances of recipients being asked what they need or want. Projects of all scales, from the largest multi-lateral projects to small individual donations, have been done from ignorance of the local culture and history, resulting in projects that lack legitimacy, create dependence, and are unsustainable. Identifying local success stories and helping to strengthen them is one of the best ways to ensure that projects will have an impact.

At a recent conference on eHealth/telemedicine in Nairobi one speaker mentioned the fact that there are many pilots running at any one time. Sometimes these pilots (within the health systems context) are duplicates of project pilots being run by other donors in the same region. Aid fragmentation is not only shrinking the size of projects but resulting in duplication and ineffectiveness in terms of impact per dollar spent. Ringfencing creates silos making it impossible for everyone to benefit from a knowledge commons and exacerbating the negative effect of shrinking aid fragments. It seems to me that even a highly fragmented aid sector could achieve great gains if the different actors collaborated better. It would mean putting aside 'monumental' ambitions and political interests which is unfortunately no mean feat. That is definitely one way aid could be delivered better. However, it does go beyond funding fragmentation and fences to funding the right sustainable projects. As Caitlin has mentioned, there are too few instances of aid recipients being asked what they need or want. The same tools commercial enterprises use to determine where new opportunities lie or what pain the market is feeling can be used to identify needs and design projects that run into less cultural problems and barriers to adoption. For instance, design thinking has shown great promise as an approach that can result in better targeting of aid money and better outcomes for all.

Submitted by Anonymous on
wolf. It is a good piece. As a rural development practitioner, Kenya's economy is like a runner waiting for the gun to go. Everywhere I look, I see potential for successful undertakings and the gun firing can be done by the government, donors or even individuals themselves. Besides, aid should not be money alone and I think that is where failure comes from. I have seen what aid money can do if it is well used for example the water user associations funded by GTZ/KFW in Lamu Kenya.

Submitted by Anonymous on
Thanks for writing this highly informative piece. I believe that key policies by government can spur growth in Kenya and set it on the first lane towards achieving first world status. The importance of reduction in corruption levels in Kenya cannot be overemphasized. This can only be done by the leadership in place, political will is key to drastically reducing corruption which will see most revenue generated going towards financing intended purposes. The role of the middle class in Kenya is now more important than it has ever been since independence. I believe the purchasing power of Kenya's middle class has not been adequately and effectively tapped, case in point is the recent trend of over subscription to IPOs. This is a sign that the middle class can marshal huge resources to invest in job creating ventures like value adding industries. An example is coffee and tea industries that will ensure that Kenya only export fully processed tea and coffee. Fruit processing industries is another area where the middle class can invest their money. Encouraging the middle class to invest their money in such activities, will ensure that the appetite for imported goods reduces while generating foreign exchange that will stabilize the shilling and keep inflation in check (to some extend). Do I make sense?

Submitted by SANDA on
you've hit sense ,but what you have failed to explain is how the middle class can be encouraged to invest in the mentioned sectors /activities.

Submitted by J Kibera on
You make some incredibly valid points about the blanket praise and condemnation of aid, but your conclusion of amplifying success is a good one the rather opaque focus on ICT and knowledge business makes for a rather flat ending. The truth of the matter is that aid is spent a great deal of donor country agenda and partners. If you look at US Government spending for example the share that is spent on contractor and their overseas overhead is monstrous (over 40 percent) for rather unsure value. If you look at the criteria for disbursement a bias is given toward nationals and country firm regardless of the inherent competencies available in country. If you combine this bias, with no central government guidance you get ridiculous situations some of which I have witnessed where european nationals are given contracts to organize airport transfer between Moi International Airport, Mombasa and hotels at North Coast. Like it is a complex task that require a offshore arrangement to execute... Aid needs to submit itself to national priorities, process and personnel. Of late the habit of channeling resources through local NGO is resulting in cases where 100 percent funded legal entities are able to influence policy development, political process and thought without a single iota of local buy-in and support simply because they pay salaries and overhead to pursue their agenda. We may not have the leadership that we desire...that is able to define without self interest the development agenda with soft and hard infrastructure needs but that is still not an excuse to allow foreign capital to run riot without accountability to any in-country process.

Submitted by Anonymous on
Uganda funds up to 76% of its budget not 55% as depicted above. Please correct this quickly. We want to work with donors but we are not entirely dependent on them. Look at how we invested our own money to build the newly opened Bujagali dam when donors had run away?

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