Aid and Corruption

Many of the objections to my blog post, “Another reason why aid to Africa must increase”  centered around corruption.  “I disagree.  Africa needs to get rid of corruption…” said one commentator, while another said, “Aid to African countries must follow country steps in good governance, democracy, fighting corruption, etc.”

I think we can agree on the following two facts:

• There is considerable corruption in Africa.  The recently-released Transparency International Corruption Perceptions Index for 2009 finds 10 African countries in the bottom decile (with Somalia at the very bottom of the list).  Of the 47 African countries reviewed, 31 scored less than 3 out of 10, “indicating that corruption is perceived as rampant.”  Another data source, World Governance Indicators, reaches a similar conclusion.
• Corruption undermines economic growth and poverty reduction.

But even with these two facts, it doesn’t necessarily follow that aid should be cut off from countries with high corruption. 

First, there is very little evidence that cutting-off aid reduces the extent of corruption in the country (think about Zimbabwe). 

Second, rampant corruption is a symptom of widespread failure of institutions throughout the country. To reduce corruption, therefore, we need to strengthen these institutions, a process that takes a long time, and requires fairly continuous engagement by external experts.  Unfortunately, when aid is cut off, so is the engagement.  In principle, countries should be able to provide technical expertise without financial assistance; in practice, this is very hard to do. 

Third, some donors think that, in high-corruption countries, their aid should be “ring-fenced.”  That is, it should be provided according to the donors’ financial management procedures, to ensure that the aid money is not stolen.  While this reaction is understandable, there is little evidence that this practice does much for reducing corruption in the recipient country. 

In fact, as a recent paper by Steve Knack and Nicholas Eubank  shows, donors will systematically over-rely on their own systems, and under-invest in recipient country systems, thereby further weakening these countries systems.