Aid: Rethinking old concepts

The primary and long-term objective of this monograph is to initiate a debate on development aid, and to lay out a doable strategy for ending aid dependence.

The primary and long-term objective of this monograph is to initiate a debate on development aid, and to lay out a doable strategy for ending aid dependence.

An exit strategy from aid dependence requires a radical shift both in the mindset and in the development strategy of countries dependent on aid, and a deeper and direct involvement of people in their own development. It also requires a radical and fundamental restructuring of the institutional aid architecture at the global level.

A more immediate objective is to start a dialogue with the OECD’s Paris Declaration on Aid Effectiveness, which forms the basis of a high level meeting in September 2008 in Accra, and to caution the developing countries against endorsing the Accra Action Agenda (the ‘Triple A’) offered by the OECD.

If adopted, it could subject the recipients to a discipline of collective control by the donors right down to the village level. And this will especially affect the present donor-dependent countries, in particular the poorer and more vulnerable countries in Africa, Asia, Latin America and the Caribbean.

A simple schema (Table 1) at the end of this Foreword illustrates the differences between the strategy of the Paris Declaration on Aid Effectiveness and the South Centre’s aid exit strategy. Beyond the Paris Declaration, there is still the question: What then? There has to be a strategy for ending aid dependence, to exit from it.

There are countries in the South that have more or less graduated out of aid, such as India, China, Brazil and Malaysia, and there are others which will soon self-propel themselves out of aid dependence. In fact, aid was never a strong component in the development of either India or China.

They have been reliant on their own domestic savings and the development of a domes- tic market through the protection of local enterprises and local innovation. They have opened themselves up in recent years to the challenge of globalisation and foreign competition only after ensuring that their own markets were strong enough.

Brazil, on the other hand, was an aid-dependent country until only recently. Both Brazil and Malaysia have succeeded in ending their aid dependence through strong nationally oriented investment and trade policies. These included supporting and protecting the domestic market and export promotion, as well as the currency, fiscal and monetary policies that go with them.

In an earlier period, during the 1960s and 1970s, the so-called tiger economies of Korea, Singapore, Taiwan-China and Hong Kong ended their aid dependence mainly in the context of the Cold War.

These countries were able to use the opportunity provided by the Cold War not only to draw substantial capital from the West, mainly the US, but also to build their production, infra- structural facilities (banking, finance, transport, communications, etc) and export capacity.

They took advantage of the relatively open US market to export the products of their early manufacturing growth. They benefited from the fact that the US needed them to fight communism in that part of the world.

This enabled them to initiate state-supported industrialisation without having to account to institutions such as the World Bank and the IMF, to import technology without having to pay huge fees for intellectual property rights, and to build strong reserve funds.

This book is not about them, although valuable lessons can be learnt from them. We are now living in a different period of history. This book is about countries that were neither able to take advantage of the Cold War period, nor had the benefit of a large domestic market and entrepreneurial class to develop an endogenous development strategy.

We are therefore talking largely about the hundred or so countries that fall within the classification of least developed countries (LDCs), the middle-income countries that are not LDCs but are still struggling to become economically independent from foreign aid, and the vulnerable, small and island economies.

Geographically, these countries occupy the huge land mass of Africa, large parts of Asia and Latin America, the Caribbean and the Pacific islands.

The message of this book needs to be seriously considered and debated by all those that are interested in the development of the countries of the South. If this means the rethinking of old concepts and methods of work, then let it be so.

*Benjamin W. Mkapa was President of Tanzania 1995-2005.

 

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