U4 Helpdesk Query

Content

• Part I provides summaries of relevant workshops and expert remarks
  
• Part II includes a selection of relevant resources
  

U4 helpdesk reply

While substantial amount of literature is available on corruption and aid in general, there appears to be relatively little operationally-relevant research on specific corruption risks associated with scaling up of aid.

Most corruption risks applicable to aid in general will of course remain valid. There are however additional risks associated with increasing support related to pressures to disperse larger amounts more quickly, absorption capacity of recipient countries,the potential for complacency, etc. These will require even stronger governance, accountability and financial management capacity both on recipients' as well as donors' side.

How significant are the risks? Experts disagree
In the wake of the recent aid drive and mobilization, corruption has figured on the various agendas and platforms. Some have cautioned against increased aid amidst corruption worries, others have stated that corruption should not be used to stall the much-needed increases of aid.

The nature of the available materials seems at the moment to be of either campaigning/advocacy (statements, press releases) or early research (workshop proceedings, background papers, etc) character. A summary of the reviewed sources is provided.

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Part I: Summaries of Relevant Workshops and Expert Remarks

• Increase incentives for good governance/management and anti-corruption reforms.
  
  In countries with tolerable records of governance/ management, an increase in aid (including through direct budgetary support) within a framework of goals mutually agreed by donors and recipients, could strengthen the incentive for better governance and additional reforms.
  
  
• Avoid complex, detailed aid conditionality, which, experience had shown, was unlikely to achieve intended objectives.
  
  However, governments receiving aid need to commit to credible rules and guidelines governing the use of aid that could be monitored effectively. Civil society organisations could play a role in the monitoring process.
  
  
• Reduce reliance on bureaucracy and bureaucratic processes (where they were weak and themselves needed improvement) and make greater use of market mechanisms wherever possible (but obviously not in situations where market failures were a problem).
  
  
• Untie aid and make aid flows more predictable.
  
  
• Focus more on building effective institutions and policies because this could make a big difference.

Other comments:

• Direct budget support can work.....
  
  Ms Hester Le Roux said that the Commission for Africa (CFA) recommended an additional $75 billion in aid over the next 10-15 years, but this was linked to recognition that Africa was responsible for its own development as well as a requirement for aid recipients to make sustained improvements in governance, economic and public financial management, and in anti-corruption efforts. The Commission believed that aid should not be increased in the absence of such improvement, particularly through sound public financial management systems. The CFA also called on donors to make aid more effective and to provide more grants, increase direct budgetary support, reduce conditionality that was not directly related to effective use of aid, and the untying of all aid. She pointed out that the Commission, based on its review of historical evidence and case studies, had concluded that the developmental benefits of increased aid flows to Africa would outweigh the risks, provided improvements were achieved in accountability and good governance. The experience of countries such as Ghana, Tanzania and Ethiopia had shown that aid could be effective and that direct budgetary support was less susceptible to corruption than project and programme support.
  
  
• ...but not where political will is absent and corrupt elites are entrenched
  
  Some participants felt the panelists had taken too optimistic a view of the impact of increased aid in a context of huge capital flight from Africa and the plunder of state funds because corrupt elites had been able to capture and subvert state institutions and policies. As long as these elites remained entrenched wielding significant power and influence, greater aid flows were tantamount to pouring more water into a leaking bucket. It was pointed out that developed countries such as the UK should be doing much more to clamp down on money launderers who operated in their jurisdictions, and to freeze, confiscate and repatriate assets looted by corrupt foreign officials and politicians. Improvements in mutual legal assistance, the imposition of travel restrictions on corrupt politically exposed persons and a few successful cases of asset restitution would have an enormous impact, even if it was difficult to prosecute offenders.
  
  
• The Marshall Plan concept is not transferable to the African context
  
  It was pointed out that those arguing for a 'Marshall Plan' for Africa and the wider
  developing world tended to forget that the Marshall Plan for Europe had focused mainly on project finance (e.g. to rebuild roads and infrastructure) with strong requirements for transparency and financial accountability, and with a requirement for an initial outlay from governments. The Marshall Plan had not involved the provision of direct budgetary support to governments for sector-wide expenditure.
  
  
• Quality of aid is as important as quantity
  
  In a recent paper for the UK's Institute of Development Studies, Mick Moore had argued that variations in sources of state revenue, especially in circumstances such as those prevailing in Africa, affected three major governance and developmental variables: administrative capacity, political legitimacy and investment incentives. It was found that relatively high dependence on taxation had positive outcomes for these variables, whereas relatively high dependence on oil and aid as revenue sources tended to have variable, often negative, impacts on these variables. The challenge therefore was to find a balance among different sources of income, including aid that would create positive incentives for good governance, sound economic and financial management and anti-corruption reforms. It was suggested that quick 'win-win' aid and development outcomes - demonstrating tangible benefits to poor communities in recipient countries - would help to build support for an expansion of aid programmes in developed countries.

Doubling Aid? Absorptive Capacity, Impacts and the Donor Response in Africa, November 2004
This was a meeting chaired by Hugh Bayley, MP with speakers including Tony Killick of ODI and Alex de Waal of the Global Equity Initiative and Justice Africa.

Tony Killick's key argument was that the emphasis on large and quick increases in aid would undermine efforts to improve the effectiveness of aid because (a) quality would suffer and (b) the resulting additions to already high aid dependency would undermine accountability, ownership and institution-building in African countries.

Aid was already very highly concentrated on Africa, and the region exhibited a high dependency. For example, for the top half of recipients, aid accounted for 17% of GNI, 108% of gross domestic capital formation and 49% of imports. Risks associated with rapidly increasing aid include:

A number of speakers addressed the issue of the trade-off between quantity and quality. Was it possible to give more aid in ways that achieved MDG-related objectives, but also protected quality and reinforced accountability? There were various suggestions: ring-fence part of the additional aid in order to build capacity; support the private sector rather than try to channel all extra money through government; provide additional aid direct to poor people rather than to institutions. The general tenor of these arguments was to ask whether the scale of the need required that additional money be spent - suggesting that the challenge was to find a way of doing this successfully. Tony Killick commented on this and re-emphasised the importance of a possible trade-off between quantity and quality. He argued that increased spending would lead to a sacrifice of selectivity and attempts at harmonisation.

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Part II: Recommended Resources

Increasing Aid Goes Hand in Hand with Fighting Corruption, OXFAM press release, June 2005
The release states that African organizations and international aid agencies call on world leaders to see aid as a weapon through which corruption can be fought rather than an excuse to stall on increasing aid pledges. There are six main reasons why corruption should not be seen as a blockage to further aid increases. These are:

1. Aid works and has been critical in getting 2 million children back into school in Tanzania and ending diseases such as river blindness and smallpox. Even in countries where corruption has been endemic, aid has helped to alleviate poverty.
   
   
2. Aid can build governments' capacity to monitor the spending of aid money and ensure that civil servants are paid a salary which they can survive on.
   
   
3. Corruption itself is in part a consequence of poverty. "Petty" corruption is more likely to take place when civil servants are paid very low wages - a fact that has been acknowledged by both the World Bank and IMF. In such circumstances, simply withholding aid is ineffective, and can be counter-productive.
   
   
4. Corruption is a global phenomenon. It exists in rich and poor countries. The trend of increasing democracy in Africa bodes well for reducing corruption in the future. Better political accountability to electorates can only lead to increased scrutiny of government and donors.
   
   
5. Donors must first lead by example by providing aid based on need, not as a reward for countries that open up their markets or join the fight against terrorism.
   
   
6. Western governments should focus on cleaning up systems that make large-scale corruption possible. For example, they should ensure that export credit agencies' distribution of money - often a source of corruption - becomes more transparent, and take stronger action against suspicious payments into Western banks.
   

The Millstone or Milestone: What Rich Countries Must Do in Paris to Make Aid Work for Poor People (ActionAid and Oxfam Int.), 2005
At a time when aid is increasing, it is critical that this money makes an effective contribution to the fight against poverty. Without concrete steps in Paris to make aid accountable and efficient, progress towards the Millennium Development Goals will be jeopardised. The paper discusses numerous issues associated with increased aid, including accountability mechanisms.

Paris Declaration on Aid Effectiveness: Ownership, Harmonisation, Alignment, Results and Mutual Accountability, the DAC High Level Meeting, 2-3 March, 2005
The PD is a follow up to the Declaration adopted at the High-Level Forum on Harmonisation in Rome 2003. The PD talks about scaling up for more effective aid, adapting and applying to different country situations, specification of indicators, timetable and targets and monitoring and evaluating implementation.

Real Aid: an Agenda for Making Aid Work (ActionAid), 2005
Poor quality aid from unaccountable donors is a blunt instrument in terms of its impact on poverty. As this report argues, far-reaching changes are needed by donors to make aid a sharp tool in the fight to realise basic rights for all. Recipient governments also need to reform. Accountability, transparency, democracy and the protection of human rights must all be improved. But where donors promote these changes, they need to happen in the context of genuine mutual accountability between rich and poor countries.

b) Researchers

The workshops and papers listed above will certainly serve as references to a number of researchers and organisations (ODI, Oxfam, ActionAid and others) that have been working on the issue. In addition, if you are further interested in the critical side of the debate on increased aid, Brian Cooksey (Tanzania Development Research Group) has produced a series of papers arguing that increased aid has failed to deliver on a number of occasions as well as highlighting corruption issues:

Tracking Corruption in Aid: Opportunities and Constraints, 2004
Elixir or poison chalice? The Relevance of Aid to East Africa, 2004
Can Aid Agencies Really Help Combat Corruption? 2002

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