This House would suspend directly delivered foreign development aid

Changing the way money is given will reduce corruption, embezzlement and manipulation. Centralised government structures control aid distribution in many recipient countries. As a consequence, embezzlement by government officials has become more frequent and easier to conceal. Linking aid to specific projects is ineffective at solving this problem due to difficulty in tracking individual project accounts within the recipient nation. The need to monitor which individuals and institutions receive donated funds, and to confirm that funds have been applied according to agreed plans and schedules still presents a difficult and intractable auditing problem.

Recently the Netherlands has halted its $148m development aid programme to Kenya in protest at aid embezzlement in the wake of multiple ‘graft’ scandals there[i]. Similarly Sao Tome’s Prime Minister was arrested for aid embezzlement in 2004[ii].

Corruption inside government means that aid is also often directed to supporters of the government when eventually spent. Aid may be channelled to particular individuals or political organisations, a trend which has been observed in Zimbabwe[iii]. Similarly, aid may be channelled to favoured social, ethnic or religious groups. This is particularly likely to happen in highly plural states that are affected by underlying cultural tension and strict physical divisions between communities and territories. Discriminatory treatment of Arab Israelis in Israel and the exclusion of Christian and Animist communities from aid schemes in the former Sudan illustrate this trend[iv].

[i] “Anti-corruption profile – Kenya” Trust.org. http://www.trust.org/trustlaw/country-profiles/good-governance.dot?id=12600e6d-9822-41c2-bff1-579481b9108a

[ii] “Sao Tomean PM steps down after coup.” Afrol News Online. 01 August 2003. http://www.afrol.com/articles/10333

[iii] “Zimbabwe: Corruption Timeline.” Global Integrity Report. http://report.globalintegrity.org/Zimbabwe/2009/timeline

[iv] “Background Note: Sudan.” U.S. Department of State. 08 April 2011. http://www.state.gov/r/pa/ei/bgn/5424.htm

Advocates of government-to-government aid do not have to defend such out-dated portrayals of ODA. Since at least 2000, many DAC member nations have tied their aid entirely or in part to political, economic and environmental reform. The burden is now on recipient nations to prove that aid payments are not being squandered. An onus is placed on recipients to invest in the creation of a political culture that tackles corruption, as has been seen with the founding of an ‘anti-graft task force’ in Kenya in 2006. Linked aid promotes political stability, development policies conscious of the limitations of national resources and a consistent economic framework.

Moreover, there is no guarantee that charities and NGOs will be any less corrupt or more able to prevent corruption. Easy access to large amounts of capital creates an environment that can foster corruption within any type of organisation, whether governmental institutions in the developing world or non-governmental institutions based in wealthy states. Passing aid to multiple NGOs, many of which may not be governed by accounting standards as strict as those applied to onshore organisations in the UK and the US, creates a system in which it is far harder to monitor and prevent embezzlement. In 2003, the Indian government placed 800 NGOs operating within its north eastern states under a regime of strict observation. Many of the organisations identified were suspected of having links to north eastern separatist and insurgent fighters; it was believed that funds donated to these NGOs, either privately or by the state itself, were being channelled to armed rebel groups[i].

[i] NGO Regulation Network. http://www.ngoregnet.org/country_information_by_region/Asia_and_Oceania/India.asp

Direct aid creates dependence and a dangerous client culture among recipient states. ODA is entwined with foreign policy to the degree where aid is no longer allocated on the basis of need, but according to the political and policy objectives of donor states. The USA can muster the political will to provide military aid to Israel totalling nearly $3bn a year[i], but even in the wake of Live8, real aid (payment of fresh funds to recipients, as opposed to funds acquired by rescheduling existing aid obligations) to the poorest nations in Africa is not as large proportionately.

Not only is ODA increasingly being used to incentivise compliance or non-interference with America’s objectives in the war on terror, as shown by the aid provided to Pakistan for its cooperation in the stationing of US military bases. When ODA is administered in this way, there is an increased risk that recipient governments will be seen by their people as less independent – as stooges of colonial interlopers.

Reliance on ODA can become entrenched but ODA has also created dependent nations such as Micronesia where 4/5 of the population are employed in ‘aid-created’ jobs and the government receives 90% of its revenue from the USA[ii]. It encourages a culture of aid-dependency where nations such as Kenya have come to believe that aid is the only way to lift themselves out of poverty.

[i] Washington Report on Middle East Affairs. http://wrmea.org/component/content/article/245-2008-november/3845-congress-watch-a-conservative-estimate-of-total-direct-us-aid-to-israel-almost-114-billion.html

[ii] “Background Note: Micronesia.” U.S. Department of state. 31 October 2011. http://www.state.gov/r/pa/ei/bgn/1839.htm

Cutting aid payments to the governments of states that are aid dependent would severely restrict the provision of public services and undermine public and international confidence in fragile political settlements. This dependence therefore prevents the aid being cut off.

Israel, for instance, would arguably be unable to survive without its foreign aid from the USA. Similarly, those states such as Micronesia or Tokelau which are almost exclusively aid dependent are essentially protectorates of those states that aid them, giving them political independence and the ability to develop.

The approach suggested by the resolution would also have a negative impact on nations that are politically stable but in need of reliable, uncomplicated economic support. Between 45 to 50% of all foreign aid goes to nations such as Argentina, Botswana and Brazil. Indeed, sanctions levelled against politically unstable or oppressive states such as Angola and Zimbabwe tend to restrict the aid payments they receive. Reducing aid to politically mature and conflict-free “emerging economies” reduces certainty and sustainability in development. We should deliver the aid which we have promised, the results of which- for many states- are now coming to fruition.

Direct aid undermines local markets within developing states. Many economists believe that economic growth needs to occur at a local or micro level, with private industry spurring growth and providing employment opportunities[i] that act to elevate consumer demand. Chile is often given as an example of a country which has grown in this way.

Government aid frequently results in the growth of large, state-owned corporations which undercut the creation of local markets, preventing the development of private enterprise. This can be compared with the deskilling effect that long term food aid has caused within developing nations[ii]. Lacking the will or economic resources to expand land cultivation schemes, formally and culturally acquired farming have dropped out of use in a range of developing states. Dependence on centrally distributed aid is slowing reducing the number of skilled, practiced agricultural labourers able to work to grow food.

Similarly, state-owned resource extraction and processing firms can influence an economy’s real exchange rate, making cross border trade in the commodities produced by farmers and local craftsmen uncompetitive – a situation known as the Dutch disease. This is a significant hazard in continents with a high proportion of interdependent sovereign states, such as Africa.

State owned industry frequently undercuts local, privately owned industry in both the domestic and export markets of developing nations. Further, these processes raise the spectre of corruption in state institutions and state owned businesses[iii], with large revenues tempting individuals to engage in graft, nepotism and patrimony.

The risks inherent in state supervised industry and micro-economic stimulus can be avoided by supplying aid funding to microbanking and microcredit institutions. Businesses of this type specialise in creating a large supply of low cost credit that small firms, farmers and households can borrow in order to fund the purchases and investments that will bring them closer to prosperity.

[i] “Direct aid: A dollar a day keeps the donor away.” Wahega.net. 23 January 2007. http://www.wahenga.net/node/1030               

[ii] The Development Effectiveness of Food Aid. The OECD. 2006, OECD Publishing. http://www.oecdbookshop.org/oecd/display.asp?lang=en&sf1=identifiers&st1=432006081p1

[iii] The Political Economy of Foreign Aid. Hopkins, R F. Swarthmore College. http://www.swarthmore.edu/SocSci/rhopkin1/research/PolEconFA.pdf

Using central government spending to encourage growth is still a viable development strategy.

Whilst the important role that local markets play in the development process should be recognised, they are not capable of generating widespread economic change.

NGOs serve a different purpose to governments. They construct local infrastructure projects such as schools and wells, in addition to augmenting skills practiced by established communities by providing access to up-to-date tools and tuition that would normally be unaffordable to the citizens of developing states. However, economic growth also requires significant central spending, in order to develop national infrastructure such as roads and universities. Indian well-drilling efficiency has increased by 70% since the nascent Indian national space programme was tasked with using satellite technology to identify water pockets.

The diverse origins, policies and skillsets of NGOs tend to prevent them from collaborating in an effective fashion. Brazil’s hydroelectric power network could only have been constructed by a single, coherent organisation. A national education policy could not be formulated by NGOs. To reduce government aid would be to remove the backbone of central spending needed for national development.

Changing the way money is given will reduce corruption, embezzlement and manipulation. Centralised government structures control aid distribution in many recipient countries. As a consequence, embezzlement by government officials has become more frequent and easier to conceal. Linking aid to specific projects is ineffective at solving this problem due to difficulty in tracking individual project accounts within the recipient nation. The need to monitor which individuals and institutions receive donated funds, and to confirm that funds have been applied according to agreed plans and schedules still presents a difficult and intractable auditing problem.

Recently the Netherlands has halted its $148m development aid programme to Kenya in protest at aid embezzlement in the wake of multiple ‘graft’ scandals there[i]. Similarly Sao Tome’s Prime Minister was arrested for aid embezzlement in 2004[ii].

Corruption inside government means that aid is also often directed to supporters of the government when eventually spent. Aid may be channelled to particular individuals or political organisations, a trend which has been observed in Zimbabwe[iii]. Similarly, aid may be channelled to favoured social, ethnic or religious groups. This is particularly likely to happen in highly plural states that are affected by underlying cultural tension and strict physical divisions between communities and territories. Discriminatory treatment of Arab Israelis in Israel and the exclusion of Christian and Animist communities from aid schemes in the former Sudan illustrate this trend[iv].

[i] “Anti-corruption profile – Kenya” Trust.org. http://www.trust.org/trustlaw/country-profiles/good-governance.dot?id=12600e6d-9822-41c2-bff1-579481b9108a

[ii] “Sao Tomean PM steps down after coup.” Afrol News Online. 01 August 2003. http://www.afrol.com/articles/10333

[iii] “Zimbabwe: Corruption Timeline.” Global Integrity Report. http://report.globalintegrity.org/Zimbabwe/2009/timeline

[iv] “Background Note: Sudan.” U.S. Department of State. 08 April 2011. http://www.state.gov/r/pa/ei/bgn/5424.htm

Advocates of government-to-government aid do not have to defend such out-dated portrayals of ODA. Since at least 2000, many DAC member nations have tied their aid entirely or in part to political, economic and environmental reform. The burden is now on recipient nations to prove that aid payments are not being squandered. An onus is placed on recipients to invest in the creation of a political culture that tackles corruption, as has been seen with the founding of an ‘anti-graft task force’ in Kenya in 2006. Linked aid promotes political stability, development policies conscious of the limitations of national resources and a consistent economic framework.

Moreover, there is no guarantee that charities and NGOs will be any less corrupt or more able to prevent corruption. Easy access to large amounts of capital creates an environment that can foster corruption within any type of organisation, whether governmental institutions in the developing world or non-governmental institutions based in wealthy states. Passing aid to multiple NGOs, many of which may not be governed by accounting standards as strict as those applied to onshore organisations in the UK and the US, creates a system in which it is far harder to monitor and prevent embezzlement. In 2003, the Indian government placed 800 NGOs operating within its north eastern states under a regime of strict observation. Many of the organisations identified were suspected of having links to north eastern separatist and insurgent fighters; it was believed that funds donated to these NGOs, either privately or by the state itself, were being channelled to armed rebel groups[i].

[i] NGO Regulation Network. http://www.ngoregnet.org/country_information_by_region/Asia_and_Oceania/India.asp

Direct aid creates dependence and a dangerous client culture among recipient states. ODA is entwined with foreign policy to the degree where aid is no longer allocated on the basis of need, but according to the political and policy objectives of donor states. The USA can muster the political will to provide military aid to Israel totalling nearly $3bn a year[i], but even in the wake of Live8, real aid (payment of fresh funds to recipients, as opposed to funds acquired by rescheduling existing aid obligations) to the poorest nations in Africa is not as large proportionately.

Not only is ODA increasingly being used to incentivise compliance or non-interference with America’s objectives in the war on terror, as shown by the aid provided to Pakistan for its cooperation in the stationing of US military bases. When ODA is administered in this way, there is an increased risk that recipient governments will be seen by their people as less independent – as stooges of colonial interlopers.

Reliance on ODA can become entrenched but ODA has also created dependent nations such as Micronesia where 4/5 of the population are employed in ‘aid-created’ jobs and the government receives 90% of its revenue from the USA[ii]. It encourages a culture of aid-dependency where nations such as Kenya have come to believe that aid is the only way to lift themselves out of poverty.

[i] Washington Report on Middle East Affairs. http://wrmea.org/component/content/article/245-2008-november/3845-congress-watch-a-conservative-estimate-of-total-direct-us-aid-to-israel-almost-114-billion.html

[ii] “Background Note: Micronesia.” U.S. Department of state. 31 October 2011. http://www.state.gov/r/pa/ei/bgn/1839.htm

Cutting aid payments to the governments of states that are aid dependent would severely restrict the provision of public services and undermine public and international confidence in fragile political settlements. This dependence therefore prevents the aid being cut off.

Israel, for instance, would arguably be unable to survive without its foreign aid from the USA. Similarly, those states such as Micronesia or Tokelau which are almost exclusively aid dependent are essentially protectorates of those states that aid them, giving them political independence and the ability to develop.

The approach suggested by the resolution would also have a negative impact on nations that are politically stable but in need of reliable, uncomplicated economic support. Between 45 to 50% of all foreign aid goes to nations such as Argentina, Botswana and Brazil. Indeed, sanctions levelled against politically unstable or oppressive states such as Angola and Zimbabwe tend to restrict the aid payments they receive. Reducing aid to politically mature and conflict-free “emerging economies” reduces certainty and sustainability in development. We should deliver the aid which we have promised, the results of which- for many states- are now coming to fruition.

Direct aid undermines local markets within developing states. Many economists believe that economic growth needs to occur at a local or micro level, with private industry spurring growth and providing employment opportunities[i] that act to elevate consumer demand. Chile is often given as an example of a country which has grown in this way.

Government aid frequently results in the growth of large, state-owned corporations which undercut the creation of local markets, preventing the development of private enterprise. This can be compared with the deskilling effect that long term food aid has caused within developing nations[ii]. Lacking the will or economic resources to expand land cultivation schemes, formally and culturally acquired farming have dropped out of use in a range of developing states. Dependence on centrally distributed aid is slowing reducing the number of skilled, practiced agricultural labourers able to work to grow food.

Similarly, state-owned resource extraction and processing firms can influence an economy’s real exchange rate, making cross border trade in the commodities produced by farmers and local craftsmen uncompetitive – a situation known as the Dutch disease. This is a significant hazard in continents with a high proportion of interdependent sovereign states, such as Africa.

State owned industry frequently undercuts local, privately owned industry in both the domestic and export markets of developing nations. Further, these processes raise the spectre of corruption in state institutions and state owned businesses[iii], with large revenues tempting individuals to engage in graft, nepotism and patrimony.

The risks inherent in state supervised industry and micro-economic stimulus can be avoided by supplying aid funding to microbanking and microcredit institutions. Businesses of this type specialise in creating a large supply of low cost credit that small firms, farmers and households can borrow in order to fund the purchases and investments that will bring them closer to prosperity.

[i] “Direct aid: A dollar a day keeps the donor away.” Wahega.net. 23 January 2007. http://www.wahenga.net/node/1030               

[ii] The Development Effectiveness of Food Aid. The OECD. 2006, OECD Publishing. http://www.oecdbookshop.org/oecd/display.asp?lang=en&sf1=identifiers&st1=432006081p1

[iii] The Political Economy of Foreign Aid. Hopkins, R F. Swarthmore College. http://www.swarthmore.edu/SocSci/rhopkin1/research/PolEconFA.pdf

Using central government spending to encourage growth is still a viable development strategy.

Whilst the important role that local markets play in the development process should be recognised, they are not capable of generating widespread economic change.

NGOs serve a different purpose to governments. They construct local infrastructure projects such as schools and wells, in addition to augmenting skills practiced by established communities by providing access to up-to-date tools and tuition that would normally be unaffordable to the citizens of developing states. However, economic growth also requires significant central spending, in order to develop national infrastructure such as roads and universities. Indian well-drilling efficiency has increased by 70% since the nascent Indian national space programme was tasked with using satellite technology to identify water pockets.

The diverse origins, policies and skillsets of NGOs tend to prevent them from collaborating in an effective fashion. Brazil’s hydroelectric power network could only have been constructed by a single, coherent organisation. A national education policy could not be formulated by NGOs. To reduce government aid would be to remove the backbone of central spending needed for national development.

The international community should respect the sovereignty of developing nations. Side proposition has attempted to mischaracterise states in receipt of aid as undemocratic, authoritarian, kleptocratic or Hobbesian wastelands. Side proposition has done precious little to acknowledge that many states that are reliant on ODA are functioning or emerging democracies. Kenya, despite its growing wealth and increasing trade with Asian states still makes extensive use of aid donations. In 2012 Kenya will hold elections for seats in its national legislature – its first since a presidential election degenerated into political violence in 2007. However, even this extended period of civil disorder was brought to an end when the main contenders in the presidential ballot agreed a power sharing deal – a peaceful compromise that has now been maintained for almost five years[i].

Reducing government aid to developing democracies prevents these states from allocating aid in accordance with their citizens’ wishes. In the world created by the resolution, aid distribution will be carried out by foreign charities that may have objectives and normative motives at odds with the aspirations of a government and its citizens. There is a risk that governments will abandon heterodox or non-liberal approaches to democracy in an effort to obtain tools and support from NGOs that they would otherwise be unable to afford. State actors will be placed in a position where any action they take will entail a significant sacrifice of political authority. A state that capitulates readily to the demands of a foreign NGO will not be seen as a robust representative of the national political will; it will be considered weak. Similarly, a state that refuses to accepting funding or the donations of new infrastructure materials will be forced to deal with the consequences of prolonged fiscal and economic deprivation within its borders.

NGOs are, as a general rule undemocratic, unaccountable interest groups. Like any other private organisation, they are not bound by the transparency and freedom of information regimes that western governments have submitted to. In many states, especially India, NGOs are subject to less regulation and less stringent accounting requirements than for-profit businesses. The American or European origins of the wealthiest NGOs, along with the large numbers of western professionals that they employee make auditing and judicial supervision of their activities difficult for poorer states. It can be complicated and expensive to challenge international conflicts in private law regimes; it can be equally complicated for new governments to renege on agreements that their predecessors may have concluded with NGOs.

Popular concern about the safety of western citizens working for NGOs in foreign states can lead to unbearable diplomatic pressure being applied to governments that attempt to discipline organisations that exceed the authority they have been granted or adopt a lax attitude to national laws or social taboos. An attempt by a French charity to evacuate one hundred and three children from Chad to Europe was subject to wide spread criticism[ii] when it emerged that the charity had produced fake visas for the children and had attempt to conceal the operation from Chadian authorities. The charity had previously published press material that contained open admissions that it was acting without the support of any national government or international organisation. Nonetheless, the French government attempted to influence the outcome of the criminal investigation that was mounted against the Charity’s workers[iii].

The resolution would remove control over development policy from emergent representative institutions created at great financial and political cost. The resources and political capital normally bound up in ODA would then be transferred to NGOs that may be less accountable than national governments, that may sow conflict within divided communities, and may act unilaterally and without respect for the laws of aid receiving states. The message that the resolution would communicate is directly contradictory to the ethos of responsible, accountable and democratic intervention in marginalised or failing states that has underlain the last twenty years of development policy.

[i] “Deal to end Kenyan crisis agreed.” BBC News Online. 12 April 2008. http://news.bbc.co.uk/1/hi/world/africa/7344816.stm

[ii] “Profile: Zoe’s Ark.” BBC News Online. 29 October 2007. http://news.bbc.co.uk/1/hi/world/europe/7067374.stm

[iii] “’Families weren’t duped’, Zoe’s Ark duo tell court.” Sydney Morning Herald. 24 December 2007. http://www.smh.com.au/news/world/families-werent-duped-zoes-ark-duo-tell-court/2007/12/23/1198344884621.html

Direct Aid creates an international welfare trap. ODA incentivises states to restrict development spending, in order to avoid the cuts in aid donations that would accompany rising productivity, public health and growth indicators.

This is made worse by the fact that one of the primary measures of poverty is income below $1 or $2 a day (depending on the region), so governments have an incentive to channel aid to the elites or to schemes that incentivise or entrenched foreign investment, whilst leaving the very poorest members of their population below this poverty line. The construction of hydroelectric facilities, for example, may reduce the amount that private industrial plants and manufacturers pay for their power. However, an improved power distribution network may also be irrelevant to the needs of ordinary citizens within a state, unable to afford tools, medication or education, let alone electronic equipment.

Tax breaks and lax wage protection laws implemented in order to encourage foreign direct investment in a developing economy may act as a further incentive to stratify spending. Moreover, the suppression of average earnings in such environments tends to concentrate wealth among the owners of large amounts of land and other capital.

Further, a large proportion of direct aid is simply recycled by developing states’ governments as debt servicing. A significant proportion (over 60%) of aid donated to the poorest nations is spent to service interest (not even capital repayments) on debts incurred during the short post-colonial investment booms of the 1960s, 1970s and 1980s[i], often by dictatorial governments. Payment of aid to NGOs would shift priorities, adding impetus to large scale developments and stimulating further growth via multiple, smaller-scale schemes. Increases in tax revenue resulting from a general increase in economic prosperity throughout a state will enable faster repayment of sovereign debts.

[i] “Debt relief under the heavily indebted poor countries (HIPC) initiative.” International Monetary Fund. 06 September 2011. http://www.imf.org/external/np/exr/facts/hipc.htm

The idea that NGO’s are better able to deliver development aid has become received wisdom – accepted uncritically, repeated unthinkingly. Because charities do not have the political staying power of governments, nor a government’s ability to mobilise force or request assistance from intergovernmental bodies (such as the UN), they are often the first to withdraw when dormant war zones turn ‘hot’. Inevitably, and understandably, NGOs will always prioritise the lives of their staff and volunteers.

Problems also arise when faith-based NGOs attempt to involve themselves in development projects in poorer parts of the world. Even large, well-funded charities such as Christian Aid[i] or Saudi educational charities are perceived as partisan actors in certain states and territories. The presence of such groups has frequently exacerbated community tensions where access to political power, wealth or land is divided unequally among plural religious or cultural groups.

Most importantly, whilst organisations such as the Red Cross may be able to deliver emergency aid to areas where national governments are unwelcome, it is all but impossible to deliver development aid to conflict zones. Long term solutions to economic deprivation or agricultural failure are rendered meaningless in an environment where the destruction of infrastructure is widespread and unpredictable. Even the most basic forms of aid delivery may be diverted to rebel forces, perpetuating conflicts. The kind of peace that only national governments can impose is needed before serious development can commence.

[i] “Christian Aid: Continued Bias and missing context in Palestinian agenda.” NGO Monitor. 13 July 2006. http://www.ngo-monitor.org/article/christian_aid_continued_bias_and_missing_context_in_palestinian_agenda_ngo_update_january_june_

NGOS are better at delivering aid. Governments in those nations most in need of aid are often the least able or willing to deliver that aid. This is particularly true in those states where the line-drawing of colonialism has pitched ethnic groups into conflicts over resources, territory and political recognition. For example, the central government of the former Sudan consistently refused to apportion aid to the country’s restive southern region. Khartoum’s conduct prolonged conflicts in the area and hastened South Sudan’s secession. Similarly, the Nigerian government has no credibility in the Niger Delta region. The Somali government, barely able to assert control over the city of Mogadishu, is unable to distribute aid to other areas of the country. The same is true of south American and south east Asian nations that have been affected by regional insurgencies.

Under these circumstances, many first world states have been forced to withdraw ODA. By contrast, charities have the credibility of not being associated with governments; they can cross national borders and have a presence in rebel controlled areas such as the enclaves of northern Sri Lanka. NGOs are simply more effective at aid delivery in many of the poorest nations.