Chapter 9 Review Questions Answer Key

National Development Agencies and Bilateral Aid

Official development assistance (ODA) refers to “flows of official financing administered with the promotion of the economic development and welfare of developing countries as the main objective, and which are concessional in character with a grant element of at least 25 per cent.” This means that to qualify as ODA, funding must be provided by governments, and its main purpose must be improving economic or social well-being in developing countries (see Box 9.1). Thus, donations from individuals, foundations, or private corporations, whether directly to developing countries or through the intermediary of non-governmental organizations (NGOs), do not count as ODA, nor do military assistance and export credits meant primarily to promote the sale of goods from the donor country. [p. 151]

In contrast to absolute levels of aid, which reflect the total amount given, relative generosity refers to aid as a proportion of the capacity to give. This is typically calculated by dividing ODA by GNI, GDP, or GNP. Relative generosity, then, tells us more about how much a country gives compared to its overall economic ability to give. In 1970, the UN General Assembly passed a resolution establishing 0.7 per cent of GNP as the target for ODA. Most countries, however, have failed to reach this level of aid provision. [p. 153]

A primary justification of ODA is that it should focus on helping people in other countries have access to food, housing, health care, education, and other basic necessities and opportunities. The best means of providing development assistance is often contested, but the goal from this perspective should not be related to self-interest. This motive is most often shared by NGOs and citizens of donor countries, if not by all development officials. There are different forms of this mentality. One can be motivated by charity, often inspired by religious beliefs (and sometimes viewed as paternalism), or by solidarity, a more left-wing concept that frames actors in the recipient country as equal partners. The latter is criticized by some as being naively idealistic and willfully ignorant of the need for a donor to pursue its own national interest. A more self-interested motive, however, is widely shared, especially among government officials not directly involved in aid delivery, including those working in national defence, foreign affairs, and international trade. From their perspective, aid is primarily a means to pursue other foreign policy objectives, including diplomatic, commercial, and security interests. Under this logic, aid should be used to promote diplomatic initiatives, including assisting “friendly” countries, pursuing security objectives (for instance, rewarding countries that take part in the “war on terror” or winning hearts and minds in a country where the donor country’s troops are deployed) or facilitating investment and trade relations, including the sale of donor nation goods and services in the recipient country. Aid programs also can serve to raise the donor’s profile internationally, providing it with prestige among its peers as a country that makes an important contribution on the global level. The basic principle from this perspective is that foreign aid can be used to help people abroad but that the selection of recipients and aid modalities should prioritize instances where it maximizes the direct and indirect benefits to the donor country. Increasingly, donors are adopting a “whole-of-government approach” that integrates foreign aid more closely with other foreign policy objectives. This mentality is often criticized for using aid as a fig leaf, hiding the pursuit of naked self-interest behind claims that it is designed to help others. [pp. 155, 157]

The view that the primary purpose of aid ought to be the promotion of economic growth in the recipient country is based on a specific understanding of how to reduce poverty. That is, this view does not ignore poverty. Rather, it suggests that poverty can be most effectively reduced when growth occurs in the economy (trickling down to all groups). However, an opposed view contends that the benefits of growth do not always “trickle down,” and thus aid should be focused primarily on helping people meet their basic needs. In this view, it is important to identify the causes of poverty in order to reduce poverty. [p. 163]

Those who argue that aid should go to the poorest countries emphasize the need to reduce absolute poverty rates. This view prioritizes sub-Saharan Africa as the area most in need of aid. In contrast, another view suggests that aid be given to countries that have the greatest capacity to use it most effectively. This view tends to prioritize middle-income countries due to concerns over poor governance in the poorest countries, which prevent the effective use of aid (due to the prominence of corruption, etc.). However, critics of this view argue that such countries are better able to attract foreign investment in private markets, and therefore do not need ODA as much as the poorest countries do. [p. 163]

Donors currently favour an approach know as results-based management (RBM). Although its goal of improving aid effectiveness is widely lauded, its requirement for measurable and verifiable results introduces distortions and biases in development assistance that, some believe, could outweigh its benefits. Not all goals can be easily or accurately quantified—for example, the rule of law, good governance, or independence of the judiciary. Setting indicators means that efforts will be deployed to improve those possibly arbitrarily chosen figures rather than meeting less tangible or undefined development objectives that could be of equal or greater utility, especially in the long term. [p. 162]

The most generous donor by far in dollar terms was the United States, whose ODA exceeded $34 billion in 2018. The next four largest donors were Germany, the United Kingdom, Japan, and France, each of which contributed between $12 billion and $25 billion. At the other end of the scale, smaller countries, such as Slovakia, Slovenia, and Iceland, each contributed less than $130 million in that year. Of the non-DAC donors that report their ODA figures to the DAC, the largest in 2017 was Turkey, which contributed $8.1 billion, making it the world’s sixth-largest donor, followed by the United Arab Emirates ($4.0 billion) and Russia ($1.2 billion), all of which provided more ODA than what each of the 12 smallest DAC donors contributed. China’s concessional finance for development is estimated to total $3.6 billion in 2013. Although absolute figures in US dollars immediately reveal who the most—and least—significant players are in the area of foreign aid, they tell us little about how generous the countries actually are when measured against their capacity to provide assistance. Relative generosity is normally calculated by dividing ODA by gross national income (GNI), gross national product (GNP), or gross domestic product (GDP), each of which provides almost identical figures. In 1970, the UN General Assembly passed a resolution whereby donors would provide at least 0.7 per cent of their GNP in ODA by 1975. DAC donors as a whole failed miserably to reach that target. In 2017, 42 years after the deadline, they collectively provided 0.31 per cent, less than half the proportion to which they had committed. Nonetheless, this was significantly higher than the 0.22 per cent provided in 2001–2. Paradoxically, the world’s most generous donor in absolute terms is also one of the least generous in relative terms: the US ratio was only 0.17 per cent for that year, less than one-sixth of Sweden’s contribution and not even a quarter of the UN target. [p. 153]

The UK’s Department for International Development (DFID) has been so successful due to a number of factors. Firstly, DFID has focused its aid policy on achieving outcomes, basing it on concrete evidence rather than ideological preferences. DFID has built strong in-house technical expertise but also consults widely with outside experts. DFID resists short-term pressures, including promoting British commercial interests, and focuses on long-term strategies centred primarily on poverty reduction in low-income countries. DFID is responsible for all British foreign aid rather than its being split among various government departments. DFID has been represented at cabinet by ministers with strong leadership skills and important political profiles. Lastly, DFID has enjoyed key support from the prime minister and the chancellor of the exchequer (finance minister). [p. 161]

Some ODA is conditional on the purchase of goods and services from the donor country, even if they are not the cheapest or the best value for money, a practice known as “tied aid.” Tying aid increases costs by an average of 15 to 30 per cent, although in some instances the figure can be much higher. Sometimes the additional costs can be incurred for a decade or more. For instance, Canadian aid to Mongolia’s agricultural sector might require that equipment such as tractors be purchased from Canadian companies. Not only might those tractors cost more and be no better than, say, Japanese or Chinese ones, but Mongolia would have to buy Canadian replacement parts for as long as the tractors were in use. Aid that can be spent regardless of the country of origin of the goods and services is referred to as “untied.” Donors have committed themselves to progressively untying aid, although they have not specified a deadline for eliminating the practice altogether. Some countries, such as Denmark, Sweden, and the United Kingdom, have abolished tied aid altogether. Others, however, continue to tie a sizable proportion of their ODA, including Austria and South Korea (both 50 per cent in 2017), the Czech Republic (44 per cent), Poland (40 per cent), and the United States (36 per cent). [p. 157]

Individual donor countries often choose to focus on a particular region on the basis of geography, security interests, or former colonial ties. For instance, in 2016–17, Australia, Japan, South Korea, and New Zealand provided between 49 and 85 per cent of their ODA to Asia and Oceania, their “neighbourhood.” Eight donors—Canada, Iceland, Ireland, Luxembourg, the Netherlands, Sweden, the United Kingdom, and the United States—gave at least half of theirs to sub-Saharan Africa. No country concentrated the majority of its aid on the Middle East and North Africa or on Latin America and the Caribbean, though Spain came close (46 per cent to the latter region). Some countries transfer a much larger proportion of their aid to multilateral institutions than they disburse directly to developing countries. By doing so, they reduce their administrative costs but also some of their control over where and how their funds are spent. Figures from 2017 range from the Czech Republic, Greece, Spain, Hungary, and Slovakia, which each provided 73–74 per cent of their aid through multilateral channels, to the United States and New Zealand, which respectively disbursed only 14 and 18 per cent multilaterally. Donors also have varying institutional arrangements, priorities, and preferred aid modalities. The United States, for instance, the world’s largest aid donor, has two main governmental aid agencies. The first, the United States Agency for International Development (USAID), since its creation in 1961 has been the principal government body for providing development assistance. A second government agency, the Millennium Challenge Corporation (MCC), was launched in 2004 with a narrower focus than that of USAID. The MCC aims to foster economic growth in a smaller number of countries that meet specific criteria regarding free markets, democracy, and good governance. [p. 158]