Making Aid Work
| Author | Mark Sundberg and Alan Gelb |
| Position | Lead Economist/Director of Development Policy, at the World Bank |
The end of the cold war and progress toward a new aid architecture should make aid more effective
Too much of the $300 million in aid to Africa since 1980 has vanished into a sinkhole of fraud, malfeasance and waste.
- Sharon LaFraniere,
New York Times, July 2005
. . . Reality is broadly the opposite of current popular beliefs. Aid has not been wasted: it has kept African economies afloat through disturbed times.
- Paul Collier,
"What Can We Expect from More Aid to Africa?" May 2006
Since 1960 nearly $650 billion in aid (in 2004 prices) has been provided to sub-Saharan African (SSA) countries by the OECD Development Assistance Committee (DAC) countries. And this number would be even higher if contributions from emerging non-DAC donors, such as China, India, and some of the Gulf states, were added to the total. Has all this aid been gainfully used to promote sustainable growth and development? This is difficult to answer because the links between foreign aid and countries' development are complex. However, the likely answer is, on the whole, "No." Historically, most aid has not been used very well. Much of it was never intended for development to begin with, and a large share went to war-torn and politically unstable countries where development gains have subsequently been lost. However, there is good reason to believe that substantive changes are taking place and that "more and better aid" is now going to finance development programs.
Total aid to Africa (defined as sub-Saharan Africa in this article) from rich countries represents the bulk of reported net financial flows to the continent, accounting for between 40 percent and 90 percent in any given year since 1970. While equity and foreign direct investments have grown significantly since the mid-1990s, they are highly concentrated in a small number of countries. For most countries, official development assistance (ODA) is still the largest single source of capital inflows, contributing nearly half of all net capital flows (see Chart 1). Following a major decline in the mid-1990s that coincided with the end of the cold war, aid has begun to increase again, although it is still below earlier levels. Per capita aid flows are particularly striking. They declined to $24 per capita in 1999 (nearly half the level seen in the late 1980s) but have since increased to about $37 per capita (see Chart 2).
[ GRAPHICS ARE NOT INCLUDED ]
People typically think of aid as financing for development. But a large amount of aid is not intended for this purpose. OECD countries count a wide range of financing items as ODA, including such special-purpose items as costs linked to program administration, emergency and food assistance, technical cooperation, and debt relief. What remain are "non-special-purpose grants" that constitute what taxpayers typically consider foreign aid: financing for education, infrastructure, and health projects, as well as budget support for general financing needs. Over time, this share of aid going to project and program support has fallen. In per capita terms, the decline in project and program aid during the 1990s was significant, and it has not yet recovered.
Many factors have contributed to reducing the share of aid that finances development projects. The decline by more than...
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