Can Foreign Aid reduce poverty?

1. Can Foreign Aid reduce poverty? By Jeffrey Sachs, from the Earth Institute of Columbia University (YES) & Georges Ayittey, from the American University (NO) Congressional Quaterly, 2009 Presentation by Stéphanie Carret 08.12.09

2. The planning for today • Review of the paper: main ideas • Jeffrey Sachs answers YES • Georges B.N Ayittey answers NO • Analysis of illustrative graph • What questions can we raise?

3. The Debate • Can foreign aid reduce poverty? • 3 billion people live with less than $2/day • Millions of children lack of lifesaving immunizations • 1 billion people lack access to adequate water supplies • Important improvements in East Asia… • …but extreme poverty increased in Sub-Saharian Africa • The main question always asked: • How can extreme deprivation be seen next to material excess?

4. The Debate • Principal multilateral institutions: UNDP, the World Bank, IMF & OECD’s DAC aid • US aid started with the Marshall Plan in 1947 & in the 1960’s, USAID was created • Lately, this aid has been mainly used as an impediment to terrorism (Afghanistan & Iraq) • UN Dev.Millenium Goals set up in the 2000 Summit: goals have to be reached by 2015 • One important commitment: wealthy nations have to contribute with an aid = 0.7% of their GNI: not reached • 0.7%= for the UN MG + emergency relief & post-reconstruction • Often, aid motivated by internal politics • Disagreements on aid: just an instrument of foreign policy? What type of aid are efficient? What are the other forms of economic activities providing development?

5. The UN Millenium Goals • Eradicate extreme poverty and hunger • Achieve universal primery education • Promote gender equality and empower women • Reduce child mortality • Improvematernal health • Combat HIV/AIDS, malaria and diseases • Ensure environmental sustainability • Develop a global partneship for development

6. Jeffrey D. Sachs: YES (1) • His answer is based mainly on the role of US Aid • For the past 50 years, reducing poverty with aid has been successful, except in sub-Saharan Africa • Green Revolution in the 1960’s • Decrease in diseases burdens • Family planning support: population decrease • Manufacturing successes (Thailand, Korea, Malaysia…) • Development Assistance: a tool for the promotion of economic development • Formed of public and private contributions • Aid from public sector: Official Development Assistance (ODA) • Best successes came from Public-Private Parterships (PPP’s) • Ex: Green Revolution in India • Aid as a complement and often as a precondition for market forces: International Trade and FDI inflows: « Aid for Trade »

7. Jeffrey D. Sachs: YES (2) • What works and doesn’t work with ODA • Usual debate: where is the correlation between aid & growth • 6 interventions points yield development successes • Based in powerful & low-cost technologies • Easy to deliver • Rightly adapted to the scale • Reliably funded • Multilateral • Specific inputs, goals and strategies (+LT indirect goals) • 21st Century: modernizing US D.A • Goals: MDGs + focusing on the poorest regions • Techologies: set of efficient core interventions • Delivery systems: auditing against corruption • Financing: donor aid should be half-half for bilateral and multilateral initiatives: critical need in infrastructures

8. Jeffrey D. Sachs: YES (3) • Structure of US D.A • Today, USAID part of Department of State • Too focused on SR foreign policy emergencies • More efficient: creation of DfISD • Regrouping USAID, PEPFAR and other initiatives… • Regrouping goals and talents • Financing of US D.A in next administration • Worldwide official D.A = $100billion (1/4 for Africa) • Not enough to achieve the MDGs: pledges not fulfilled • CSQS: difficult for developing countries to count on LT reliable aid in order to start investments • Fragmented aid

9. Jeffrey D. Sachs: YES (2) • US recognized that aid must be organized as a multilateral effort with common goals • In the US: 3 pillars of national security are Development ($22.7billion), Defense ($611billion) and Diplomacy ($9billion): 1stpb of disproportionnality • US Aid allocated to bilateral and multilateral aid • 2d pb: 3/4 of the aid is devoted to emergencies and US political aims • 3d pb: US has the lowest ODA contribution, as a % of GNI

10. Graph Analysis (1)% of total population living on less than $1.08/day, 1981-2001

11. Graph Analysis (2)Net official Development assistance given by OECD Development Assistance Commitee (DAC), 1960-2000

12. Graph Analysis (3)Net ODA in 2007 - amonts

13. Graph Analysis (4)Net ODA in 2007 - in % of GNI

14. Gerges B.Ayittey: NO (1) • The authors focuses on the case of Africa • Africa remains a big paradox: huge potential but weak economic progress • Seems to be a 10-year-attention-deficit-cycle • Pledges of erase part of the $350 billion debt • $25 billion aid per year ($450 billion since 1960) • The shape of aid for Africa has lost rationality in favor of post-colonial guilt • Africa does not need aid: it already has the ressources and needs political and economic reforms

15. Gerges B.Ayittey: NO (2) • Africa’s leaky begging bowl • « Aid in Africa is like pouring more water in a bucket that leaks horribly »: FDI inflows and exports revenue effects are canceled by imports, corruption and civil wars • Need for Africa to look in its territory to build capital formation with a strong continental union • Need for $50billion annually for capacity building • Africa mustn’t rely on the outside • Capital flight to foreign banks (usually illegal revenus & corruptions & suspicious businessmen): $20billion/year • African leaders may have stolen $140billion during last decades • African Report: $148billion lost annually because of corruption • $15billion/year spent for arms purchase and army maintenance • Losses with civil wars • Difficulties for Africa to feed itself: huge imports

16. Gerges B.Ayittey: NO (3) • Monumental leadership failure • Aid business as a massive fraud, known even by Western governments: strong example of Nigeria • Post-colonialism leaderships: dirigism and dictatorships enhanced corruption and one-party states: governments were no more institutions, risk of « coconut republic » • The richest: most powerful and corrupted, rarely judged • Acrobatics on reform • In African countries, reforming has a different meaning • Out of 54 countries: 16 democratic, 8 economic successes • Better ways of helping Africa • Smart aid: empowering of civil society (aid monitoring i.e) • Needed institutionnal tools: independent media, judiciary, electoral commission, central bank; efficient civil service, neutral armed force : NEED FOR POLITICAL SPACE. Ex: Egyptian judge • NGO’s cannot always interfere: role of emigrated people (paper) • Distinction between goverments and people: a new Solidarnosc?

17. Table Analysis (1)Causes of Africa’s Loss of Money

18. Debate • Is the development improvement in Asia really due to aid • Isn’t it more the cultural & geographical particularities of the region that promoted economic & social development? • To what extent can colonialism be blamed for Africa’s woes? (civil wars, corrupted elites, dictatorships, import dependency for food…)

19. Questions? Thank you.