African Development for the Completely Bloody Ignorant

Last time, we saw how Jeffrey Sachs outlines the case for greater investment through aid in developing countries: how, he argues, an increase in six different kinds of capital - human, business, infrastructure, the environment, public institutions, and knowledge - can make the difference between an economy growing out of poverty, and one sinking ever further in. Now, let’s see exactly what mechanisms he believes will enable us to manage this almighty aid effort.

Ending poverty by 2025, Sachs argues, requires a “global compact” between rich and poor. Poor countries must commit to the goal of ending poverty, and stop letting corruption and war get in the way; and rich countries must follow through on the promises they’ve already made to provide more help.

You heard that right: the promises they’ve already made. One of Sachs’ key arguments is that, even before the campaigns and Gleneagles pledges of 2005, rich countries had already repeatedly acknowledged¹ that aid is essential for ending poverty and promised to provide more. Yet at present (the book was written before Gleaneagles), Sachs admits, neither side is sticking to its side of the bargain: “poor countries pretend to reform, while rich countries pretend to help them.” (p268) It’s commonly said that we’re already pouring money into Africa, and every new aid effort is announced with great fanfare. But the actual amounts available, Sachs argues, are a fraction of what is needed. In Ethopia’s case, for example, $70 per person per year of aid is needed, and only $14 is currently available. (p267)

What makes it more absurd, Sachs argues, is that rich countries know that more money from them is the key requirement for poor countries to meet the Millennium Development Goals - the often-repeated pledges that form the backdrop to current development policy, at least in theory. The West trumpets progress towards the goals, and wrings its hands when progress is slow, but doesn’t admit its own lack of investment - despite promises to the contrary - is the main problem.

On poor countries’ side, Sachs accepts that “poor countries have no guaranteed right to meet the Millennium Development Goals or to receive development assistance from the rich countries. They only have that right if they themselves carry through on their commitments to good governance… Not all governments will want to, or be able to, make such a commitment, and those nations need not apply.” (p269) But there are many cases, Sachs argues, where the commitment and governance are there, and it is the rich countries who are breaking the deal. “The biggest problem today is not that poorly governed countries get too much help, but that well-governed countries get far too little.” So how can rich countries put the infrastructure in place to meet their commitments?

1. Plan to meet the MDGs, and eliminate extreme poverty after.

Part of the problem is poverty of ambition. Many poor countries have put together Poverty Reduction Strategy Papers (PRSPs). These plans, required for World Bank support, outline how a country plans to spend its aid. The problem is, they tend to be based around the aid the countries already know is going to be available, so they fall far short of planning to meet the Millennium Development Goals. The rhetoric of the MDGs is completely divorced from the day-to-day reality of canvassing, planning for and using aid.

Instead, countries should put together MDG-focussed PRSPs: plans to achieve the Millennium Development Goals. Then it’s possible to work out how much extra money is needed, and the conversation about aid can become more informed. The fault for this having not happened, Sachs points out, lies not with the caution of developing countries but the stinginess of rich countries: Ghana’s detailed, carefully-planned PRSP of 2002 gave a map to meeting the MDGs, but rich countries only coughed up a quarter of the $8bn it asked for.

An MDG-focussed poverty reduction strategy would have five parts:

1. A ‘differential diagnosis’ to see precisely which investments are needed in what balance;
2. An investment plan that outlines how much is needed and when;
3. A financial plan that calculates how much countries can provide and how much needs to come from donors;
4. A donor plan - who will pay, when; and
5. A public management plan that shows how the investment will be done, managed, and monitored.

If all of these elements are present, Sachs argues, most of the conventional arguments against aid fall away. A thorough public management plan can ensure money isn’t wasted; proper investment planning prevents the money coming in too quickly or slowly, for example not building hospitals till you’ve trained the doctors to work in them.

Regarding the financial plan, it’s worth noting that poor countries are expected to make a contribution to the extra spending. Poor countries can have trouble raising significant amounts of tax, but Sachs estimates most poor countries could devote an extra 4% of GDP - a high proportion of the total government budget - to MDG investments.

It’s also vital financial plans are realistic, not just about the amount of investment, but the duration. Many countries, Sachs points out, will need support and special investment not just for a few years, but to 2015 and beyond. Some will need support right up to 2025.

Equally, the donor plan is essential so countries can predict aid flows and plan accordingly. Right now, one of the main restrictions on aid effectiveness is that it’s short-term, so you never know when you’re going to have to sack people or close a hospital from lack of funding. The donor plan must also outline how aid will be harmonised. Right now, Sachs admits, a huge number of different agencies funding and spending aid is leading to chaos. Instead, everyone involved should focus on what they do best: country partners supporting small projects; multilateral institutions co-ordinating the flow of large-scale budget support money. The donor money itself should be pooled centrally and given out in line with the plan.

The public management plan is the crucial one for poor countries. It covers a host of techniques needed to ensure the money is spent right:

1. Decentralisation so local adaptations can be made at local level
2. Training so the public sector can develop the capacity to spend and manage the money
3. Information technology to help monitor and co-ordinate the use of the money
4. Benchmarks, clear, measurable targets for the effects of the investment, adapted to local conditions
5. Audits so it can be confirmed all money is being spent legitimately and in line with the plan
6. Monitoring and evaluation so that progress towards the benchmarks can be constantly assessed.

While this should primarily all happen at country level, some things only work regionally. Roads that cross borders, for example, are useless if only one country’s section is repaired. New regional groupings and institutions, like the East African Development Bank, should be supported to help ensure regional co-ordination of investment. This works with public management too: the African Peer Review Mechanism of NEPAD is helping improve governance across Africa by letting countries submit their systems to other countries for review.

2. Put the system together properly.

The current system of aid delivery - including country-to-country bilateral donations, the World Bank and IMF, the UN, and regional schemes like the African Development Bank - is messy and incoherent. It simply can’t process the amounts of money required with the necessary planning and oversight. Instead, the UN Development Programme should take a co-ordinating role. Each low-income country should have a dedicated UN team, reporting directly to the head of the UNDP.

This might sound commonsensical. But right now, the IMF and World Bank are given far greater control over development than the UN. The UN’s range of agencies, from the World Health Organisation to the UN Human Settlements Program, have a huge range of expertise - but are often forced to calling Sachs himself, he claims, to find out what the IMF and World Bank are up to. The reason for this? Some would argue it’s because the UN is inefficient. To Sachs, it’s because while the UN is governed by all countries equally, the World Bank and IMF are dominated by the rich countries that provide most of their funds - and who want to retain control of the development process. This short-term approach should give way to co-ordination by the UN, with the expertise in economics provided by the World Bank and IMF part of the team.

3. Fix the obstacles at global level.

Some problems are too big to fix at country, or even regional level, even with the help of the international community. Global issues need global answers:

1. The debt crisis. The rich world’s feet-dragging over debt contrasts badly with the hugely successful Marshall Plan, where the US gave, not loaned, millions of dollars to rebuild Europe after World War II, letting the world economy recover much more quickly. The debt burden is preventing such growth in poor countries today, and Sachs says the debts of the highly indebted countries should be cancelled - and further support come as grants, not loans.
2. Trade policy. Long-term economic growth in poor countries must be built on exports to rich countries. But trade barriers, from import tariffs to subsidies, prevent poor countries trading on an even basis. Trade reform shouldn’t be used as a substitute for aid, as many of the benefits of trade accrue to middle-income countries; for the very poor to benefit from trade, they must be helped onto the ladder through aid first. Similarly, while reducing agricultural subsidies will be a good thing, it isn’t a magic bullet benefit, as major exporters like Brazil would benefit most.²
3. Science for development. Technology, from new agricultural varieties to anti-retroviral AIDS drugs, is vital for development. Yet the technologies that have made a difference so far have normally been developed for the rich world, where the commercial markets are strongest, and later exported to poorer countries. Imagine how many more breakthroughs there would be if more money was focussed on research directly into poor-world problems. The UN Millennium Project, another Sachs vehicle that we’ll be looking at soon, calls for $7 billion per year to be put aside for research into poor-country technologies - tropical agriculture, energy for remote areas, climate forecasting and adjustment, water management and sustainable management of fragile ecosystems. Research into vaccines into things like HIV can be encouraged by rich countries promising to buy vaccines from pharmaceutical companies should they be developed.
4. Environmental stewardship. Climate change is, of course, the elephant in the developmental room: it’s big, it could have an enormous effect on the futures of the poor, and we all prefer to pretend it’s not there. In fact, though, poor areas are likely to face some of the most serious consequences - reductions in rainfall will be catastrophic in some parts of Africa. Rich countries must stabilise their carbon emissions at a safe level, support poor countries in adapting to climate change, and fund research to learn more about the likely effects on poor countries.

And that, in essence, is the Sachs plan at a macro, global level. In a few posts’ time we’ll look at the UN Millennium Development Report, which spells it all out in more detail. Next, though, we’ll skip to the bit which gets everyone excited: how much will it all cost?!

1. For example, the “Monterrey Consensus” on aid, which the US and other developed countries signed in 2002, reaffirmed the commitment to providing 0.7% of GDP as aid, and the Johannesburg summit later that year committed countries to “concrete efforts” to move towards 0.7. The US’ current aid budget is a little under 0.2%.
2. In fact, Sachs acknowledges, several African countries would be made worse off, as they are net importers of food from rich countries. Nevertheless, in the long term, reducing subsidies is a good idea as they are grossly inefficient and in the long run African food exports should increase.

All page references are from the UK paperback edition of Sachs’ The End of Poverty.