Development and its many Problems

1
Development and its many Problems

• Focusing on development assistancethe
  Relationship between the givers and receivers of
  aidand its consequences!
• By Mammo Muchie NRF/DST Research Professor Chair
  Holder on Innovation Studies,IERI, TUT,Pretoria,
  South Africa, Professor, DIIPER,Aalborg
  University
• February 20,2009, Reggio, Italy

2
Development Challenges

• One of these distinctive features was that,
  unlike European industrialization, developing
  country industrialization was supposed to occur
  while these countries existed alongside already-
  industrialized Western countries and were tied to
  them by trade.
• This, speculated a few, could give rise to
  distinct structural problems for development.
• Task of the development economist, became to
  suggest "short-cuts" by which underdeveloped
  countries might "catch up" with the developed and
  leap over a few stages.
• Studying institutions at the micro-level,
  sectoral, region, local levels
• Finding rules of the game that define the
  incentive structures
• By studying at the macro level conomic
  growth,performance and productivity, rates of
  growth of GDP---these dominated debate from
  various theoretical perspectives

3
Means used to meet the Challenges

• Promoting international Trade
• Industrialisation
• capital formation
• Human capital formation
• Social Development
• Capability building
• Post-development
• Development Assistance

4
Meeting MDGs

• Eradicate exterme poverty and hunger
• Achieve universal primary education
• Promote gender equality and empower women
• Reduce child mortality
• Improve maternal health
• Combat hIV/AIDS, malaria and other diseases
• Ensure environmental sustainability
• Develop a global partnership (MDGs) (UN)

5
Development Assistance

• Since 1949 Development has been on the agenda
• The world has been divided between donor givers
  and donor receivers
• The donors and the donorised
• EU is a donor
• North Africa is broadly a donor recipient
• We focus on Development Assistance in this
  Lecture

6
Development Assistance overview

• Reasons for donors to give aid
• Reasons for developing countries to receive aid
• Theoretical disputes for and against foreign aid
• Types of Aid
• Changing Aid strategies
• How Different donors give aid
• EU and North Africa
• Questions to think about

7
Development goals

• Ethics- less violation of human rights
• Equity- less disparity within and between nations
• Inclusion less marginalisation of people and
  countries
• Human security- less instability of countries and
  less vulnerability of people
• Sustainability-less environmental destruction
• Development less poverty and deprivation (UNDP)

8
inspiration

• Foreign aid in different times and different
  places has been highly effective, totally
  ineffective, and everything in between. Perhaps
  that is to be expected in a complex endeavour
  that has spanned half a century, with scores of
  countries as donors, a hundred countries as
  recipents, tens of thousands of specific
  activities, and nearly US 1 trillion dollars in
  finance (World Bank, Assessing Aid, What Works,
  What Doesnt, and why?, Oxford University press,
  New yprk,1998, p.29

9
inspiration

• The end of poverty is at hand-within our
  generation- but only if we grasp the historic
  opportunity in front of us.. The rich countries
  have repeatdly promised to help the poor
  countries to achieve them through increased
  development assistance and improved global rules
  of the game meet MDGs by 2015, end extreme
  poverty by 2025 , to ensure that well before 2015
  reliable progress is made against poverty and for
  rich to be modestly generous and fulfil the 0.7
  aid they promised.( paraphrased from Jeffrey
  Sachs, The End of poverty,Penguin
  Books,2005,pp.24-25)

10
Inspiration

• --A countrys government can give foreign aid
  that is mostly motivated by considerations of
  national security or special commercial
  interests, but at the same time tell their tax
  paying citizens that their motives are
  altruistic.(Martinussen Pederesen, p.7)

11
inspiration

• ..aid is sometimes the deciding push factor,
  sometimes a near waste of resources, sometimes of
  little or no significance (Martinussen
  Pedersen, AidUnderstanding International
  Development Cooperation, Zed Books,1999,p.264

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Some Key Reasons for Giving Aid

• National security
• Moral and humanitarian reasons
• Environmental reasons
• Economic reasons
• To meet different objectives at national and
  global levels
• Political, social, sustainable development
  objectives
• to support cases of emergency, disaster, flood
  and other unexpected occurrances

13
Why recipents receive aid

• - To promote economic and social development
• Difficult to attract foreign investment for poor
  countries
• Difficult to keep up with the ebbs and flows of
  private financial markets
• Investments in social and economic infrastructure
  not commercially attractive
• Not possible to finance such infrastructure
  through exports
• Debts need to be written off
• Loans at concessionary terms often desired
• A stable flow of official aid deemed helpful
• Alæso those in power need aid to strengthen their
  power
• As those outside power who seek power may wish to
  get it withheld

14
The econonmic reason

• Capital formation is a key problem for developing
  countries
• Private and public savings insufficient to
  finance large investments to build
  infrastructure to accelerate growth processes
• Private foreign investment was far too low to
  finance development
• Not all developing countries are attractive for
  FDI
• Official foreign aid transfer is necessary
• .

15
Argument Justifying DA

• The Dual-Gap model used to justify aids
  beneficial effects
• Double problemImport- export gap
  Investment-saving gap persit
• Too few resources domestically to cover the need
  for investment
• Too few resources in the form of foreign exchange
  that could finance imports of machinery and
  manufactures from foreign markets
• Either foreign exchange or direct financing of
  the imports of machinery can close both gaps
  (Rosenstein-Rodan, Rostow and others in the 50s
  and 60s)
• Also side effects of DA could potentially induce
  self-reinforcing growth
• Capital transfers in the form of grants,
  conecessionary loans

16
Critics of the two gap model

• Some crtics claimed that in practice capital aid
  had rarely, or only to a limited extent,
  supplemented domestic savings.
• They claim there had been a tendency for capital
  transfers to replace public savings in
  particular, so that the beneficial effects of the
  aid were very limited, may even be
  negative(Martinussen et al, p.19)
• Others criticised the models emphasis on capital
  accumulation as an engine of growth
• It is more how money or capital is invested or
  used not the amount per se
• The conditions and policies of the recipent
  countries matter
• Capital is just one factor determing national
  income

17
Foreign Aid in Theory?

• Debate since the 1950s
• No consensus yet
• One View FA or DA Neither a necessary and
  sufficient condition for growth and development
• Economic growth /development can be achieved
  without DA (See Martinussen et al for Summary,
  p.18)

18
FA or DA in Theory

• A Positive View
• Investment of more capital creates growth
• Positive correlation with more investment to
  better increase in growth rates
• Aid in the form of capital transfers suplements
  other forms of k-formation by private and public
  investments

19
Recipient countries

• Recipent countries differ from each other
• Share of total assistance varies
• Total gross aid in the mid-1990s was 2.5 per cent
  of the GNP of developing countries as a whole
• Variation considerable 0.3 (Latin America), 0.7
  (China India) and 11.5 Sub-Saharan Africa (
  World Bank 1997)

20
Classifying the recipient countries

• LDCs low income countries very vulnerable
• LICs with GNP per capita of less than 765 in 1995
• Lower middle-income countries(LMICs) with GNP per
  capita up to US 3,035 in 1995
• Upper middle income countries(UMICs) with GNP per
  capita of up to US 9,385 in 1995
• High Income countries(HICs) with GNP per capita
  over US 9,385 in1995
• It matters very much what level a country is to
  utlise official aid effectively!

21
Types of Aid

• Development assistance and emergency relief
• State and voluntary aid
• Financial, technical and commodity assistance
• Assistance in the form of grants and loans
• Bilateral and multilateral aid
• Programme and project aid

22
Types of intervention

• Cooperation with stakeholders
• Aid language..assistance cooperation partnership,
  national owenership
• Project cycle from project, programme, sector,
  national to policy learning approach
• Bilateral and multilateral aid from
  technical-economic to political dialogue
• Financial, technical and commodity assistance--
  emergency relief.. Humanitarian assistance-
  development orientated emergency relief

23
Aid strategies

• Trickle down in the 1960s integrated rural
  developmenyt projects and fulfilment of basic
  needs
• Redistribution with growth
• From projects to structural adjustment of the 80s
• Political, economic and instituition building

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Aid strategies of the 1990s

• Poverty eradication and environmental
  development goals for foreign aid
• Women and gender equality
• Democratisation and good governance
• Human development and poverty alleviation
• Private sector
• Instituition building
• Capacity building
• The rise of NGOs

25
Political goals

• macro-economic stabilization and structural
  adjustment
• Good governance, human rights and democratisation
• Poverty reduction, human development and social
  diversity

26
Donors Differ

• They differ in the way they link development aid
  with foreign policy
• The history of relations with developing
  countries(e.g. UK with Common Wealth, France with
  Franco phone Africa)
• Japan in East Asia
• Nordic countries broadly driven by a desire to be
  relevant
• USA largely motivated by national security
  concerns

27
Building Coherence

• Creating better coherence in donor countries
  various forms of foreign policy
• Doing away with aid and development policy goals
  on the one hand and goals within such areas as
  national security, guidelines for weapons
  exports, trade and investment policies,
  agriculture and environment policy
• Trying to see developing countries development
  problems as a whole
• Donors need to ajust and harmonise their policies
  in relation to the total problems of recipient
  countries

28
USA-DA

• Generous to European reconstruction 2 of its
  GDP!
• Aid halved and remained to same level as other
  developed countries until 1968
• Mid-1980s USA aid fell by 25 of other developed
  countries aid
• It fell further by mid-1990s
• It stands now after Moneterry from its low 0.1
  to 0.3

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National Security priority

• During the Marshall Plan East Asia , Europe and
  Canada
• During Vietnam Mobilisation Isreal, Middle East,
  South Asia, Latin America and Africa
• Vietnam settlement East Asia, Middle East,
  Isreal
• Camp David Isreal and Egypt, Middle East
• End of the Cold War, Isreal, Egypt and Latin
  America, and the remainder of Middle East and
  South asia

30
Japan-DA

• Restoring Japans name after the war in East Asia
• Japan engaged in helping reconstruct destroyed
  infrastructure
• More economic linked
• Tailed US security need to contain Cold war foes
  and butress cold war allies
• Main aid zone remains ASEAN region
• More poverty orientated in beginning in the 1980s

31
Japan_DA

• In 1969 only 1 of Japanese DA went to
  Sub-Sahran Africa, in contrast to 18 of
  Japanese bi lateral aid.
• Its bilateral aid consists of 80 of its total
  aid!
• High priority to export orientation industries
• After 1993 it gave the highest donor aid 27 of
  all the Develped aiders
• 0.35 of its GDP!
• Its tied aid which was 70 in the 70s has now
  been reduced to 15-16 in the 1990s compared to
  the average donor tie up of 33
• Japan changed after criticism of its tied aid

32
France-DA

• Third largest donor after USA and Japan
• Mid-1990s it dropeed below Germany
• Gave for many years
• 1999 decreased to 0.4 decreasing by 32 in the
  price of the time!
• Aid policy integrated with foreign policy
  particularly in relation to Francophone Africa
• Maintains high level aid
• Though it advoctes democratisation France says
  it is upto the states to determine the pace of
  reform

33
France-DA

• France remains a regional big power in Africa
• French leaders rejected American leadership until
  Sarkhozy.. Whose foreign policy is still evolving
• French economic interests still strong in the
  former French colonies
• France has still military presence in Africa
• Emphasis on French language and culture in Africa
• Criticised by fellow donors for using aid as an
  instrument of foreign policy and advancing
  commercial interests
• Country strategies are not discussed with the
  countries nor the evaluation of French aid

34
UK-DA

• DA in the colonial times through Colonial
  Development Act 1929, and Colonial Development
  and Welfare Act of 1940
• British colonies achieved political independence
• 0.5 of GDP until the 170s
• Thatcher- the Aid Snatcher was cut to 0.35
• Further cutbacks in 1983
• Linked Uk aid with IMF and World Bank
  Conditionalities

35
UK-DA

• New Labour since 1997 produced a white paper to
  focus all our work on eliminating poverty.
• Sustainable livelihood
• Better education, health and opportunities for
  all
• Better management of the natural environment
  (ODI, 1998)
• Sector strategies and comprehensive for each
  cooperting country with budget support

36
UK-DA

• Tried to harmonise its foreign policy of aid with
  country development policies claim fellow donors
  in their evaluation of the UK

37
Denmark-DA

• Poverty orientation
• Multilateral orientated
• Generous above 1 of GDP
• 66 countries have received Danish aid
• But 27 of them have received more concerntrated
  aid
• Tanzania, Kenya, Bagladesh and India

38
DK-Aid

• Along with poverty reduction
• Danish aid also goes to the private and
  commercial sector
• Works for commercially sustainable partnerships
• Moved from project to sector and country public
  authority cooperations
• Democratisation and human rights, administrative
  reforms with policy dialogue encouraged

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Queries?

• Foreign aid policy is tied not just to project,
  programme and country strategies and policies
• It remains tied to foreign policy choices
• Globalisation sits uneasily with development
  cooperation
• development cooperation may be necessary but has
  it worked or is it working?

40
EU-North Africa Relations

• North Africa Predominantly Arab Countries.
• Some integration Arab League.
• North Africa Members of the African Union
  (save Morocco).
• North Africa Predominantly Muslim Countries.
• North Africa Under the impact of the EU.

41
EU-North Africa

• EU European Neighborhood Policy
• Can have big consequences.
• Introducing EU norms, building up capacities,
  e.g. veterinary standards
• (with EU support).
• EU decisions become increasingly important for
  these countries Will try to influence them,
  start turning more attention to EU-system.
• Increasingly dense network of cooperation and
  dialogue (police, energy, ).
• Morocco and Tunisia participate e.g. in Galileo
  satellite project.
• Morocco Participates at EU peace-keeping in
  Bosnia.

42
ENP

• Special relations to all neighbours (Russia under
  a separate heading).
• Ring of friends
• More assistance, more dialog, in principle
  cooperation of all fields which are part of EU
  competence.
• As far as desired Access to EUs Single Marked.
  Deep free trade, including service, (parts of)
  agriculture, fishery. Cumulated rules of origin,
  if free trade agreement Incentive for regional
  free trade.
• Participation in EU programmes (Erasmus),
  peace-keeping (Morocco)
• Agreements under this heading Not a first step
  to EU membership.
• National action plans Programmes for each
  country individually.
• (Risk Loosing comprehensive regional approach).

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EU-North Africa

• Has been an area of special interest for EU.
• Proximity, security, rather close ties France -
  Maghreb
• However, in 1960s policies patchy
• 1962 Association agreements with Greece and
  Turkey. Offer customs union and eventually
  membership possible.
• Morocco, Tunisia opening negotiations in 1965.
• Quickly sidelined, in particular Italian
  resistance (citrus exports!)
• Cooperation Agreements Some preferential trade
  and aid, no mentioning of customs union, let
  alone membership
• 1976 Algeria, Morocco, Tunisia
• 1977 Egypt.

44
North Africa to Change

• More economic openness, more interaction with
  Europe.
• More European social model.
• Not yet Democratization.
• Regimes in relative terms moving to openess than
  earlier

45
Issues between EU and North Africa

• Growing problem Rise of Islamic fundamentalism.
• Algeria 1992 Imminent election victory of the
  FIS, suspension of elections, civil war.
• Problem Migration pressure.
• Growing awareness on European side EU should
  become active in a coherent way, EU should not
  only focus on stabilising eastern and central
  Europe.

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Barcelona, 1995

• Euro-Mediterranean Partnership,
• Multilateral process and deliberation forum for
  whole region, including Israel (Libya on ice,
  Lockerbie).
• (prospects looked good at that time, Oslo
  agreement)
• In analogy to OSCE institutionalised dialogue as
  regards 3 baskets
• 1) Political and Security Partnership.
• 2) Economic and Financial Partnership (new
  treaties offered, long-term aim Mediterranean
  free trade area covering most products by 2010,
  date not realistic anymore).
• 3) Partnership as regards cultural, social and
  human matters.

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Barcelona

• Not much progress to democracy, stability of
  autocratic rule in whole region.
• Islamist danger has presumably peaked.
• Positive End of sanctions against Libya in 1999,
  gradual inclusion of Libya as observer.
• Barcelona process. Goes on with modest results so
  far, but stable in its way.

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Problems

• Rising EU funding into the region,
• But No narrowing of the economic gap .
• Slow institutional improvement and opening.
• But Treaties with EU slow.
• Again Tunisia and Morocco fastest.
• Still Very little interregional trade (2,5 of
  trade interregional), countries economically
  isolated from each other.
• Tariffs, falling tendency, falling dependency on
  trade taxes, but many tariffs still high.
  Cumbersome customs procedures.

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Assignment

• Describe donor-recipient relationship between EU
  and North Africa as it evolved over the last 20
  years from a development prespective?
• What is the problem in the relationship?
• Can it be improved? If so how?
• Find a model of donor -recipent relations that
  may be suitable for EU and North Africa?