Foreign aid is dead aid.....

I am unsure what to make of Andrew Mitchell, the Minister at DFID.

He is undoubtedly the best informed and most widely travelled Minister ever in the job, so he has better qualifications than any of his predecessors. One of his first moves was to stop business-class travel for DFID staff which may curb some of their jollies, and he has reviewed the whole of the DFID programme. However, he was recently making a spirited defence of the UK aid programme to India; this was rapidly followed by a statement that aid to 26 countries was being cancelled – including India. This U-turn smacks of an edict from on high.

But now we learn that among the countries to continue getting a slice of UK taxpayers’ money are such deserving cases as Burma (I thought we had sanctions against the Generals there), Zimbabwe (to pay for Mrs Bob’s Paris shopping trips?), Somalia (as it doesn’t have a functioning government who is there to steal the loot?), Pakistan (do they have the Taliban’s banking details?). But the wowsers have complained that not enough is going to oil-rich Angola and Nigeria.

He says that everything is up for scrutiny and it is his intention to ‘follow the money’. It could lead him into some interesting places. He might even ask about the success rates of aid programmes and whether they do actually help the poor.

There was a lengthy piece on TV about aid to Sierra Leone. The rural areas where the bulk of the population lives are devoid of even the most basic amenities. The needs of rural areas are clean water, fuel, sanitation, food, heath-care, and money-generating opportunities. In particular, the greatest part of a woman’s day is spent collecting water and firewood from increasingly distant sources.

Since gazillions of aid has been poured in since the end of ‘the troubles’ we have to ask why they are lacking the basics?

Some years ago when I was working in Nepal I had to visit a remote mountain village – so remote that we travelled miles in our SUV along dry river beds and eventually we had to walk a long distance, including crossing a rickety rope foot-bridge over a ravine.

In this particular village they had done some basic improvements. They had installed gutters for the roofs of their houses. They had put in large concrete water tanks. Clean water problem solved. They had installed a tank for all human and animal excrement. Sanitation problem solved. They had capped the tank to capture methane. Fuel problem solved. And it also produced high-grade fertiliser. They had built a small clinic staffed by a health assistant who could give basic treatment and dispense contraceptive advice and condoms..

As we entered the village after a fairly arduous trek, incredibly I saw a bus go past. The village women had got so fed up waiting for the authorities to connect them to the outside world that they had built the road themselves. A consequence was that they could now get their produce to market and enter the cash economy. Some had also set up small shops.

For a number of years the emphasis of aid programmes has been on ‘good governance’. My experience suggests that this is unachievable as presently conceived. Aid itself might be a contributing factor to ‘bad governance’. In some countries it accounts for 60% or more of national budgets. The effect of this is to cut the nexus between political accountability and levels of taxation, so that politicians cease to be answerable to their electorates on public spending. Many politicians in developing countries are irredeemably corrupt, but they are stealing money from other than the taxpayer.

Corruption in the public service arises from slightly different motivations – less from insatiable greed and more from economic reasons. There is a cycle. Senior officials, who are in powerful ‘rent-seeking’ positions, are often appallingly paid (£150 a month for a top official?). They are badly paid because tax revenues are low. Tax revenues are low because economies are weak. Economies are weak through lack of investment. There is little incentive for governments to encourage investment when they can fall back on aid for no effort.

Therefore, governance will not improve until economies improve. (Economies are also weakened by corruption and dirigisme; for example, in Bangladesh I identified 32 rent-seeking opportunities involved in a simple licence application. Catch-22?).

In her excellent book Dead Aid’ Dombisa Moyo, a Zambian economist points out that despite nearly 40 years of aid programmes many ‘developing’ countries are worse off. She suggests that aid is a comfort blanket that shields incompetent regimes from reality. She proposes that aid should be time limited so that recipient governments will know that they have, say, five years of help after which they are on their own.

So while this weird coalition increases aid by 27%, soldiers serving in Helmand are told they are about to be made redundant.

That should do wonders for morale.

More Euroballs..........

On his Telegraph blog, Nile Gardiner notes that in 2009 the EU subsidised several US anti-death penalty groups to the tune of €2.6m through the European Instrument for Democracy and Human Rights (EIDHR). “It is bad enough that Brussels consistently interferes with the internal affairs of EU member states, but it is surely a bridge too far when it tries to intervene in the affairs of one of the world’s greatest democracies that isn’t even part of the EU,” he argues.

Are the recent decisions of the Fourth Reich on insurance (UK is by far and away the largest insurer in the EU), financial services (UK has the biggest market), and hedge funds (83% British) based on usual EU dottiness? Or could it be down to the age-old French policy of undermining Britain’s economic standing vis-a-vis France? I think we should be told.