Canadian development program

Canadian development program

In 2000 Berry has criticized the ecological protection approach that was practiced at that time. Berry claimed that single issue or single solution remedies were not only ineffective but also led to negative consequences. The main reason is that every solution inevitably causes some negative outcomes. Thus, another solution is required to eliminate them. It leads to the necessity of creation of a complex of solutions that balance each other's negative sides and give general positive result. I suppose that such approach may be applied to the economics, particularly to the sphere of foreign aid granted to developing countries. Generally, the problems caused by a number of interconnecting factors require only multi–issue solutions. If just one factor will not be taken into account then all the attempts will be in vain.

It may be illustrated by the example presented by the worker of a NGO. He met a foreign consultant who found a brilliant idea about educating villagers about the democratic process by means of computer workstations linked to the U.S. via satellite. Africans were supposed to type questions and receive answers on the display. In general it was a good idea, but the consultant did not take into account that there were no electricity in the village and villagers were illiterate (Stryk, 1994). Thus, each solution shall be accompanied by a bundle of others. Only in such case financial aid will be effective. That is the approach I suggest to apply for analysis of the International Policy Statement on Development, 2005 (“Development Statement”).

General review

At first view, Development Statement really looks like a multi issue solution. Five major directions that aimed at the development of a recipient country are interconnected and enforce each other. They are: promotion of good governance (Governance), improving health outcomes (Healthcare), strengthening basic education (Education), supporting private sector development (Entrepreneurship), and advancing environmental sustainability (Environment). Let's start with the governance and government. It is a background for the effective functioning of four other incentives as it is responsible for the development of policies of a state. First of all, Governance provides sufficient property protection that is crucial for successful entrepreneurship. Second, government sets policies for education that form the skill composition of labor used by entrepreneurs; develop infrastructure that allows usage of natural resources and land; defines fiscal burden that affect the amount of savings. Government establishes tax system which allows financing education and health care. Third, Government elaborates internal regulations for environment protection. Hence, I agree that governance shall be the primary target for the development aid support.

Next direction is education. It allows literate people to raise their knowledge in any spheres. Consequently, entrepreneurs receive more professional labor force which may exploit modern and effective means of production that leads to the GDP growth. Educated people can also learn more about prevention and treatment of various diseases that increases the effectiveness of health care. At last, they can read why environmental protection is so important for sustainable development. Hence, as we may see, education effects all other directions and reinforces them.

Now let's talk about health care. Rena (2008) reported that in some countries in sub-Saharan Africa, 20 percent of teachers and 10 percent of principals were infected with HIV, and this number may has been doubled by nowadays. Such situation leads to low morale and high stress among educators as well as non-infected people who work with them. The efficiency of educational efforts goes down as the costs for redeployment, replacement, medical aid costs and sick benefits increase (p. 4). Hence, health care, especially HIV prevention is closely connected with the effectiveness of other goals and generally provides stability in a state.  Prevention of epidemics allows to free additional human resources as people do not have to take care of sick relatives and mortality decreases. These people may be educated and/or used in the entrepreneurship sector. 

The next direction is entrepreneurship. Entrepreneurs create demand for educated people by forming new working places. They also try to use effectively financial resources in order to create new products and services that generally increase the effectiveness of the state and welfare of people. The more people are rich the more they think about their stability which can be achieved through the support of health care, education and loyal government. Hence, entrepreneurship also positively affects all of the system's elements.

The last issue is environment. It is clear that good environment provides resources for food production. Besides, people who live in good natural conditions are less subject to different diseases that allows directing health care's efforts to other issues.

Hence, the goals form a system approach for the solution of complex, cross sectional problems of developing countries. Nevertheless, there are several points that, in my opinion, shall be also mentioned in the Development Statement. Taking into account that the major part of aid will flow to Africa I shall discuss next points mainly with regard to African states.

Aid flow and democratization

As we have mentioned before governance is the core issue for the achievement of all other goals. Development Statement provides that aid will be granted for democratic governments and also for the development of democracy. I have found that there are certain controversies around development aid to democratic governments and would like to discuss them in the paper. 

Aid flow dependency

First of all, I should admit that the volume of the official development aid (ODA) to African countries continues to be very significant. Bierschenk (1991, p. 86) reports that in 70s – 80s ODA formed 50 percent of the gross investment and annual import volume of  recipient states  (excluding technical and food aid). It resulted in the concentration of large sums of cash in the hand of local governments. Nevertheless, expertise and money is not enough for providing structural reforms. There should be a clear stimulus understandable by the state elite. The dark side of large development aid is that it eliminates the stimulus for the recipient. Bierschenk explains that instead of conduction reforms African governments used foreign aid to extend their bureaucratic apparatus and para-state organizations. In fact GDP showed a slight growth but what was behind it? Governments did not create opportunities for development but just covered current costs (including the salaries of bureaucrats) by the received financial aid. It actually formed a  "gray" portion of state income, that was equal or even exceeded the amount of income from taxation, customs duties, profits etc” (Bierschenk, 1991,  p. 86). Stability of these states became dependent on the constant flow of ODA. Sudden cut of the aid supply could lead to total unemployment of civil contractors and, thus, all those governments faced the threat of being overthrown. Hence, despite the initial aim was to assist economical growth and democratization it has actually supported corrupt and authoritarian regimes. What are the main reasons of such failure?

The first one is that democracy and accompanying reforms may not be constructed only from the top. Ordinary people shall actively participate in this process and form civil society by means of institutions that will transfer their voice to the government (Rodriguez, 2009, p. 5). Civil society should be strong in order to push to the top its will for reforms that will satisfy the demands of citizens. This point is also clear for the Canadian International Development Agency (CIDA) as it has outlined the importance of civil institutions in the process of democratization and good governance.

Declarative reforms and measurement of democracy

The second reason is declarative reforms. Nowadays most donor states understand that unconditional development aid is wasteful because recipients' governments have no stimuli for changing their states. Donors started to set conditions, including steps toward democratization under which development aid will continue to flow. Nevertheless, it does not always solve the problem of effective utilization of ODA as African government may perform declarative reforms that have no actual effect. It outcomes from the fact that donors set unclear vague conditions for democratization while clear demands are not pointed out. Consequently, recipient governments never perform real steps for democratization because they have never been clearly spelled out. Besides, the mere fact of receiving ODA by the undemocratic state may be treated as a symbolic  “approbation of the aid-recipient’s government, but this symbolism further implies that “rising aid levels are perceived as a sign of improving relations”(Rodriguez, 2009, p. 10). It may also be turned into approbation of authoritarian regimes or dictators. I agree to the Rodriguez's claim regarding impossibility to support democratization process by granting ODA to an authoritarian state.

Even if development aid is granted to a “good” government the issue of measuring democratic achievements rises. For example, democracy implies existence of the institution of free and fair elections. So, if a state conducts elections and Canada Corps evidence that they are fair, does it mean that the state is democratic? Cho (2009) has examined elections in African states and has concluded that elections are not fully developed as instruments of democracy. Voters can elect their representative but they cannot control their representative by means of punishment and reward for his or her work between the elections. Despite many elections were organized there is mainly one party which continues to rule for a long period (p. 19).

In view of this I think CIDA shall reemphasize that development aid will be given only to the local civil institutes that are not backed by authoritarian governments or to the governments that have already made clear, effective steps on the way to democratization.

Egoistic NGOs

There is also the third reason that explains systematical failure to provide economic growth in Africa. I agree that we may not apply it directly to CIDA but it shall be taken into account in view of participation of Canada in the multilateral development aid programs through various NGOs. Every NGO being a system inevitably strikes for a stable existence. In case the only cause of NGO's functioning is transferring of aid from donors to recipients the existence of the grounds for such transfer is the reason for existence of the NGO itself. It is rather paradoxical situation as in other words NGO (mainly its staff) is not interested in fulfillment of democratization and economical growth aims because if all African countries will be robust enough to continue their development independently there will be no need for the NGO. I understand that it looks really unbelievable but what can explain the fact that leading NGOs have set the benchmark for Africa which as they already believe Africa will not achieve (Esterley, 2007, p. 4).

Amount and duration of development aid

I  agree to the critics of the points expressed above who state that even though ODA is ineffective it still provides slow growth and democratization that will lead to success in a long perspective (Lemi , 2008, p. 10).

Although weak, the lag effects from ODA have some positive effects on governance;     it is expected that if there is consistent aid flow, the process of good governance may   deepen well into later years by improving the performance of governance institutions        in African states.

There are really strong reasons to continue provision of ODA but what amounts shall be granted? Some NGOs claim that a sharp increase in the volume of ODA will overcome any obstacles and will make Africa a flourishing continent at long lust.

In 1981 the World Bank's report claimed for doubling of development aid for Africa to address its many economic and social problems. Today all these problems still exist though the increase in development aid was more significant than suggested by the report. Moss (2006) argues that this fact alone shall raise doubtfulness about the effectiveness of large ODA and pay attention to possible negative consequences of such “quantitative” approach (p. 19). So what amount of ODA will be optimal to stimulate development and exclude the possibility of aid dependency and declarative democracy reforms? Moss reports that ODA commences to generate negative effects if it reaches 5 percent of GDP. If we stick to this point of view then we may see that most of recipients in Africa are negatively affected by aid flow.

Next issue is for how long the amount of ODA shall flow? Proponents of development aid are often inspired by the historical example of the Marshall Plan that helped Europe to overcome negative consequences of the World War II. Nevertheless, during the Marshall Plan the large share of aid flowed to Europe just for several years and never exceeded 3 percent of recipients' GDP. On the contrary, there were 11 countries in which ODA formed 20 percent and more than 20 countries in which ODA formed 10 percent of GDP in 2003. Besides, the aid has been flowing in great amount for the last two decades.

I think that it would be rational for CIDA to question the issue of maximum effective amount of ODA in the form of GDP's percentage. I do not argue it shall be 5 percent but, nevertheless, taking into account the historical example of The Marshall Plan this point shall be researched more deep and implemented into the Development Statement. Besides, rethinking the form of ODA is advisable.  Arslanalp (2003) proposes to use aid-in-kind instead of aid-in-cash because corrupt governments will not be able to benefit from such aid. Besides, it stimulates a donor and a recipient to think more about what specifically this or that recipient requires and, at last, fungibility will be not a problem anymore (p. 21)

Education of local consultants and brain drain

It is well known that development aid agencies use foreign consultants for their expertise in recipient states. The cost of expertise makes about 20 percent of development aid. Many scientists raise the question about is it so necessary to outsource people who may not know peculiarities of a recipient and very often even do not know language (even if it is French) to listen to the ideas of the locals. As an alternative it is possible to train local talented youth in certain spheres and then use them as consultants. Such approach seems to be less costly for all directions of development aid and will promote educational direction.

Nevertheless, there is still one problem that may eliminate the positive effect of such practice. Plyushteva (2008) informs that 20 thousand skilled African professionals, including experts, immigrate to the west in order to find better jobs. At the same time African states as well as NGO's spend US$ 4 billion to recruit Western consultants (p.7). Hence, development aid is used for the education of an expert. Then the expert moves to the west and development aid is again used to hire this expert and now he or she costs much more as a west consultant not as a local one. Such strategy lacks effectiveness. In case of hiring local expert he receives a salary and, thus, create additional demand for local entrepreneurs which in turn can receive more profit, hire new local labor and pay taxes. As we can see hiring local experts gives additional benefits to a recipient state.

Nevertheless, current practice leads to the brain drain and raises question about the ethics of providing development aid in the sphere of health care, education to poor states in exchange for professionals that should have worked in Africa but moves to the west.

Plyushteva (2008) proposes to provide financial incentives for African professionals to stay at home: international trainings, higher compensations. Though it requires additional investments it is still less costly than hiring foreign consultants. Besides, salaries paid to local professionals contribute to the economical development of host country as it was explained above (p.8).  Moreover, in case of absence of local experts recipients become dependent on foreign experts. It may lead to negative outcomes in case of suspension of development aid programs.

Infrastructure

Another issue that I would like to comment is development of infrastructure in poor countries. Development Statement only slightly mentions about building of infrastructure without any specific details. Nevertheless, we should understand that infrastructure creates framework for local entrepreneurs and makes recipient state more attractable for the foreign direct investments. In particular, infrastructure is crucial for the agricultural sector. Agriculture forms more than 30 percent of GDP and 10 percent of export of at least 12 countries in Sub-Saharan Africa. For example, in Guinea-Bissau and Liberia, agriculture accounts for about 60 percent of GDP. Consequently, agricultural sector development is very important for defeating poverty in Africa.

Iimi (2007) supposed that the potential of agriculture to provide the overall growth was high but in view of the rate of aid at that time the growth was unexpectedly low. Besides, agricultural sector grows lower as compared to other sectors of recipient states. There may be several reasons for such situation. For example, in the process of development of a state more people move from rural areas to cities. It means that farmers lack labor and it limits the growth of their households. Another reason of stagnation is a lack of developed infrastructure.

Traditionally, infrastructure stocks contribute to economic growth as they reduce transportation and transaction costs for producers. Similarly, agriculture-related infrastructure improvements may reduce farmers’ costs and free additional efforts for production of more food. We shall state that development aid directed at rural infrastructure is deemed to be effective as it not simply promotes growth of GDP but reduces poverty and risk of famine which is especially devastating among African states.

We shall understood that infrastructure shall be appropriate to the needs of farmers.  Iimi (2007) reported that many organizations that persuaded the aim of water supply concentrated on urban areas as the population density is higher there and more people may be satisfied at lower costs. Nevertheless, all farmers were situated in rural areas and did not benefit from such aid (p. 6).

The most common important infrastructure improvements for agricultural sector are irrigation and roads while the necessity of other improvements varies depending on what commodity is produced in a specific region. Railways are required in case inputs and outputs are massively transported. If a farmer produces dairy foods than he needs refrigerators for milk storage and various machinery for milk’s processing that in turn requires electricity supply and appropriate infrastructure. In case of growing coffee which is mainly exported a farmer shall have an access to information about foreign markets, fair coffee prices in order to know when it is the best time to sell it. Thus, in such case a telecommunication network is required. 

In addition, different types of infrastructure are complementary and shall be established together as for example irrigation for a milk producer has no sense if there are no roads to deliver products to the market. Moreover, the infrastructure issue corresponds with the expertise issue that was described above. Infrastructure shall be maintained by somebody and constant hiring of foreign experts in such case is rather costly. It is better to have local professionals that will repair existing improvements and widen the network. The importance of this issue was realized in Tanzania. Foreign aid donors have spent $2 billion over the 20 years to construct roads there, but the network has not improved and constantly worsens as there are no professionals to maintain them.

Debt relief

Development Statement mentions debt relief as an instrument for assisting developing countries. It seems to me that this instrument shall be used very carefully and on the case-by-case basis. First of all, debt relief may create a negative belief of recipients that they are not obliged to do all their best to settle a debt as it will be anyway scraped. Arslanalp (2003) argues that poor countries “should be targeted not for debt relief but direct aid that would assist their citizens in building the institutions and infrastructure to eventually make them attractive places for both domestic and foreign investment” (p. 3) Hence, the stimuli for effective performance may disappear. Nevertheless, there are countries were provision of debt relief will be beneficial. Unfortunately, these countries do not participate in such programs. These countries are Colombia, Indonesia, Jamaica, Malaysia, Pakistan, and Turkey.

How shall donors choose the states eligible for debt relief? If we see that a state possesses developed infrastructure, has stable political situation and duly pays debts then it is obvious that this country will settle the debt sooner or later and then move free resources (which were directed earlier to repayment) to the achievements of other goals such as poverty elimination, education, health care. Taking into account the fact that donor states are more interested in the achievements of these goals the sooner the moment of debt settlement come the more benefits creditors and debtors may receive. In such case debt relief is justified as it anticipates the event that will happen for sure. Now let's look at the states without developed infrastructure which possibly are dependent on the flow of development aid.  We assume that they probably will not settle the debt because their gross national income is too low. Nevertheless, it doesn't mean that donors shall relief debt as it actually will change nothing. The better perspective is to insist developing countries to pay the annual interest of the unsettled debt not to the creditor’s account but to a special fund that is designed for the purpose of improving the infrastructure for entrepreneurs in the respective developing country. It will stimulate generating more entrepreneurs (Aerni p. 32). The other example of importance of infrastructure for the economical growth has already been explained in the previous paragraphs.

Hence, in my opinion CIDA should take into account these arguments and understand that the general issue is not whether to relief or not but how to use every possible chance for helping African countries to develop. Besides, CIDA shall also reconsider its policies regarding those countries where debt relief will be justified and effective.

Population control

The last issue that I would like to discuss is a population control. It is clear that such goals as decrease of child mortality and prevention of HIV will contribute to the growth of population in the developing countries. Even today, when the child mortality is high and a lot of people die because of AIDS and famine the population continues to grow. Thus, achievement of all Development Statement's goals without consideration of this issue may be impossible for several reasons. The main of them is that agricultural sector grows very slowly because of the absence of appropriate infrastructure. If the growth of population will be faster than the growth of agricultural sector than every person will have less food. Certainly, it may be imported or granted as an aid but it seems to me it is better to prevent such situation. The next reason is that the growing population will demand more health care and education and respectively more development aid. On the contrary, family with a lower number of children will be able to spend more money for health or higher education.

I suggest CIDA shall include this issue in the Development Statement. The importance of population control may be explained through education direction of ODA. Material supply may by provided by health care programs. Finally, government may set tax incentives for families that do not exceed defined number of children. Nevertheless, the last instrument may cause negative outcomes for women's health and gender structure so it should be used carefully.

Conclusion

I shall admit that Development Statement is built in the effective way. It concentrates on several goals that are interconnected. Each of them is connected with another one and, thus, progress in one field stimulates growth of the other field that increases the overall effectiveness of the Canadian ODA.

Nevertheless, there are several issues that CIDA shall pay more precise attention to. It is necessary to develop measures against dependency of a recipient on the development aid flow: define clear criteria to assess and control democratic development; set the maximum affordable amount of development aid as percentage of the GDP. Additionally, a strong emphasize shall be made on the development of infrastructure with regard to the peculiarities of every recipient state. The possibility of creating of infrastructure by means of aid-in-kind should also be discussed. It is advisable for CIDA to reassess the eligibility of developed countries for the debt relief and redirect debt payment of African stated to the special fund aimed at development of infrastructural projects. Finally, CIDA shall also direct its efforts at the promotion of population control programs in the developing countries as it is crucial for achievement of all other goals.

References

Aerni, Philipp. (2006). The Principal-Agent Problem in Development Assistance and Its Negative Impact on Local Entrepreneurship in Africa: Time For New Approaches (June 1, 2006). African Technology Development Forum Journal, Vol. 3, No. 2, pp. 27-33. Retrieved from SSRN: http://ssrn.com/abstract=1493752

Arslanalp, Serkan and Henry, Peter Blair. (2003). Helping the Poor to Help Themselves: Debt Relief or Aid? Available at SSRN: http://ssrn.com/abstract=480002 or doi:10.2139/ssrn.480002

Berry, Wendell. (200). Essay : In Distrust of Movements. Retrieved from: http://thegreenhorns.wordpress.com/essays/essay-in-distrust-of-movements-by-wendell-berry/

Bierschenk, Thomas, Elwert (deceased), Georg and Kohnert, Dirk. (1991). The Long-Term Effects of Development Aid: Empirical Studies in Rural West Africa. Afrika Spectrum, Vol. 26, No. 2, pp. 155-180; Journal of the Institute for Scientific Co-operation, Vol. 47, No. 1, pp. 83-111. Retrieved from SSRN: http://ssrn.com/abstract=928570

Cho, Wonbin. (2009). Elections in Africa: Are They 'nstruments of Democracy?'  APSA 2009 Toronto Meeting Paper. Retrieved from SSRN: http://ssrn.com/abstract=1450124

Easterly, William. (2007). How the Millennium Development Goals are Unfair to Africa (November 2007). Brookings Global Economy and Development Working Paper No. 14. Retrieved from SSRN: http://ssrn.com/abstract=1080300

Iimi, Atsushi and Smith, James Wilson. (2007). What is Missing Between Agricultural Growth and Infrastructure Development? Cases of Coffee and Dairy in Africa (November 1, 2007). World Bank Policy Research Working Paper Series. Retrieved from SSRN: http://ssrn.com/abstract=1033223

Lemi, Adugna. (2008). Foreign Aid, Foreign Direct Investment and Governance in Africa. Retrieved from SSRN: http://ssrn.com/abstract=1308332

Moss, Todd J., Pettersson, Gunilla and Van de Walle, Nicolas. (2006). An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in Sub-Saharan Africa  Center for Global Development Working Paper No. 74; Mario Einaudi Center for International Studies Working Paper No. 11-05. Retrieved from SSRN: http://ssrn.com/abstract=860826

Plyushteva, Anna. (2008). 'Subsidies from the Poor to the Rich': The Role of High-Income Countries in the Brain Drain of Sub-Saharan Africa. Retrieved from SSRN: http://ssrn.com/abstract=1285437

Rena, Dr. Ravinder. (2008). The Impact of HIV/AIDS on Poverty and Education in Africa. Accountancy Business and Public Interest, Vol. 7, No. 1, pp. 92-104. Retrieved from SSRN: http://ssrn.com/abstract=1290993

Rodriguez, Mariela A. (2009). Aid and Democratization: At the Intersection of Africa's Crisis. APSA 2009 Toronto Meeting Paper. Retrieved from SSRN: http://ssrn.com/abstract=1452399

Stryk, Thomas. (1994). Milkshakes in the African desert - criticism of the Agency for International Development. Washington Monthly. Retrieved from http://findarticles.com/p/articles/mi_m1316/is_n5_v26/ai_15261915/?tag=content;col1