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Many African countries are highly dependent on aid. Opinions differ markedly on what makes aid effective. The policy environment in aid recipient countries has been the focus of much recent attention. But the stability and composition of aid flows also determine the poverty impact of aid. Research from the University of Sheffield, UK, examines how overseas aid can work as an instrument of development in poor countries. The research analyses data on the poverty impact of aid from a cross-section of developing countries. It also draws on case studies from four African countries: Ethiopia and Uganda, where aid effectiveness has been high, and Malawi and Zimbabwe, where it has not. The research finds that there are two channels through which aid effectiveness can be enhanced. First, the impact of aid on growth and poverty reduction in poor countries depends on the stability of the aid flows. This is partly because stable aid flows strengthen the political base of support for pro-poor government spending. Second, aid flows can have an increased impact on poverty reduction if they are directed towards sectors of the economy where growth benefits poorer people – in particular, smallholder agriculture. This finding is consistent with the experiences of East Asia and parts of South Asia where farming has played an important poverty reducing role. The research also shows that much of the public spending that benefits agriculture is spent outside the agricultural sector. For example, expenditure on universal primary education and infrastructure (such as rural water and roads) promotes growth in the agricultural sector. Other key findings of the research include: In Ethiopia and Uganda, public spending on risk minimising strategies (for example water harvesting and credit services for farmers) helped to protect poor people against sudden and unexpected events (shocks). The Ethiopian and Ugandan governments protected the sustainability of their development policies by avoiding large scale deficit financing of development spending (unlike in Zimbabwe and Malawi). Aid recipient countries that reduce corruption and take other steps to build good relations with donors benefit from more stable aid flows and therefore more stable public spending. Pro-poor expenditure can be an effective instrument for governments to build social cohesion (for example, following civil conflict in Ethiopia and Uganda) and win widespread political support. The research shows that where the right conditions exist, African countries are experiencing the beginnings of a green revolution. This development has contributed to some spectacular achievements in poverty reduction: between 1992 and 2000 poverty was nearly halved in Uganda. The authors conclude that: The stability and composition of aid flows influence their poverty reducing impact. Aid flows which are small but stable may be of more use than large and volatile flows. Public spending strategies designed to reduce the risks that poor people face (as in Ethiopia and Uganda) are important. The development of stable relations between governments and aid donors helps to increase the stability of aid flows and therefore the stability of public spending. Long-term political commitment to pro-poor strategies by aid recipient governments is crucial. Source(s): id21 Research Highlight: 25 October 2007
Further Information: Tel:
+44 (0)114 222 3397
Abrar Suleiman Tel:
+44 (0)114 222 3414 Other related links:
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