LETTERS TO THE EDITOR

Summer 2010

by Shantayanan Devarajan

Aid delivered results because policy in Africa improved. When the global crisis hit, some oberservers including myself feared that the momentum for economic reforms would be slowed or reversed because the growth those reforms had produced began to decline sharply

Sir,

Roger Riddell has written a bold and thoughtful article pointing to the many problems that prevent official development assistance from making the best possible contribution to sustainable development. It also highlights the unpredictability of aid, the cost of fragmentation, the rise of special-purpose aid, and the influence of political and commercial interests on who gets what and the fact that much aid does not flow through recipients’ systems. But Riddell does not discuss how recipient countries, especially in sub-Saharan Africa, have managed both aid and their own resources to generate relatively rapid growth and poverty reduction.

In the decade prior to the global financial and economic crisis, Africa experienced a period of sustained and widespread economic growth. From 1998-2008, average GDP growth was over 5% a year. This was not just concentrated among oil producers as some 22 non-oil exporters also experienced more than 4% growth rates during this time. Increased external resources that included aid, debt relief, private capital flows, and remittances as well as high commodity prices, a buoyant global economy and improved macroeconomic policies were all responsible for this growth. The fact that median inflation in Africa in the mid-2000s was half of what it was in the mid-1990s helped too.

Aid – however poorly it was handed out – delivered results because policy in Africa improved. When the global crisis hit, some observers including myself feared that the momentum for economic reforms would be slowed or reversed because the growth those reforms had produced began to decline sharply. Furthermore, the tendency of developed countries like the U.S. and Britain to run up large deficits and nationalise banks, contrasted sharply with the policies of African governments.

By and large, though, African governments have continued to pursue prudent macroeconomic policies. Those with fiscal space (thanks to prudent policies of the past) such as Zambia and Tanzania, were able to run a modest fiscal stimulus to cushion their economies from an even worse recession. Those that lacked fiscal space, such as Ghana, embarked on a misguided fiscal programme to maintain debt sustainability. Some countries even accelerated their reforms.

In short, the environment for aid in Africa has never been better. While I agree with Roger Riddell’s criticisms of the current aid architecture, his proposals for systemic reform are likely to take some time. Meanwhile, African governments will continue to improve the productivity of all resources, domestic and foreign. The African people cannot be left waiting any longer.