Aid and conditionality: Enhancing good governance in sub-Saharan Africa

TABLE OF CONTENTS

CHAPTER ONE
1.0 INTRODUCTION

CHAPTER TWO
2.0 ORIGIN AND EVOLUTION OF AID CONDITIONALITY
2.1 ORIGIN OF AID CONDITIONALITY
2.2 FROM CRISIS TO ECONOMIC REFORM

CHAPTER THREE
3.0 FROM ECONOMIC TO POLITICALREFORMS
BACKGROUND
3.1 THE CONCEPT OF GOVERNANCE
3.2 GOOD GOVERNANCE
3.3GOOD GOVERNANCE, AID EFFECTIVENESS AND DEVELOPMENT

CHAPTER FOUR
4.0 ROLE OF THE EUROPEAN UNION IN IMPLEMENTING GOOD GOVERNANCE BACKGROUND
4.1 THE EU APPROACH TO GOOD GOVERNANCE
4.2 EU ACTIVITIES

CHAPTER FIVE
5.0 THE WORLD BANK SUPPORT TO SUB-SAHARAN AFRICA
5.1 THE WORLD BANK'S STRATEGY
5.2 INSTITUTION AND GOVERNANCE REVIEWS
5.3 LENDING APPROACHES
5.4 COUNTRY ASSISTANCE STRATEGY (CAS)
5.5 THE WORLD BANK AND NEPAD

CHAPTER SIX
6.0 CONCLUSION

BIBLIOGRPHY

CHAPTER ONE

1.0 INTRODUCTION

The persistent low state of development in sub-Saharan Africa has become a global challenge. Academics and think-tanks continue to search for solutions to Africa’s longstanding problems. Studies have proven that the entire region is essentially confronted with a crisis of social structures and government and the fragmentation of authority is the hallmark of this crisis (Van Hoyweghen & Smis, 2002:575). Over twenty-four million people are infected with AIDS/HIV, growth of per capita income is low and civil wars have killed millions in Rwanda, Burundi, Liberia, Sierra Leone and the Democratic Republic of Congo. African governments owe billions of dollars in debt (Polanyi, 2003:563). This irreversible trend brought the good governance discourse in development cooperation between the donors and African counterparts.

The purpose of this paper is to examine how the concept of good governance is being implemented in Africa. For clarity purposes, the work is limited to the analysis of the efforts being made by the European Union (EU) and the World Bank in assisting African countries to implement good governance. This choice is based on the fact that the EU and World Bank are the main multilateral aid donors and development partners of the region.

It argues that good governance enhances transparency in the use of development aid, helps to reduce poverty and spurs development, and that it is necessary to foster institutional reforms (causative argument). The paper further argues that implementing good governance will improve the use of political power by leaders and help in the consolidation of peace (normative argument).

Achieving global governance is a main issue in international politics today. Enforcing good governance is a must if Africa has to be fully integrated into the process of globalisation. And for globalisation to be complete and meaningful, poverty in Africa as well as other parts of the world must be eradicated. No amount of foreign aid can lead to meaningful development without effective governance. The poor state of development in Africa produces a backlash that has a global reach. Europe for example is facing a huge influx of migrants from Africa in search for greener pastures. Eradicating poverty is therefore a global challenge as the world becomes more global. The fight against poverty and underdevelopment has given rise to a greater inter-state relationship in which powerful institutions play a decisive role. Good governance is an important normative concept that can push international relations forward.

This paper addresses the following thematic questions: What is good governance? Where did it originate? How is it construed? How does it facilitate aid effectiveness and development? How are sub-Saharan African countries reacting to it? Are there areas where it has failed?

This work is divided into four main chapters and a conclusion. Following this introductory chapter, chapter two reviews the evolution of the state in Africa and argues that the corrupt leadership, inefficient management and weak political institutions led to a crisis and consequently to the origin of aid conditionality. It discusses the failure of economic conditionality to deliver expected goals and opens the door for chapter three which examines political conditionality with emphasis on good governance.

The third chapter is divided into three parts and the first examines the concept of governance and highlights its importance. The second part explains the origin and meaning of the concept of good governance and the third part using examples shows how it relates to development and aid effectiveness. It argues that good governance is key to aid effectiveness and development. It demonstrates that countries with good governance achieve relatively high levels of well-being and it argues that the state has a responsibility to bring in development by creating a market friendly environment and draws a divide between the good governance approach and neo-liberalism on the roles of the state and market. It places the state at the centre in contrast to neo-liberalism which sees the market as playing a more determinant role towards achieving sustainable development.

Chapter four reviews EU projects to enhance good governance in selected countries and argues that transparent national institutions and increased accountability are necessary to foster development and consolidate peace. The first part analyses the EU approach which is maily dialogue and capacity-building and not by prescribing and dictating to the African countries. The second part examines EU activities led by the European Initiative for Democracy and Human Rights (EIDHR). It discusses the Centre for Common Ground project in Angola which deals with capacity-building, liberalisation of Angolan media and promoting an active civil society. It reviews EU budget support to Rwanda to reinforce national institutions and the EIDHR activities in establishing the rule of law. This part also discusses the role of the EIDHR for the consolidation of the rule of law, institutional capacity-building and budget support to Burkina Faso. And finally, EU support for the creation of the Truth and Reconciliation Commission and election support to Sierra Leone. It uses the example of Zimbabwe to argue that dialogue and not sanctions can lead to good governance.

Chapter five examines World Bank projects which lay emphasis on capacity-building and institutional reforms to strengthen both the civil society and the central government. It argues that powerful government institutions and an active and participatory civil society form the basis of sustainable development. The first part exposes the Bank’s approach which is mainly country leadership and ownership of the reform process. The second part analyses Institutional and Governance Reviews in a selected number of countries which provide an overview of a country’s governance-related issues and suggestions for suitable reforms. The third part discusses the Bank’s adjustment lending approach which focuses on reforms in public expenditure management, civil service, legal and judicial decentralisation to enhance accontability. It analyses case studies in some countries which have received adjustment lendings to fight corruption and carry out reforms in financial management. Part four explains the Bank’s Country Assistance Strategy approved for some countries to combat poverty by building public sector capacity, expand service delivery and accountability structures.

Chapter six gives conclusions and makes a comparison of EU and World Bank projects.

Both qualitative and quantitative designs were adopted for this study in order to attain an empirical research. The qualitative design was geared towards collecting first hand information and it was totally descriptive. It described the views of the EU and ACP on the concept of good governance. For this, a questionaire with fifteen open ended questions was prepared and the reason was to get the original positions of the different bodies. The questionnaire was electronically submitted to the EU while the ACP was contacted to create a rapport and to explain the purpose of the study. A questionnaire was later submitted to them. The quantitative design made use of published books, scholarly articles, relevant internet resources, public sources and expert consultations. The combination of the two designs was geared towards achieving an empirical research. The purposive sampling technique was used in selecting the consulted organisations. The EU and the ACP were purposively chosen because they have the expert knowledge and resources necessary for the successful completion of the work. A frequency count and a manual statistical computation were used in processing and analysing the collected data.

CHAPTER TWO

2.0 ORIGIN AND EVOLUTION OF AID CONDITIONALITY

This chapter examines the origin and evolution of conditionality in international development cooperation between Africa^[1] and multilateral donors like the World Bank and the EU. It is divided into two parts and the first part begins with a brief recapitulation of the colonial foundations of the states in Africa. It discusses their attempts to embark on western development models and how their dismal failure despite many decades of development cooperation and huge amounts in aid, led to the emergence of aid conditionality. The second part deals with the donor imposed economic reform package and discusses its failure to meet the intended goals. The chapter argues that corrupt African leadership and weak political institutions led to the imposition of conditionality and this ties up with the argument that good governance enhances transparency in the use of development aid and improvement in the use of political power by leaders.

2.1 ORIGIN OF AID CONDITIONALITY

In the 1960s, most African countries attained independence and accepted the legal and political structures they inherited from their colonial masters. These emerging African states viewed development as a change from their traditional subsistence to a modern economy. And such development could only be achieved through an elitist top-down approach that was dependent on the application of modern science, technology and expert knowledge held outside Africa (Thomas, 2000:34). The aim of this western model of development was to reproduce the same technological advancements and economic prosperity found in the west. The driving force behind this approach to development was the neo-liberal believe that such development will trickle down from the top to the bottom of the society for the mutual benefit of all which we are yet to witness.

However, some African countries rejected this capitalist approach to development and instead opted for the socialist conception of development that was practiced in Eastern Europe. With Julius Nyerere and his Ujamaa in Tanzania and Kenneth Kaunda’s Humanism in Zambia, some African leaders espoused their vision of development and adopted socialism as a way of life^[2]. But a common feature of these Africanised visions of development was their state-centric nature. In order to promote development, the state was recognized as the main actor and played a major role in the ownership and management of natural resources. And for the state to effectively play this role there emerged a concentration of management functions at the centre and the economy was managed through parastatals^[3].

These state-controlled enterprises had complete jurisdiction in a considerable range of policy issues (Ntambirweki, 1999:2). The lack of supervision on these enterprises led to the abuse of power and excessive corruption by the controlling bureaucracies who used them for their personal gains. The situation was further exacerbated by the absence of accountability, democratic values and institutions. Public interests, local values, concerns and traditions were neglected because of the concentration of management in the centre. The emergent African states failed to bequeath the institutions necessary to sustain democratic and effective or good governance.

Most countries failed to implement constitutional rule, as there was a proliferation of military governments in the entire region. There prevailed in Africa what Michel Foucault termed in the social warfare model as the “perpetual warfare state” (Danaher et al, 2000)^[4]. Africa’s inability to embark on a meaningful path to development and achieve a level of well-being deemed satisfactory for a sizeable portion of its population has been attributed to corrupt policy environments, weak African political institutions and poor governance (Lancaster, 1999:29). In Africa, over forty percent of the populations are living below the “poverty line”, diseases such as HIV/AIDS, malaria and tuberculosis are disproportionately rife among the people. The deteriorating situation in Africa forced the EU and other donor organizations like the World Bank to change their attitudes towards the recipient African countries. Consequently, there emerged an alternative approach in development thinking and conditionality became a prerequisite for aid.

Conditionality is therefore the reflection of western donor support for an alternative approach to development. It is the compelling insistence of donor countries for compliance by the recipient states. All African countries are recipients of aid and some depend on foreign aid on about twenty four percent of their national budgets. Donors lost confidence in the national governments because of the deplorable state of development in the region. The sovereignty of the recipient African countries became increasingly undermined thus bringing into question the communitarian notion of international relations^[5]. On the other hand, donor confidence increased occasioning a re-think of the hitherto prevailing doctrine of non-intervention in the internal affairs of sovereign states. Conditionality is therefore enhancing the Westphalian notion of international society.

2.2 FROM CRISIS TO ECONOMIC REFORM

The 1980s marked the peak of economic and political crisis in Africa as most governments became bankrupt and heavily indebted. Most states in the region were unable to finance their national expenditures or to service the huge amounts of debt owed to aid donor nations and private banks. There was rising inflation in the entire region and a very slow growth. In the republic of Benin for instance, there was economic stagnation and the bankrupt government could no longer pay salaries of civil servants (Lancaster, 1999:26). Faced with these difficult situations, African governments turned to multilateral donors like the IMF, World Bank and the EU for more aid and debt relief. Key to these problems was the huge mismanagement and misallocation of economic resources by African leaders. The World Bank once offered loans to Equatorial Guinea to promote cocoa farming and government ministers immediately seized the best cocoa farms and spent the loans on luxury cars. A study carried out between 1970 and 1996, showed that for every one dollar that Africa received in aid, eighty cents flowed out as capital flight into Swiss bank accounts or to buy mansions in Europe (The Economist, 2004:12). This attitude of the ruling class made the debt burden of African countries heavier, made aid ineffective and stagnated development.

Faced with increased demand from the African countries and the ever-deteriorating situation in the region, multilateral donors like the World Bank, the EU and other aid donors designed and funded economic reform programmes. This was because many African countries had deep-seated economic problems and started experiencing structural problems. The donors started broadening conditionality to structural issues and that became more apparent in the 1990s. In 1998, a study by David Dollar and Lant Pritchett of the World Bank showed that countries with sound economic policies and good institutions benefitted from aid (The Economist, 2004:12). African governments therefore accepted to implement structural and sectoral adjustment programmes as prerequisites of aid.

The Structural Adjustment Programmes (SAP) were aimed at combating the ever rising inflation and achieving favourable balance of payments for African economies. Conditionality became formalised because of innovative thinking by Jacques Polak, who developed a model that had very clear policy implications in linking restoration of stability in the balance of payments through excessively expansionary monetary and fiscal policies. So instead of requiring countries to try to act directly on the balance of payments, which would be very difficult, the World Bank wanted the African countries to try to act directly on monetary and fiscal policies that they could control. It was hoped that reduced inflation would increase investment that was necessary for economic recovery in the entire region. Governments were required to cut spending, liberalise domestic markets, reform their tax systems and reduce trade barriers. Also, the recipient states were asked to carry out administrative reforms and the privatisation of parastatals.

Surprisingly, the dream of increased investment and the most cherished goals of economic reform in Africa were never attained. Unemployment remained high in most of the region and economic growth was slow. One reason for this was the unbalanced implementation of economic reforms with most governments resisting civil service reforms and privatisation. Most stabilisation programmes were never fully implemented and they had the negative impact of restraining domestic demand for imports (Lancaster, 1999:26). Reforms in prices, public services, policies and institutions involving agriculture, education, finance were insufficient and poorly implemented. Under conditionality, African countries were compelled to implement measures which essentially complicated the economic problems confronting them.

The economic reform package imposed by the donor countries of the West, IMF and World Bank contained the virus that led to the crash of the economies of the recipient countries. Multilateral donors like the IMF, World Bank and the EU expected countries to reform but did not allow them to design their own programmes. The IMF and World Bank led SAP had the negative effect of economic hardship in most African countries and increased the poverty of the rural masses. The SAPs were particularly geared towards enabling the highly indebted countries in the region to generate sufficient funds to service their debts. This led to frequent conflicts between the donors especially the World Bank and the recipient countries which began to resist the strict implementation of the SAP. Privatisation and economic liberalisation exposed the poor masses to excessive exploitation by capitalist owned multinational corporations.

In most parts of Africa, factories were closed down and workers laid off as a result of World Bank imposed policies that were later shown to be flawed. For example, in 1997 cashew-nuts processors in Mozambique were demanding a fifteen million dollar compensation from the World Bank to force it to pay for its mistakes. This claim followed a release in September 1997 of a World Bank study which said the bank imposed reform on Mozambique was totally wrong and should be abandoned^[6]. The Bank's reforms caused massive lay offs in the cashew industry in Mozambique.

But some leading personalities in Africa argue that, unfavourable international trade conditions have been a greater impediment to African development than corruption and mismanagement. President Yuweri Museveni of Uganda for example argues that Western protectionism has helped to frustrate all African efforts because their agricultural-based products do not have access to European and American markets. He notes that aid without trade is a lullaby-a song you sing to children to get them to sleep and that it was access to the huge American market that enabled Singapore, Thailand and South Korea to transform from developing to developed economies. Africa cannot trade because they cannot bargain (New African, 2003:15). Over seventy percent of African populations depend on agriculture and given unfavourable trade conditions, aid could not be effective to enhance people’s well-being.

However, focusing on the overall aggregates, the overall fiscal deficit and the total level of credit creation, the donors left a lot of scope for the recipient government to fix its own policies within those overall guidelines or conditionality. But most African governments made wrong choices and consequently got bad outcomes. Poor African leadership opened the door for more aid conditionality that went beyond economic measures to seek solutions for the problems of Africa.

This chapter has exposed the factors that led to the development of conditionality in the cooperation between multilateral aid donors and the recipient countries of Africa. It has explained how corrupt African leadership led to structural problems in most of the countries thus the emergence of economic conditionality. Also, it has argued that it was the failure of economic conditionality to produce intended goals that led aid donors to seek political causes for Africa's problems. Chapter three examines political conditionality with emphasis on the concept of good governance.

CHAPTER THREE

3.0 FROM ECONOMIC TO POLITICAL REFORMS

This chapter explains the concept of good governance and analyses its relationship to aid effectiveness and development. It argues that there is a direct link between good governance, aid effectiveness and development and uses some case studies to discuss this link. This argument is in line with the general argument that good governance spurs development, makes the use of aid more transparent and helps to fight poverty. It contrasts the good governance approach to neoliberalism on their views of the roles of the state and market.

BACKGROUND

The failure of the donor imposed economic reform package in the 1980s, led the aid donors and recipient African countries to look beyond economic policies to political causes for the persistent economic decline and low rate of development. During the 1980s to 1990s, economic policies in most African countries were so well enmeshed with the political aspirations and preferences of those who wielded political power. There was the concentration of power in the hands of a few autocrats who had seized power through military coups and had disbanded all political movements. Policy choices in most countries were faulty as there was an increasing control over economic resources by regimes with no sense of accountability and transparency. Aid and other national resources were diverted to meet the needs of the influential groups and the personal uses of the ruling class^[7]. By the late 1980s, there was rising pressure in and out of Africa for political reforms in the region. To ensure that aid was effectively and efficiently invested, western governments including the EU, the World Bank and IMF began to insist that aid and investment had to be linked to political reform in Africa (Wiseman, 1995:3).

In the 1990s, then began an era of democratisation as it became a prerequisite for aid. The clamour for democratisation in Africa referred to as the second wave of independence, has always been plagued by dilemmas and stalemates. The imposition of democratisation as aid conditionality led to the emergence of stunted democratisation (Nagle and Mahr, 1999:254) Africa. Liberal democracy reduced to the crude simplicity of multiparty elections, is impaired because indigenous people are excluded from democratic citizenship (Carter and Stokes, 2002:129). There was therefore the need to strongly address the issue of power as the monopoly of power by a few leaders frustrated societal potentials. The EU, World Bank and IMF began to insist on the introduction of good governance as a means to render development aid to Africa more effective.

3.1 THE CONCEPT OF GOVERNANCE

The term governance is not new but is being increasingly used today in development literature. Governance encompasses the form of political regime, the process by which authority is exercised in the management of a country’s economic and human resources for development, and the capacity of governments to design, formulate and implement policies and discharge functions (World Bank, 2000; Santiso, 2001:3). According to the World Humanity Action Trust, governance is the framework of social and economic systems and legal and political structures through which humanity manages itself (Earth Summit, 2002). This includes the process by which governments are selected, monitored and replaced; the capacity of the government to effectively formulate and implement sound policies; the respect of citizens and the state for the institutions (Kaufmann et al, 2002:5). Governance can be used in several contexts but this paper is limited to national governance.

[...]

^[1] Africa is used throughout this work to refer to sub-Saharan Africa

^[2] These Leaders believed that socialism was similar to the African way of life of collective ownership and sharing.

^[3] These are large-scale, state-controlled enterprises. They operated mainly in the agricultural and Petroleum sectors.

^[4] A Group or groups seize power, establish themselves as dominant in a society, and set up the state in terms of their own ideal, values and self-interest.

^[5] Communitarians believe that states are the bearers of moral rights and values in international relations and therefore state boundaries should be borders of ethics. No state should have the right to intervene in the activities of others irrespective of what goes on there.

^[6] Cashew nuts are Mozambique's second largest export and the cashew industry employs thousands of people to crack the nuts and expose the kernels. The World Bank insisted that raw nuts must be exported to India and demanded that the government imposed export tax be removed and export of unprocessed nuts be liberalised.

^[7] People were using the state as a meins of gaining Access to economic resources, as state Leaders and employees besame rich and influential in most of the Region.