from Development Channel

Emerging Voices: Wolfgang Fengler on the Future of Aid to Africa

A stockbroker transacts shares during a trading session at the Nairobi Securities Exchange in Kenya's capital Nairobi on January 11, 2012 (Thomas Mukoya/Courtesy Reuters).

January 18, 2013

A stockbroker transacts shares during a trading session at the Nairobi Securities Exchange in Kenya's capital Nairobi on January 11, 2012 (Thomas Mukoya/Courtesy Reuters).
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Emerging Voices features contributions from scholars and practitioners highlighting new research, thinking, and approaches to development challenges. This article is from Wolfgang Fengler, the lead economist in the World Bank’s Nairobi office. Here, he addresses the question of how development aid can remain relevant and effective in a changing Africa.

Africa’s emergence is the new consensus. For the second time in just a few months, a major international journal has run a cover illustrating newfound optimism about the continent. After The Economist’s mea culpa (correcting its previous assessment of a “hopeless continent”), Time magazine just re-ran an earlier title: “Africa Rising.” This is no fluke: Africa’s economies are growing and the continent is much wealthier today than it ever was–even though, collectively, it remains the poorest on the planet. Many African nations (twenty-two to be precise) have already reached middle income country (so-called MIC) status and more will do so by 2025. Today, Africa includes a diverse mix of countries, ranging from the poorest in the world to the fastest growing; from war-torn countries to vibrant democracies; from oil-cursed economies to ICT champions, and the list goes on.

This has important implications for the aid architecture. Until now, Africa was at the center of global aid attention. But what if Africa continues to grow strongly and steadily? What will be the role of international partners (often called “donors”) in this new configuration?

Is aid becoming obsolete? I don’t think so, rather the opposite! Many Africans still experience deep poverty. The challenge is so huge that ten years of moderately strong growth are just a down payment in the fight against poverty. Today, some 400 million Africans (roughly 40 percent of the total population) still live on $1 a day or less. Newfound wealth means little to them if it is not equitably spread out. Some countries are becoming richer, often as a result of oil discoveries, with very little change in the lives of “average” citizens.

Fundamentally, a country’s development outlook has not changed if the poor remain neglected. What is new, however, is that these MICs no longer need aid money to fill development gaps. They have enough internal resources. Yet they still need assistance in designing programs that help them spend their new resources efficiently, especially if they wish to target the poor. Aid programs, if designed well, can help do precisely this.

Kenya is a perfect illustration of this new aid reality. Today, Kenya’s budget is roughly $12 billion, about 30 percent of the country’s GDP. This is one of the highest shares in Africa, making the state the biggest player in the economy.

Donors are small players in comparison. Aid to Kenya is around $1.5 billion (amounting to a little over 10 percent of total expenditures), of which only half is reflected in the budget. Bilateral partners like the United States and China still prefer to implement their programs outside of government systems; likewise, new players, especially NGOs, typically choose to execute their programs directly (rather than through the administration).

So what needs to change in the way aid is being delivered? How can it not only remain relevant but also become even more effective than in the past?

First, we need to acknowledge (and celebrate!) the demise of the old North-South paradigm.  With Asia’s emergence--and China’s spectacular turnaround--former recipients of aid are now new donors. The previous system, with rich countries in the North supporting poor countries in the South through government-to-government and multilateral relationships, is changing rapidly. Today, relationships are much more complex and varied, and there is a host of new players on the pitch.

Second, aid will increasingly focus on transferring knowledge rather than money. No matter how significantly some donors may scale up their financial commitments, aid money will remain small compared to domestic resources in recipient countries. If current trends continue, almost all of today’s stable low-income countries will reach MIC status by 2025. Going forward, “traditional aid” (of the bricks and mortar type) will focus increasingly on emergencies and fragile states. In others, transferring know-how and skills will be the name of the game.

Third, innovation and support to country systems will drive the impact of future aid. By 2025, even Africa will have a majority of MICs. But as countries climb up the income ladder, they will face new and more complex policy challenges. In order not to get stuck in the “Middle Income Trap,” African countries will need to innovate, including in traditional sectors, such as education, health, or transport. The resources will be there but the challenge will be to ensure services are actually delivered and at good quality. In these countries, aid should move from building monuments (schools, clinics, and roads) to improving the machine room (the systems through which education, health, and transport are provided).

Simply put: If we continue to equate aid with money only, then it will become obsolete in most countries over the next decade or two–except perhaps in fragile states. However, it will remain indispensable if focused on transferring the knowledge countries need to catch up and compete with each other.

Wolfgang Fengler also blogs on the World Bank’s Africa Can... End Poverty blog.

More on:

Sub-Saharan Africa

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