ReCom's latest report is one in a series of desperate attempts to show a link between aid and growth. Economic growth in African countries can both benefit and be harmed by aid, but is largely due to factors other than aid. Anders Östman writes in a reply.
It is almost desperation over the ambitions to be able to show the connection between development aid and growth, especially economic growth. The latest example is the presented report from ReCom, with Finn Tarp as the leading figure. Aid can certainly be a contributing factor to growth, but what matters is the type of growth it generates. There are also other factors for increased growth where the connections are stronger. The opposite is also true - aid can be detrimental to growth. Other research also shows regional differences, where aid to Africa, for example, has been surrounded by particular problems, as it has had such a dominant position as a form of financing for development efforts. It was the main instrument for a long time. Furthermore, there are obvious difficulties with the official statistics that come from many African countries and that the international organizations use for their analyzes.
The results from the econometric research, which I have seen from Finn Tarp before, have been uneven. A country's development policy shows a stronger connection with growth than between development aid and growth. If the aid generates growth that involves "rent-seeking", the construction of luxury housing, shopping centers and hotels, which we see in many "newly rich" African countries, there is nothing to be particularly impressed by. To say so simply that increased growth leads to a broadened tax base which in turn leads to development contributes precisely to the “jobless” growth we see today in Africa. Growth in today's Africa is mainly due to higher raw material prices. Structurally, the economy has not changed significantly in the last 30 years. The manufacturing industry alongside South Africa and Mauritius is still hopeless without international competitiveness. The service sector is not much better. Africa continues to be a commodity exporter and importer of consumer and capital goods. Although foreign investment (FDI) has increased, it is lower than in other regions and private investment has increased by only half of that in Asia. Growth must be around 7 percent annually for the next 20 to 30 years if it is to make any real impact on poverty. The development policy pursued today, among other things with the support of development assistance, is not sustainable and can hardly contribute to the desired growth. Furthermore, it has not provided support for the much-needed rural development where the productivity increases of small farmers must be brought to the fore, which can also begin the industrial and urban modernity that the African elite admires and the donors eagerly applaud. If aid now contributed to the growth claimed in the report, it would hardly have contributed to the necessary economic transformation.
Based on the reasoning made by Bertil Odén and Jesper Bengtsson, can one also believe that countries that receive less or no aid receive lower growth? Rwanda is often highlighted as a country where aid has been successful. That is certainly the case, but do those who often claim this do not use the same analysis to explain why some large aid recipients are still showing modest results? The reason is often that there is no intention on the part of the country's management to use the aid for development purposes.
Aid must be more effective, the authors emphasize. It is possible to agree, but then the main goal of development aid to Africa must at least be to support development and the fight against poverty. Has it not done so? To a limited extent, as recent assistance has focused on supporting good governance, democracy, human rights and institutions based on a historyless way, which has often led to the efforts becoming distractions from the main goal. Or as Göran Hydén puts it; development must come from within and be guided by values that are rooted in one's own society. Aid must be adapted to this reality, not the other way around.
Anders Östman
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