Official development assistance (ODA) is defined by the OECD Development Assistance Committee (DAC) as government aid that promotes and specifically targets the economic development and welfare of developing countries. It has the potential to support and guide a recovery from the COVID-19 in African countries. The amount of ODA that African countries receive depends in part on how the COVID-19 pandemic affects donor countries and to what extent the fiscal response to the crisis in OECD countries and beyond will affect aid budgets. Many donor countries are experiencing economic downturn, changing their funding priorities and reducing the amount allocated to ODA. In the meantime, the continuing aid-dependence of many African countries raises the question about the sustainability of these economies.
How has the crisis affected ODA flows in African countries?
The economic concerns about COVID-19 led donor countries to think inward by cutting foreign aid to support domestic priorities and build back their economies. Heinrich et al. (2016) found survey evidence that personal economic downturns are systematically related to opposition to aid. Although it is too early to estimate the full impact of COVID-19 on ODA disbursements to African countries, there are some indications that ODA is expected to drop in 2020. Bilateral aid commitments reported to the International Aid Transparency Initiative in the first five months of 2020 are about 30 per cent lower compared to 2019 levels, despite the commitment of donor countries to strive to protect their ODA budgets. Even if donors maintained spending at the current 0.3 percent of GNI level, ODA could fall as much as $US14 billion in 2020 (Van de Poel, 2020). On April 14, 2020, President Trump announced that the U.S. would cut its funding to the World Health Organization (WHO), slashing its resources by 10 percent during its hour of need.
Despite the global spread of the coronavirus, the U.S. role in assistance to the developing world has significantly decreased. Following this trend, the UK has shrunk its global aid for 2020 by £2.9bn[3].
During this time of crisis, domestic resource mobilisation has become a challenge for many African countries, as tax recovery has dropped due to import and export disruption and business downturn. Thus, aid cuts during this time of crisis is likely to affect the most vulnerable populations in African countries. In addition to being reduced by the circumstances of COVID-19, there is also a risk that the rest of the development aid given to Africa will be poorly used.
Some aid for who?
Despite the billions of dollars that have been poured into the region, many African countries house the largest portion of people dwelling in extreme poverty. Due to high population growth, the number of poor people in Africa has increased from 278 million in 1990 to 413 million in 2015 [4].ODA could be a potential source of growth and poverty reduction, only if it is delivered and spent appropriately. However, this has not always been the case.
First, aids are attached to some conditions, giving little room to implement policies relevant for the development of those countries. For instance, tied ODA means that it might be used to purchase goods and services from the donor country’s own domestic companies. In other words, tying puts the commercial interests of organisations in the donor countries ahead of the priorities of people living in poverty. For example, China provides tied aid to African countries in the area of infrastructure, including the construction of roads hospitals and schools. This type of aid usually favours Chinese companies, especially state-owned enterprises, while its loans are in many cases backed by African natural resources.
Second, we must also recognise that aid has not always fulfilled its objectives. Rulers in recipient countries of foreign aid are sometimes highly corrupt and aid flows seem to end up in the pockets of the ruling politicians. In their recent paper, Andersen et al. (2020) ascertained that aid disbursements to highly aid-dependent countries coincide with sharp increases in bank deposits in offshore financial centers. They found that the ‘leakage’ rate is about 7.5 per cent for the average poor country, with that figure rising for more aid-dependent countries.
So, is Covid-19 an opportunity for aid-dependent African countries?
The above-mentioned facts indicate that the effectiveness of foreign aid remains controversial. We have also shown that the crisis can hardly hurt African countries that are dependent on ODA, making them not sustainable. When donor countries are hit hard by a crisis, cut in foreign aid could be seen as a shock for African countries.
However, it is important to note that even if countries continue to receive aid, this does not guarantee that they would be developed in the end. At the Africa Investment Forum in Johannesburg, Dr. Akinwumi Adesina, the President of the African Development Bank, said, ‘Africa is not going to be developed by aid. It will be developed by investment’.
In this regard, the crisis should be seen as an opportunity to rethink wealth creation in African countries. Firstly, setting up quality institutions is key for good governance and to attract foreign investment in African countries. Secondly, a conducive business environment needs to be created for enterprises to thrive. Lastly, as ODA will continue to play a role in African countries, at least in the short run, this should be untied to all sectors: recipient countries should decide priority sectors for ODA deployment, which enables control over implementation and becoming a part of the accountability framework.
Disclaimer: The views and opinions expressed in this blog are personal to the author(s) and do not reflect the official policy or position of any other agency, organisation or employer.
Written by Martin Agboton, co-authored by Mathilde Cournut and Yentl Stutterheim
Comments