The ultimate goal of aid should be to end dependency

Monday, October 10, 2011 - 11:13

Development aid is sometimes criticised as a waste of money and is an easy target for governments’ spending cuts. But if spent properly, it can make a real change to the lives of many people in poor countries.

As the EU prepares to launch its remodelled development policy, ministers are again talking about ‘value for money’ and the infamous ‘multiplier effect’. But they should be making the ultimate goal of aid to end people’s dependency on it.

Aid makes governments answerable to their own citizens, rather than to donors.

With it, countries can develop means to generate income, such as tax systems, which reduces the reliance on aid money.

But not all aid is focused on fighting poverty.

‘Real Aid’ is the kind of aid that helps support dramatic decreases in aid dependence – that’s aid which empowers poor women and men to realise their rights, and reduces inequality.

It might do this directly, by supporting smallholder farmers, empowering women or building schools. Or it might do it indirectly, by supporting tax systems, better governance or economic development.

It is accountable, transparent from beginning to end, and gets the most out of every dollar spent. It supports developing countries to make their own decisions.

Substandard aid, however, does not do this – and there’s still a lot of it out there.

But there is some good news. Our new Real Aid 3 report shows that good quality aid has increased from 51 per cent to 55 per cent since 2006.

It also reveals that aid dependency among 54 of the world’s poorest countries has declined by over a third in the last decade.

Ghana, for example, has reduced its dependency on foreign aid that is used to provide essential services such as hospitals, education and roads by almost half, Nepal by over a third and Rwanda by a quarter.

But at the same time, there is still a lot of aid being driven by the self-interest of rich countries, rather than the needs of poor people.

Poor progress by major EU donors, such as France and Germany, has contributed to a €12 billion increase in sub-standard aid.

Over €1.37 billion of cash earmarked for spending in poor countries is being used to finance European companies, while in Austria, Greece and the Netherlands, money spent on receiving refugees is counted as aid.

But donor interest is still dominating European aid.

Our report shows that we need more and better aid now to end aid dependency in the longer term.

Investing aid in local companies can dramatically increase its impact. In fact, the cost of building one kilometre of road in Ghana or Viet Nam falls by 30-40% when built by a local company.

These impacts can be increased if the money is managed in-country.

With money from a DFID funded project, Rwanda has been able to overhaul its tax system, quadrupling the amount of money it collects in tax revenue between 1998 and 2006.

This huge effort to mobilise domestic resources looks set to continue reducing Rwanda’s dependency on donors.

But there aren’t enough of these examples out there.

That’s why we’re calling on EU governments to provide more real aid so that poor countries can reduce their aid dependency even faster. 

They can do this in November at the High Level Forum on Aid in Busan, South Korea. 

This is the perfect opportunity for countries to work together to make sure the world’s poorest countries get more of the real aid they need to tackle poverty more effectively.