About the limitations of CSR

My interview with Mr. Ingram from NSI, published in 2012 The Rising Africa magazine

As the North-South Institute prepares for the NSI Ottawa Forum on Governance of Natural Resources for African Development, in May 2013, The Rising Africa talked to the former special representative of the World Bank to the United Nations and the World Trade Organization, and the current President of The North South Institute, the leading development think tank in Canada, Mr. Joseph K. Ingram.

 

Our editor Marje Aksli visited Mr. Ingram in his office in Ottawa, and asked what the biggest challenge in Africa’s development is.

We all know that Sub-Saharan African economies are growing at an exceptional rate, and that the narrative of Africa is changing for the better. That is important, and I am not going to repeat their successes here. Yet in spite of these positive changes the biggest challenge in Africa remains its prevailing poverty and growing inequality. Most public policy experts would say that the most important factor in reducing inequality is providing meaningful employment opportunities to a growing youth population. Africa has serious problems with unemployment, even in the fast growing economies. Much of the unemployment is attributable to a huge youth surge – 60 percent of the total population in Sub-Saharan Africa is under the age of 30. This creates very high dependency ratios. South Africa, for example, has extremely high youth unemployment even though they have a relatively skilled labour force compared to other African countries.

How do you comment on some studies which claim that the younger the population, the lower probability that the country is democratic?

That theory is inconsistent with the fact that the number of democracies in Africa has risen from 8 to 23 in the last decade. Look at what has happened with the Arab Spring! It is largely young people who have brought about democratic change.  For the moment, it may not always be change that we like, but it is the first step towards an enduring democratic system.  A young population is a source of economic growth – you can’t have growth without adding to the labour force and increasing skill level of that labour. Also, history and empirical evidence show that with increased education there is increased demand for greater transparency and accountability, basic building blocks of democratic development.

So what do we know about the youth surge in Africa?

We know that if you do not meet youth’s expectations, there are going to be political problems, and a breakdown of social cohesion producing all kinds of negative outcomes including social discontent, surge in migration patterns, contestation over scare resources, extremism and religious fundamentalism. Groups take advantage of these problems to create challenges to the state. We are starting to see manifestations of that that fundamentalism in both the Maghreb, Somalia and the Sahel: in northern Mali, and even in Nigeria where religious violence has grown.

Is Africa’s challenge of jobless growth unique in the global scene?

The issue of jobless and job-poor growth is not unique to Africa: it is a problem we share globally, though not with the same outcomes. The U.S. and Canada are also experiencing the growing inequality and high levels of under and unemployment But clearly its outcomes are more acute in Africa where socio-economic conditions are much worse to begin with. Additionally, Africa has relatively weak political institutions. That said, there are significant improvements in the overall quality of governance.  We are talking about a continent with 54 countries.  Yet as we all know, democracy is fragile, as recent events in Mali have shown. Africa still has a legacy of corruption to deal with, as revealed by the indexes produced annually by Transparency International.

What research has NSI done in the area of governance of natural resources?

For almost a decade NSI has been doing field research on the subject of natural resource governance primarily in areas inhabited by first nations people in Canada and aboriginal communities in Latin America. Based on our findings we are increasingly shifting the focus of our research to sub-Saharan Africa. Our goal is to study the relationship between governance and the economic benefits of extractive activities.  Natural resources exploitation is important for all countries, and the wealth generated is critical to host governments, local communities and their populations.  Such resources should be exploited in a way which produces a win-win-win outcome:  a win for the host governments, for the local communities and for the mining companies.

What research projects does NSI work on?

We work very closely with two global initiatives. One is driven largely by the African Union and UN Economic Commission for Africa. Their African Mining Vision is an attempt to create a framework – standard setting for how African governments and investing companies should behave, and what the implications might be for home governments like Canada. A second initiative we have been involved with is led by one of the world’s leading development economists,  Prof. Paul Collier of Oxford University This initiative, the Natural Resource Charter, is also an attempt to create a set of regulatory principles by which host governments and mining companies would operate so that the exploitation of extractives as well as other natural resources, is done in an economically, socially, and environmentally responsible way producing the desired win-win-win outcome.

What should the companies do in a field of CSR when the governance is weak and civil society is not strong yet?

Let me start by explaining how we at NSI are planning to proceed in support of these global initiatives. The research we are going to undertake has several components, including the role of the private sector, the emerging powers, and going beyond CSR. We are also concerned with the impact that Canadian investments will have on long-term Canadian competitiveness and economic growth and poverty reduction in Africa. We have an interest in Canada being competitive as an investor in natural resources but at the same time we are also interested in how best that investment can enhance higher and more equitable growth outcomes.

In this context, we are also looking at the role of corporate social responsibility, including its limitations. African governments too are increasingly conscious of the limitations of self-regulation and in the context of the Africa Mining Vision are seeking to address them. Based on NSI’s past research in Canada and Latin America our conclusion is that CSR is a necessary but  not sufficient set of principles when it comes to ensuring the win-win-win outcome I referred to  earlier. Indeed a growing body of research, both empirical and academic, recognizes that there are serious limitations with relying solely on principles of corporate social responsibility. Although in general, Canadian companies have behaved well globally - often better than their competitors – a handful have not. And this has hurt both the Canadian brand and the sort of development outcomes we are all looking for from natural resource exploitation.

How has the limited scope of CSR hurt Canadian companies?

Companies have tended to rely on Corporate Social Responsibility principles alone.  But because CSR is a form of self-regulation, companies are often not accountable for whether they behave in a socially or environmentally responsible manner, especially in countries where local legislation and enforcement capacity are weak. 

Is reliance on self-regulated CSR going to produce the win-win-win outcome? What are the consequences if CSR fails to do so, especially in a context of high income inequality and poor socio-economic conditions? We have seen one possible outcome recently in the events at Marakana in South Africa where the violence in one mine has escalated and spread more widely creating a serious constraint on the country’s potential for economic growth. Incidences of violence have increased in frequency not only in Sub-Saharan Africa but also in parts of Asia and Latin America. While we recognise that CSR is necessary, we also need to ask ourselves if principles based on self-regulation are sufficient. Or do we need to look beyond CSR at more regulated forms of behaviour?

What direction is Africa moving in?

At this point it would appear that the work of the African Union and African governments is moving in the direction of stronger global standards and regulation. This may be in part due to the demands of a growing civil society in Africa demanding greater transparency and accountability.  The members of the African Union are cognisant of this important development which comes with democratic governance.

Is this what the forum you organize in May is about?

The Forum we plan to host in May of 2013 is titled  “The NSI Ottawa Forum on Governance of Natural Resources for African Development”  and we plan to have academics, CSO representatives and senior policy makers from Africa, Canada, Europe and the U.S. participating.

The Forum will examine not only how governments can best mobilize financial resources from natural resource exploitation but also how those governments can best spend the resources so that they contribute to the development of the national economy and their local communities. 

This is vital for the long term development and stability of the country. It is also vital for the mining companies themselves and their long run competitiveness. Their capacity to get contracts in the future will increasingly depend on how they are perceived both by host governments but also by the local communities.

So, you say that ...

... the more responsibly the companies behave, the more they consult with the local communities, the more positive the outcome will be in terms of strengthening their brand vis-a-vis their competitors.

But what if some investors buy up mining sites putting cash on the table, exceeding three-four times the market value?

Certainly this sort of thing happens but if that money is used for investment, to build infrastructure locally or to invest in adding value through local processing - rather than just shipping the raw minerals out – while creating more employment locally, this is going to help. This is what Canadian companies need to be doing with greater frequency, as well as talking to the local populations and taking their views into account before making investment decisions.

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Canada – 6th largest donor at the African Development Bank!

My interview with Mr. Montador, published in The Rising Africa magazine, 2012

For a while Bruce Montador was our man in Tunis: from 2007 to 2011, he represented Canada at the African Development Bank as an Executive Director. Having travelled to 28 countries in Africa either for work or fun, he shared his thorough Africa-insights with The Rising Africa.

First of all, how does the development work of AfDB differ from the one of World Bank (and the planned development bank by the BRICs)?

The AfDB has fewer resources than the World Bank has for the African region, so it needs to focus. It tries to limit its programming to a relatively few areas – infrastructure, private sector, governance and higher education. Infrastructure is critical, particularly for things like electricity, regional integration and water. The private sector is taking off – there are ever more references to Africa in the mainstream business press, but there are still many challenges facing both African and foreign entrepreneurs.

It is hard to comment on the proposed BRICs development bank, since as far as I know it is not yet operational. There is a tendency to announce projects like that without them ever doing very much for a range of practical reasons.

How does Canada participate and finance the bank? Is the contribution from Canada growing or the opposite?

Canada supports the Bank in two ways. As a shareholder, Canada’s capital pledges allow the Bank to borrow at good rates on the market, to on-lend to middle income countries and the private sector. As one of the few remaining AAA credits, Canada’s pledge is important to the Bank, particularly since Canada is already a big shareholder for our size (about 10 percent of the non-regional share).

Moreover, during the financial crisis, there was a need to increase the Bank's capital, and the temporary pledge of capital Canada made at the Pittsburgh G-20 meeting in 2009 allowed the Bank to continue to serve its members.

The other way we, Canadians support the Bank is through the budgetary grants to the African Development Fund to allow for loans and grants to low-income countries and for regional public goods. We currently give 108.5 million dollars a year – it will be up for renegotiation next year for the cycle starting in 2014. We are the 6^th largest donor, and our contribution has grown with each replenishment.

Canada is seen as an important partner – though for African Development Fund, the big players are really the Europeans – the UK, Germany and France. Canada also supports some multi-donor trust funds that do additional work – in areas like preparatory work for regional infrastructure projects and water, and for Aid for Trade.

What can Canadian companies and NGOs do to benefit from the AfBD? Please share recommendations...

Canadian consulting companies do quite well from AfDB contracts. Firms that are interested should be in touch with the Embassy in Tunis, which can help keep them informed of opportunities. Companies with bigger investment interests should check with the Bank's private sector department to see if there are possible synergies. Some NGOs may find consulting opportunities, and some of the thematic trust funds, like the Congo Basin Forest Fund, have approved projects from Canadian NGOs. AfDB does not do as much outreach to NGOs as at the World Bank, in part because NGOs have not typically paid a lot of attention to the AfDB.

What are the trends affecting the AfBD and how does it affect Canadian companies and NGOs?

The AfDB is bolstered by the growing Afro-optimism, and companies and NGOs will see growing opportunities. However, the tight fiscal environment in donor countries will probably limit growth of the concessional window, the AfDF, and thus limit growth in the Bank Group's operations in least developed countries. There may be fewer Bank contracts available in traditional areas of health and basic education. Finally, there will probably be more competition from African firms in the markets for Bank procurement.

Can you share your personal opinion on Africa’s development; say from 2007 to 2011, on the example of one or two countries of your choice?

Since my work in AfDB largely coincided with the financial crisis – I can say that Africa was doing quite well before the crisis, and was not directly touched by the financial crisis. The only country that was really integrated into the international financial system, South Africa, has a sound banking system. However, like Canada, the continent was adversely affected by the economic downturn created by the financial crisis in the US and Europe.

In addition, the nervousness of international lenders led them to pull back from marginal markets with which they were less familiar, a description which basically fit the whole of Africa. 

Fortunately, the relatively rapid recovery in Asia, and in commodity prices, as well as a return of Asian investors looking to secure supplies of commodities, helped Africa to get back on to a solid growth path relatively quickly.

That is an overview, obviously situations vary. A country like Ghana, where governance and economic reforms were well underway, and where new oil production is adding to growth, is a very positive story. Tunisia, where political uncertainty has devastated the tourist sector, has actually not done badly in terms of sustaining exports despite the weakness in the euro-zone, its main market. The East African Community has been showing fairly solid growth, based on resources but also the gains from growing integration.

Professor of economics at the London School of Economics and Political Science Alwyn Young has claimed in his research paper ‘The African growth miracle’ that Sub-Saharan living standards (as measured in ownership of durable goods, the quality of housing, the health and mortality of children, the education of youth and the allocation of female time in the household) have been growing three and a half to four times the rate indicated in international data sets.

It is an interesting analysis, and not inconsistent with the AfDB's estimates of a larger African middle class than might be expected.  However, it is still important to recognize that many of those people emerging from poverty are still relatively vulnerable; the trend is positive, but there is a long way to go. This of course also means that there is lots of scope for further strong growth.

In your view, is it justified to compare North African countries with Sub-Saharan countries – or should the stats and analysis be always separated, as two very different entities?

From the political perspective of African countries and the African Union, it is all of Africa that is the frame of reference. Obviously there are cultural and economic differences between North Africa and Sub-Saharan Africa but I don’t know if looking at the Middle East and North Africa together is a better framework. There are lots of differences between the Maghreb and the Mashreq.

We in CCAfrica often make country-based overviews of development (so called Monthly African Indicators), but perhaps there are other units (cities, nationality, culture etc) which would tell a better story?

With 54 countries the indicators become a sea of data, but the cities, cultures etc are open to interpretation. I would suggest looking at the five broad regions – North Africa, East Africa, Southern Africa, Central Africa and West Africa. There are one or two countries whose allocation is controversial or in flux, but broadly this approach produces relatively homogeneous (or less heterogeneous!) subsets. One story to tell in this context would be the relative success of regional integration in the different areas – best in East Africa and weakest, so far, in North Africa.

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Canada: Leader, supporter, or slacker in aid effectiveness?

This article was published in Embassy Magazine, July 24, 2013: http://www.embassynews.ca/opinion/2013/07/23/canada-leader-supporter--or-slacker-in-aid-effectiveness/44249

Canada: Leader, supporter, or slacker in aid effectiveness?

While it’s not doling out the most money, Canada measures up to its peers.

Over the past couple years, a number of media headlines have implied that Canada’s aid effectiveness record is poor and that “CIDA is breaking Canada’s promise to the world,” while others suggest that “new aid policies are eroding Canada’s image.” Some development experts have similarly claimed that the “effectiveness of Canadian aid has been eroded” and our “visibility and influence in foreign policy and aid spheres has ebbed considerably” as a result.

Unfortunately, quite often these media articles lack references to relevant data. Therefore, the arguments often seem to be more of a reflection of domestic politics rather than based on empirical evidence.

As an aspiring international development professional keen on evidence-based policy-making (vs. policy-based evidence making) I undertook a research project at the University of Ottawa to contribute with data and analysis to these debates.

Thankfully we have the benefit of an aid effectiveness definition provided by the Organisation for Economic Co-operation and Development. The OECD’s 2005 Paris Declaration on Aid Effectiveness, with more than 100 signatories, brought forward a global consensus and continues to serve as a global norm for aid delivery. The OECD also provides baseline principles and indicators for aid effectiveness as well as a range of surveys of donor compliance to enable comparative analysis.

One of the main reasons for the OECD to adopt a new global norm on aid delivery in 2005 was a widely agreed understanding that donors were then doing a poor job in lifting people out of poverty. It is important to note that the biggest conceptual change the Paris Declaration brought about was an attempt to make aid more altruistic, transparent, and free from politics.

In support of the goal of altruism, the Paris Declaration elevated partner governments to the fore, leaving less room for rich-country donors to dictate their policy recommendations on the recipient countries. 

The follow-up forum in Busan, South Korea in 2011 went even further by including private sector and civil society players to the development playing field. The introduction of multiple players and their development tools (foreign direct investment, trade, remittances, charity, etc.) means that the role of donors in poverty alleviation has been diminished. Simply put, donor states today are less able to claim visible leadership positions in poverty reduction. It is therefore not fair to compare the donors of today with their predecessors of some decades ago.

Canada performs largely mid-range

Turning to the numbers, a survey, conducted to measure donors’ compliance with OECD aid effectiveness principles and indicators, offers plenty of data to suggest that among 22 rich country donors, Canada performs largely mid-range. The OECD’s 2011 Survey on Monitoring the Paris Declaration indicates that Ireland is a top donor outperforming others in several indicators, while the United States ranks the lowest together with South Korea.

Borrowing from a European foreign policy scorecard vocabulary, we can call Ireland “the leader,” the US and Korea “the slackers,” and Canada “a supporter” of aid effectiveness. 

The survey results further suggest that Canada performs slightly above the donor average when its aid is allocated to least developed countries, and about average when assessing all recipient countries together.

Breaking down the data even further shows that Canada performs much better than the donor average in the ‘alignment’ principle. This means that Canada tailors its aid programs to the recipient country needs more so than other donors, on average.

But Canada lags slightly behind the donor average performance in the ‘harmonization’ principle, which obliges donors to co-ordinate their aid programs. Again, the data does not support the argument that Canada is breaking its promise to the world, especially if by “the world” we mean the developing countries.

While all donors have made progress towards more effective aid since 2005 and improved their overall scores (Canada included), not all met the performance targets set by the Paris Declaration. In fact, among 22 donors, only three donors did. This suggests that missing the targets is a norm rather than an exception. Compared to the donor average performance gap—again, Canada does not stand out in a negative sense. Canada’s record in aid effectiveness performance does not therefore seem so eroded.

Which donors are leaders? 

The next interesting question is what explains aid effectiveness performance? And which donors become leaders—those that are more altruistic and transparent, just as the Paris Declaration strived for? More interestingly, how do donor qualities like generosity and ideology relate to aid effectiveness outcomes?

Using OECD data, it seems that generosity explains leadership in aid effectiveness the best. The correlation between generosity and effectiveness is positive and quite strong but only up until the point where aid budgets reach 0.5 per cent of gross national income. After that point the relationship seems to invert. Ireland for example has achieved the most effective aid while its aid budget has been only slightly over the donor average level. Luxembourg, which has been often praised for its generous aid budget that dedicates around one per cent of GNI to foreign aid (almost three times more than Canada), is a slacker when it comes to its effectiveness. Canada has reached mid-level effectiveness despite its small aid budget. While it’s the strongest determinant, generosity therefore does not necessarily go hand in hand with aid effectiveness.

Surprisingly, donors with effective aid also tend to be rather conservative in their ideology. That can be partially explained by the changes in the Nordic countries, which voted more for centrist and fiscally conservative governments between 2005 and 2010. The positive correlation between ideology and aid effectiveness might also mean that the donors’ self-interested demand for more “efficient” aid might have an impact on its “effectiveness” as well.

It’s surprising that donor transparency and altruism (if measured by the amount of aid allocated to least developed countries) does not seem to explain the outcome in aid effectiveness very well. Yet, this is what the Paris Declaration attempted to achieve: more altruistic, transparent, and less political aid.

So it seems possible that donors progress towards global norms without necessarily adopting the values of these altruistic international declarations. Rather, what seems to matter is their political values: idealist demands for more aid (“double the aid!”) and their self-interests (“more bang for the buck!”).

Canada could perhaps find a balance between those factors in order to be “a leader” in aid effectiveness. 

Marje Aksli is a recent graduate of the University of Ottawa’s master’s program in globalization and international development. She has 10 years of experience working on international relations and development projects.

Conclusion for my Major Research Paper

Canada’s Compliance with Aid Effectiveness Principles 

Major Research Paper

© Marje Aksli, Ottawa, Canada 2013

Conclusion

My major research paper at the University of Ottawa on aid effectiveness was undertaken as a learning experience to exercise a more deliberate and slower mode of thought in Canadian aid effectiveness studies with an attempt to start a conversation on what institutional qualities relate to donor aid effectiveness outcomes. The paper’s main goal was to fill a quantitative knowledge gap in aid effectiveness scholarship by analysing Canada’s relative position among its peers through the use of measurements of aid effectiveness indicators.

The paper was composed of two parts: Part One sought empirical evidence to support the claim often made that Canada has low performance levels and is exhibiting a continual decline in aid effectiveness. Part Two looked at the contributing factors to aid effectiveness.

Part One was stimulated by recent media headlines that suggest Canada’s aid performance compares poorly to that of other donors.  Headlines such as “New aid policies eroding Canada's image: Partnerships with mining industry raise concerns about international development priorities”, “Does cutting foreign aid threaten Canada's reputation in the world”, and “CIDA is Breaking Canada's Promise to the World” indicate that there seem to be two major trends in Canadian aid conduct: Namely, the authors refer to a decline in aid performance over time and to Canada’s loss of international reputation as a result. These headlines also seem to suggest that when compared to other donors, Canada is performing much worse.

In addition to critical media articles, the most recent and thoroughly researched book on aid effectiveness entitled, “Struggling for Effectiveness. CIDA and Canadian Foreign Aid” also concludes – in the words of its editor Stephen Brown of University of Ottawa – that “all the chapters point to the important deficiencies” and that “the portrait of CIDA that emerges is one of profound mediocrity”. Hunter McGill goes further in claiming: “the effectiveness of Canadian aid has been eroded” and “as a result, Canada’s visibility and influence in foreign policy and aid spheres has ebbed considerably”. Despite these claims, my analysis could not determine what empirical data the authors are relying on to make these claims.

The analysis of OECD DAC data provided in the 2011 Survey on Monitoring the Paris Declaration suggests that among 22 donors, the top performing country in aid effectiveness is Ireland and the least performing country is either the U.S. or Korea, while Canada performs largely mid-range. Depending on the type of recipient countries of Canadian aid, Canada’s rankings change accordingly. For example, Canada performs slightly better when its aid is allocated to the least developed countries (32-country data set), than when the middle-income countries are included in the group (global snapshot). Overall, Canada has improved its aid effectiveness results by 34 per cent since 2005.

The first two sections of Part One compared and contrasted Canada’s relative position to other DAC donors. The central argument of the comparison results was that while there are certainly ways that Canada could improve its record, there is no need to lament about the loss of face internationally – global donor compliance with aid effectiveness principles varies quite significantly. Compared to 22 donors on average, Canada’s aid is more effective by four percentage points across the indicators measured in percentages.

Among the ten Paris Declaration indicators, Canada’s results are mixed. In two indicators (3 and 4) Canada has actually backslid during the five-year period, over 20 per cent in each case. Further, the data suggest that compared to other donors on average, Canada performs relatively better in the ‘alignment’ principle; aligning its aid policies according to the national development strategies of recipient countries. The same cannot be claimed of Canada’s performance in relation to the ‘harmonisation’ principle, which requires foreign aid donors to coordinate their aid programs with each other.

Specifically, Canada’s ‘alignment’ indicators show higher results by 13 percentage points than that of donors on average and in the ‘harmonisation’ indicators Canada’s average score lags behind by three percentage points compared to the donors’ average. 

While Canada made progress towards more effective aid compared to the 2005 baseline, it did not meet the targets set for the donor countries. Only three donors reached the set targets out of 22 indicating that missing the international targets is a norm rather than an exception. Canada’s gap in meeting the targets was smaller than the donor average in the 32-country data set, and slightly wider in the global snapshot (or when all the recipient countries are included). Compared to the average performance gap across the donors, Canada does not seem to stand out.

Part Two of the research paper then attempted to explain what could possibly explain the high aid effectiveness performance. It described the recent aid effectiveness campaign as a tension between donors’ institutional incrementalism and a global pressure to ensure more altruistic aid, free from politics. Rooted in institutional theory, the research viewed aid effectiveness as a struggle between donors’ business-as-usual (where their aid policies are closely linked with foreign policy interests on one hand and idealist campaigns to be more generous on the other) and globalism, which – in the form of the Paris Declaration – acted to divert donors from their path dependency and attempted to ensure altruism and transparency in aid policies.

The aim of Part Two was to estimate what would possibly explain the good aid effectiveness performance. The research used correlations between the average scores of aid effectiveness and four proxy measures for path-dependency and globalism. The aim was to see which of the measures offers the strongest correlation coefficient, and can therefore explain the outcome the best.

Based on a literature review, two proxy measures for donor institutional path-dependency were chosen, including realist (measured as ideology on the scale of ten) and idealist attitudes to aid (measured as generosity of aid budget from GNI). On the other hand, two proxies were used for globalism, as well, which was – in the aid effectiveness context – conceptualised through altruism (the amount of aid to the LDCs) and transparency measures (transparency and learning ranks by CGDev).

The main suggestion arising from this analysis is that – while countries made progress in aid effectiveness indicators – the outcomes do not seem to be related to donor altruism or transparency (as Paris Declaration was conceptualised in this paper). Instead, the variables of the institutional qualities, which offered the strongest correlation coefficients with the aid effectiveness scores were the idealist / realist tendencies, associated with donor’s path dependency or institutional incrementalism.

For example, the share of ODA/GNI (idealist approach to aid) offered the highest correlation coefficient to aid effectiveness scores across 22 donors, while being statistically significant. The second highest aid effectiveness correlation coefficient with conservative ideology (realist approach to aid) suggests that donors might progress in aid effectiveness while being ideologically rather conservative.

As explained earlier, the Canadian government, which can be considered as one of the most ideologically conservative among the DAC donors at present, is argued to be viewing aid through an efficiency lens. The Conservative Party of Canada tends to emphasise a more narrow understanding of aid effectiveness: the efficiency or the “more bang for the buck”, attempting to achieve maximum productivity with minimum wasted effort or expense.

Considering the positive and medium-strong correlation coefficients between the conservative ideology and aid effectiveness outcomes, the narrow productivity-lens on aid effectiveness might be in use among other DAC donors, as well. But further research would be needed to shed more light to this possible attitude towards aid effectiveness across DAC donors.

The very low correlation coefficient of transparency variable seems to suggest that the Paris Declaration ‘mutual accountability’ principle or the international peer pressure, which can take place due to donors’ openness, has not been significant force enough to ensure the change. DAC donors’ aid institutions achieved only moderate change towards this global initiative while remaining largely path-dependent.

This conclusion can be supported by the fact that the overwhelming majority of donors did not meet their targets. Only three donors met their respective aid effectiveness targets, suggesting that while the progress towards more effective aid was made, it was not far-reaching enough.

Ultimately, though, further research is required about what institutional qualities correlate well (and can therefore explain) a donor’s foreign aid policy in terms of its effectiveness. Perhaps other theories and other proxy measurements, e.g. inclusion of variable about aid agencies’ subordination to foreign affairs and trade departments, offer stronger correlations (negative or positive) for being able to tell a more convincing story of donor aid effectiveness.

Donor competition in fragile states: in search of better tools for the promotion of democracy

Briefing Note, school coursework

The appearance of new donor states like China and other BRIC-countries as donors has led to the increased donor competition in the developing countries. In fragile and conflict-prone states, competition between old and new donors has undermined Canada’s traditional ways of promoting good governance. For example, the entry of China as a donor to Sri Lanka has completely sidelined Canada and other Western donors as major contributors.

This Briefing Note analyses the reasons why promoting democracy has failed in the context of donor competition and outlines possible options for policymaking It provides several recommendations for abandoning current practices of Western good governance promotion and advises to re-frame it as an economic argument instead.

Should Canada be promoting democracy in the fragile countries? As Canada has experienced with Tamil refugees from Sri Lanka - fragile states can be an overwhelming source of the world’s refugees and internally displaced peoples. Because Canada hosts the largest Sri Lankan diaspora in the world, it is the natural destination for these refugees. Processing the claims of one boatful of Tamil refugees costs Canada approximately $25 million.

Moreover, conflicts resulting from human rights abuses in those countries can spill over to neighboring countries, likely to demand action under ‘responsibility to protect’ clause, which again is a costly endeavor. Therefore, continued work in fragile states is important despite their relative geographical distance from Canada’s shores: depending on the country’s socio-political characteristics, the problems stemming from these regions can have an indirect cost to Canada like mentioned above.

In belief that democracy and respect for human rights will prevent (armed) conflicts from happening, Western development assistance to those regions has been linked to good governance conditionalities over many decades.

In addition to fostering peace, good governance was viewed as one of the keys to poverty reduction and development success. However, according to new development- and state-building theories, the practice of tying aid funds to good governance conditionalities is no longer advisable. Several reasons for abandoning this conduct are listed below.

Roland Paris agrees[10] that in post-conflict countries institutionalism should come before liberalization. He also claims that “authoritarian solutions for war-shattered states should not be rejected out of hand”, especially “if the alternative were more abhorrent, a genocide, for example”.

India concentrates on non-monetary aid mainly in the form of technical assistance and scholarships, while China offers a wider range of monetary and non-monetary aid packages, which include grants and loans for infrastructure, plant, and equipment, as well as scholarships, training opportunities, and technical assistance. Chinese monetary aid is tied to the use of Chinese goods and services, and requires adherence to the ‘One China’ policy, but does not carry the ‘good governance’ conditionalities that currently characterize Western donors.

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First of all, according to developmentalist theory, the development activities (like governance projects promoting democracy), which are directed from abroad, are not going to be sustainable. According to this theory, the roles in the developing field would ideally be in the following way: the agency for change would stem from within the developing state. Western development agencies should in this view be mere “brokers and facilitators” of development. They should be supportive of the local processes, while increasingly developing patience and tolerance of risk in doing so. Therefore, developmentalist theory seeks to ‘emphasize local agency in the sense of people's capacity to effect social change[1]’. This means that in development projects and in governance issues, in particular, the Western donors should let the recipient country to “sit on the driver’s seat” of its own development. This includes letting the countries choose the type of governance, which suits them the best.

Critical international political economy theory echoes the developmentalist approach to both development and state building, as “it is possible to view state-building as a sub-set of development”[2]. This theory also urges Western states to be more supportive of endogenous or internally driven state building as the studies show that it is almost impossible for a developing country to “own” externally driven processes[3]. This means that countries, which culture is very distinct from the Western societies, are not going to be successful planting foreign governance models in their societies. It has been warned that in case “local ownership… become(s) an empty slogan” it will have “devastating consequences.”[4]

One example of devastating consequences of externally promoted governance projects is Rwanda: in the early 1990s, the Western attempts to liberalize the Rwandan economy, media and the political scene by promoting political liberalization through the Arusha Accords, failed. It has been even argued that indirectly, the internationally led plan to reconcile the warring parties through democratization “served as a catalyst for the genocide”[5]. Western attempts to foster peace and stability in Rwanda ultimately backfired and efforts for media liberalization gave voice to extremist groups to organizing and conveying inflammatory messages (instead of promoting democracy, as it was hoped to achieve)[6].

The ruling elite was not willing or able to “own” the processes prescribed in Arusha Accords: “power sharing, political liberalization, establishing democratic elections and forming a coalition government”[7]. Instead, it seemed easier for the ruling Hutus to end 'the Tutsi-problem' for once and for all, killing almost 80 percent of the Tutsi population.

Before promoting democracy, it needs to be evaluated what conditions are required for permanent democratic turn-around and what opportunities the fragile countries realistically have. Paul Collier has conditioned the turnaround of a failed state to three characteristics of the country[8]: its level of income, its level of democratic rights, and the proportion of its population with secondary education. This leads to the question: which should come first – education and wealth or democracy? Is it possible for democracy “to be owned” in a country of low levels of education and income?

Fabrice Murtin and Romain Wacziarg who study democratic transitions find[9] that “primary schooling, and to a weaker extent per capita income levels, are strong determinants of the quality of political institutions”. Therefore, they claim that higher levels of education and higher income lead to democracy and not vice versa. “We find little evidence of causality running the other way, from democracy to income or education,” they say.

In addition to recent theories recommending to abandon the good governance conditionalities in development projects – as of 2005, two OECD documents have turned the theoretical principles listed above into normative guidelines. OECD’s Paris Declaration on Aid Effectiveness, which defines the aid-related conduct of OECD donors, for example, has five principles for its members (including Canada):

“It is now the norm for aid recipients to forge their own national development strategies with their parliaments and electorates (ownership); for donors to support these strategies (alignment) and work to streamline their efforts in-country (harmonization); for development policies to be directed to achieving clear goals and for progress towards these goals to be monitored (results); and for donors and recipients alike to be jointly responsible for achieving these goals (mutual accountability).”[11]

Both the Paris Declaration on Aid Effectiveness and even A New Deal for Engagement in the Fragile States mandate the donors to align behind locally initiated development agenda, and not to set their own demands to the development.

Canada, as a signatory and enforcer of those documents, has agreed to follow these norms. Clearly, setting aid conditionalities regards to democratization is no longer feasible under the conditions of these declarations. This implies that other means should be found for promoting democracy.

The need to find other ways to deliver aid while promoting democracy in developing (and/or fragile) countries has become even more apparent with the entry of new donors to the developing scene. The rise of BRICs, other G-20 and OPEC countries as donors has introduced competitive elements to the development field, previously dominated by traditional donors and OECD members alone.

Assessing the impact of aid from China and India on the African development it has been found[12] that despite India and China’s different patterns of aid, the analysis shows clearly that the potential impact of Chinese and Indian aid on Africa is significant.

Therefore, the major difference between the old donors and (re-)emerging donors like China lies in their different attitude towards local governance. As a non-member of OECD, China does not have to follow the rules and norms set for the traditional OECD donors. The donors from BRIC countries are not taking part in any aid-related work led by OECD and traditional donors – in fact, they have insisted that their participation in the aid monitoring framework should be voluntary. Brazil, for example, has even insisted that South-South co-operation should be judged by different criteria than North-South co-operation. Moreover, instead of presenting itself as a donor, China’s aid principles are written from the perspective of an equal partner to the developing countries.

The fact that China does not set policy conditions on the recipient countries makes them increasingly attractive for the non-democratic governments in fragile countries. The words of Sri Lankan Minister of Foreign Affairs illustrate their preference to co-operate with China eloquently: “they don’t go around teaching others how to behave[13]”. That explains China’s ‘competitive edge’ over traditional donors. This means that doing business with the Chinese does not force the local governments in conflict-prone and fragile countries to choose between continuing their bad policies or securing an attractive infrastructure investment through aid funds. With the Chinese, they can have both.

The bottom line explaining the failures to promote good governance in developing countries and in fragile states, in particular, is that good governance is not viewed as a means to their ultimate goal of economic development. They do not see how could democracy help achieve poverty alleviation and boost increase in incomes. Therefore, to be more successful in the promotion of democracy, it would be a good idea to frame it as an economic argument.

The most traditional foreign policy option would be to urge China to follow the OECD rules of aid delivery. However, it cannot be considered feasible. As a non-member of the OECD, the Chinese do not follow the same rules of aid delivery as the OECD donors. Furthermore, their understanding of aid differs significantly from the traditional donors. China is a very significant source of finance to the developing countries – but only a small portion of this is actually ‘aid’ as understood by traditional donors. The Chinese have not distinguished aid from other financial flows (like FDI, loans, and trade) to developing countries and they do not report about their aid spending.[14] The traditional donors (like Canada) and the new donors (like China) not only follow different rules but also play completely different political economic games in recipient countries. Demanding China to give up its game is likely not going to succeed[15].

Secondly, there would be a temptation to exit the countries where competition between the traditional and new donors has resulted in a hostile attitude on behalf of recipient governments, like in Sri Lanka. The aid exit may seem wise considering the current budget restrictions at home, but it may prove short-sighted considering possible expenses of likely humanitarian interventions in the future or administering claims of boatfuls of refugees.

Considering carefully the OECD new norms set for aid delivery and the previous outcomes of externally conducted state-building activities, the best option for Canada seems to be to rephrase its good governance rhetoric. Instead of framing democracy as the end in itself, the demands for political liberalization should be portrayed as a tool to achieving economic success. Instead of ‘democratization’ and ‘good governance’, Canada should be using economic vocabulary and discontinue to tie favorable policy change to its aid delivery.

On that note, Canada could borrow the keywords like ‘inclusive institutions’ from economists. Daron Acemoglu and James Robinson[16] have claimed that inclusive institutions are the key to the lasting economic success. Their argument in Why Nations Fail is the idea that elites, when sufficiently powerful, “will often support economic institutions and policies harmful for the sustained economic growth”[17]. The countries, which set up ‘extractive institutions’, are set to fail in the long run, as that type of institutions allow only a limited number of people to access the benefits of economic success. Therefore, the governments create conditions where those who are excluded are likely to challenge the rule of the government, making it unlikely to survive. While authors acknowledge that in short term it is possible to achieve ‘extractive growth’, in the long term it becomes impossible to sustain it. Consequently, political changes are needed to the institutions to allow inclusive participation in decision making.

The work of economist and Nobel Prize laureate and intellectual of Bengali heritage Amartya Sen offers other useful keywords for Canada’s development and aid-related rhetoric. Sen’s notion of “capabilities and freedoms[18]” is likely to be better understood in countries in Global South than Latin-based ‘democratization’. Sen views poverty as a capability-deprivation, which means that poverty in low-income countries could be eliminated if they removed their internal obstacles for free participation in economic activities. This involves removing exclusive barriers of lower castes, women, and ethnic minorities to political and economic participation and decision-making. Again, it can be framed as an economic formula for growth: if the countries exclude 50 percent of their human capital (women) from participating in the labor market and in political decision making, it yields to the smaller outcome of economic activities.

To support those claims, Canada could refer to the empirical evidence, which proves that equal rights indeed lead to the rise in incomes and productivity. Economists Chang-Tai Hsieh, Erik Hurst, Charles Jones and Peter Klenow[19] argue that as much as 20 percent of the growth in productivity in the United States over the past 50 years can be attributed to expanded opportunities for women and African Americans. Lowering ‘discriminatory barriers’ can be tremendously beneficial to the economy, they claim: greater equality results in better use of available talent, and therefore it leads to increased productivity and wealth.

The old models of setting aid conditionalities regards to achieving democratic governance in fragile countries are no longer viable. As both the Chinese and the governments of fragile countries are foremost concerned about their economic development and reduction of poverty, the change in rhetoric, and consequently, actions is needed. Instead of framing democratization as a ‘tool for greater justice’, and using it as a persuasion for access to aid funds, or presenting it as an end in itself, good governance should be portrayed as an economic argument. That type of change in rhetoric is likely to reduce the frictions between the competing donors, as well.

Of several options listed above, the ones, which use economic vocabulary, can be estimated to be most successful in transmitting the message of the importance of inclusive political participation.

The likelihood of options where China and other non-OECD donors would change their understanding of aid as a result of Western rhetorical pressure is slim. However, there is growing support from developing countries (like Rwanda, who - previously a fragile state itself - has been prominent in pushing for greater transparency and further untying of aid[20]) to include the BRICs into the OECD-led international framework of aid and development effectiveness. It remains to be wished that developing countries increased their own pressure on South-South co-operation in support of more transparent aid-related activities.

Referring to the empirical evidence of improved productivity and therefore – wealth – could prove most productive in terms of achieving gradual policy change. This – locally initiated gradual transformation towards greater inclusion in political and economic decision making is in accordance with the international norms set for aid delivery, as well. Both Paris Declaration and A New Deal for Engagement in the Fragile States rule out the options where Western donors set policy conditions to local development.

Marje Aksli,
Globalization and International Development


[1] Fritz, V., &; Rocha Menocal, A. (2007). Developmental States in the New Millennium: Concepts and Challenges for a New Aid Agenda. Development Policy Review , 25 (5), 531-552.


[2] Scott, Z. (2007). Literature Review on State-Building. Department for International Development, Governance and Social Development Resource Centre


[3] Narten, J. (2008). Post-Conflict Peacebuilding and Local Ownership: Dynamics of External–Local Interaction in Kosovo under United Nations Administration. Journal of Intervention and Statebuilding, 2 (3).


[4] Scott, Z. (2007). Literature Review on State-Building. Department for International Development, Governance and Social Development Resource Centre


[5] Paris, R. (2004). At War's End; Building Peace After Civil Conflict. Cambridge University Press.


[6] Heathershaw, J., & Lambach, D. (2008). Introduction: Post-Conflict Spaces and Approaches to Statebuilding. Journal of intervention and Statebuilding, 2 (3).


[7] Paris, R. (2004). At War's End; Building Peace After Civil Conflict. Cambridge University Press.


[8] Collier, P. (2007). The Bottom Billion; Why the poorest countries are failing and what can be done about it. Oxford University Press.


[9] Murtin, F., & Warcziarg, R. (2011). The Democratic Transition, NBER Working Paper #17432 / CEPR Working Paper #8599. Retrieved Dec 12, 2011 from http://www.anderson.ucla.edu/faculty_pages/romain.wacziarg/downloads/transition.pdf


[10] Paris, R. (2004). At War's End; Building Peace After Civil Conflict. Cambridge University Press.


[11] OECD. Paris Declaration and Accra Agenda for Action. Retrieved April 3, 2012 from Development Cooperation Directorate: http://www.oecd.org/document/18/0,3746,en_2649_3236398_35401554_1_1_1_1,00.html


[12] McCormick, D. (2008). China & India as Africa’s New Donors: The Impact of Aid on Development. Review of African Political Economy (115), 73-92.


[13] Campbell, I., Wheeler, T., Attree, L., Butler, D. M., & Mariani, B. (2012). China and conflict-affected states, Between principle and pragmatism. SAFERWORLD.


[14] For example, it is estimated that China’s aid to Africa in 2008 was approximately US$1.2 billion. In contrast, the U.S. provided US$ 7.2 billion, the EU $US 6.0 billion, the World Bank US$ 4.1 billion and France US$ 3.4 billion. Ibid.


[15] Prestowitz, C. (2012). China 's not breaking the rules. It's playing a different game. Foreign Policy. http://prestowitz.foreignpolicy.com/posts/2012/02/17/chinas_not_breaking_the_rules_its_playing_a_different_game


[16] Acemoglu, D., & Robinson, J. (2011). Why Nations Fail, The origins of power, prosperity, and poverty.


[17] Acemoglu, D., & Robinson, J. (2012, May 1) Who Are the Extractive Elites? http://whynationsfail.com/blog/2012/5/1/who-are-the-extractive-elites.html


[18] Sen, A. (1999). Development as Freedom. Oxford University Press.


[19] Hsieh, C.-T., Hurst, E., Jones, C., & Klenow, P. (2012). The Allocation of Talent and U.S. Economic Growth.


[20] Tran, M. (2012, May 23) New aid effectiveness indicators agreed at the post-Busan meeting. The Guardian, accessed in http://www.guardian.co.uk/global-development/2012/may/23/aid-effectiveness-indicators-agreed-busan?CMP=twt_fd