Seek alternatives to donor funding in poverty fight

At the recent fourth High Level Forum on Aid Effectiveness in Busan South Korea, Paul Kagame, the President of Rwanda pointed out the need for African countries to continue improving on governance and economic policies so as to manage their resource endowments well.

As resources become scarcer, radical reforms are needed to ensure aid efficiency. These reforms include robust monetary and fiscal discipline, political stability and absence of violence, zero tolerance on corruption, strict rule of law, respect of property rights, efficient regulatory bodies, and expanded participation of beneficiaries. All these are important in ensuring that domestic resources, foreign direct investments and aid have maximum impacts in poverty reduction processes.

In the aid industry, since the fall of the Berlin wall in 1989 there have been significant structural changes to make aid more effective. In recent years, this re-engineering process has come to be known as ‘the new aid architecture’.” Before 1989 aid transfers to poor countries were largely driven by geopolitical and commercial reasons. Consequently, some of the most inhuman regimes in Zaire, Philippines, Haiti, Bangladesh and Nigeria received aid regardless of atrocities committed on citizens.

With the Cold War long gone today aid delivery is being informed by a number of factors. These include: failures of previous economic management approaches such as the Washington Consensus; emergence of new global economic players (Brazil, Russia, India, China, South Africa, Venezuela and South Korea) from among recent developing countries; reinvigorated roles of the international philanthropic foundations; emerging development challenges such as climate change and global terrorism; and recurrence of financial crises around the world since the 1970s.

Hence since the turn of the Millennium a number of forums involving aid stakeholders have been organised on the new aid architecture agenda. Some of the forums include the 2002 Monterrey consensus, the 2005 Paris Declaration on Aid Effectiveness, the 2008 Accra Agenda for Action, the 2009 High Level Conference on South-South Cooperation and the 2011 Busan 4th High Level Forum on Aid Effectiveness. Through the forums, attempts have been made to achieve higher accountability, transparency, participation, innovation and partnerships in aid delivery. But whereas there is sufficient evidence of good intentions of aid such as its ability to catalyse economic growth and safeguarding social development gains, in Kenya are there alternatives that aid can complement? Put differently, there local initiatives that aid can interact with to provide synergy in the fight against poverty? These include the migration-remittances linkage, harnessing of public-private partnerships, and improvement of local capacities to attract more capital inflows.

Firstly, according to the Central Bank in the first nine months in 2011 Kenyans in diaspora had officially (those through means such as Western Union and Money Gram) remitted $643,752,000 effectively surpassing the entire 2010 figure of $641,943, 000.
According to the World Bank, in 2010 remittances sent home by migrants to low-income countries were three times the size of official development assistance (aid) representing on average six per cent of these countries’ Gross Domestic Products. Therefore how important are remittances to Kenya? At the national level, remittances can help Kenya to steadily raise her foreign reserves to finance her external balances: stabilising the volatile shilling, paying for imports and repaying external debt. Diasporas can also be encouraged to apply specialised skills and knowledge acquired from other countries in economic growth locally.

At the household level, remittances are very useful for basic consumption purposes such as purchase of food, housing, health care and education and at higher level start up capital sources for small businesses.

Secondly, the recent approval of the Public-Private Partnerships (PPPs) Bill by cabinet could not have come at the right time. While allowing the government to retain ownership of projects involved, PPPs bring the efficiency of private businesses to public service delivery.

In the end beneficiaries get access to high quality physical infrastructure and social services, value for money to governments and good opportunities for investors.

Thirdly, looking more at capital creation and less on dependence on aid can go a long way in reducing poverty. Aid is volatile and when given as a concessional loan, it comes with very lenient terms. This is unlike private borrowing which is operated purely on business terms. However to attract genuine private investment interest in our bonds, we need to update our credit rating regularly with recognised agencies such as Fitch Ratings, Moody’s Investors Service or Standard & Poor. Doing so ensures that our credit worthiness is not in doubt internationally.

Much as aid has been useful in preventing destitution and in catalysing economic growth, on its own it is not a panacea to development in poor countries. There is need therefore to radically implement local non- aid means to development. In addition to those discussed above, others avenues include value addition on tradable goods, diversification of our comparative advantage base, drawing lessons from past donor experience in order to inform better engagement with emerging economies in the South- South cooperation, banking on the poor through innovative ways such microfinance and further infrastructural growth.

Mr Aseka is a poverty reduction policy specialist who teaches at Moi University.