LETTERS: Unravelling the myths about foreign aid

In recent years, the aid industry has been a focus of critical examination and object of debate. On the one hand, aid experts such as Peter Singer and Jeffrey Sachs advocate a huge increase in foreign aid and see enduring poverty as a direct by-product of the West’s stinginess.

Their message: aid works, only we don’t provide enough of it. On the other hand, aid critics like William Easterly and Dambisa Moyo claim that aid has actually stifled progress in poor countries by undermining link between aid receiving governments and their citizens.

Somewhere between those two extremes are aid practitioners who argue that foreign aid could work if only it were done right.

Today, the main paradox of aid is that despite increased flows and more players, it has declined in relative importance in most countries. Kenya is a case in point.

There are many new players on the aid scene in the country and increased aid fragmentation is the result.

In addition, Kenya has been exposed to a high degree of aid volatility due to the “stop-and go” behaviour of many donors.

The relationship between the Kenyan government and the international community has often been contentious and is based on three misperceptions of the role of aid in East Africa’s largest economy.

First myth, Kenya needs donors to finance its budget. Kenya doesn’t really need donors - although it certainly could use donor funds to bolster its development spending, as many emerging economies have demonstrated Kenya is not aid dependent.

Only 15 per cent of Kenya’s public expenditure comprises foreign finances compared to more than 40 per cent in other EAC countries. Kenya boasts one of the strongest revenue performances in Africa and most of Kenya’s public-service is financed with taxpayers’ money.

Second myth, Kenya’s financial management systems are too weak to permit direct budget support. Donors typically channel their resources in two ways: project financing, which is tied to a specific activity (such as constructing a road and or energy plant), or budget support, which is the direct infusion of cash into the Treasury in support of government spending through the national budget.

Most developing countries with relatively weak governance, such as Afghanistan, Iraq or Burundi, have benefited from budget support in recent years.

But Kenya, even though it performs better than its peers on most public financial management benchmark, has been left out. Clearly, there are still major weaknesses in Kenya’s budget system and many of these have in fact been exposed by Kenyan institutions.

The sticking point for donors is their perception that “corruption with impunity “still flourishes in Kenya, despite a public financial management architecture that has been greatly improved overtime.

Third myth. To deliver outcomes make your projects small and “ring fence” them tightly from government processes. Small projects can deliver many benefits. They can spur innovation and reach isolated communities. But they also contribute to aid fragmentation, multiplying administrative costs and complicating donor co-ordination by recipient governments.

Moreover, they are almost never able to achieve transformative change. Unfortunately, although aid volumes have been growing in recent years, average project size has been shrinking.

Moreover, ring fencing donor funding almost guarantees that even successful projects will leave no lasting improvements in government capacity to deliver key services since it will have been bypassed rather than engaged in service delivery.

Ring fencing also won’t help ensure it’s engaged in service delivery. It also won’t help to ensure that development spending, on the whole, achieves better results because money is ‘fungible’.

Theuri W. Paul, economic analyst. Nairobi County