Aid and the Millennium Development Goals in Africa
by Mark McGillivray
The Millennium Developments Goals (MDGs) face their biggest challenge in Africa. The principal MDG target – reducing the proportion of people living in extreme poverty to half the 1990 level by 2015 – will certainly not be achieved in sub-Saharan Africa and, as a result, in the African continent as whole. Poverty in sub-Saharan Africa has increased, with the proportion of the population living in less than one dollar per day increasing from 47 to 49 percent between 1990 and 1999. Even seemingly optimistic forecasts suggest the MDG income poverty target will not be achieved in sub-Saharan Africa until 2147, some 132 years late. Prospects for the achievement of other MDG targets by 2015 are just as dismal, based on recent forecasts. According to these forecasts the targets of cutting child mortality by two-thirds and achieving universal primary education will not be achieved until 2165 and 2129, respectively (UNDP, 2003).
Accompanying the MDGs is a recently-found optimism associated with aid based on the findings of a growing body of empirical research. Aid works in the sense that it increases growth, and by implication reduces poverty, according to the findings of this research. There is evidence, albeit disputed, that its impact on growth is contingent on the policies of recipient countries, so that while aid works in all countries it works better in countries with better policy regimes. But there is more evidence to suggest that it works in countries irrespective of the policy regime. This evidence is obtained from econometric studies utilizing samples of countries which include those in sub-Saharan Africa. Some studies provide a range of findings for different country samples, including one consisting of sub-Saharan African countries only. It was concluded that while aid had a weaker impact of growth in these countries, this impact was positive and significant.
Given the MDGs and findings on aid effectiveness one might be forgiven for assuming that aid flows to sub-Saharan Africa would be substantially higher now than at any time in recent history. At very least one might assume that the share of aid to these countries would be substantially higher. Both assumptions are wrong, as Figures 1 and 2 make clear. The reality is that after rising for most years during the 1960s, 1970s and 1980s, total official development assistance (ODA) to sub-Saharan Africa trended downward from the early 1990s. It fell substantially in the mid-1990s, falling from $16.9 billion in 1994 to 11.6 billion in 1999. This trend was reversed in 2000, with ODA reaching a post-1960 high of $17.7 billion in 2002. While the rises in ODA from 1999 should obviously not be overlooked as a very positive signal, the reality is that sub-Saharan Africa has received $1.4 billion less of this aid during 1993 to 2002 than during 1983 to 1992. The declines in total ODA are also evident in aid allocated bilaterally and via multilateral agencies: these forms of aid tend to follow trends in total aid, not surprisingly.
Substantial declines in total world aid during the 1990s should not be overlooked. Total ODA emanating from OECD donor countries, provided bilaterally and via multilateral agencies, trended upward during the 1960s, 1970s and 1980s. After reaching a peak of $61 billion in 1992, it fell to $44 billion in 1997. This downward trend ended in 1998, with ODA levels climbing to $59.5 billion in 2002. Shares of world aid to subSaharan African trended upward in the 30 years from 1960, as Figure 1 indicates. This applies to total, bilateral and multilateral ODA. Shares in each of these categories of aid to sub-Saharan Africa have, however, sharply fallen in most years between 1990 and 1999. Shares of multilateral ODA to these countries fall in each year during the period 1994 to 2000. There has since been some recovery in these shares, with total and bilateral ODA shares rising since 1999 and multilateral since 2000. The main point, however, is that the decline in aid amounts to sub-Saharan Africa during the 1990s was not entirely due to an overall contraction in world aid; donors actually allocated away from the region.
Developing countries attract, of course, development-oriented foreign financial transfers in addition of ODA. They attract official flows from OECD countries that do not qualify as ODA and private flows. The OECD reports data on both flows. The former is labelled other official financing (OOF) and the latter simply as private flows, which consist mainly of foreign direct investment. A reduction in ODA might be mitigated by increases in these flows, although there is less clarity over the impact of OOF and (to a lesser extent) private flows on growth and poverty reduction. Such mitigation has not occurred. As Figure 3 shows, OOF flows to sub-Saharan Africa have trended downward since the late 1980s, and were negative in each of the years 1996 to 2001. OOF increased sharply in 2001, but its level in that year much less than those that prevailed in the mid- to late-1980s. Private flows have been much more volatile. They fell dramatically in 1984, recovered in 1989 but then trended downward thereafter.
While declines in ODA might potentially be mitigated by increases in other inflows, it should be recognised that this potential is somewhat limited in the case of sub-Saharan Africa. This is made clear by Table 1, which shows percentage breakdowns of foreign inflows reported by the OECD. ODA accounted for almost 90 percent of total flows to sub-Saharan Africa during 1991 to 2002, indicating that many of the countries in this region are unable to attract private capital. Not only is this share more than twice that for all developing countries for the same period, but is has risen substantially higher than for the 1970s and 1980s overall. ODA dependency is a reality in sub-Saharan Africa. Thus even if OOF and private flows were to continue to increase to sub-Saharan Africa, such increases would have to be dramatic and sustained over many years for them to reduce the region's dependence on ODA.
What can we infer from trends in aid and other sub-Saharan African foreign inflows? There would appear to be one inescapable conclusion from the preceding data. Given that the clear majority finding from the literature that aid is effective in promoting growth and by implication reducing poverty, that this result holds on average for all countries, and that reductions in aid have not and cannot realistically be offset by increases in other development-oriented inflows, poverty is clearly higher in sub-Saharan Africa as a result of the declines in aid to this region experienced during the 1990s. This in turn means that the MDGs will be harder to achieve in subSaharan than would have otherwise been the case. While recent increases in aid to this region are to be welcomed, there remain many significant challenges for both governments in sub-Saharan and the international donor community.
A comprehensive review of this study and references cited are available in Discussion Paper 2003/71 Mark McGillivray: ‘Aid Effectiveness and Selectivity: Integrating Multiple Objectives into Aid Allocations’, available at www.wider.unu.edu.
Mark McGillivray is the director of WIDER projects ‘Measuring Human Well-being’, ‘Development Aid: a Fresh Look’ and ‘Millennium Development Goals: Assessing and Forecasting Progress’.