The world of foreign aid and international development seems to be getting more commercial and less charitable. The Canadian government’s announcement this week that it wants to do more with companies and less with aid agencies, non-governmental organizations and charities echoes former British international-development minister Andrew Mitchell’s announcement in 2010 that he wanted “more business-savvy DNA” in his department.
Some of this might be about a genuine attempt to get some private-sector dynamism and creativity into a development scene that can seem more interested in pointing out problems than solving them. But it is also undoubtedly political – trying to prove to a sKeptical public that aid can bring immediate benefits to companies at home, and that by using aid to promote growth there’s a chance that at some point it won’t be needed anyway.
The problem is that these are two of the most wrong reasons to give aid to the private sector.
Giving aid with a view to the possible benefits to companies in the donor country was once common practice. But many countries are trying to wean themselves off it, for good reason. Nearly three-quarters of the aid given by the United States to pay for food in Cambodia in 2010 was in fact paid to U.S. companies to transport U.S. grain halfway around the world. That’s money that went from taxpayers to American companies, not to hungry Cambodians.
Aid that’s trying to achieve the dual objective of helping poor people and helping national companies almost always ends in a colossal waste of resources.
Leaving aside the short-term commercial objectives, could linking aid more closely to the private sector help to create growth and an end to aid altogether? Well, maybe. But there are reasons to be cautious.
For almost as long as people have been giving aid, other people have been involved in academic exercises to try and find a relationship between aid and economic growth. And they’ve found ... that almost always there isn’t one.
Aid is great at paying teachers or getting vaccines to children. It’s less good at creating jobs. So saying that more aid money is going to the private sector because that’s where growth is made is a bit of a non-sequitur. Aid might not be the thing that’s needed, and giving aid to companies in the name of growth will be diverting money that could, perhaps, be more usefully spent on schools or vaccines – in other words, a waste of resources, again.
That’s not to say that no good can come of this. The past might be a guide to what not to do in this area, but the future could be more positive. There’s huge excitement in development circles at the potential for new technologies to improve people’s lives in all sorts of ways.
Not a lot of people know that the Kenyan cellphone banking service, M-Pesa, the poster child of development techno-optimists everywhere, started life with a small grant from Britain’s Department for International Development to get the whole thing going. And it can work the other way, too – academics, funded by aid programs to do research into what works in public health, are learning about public-education techniques from successful private-sector companies that promote both hand washing and their own soap.
Commercial interests can be entirely compatible with huge benefits for poor people as well, and aid can, sometimes, prime the pump. But the priority must remain using aid money as effectively as possible to improve people’s lives. Confusing this objective with others like helping our own companies can only end in wasted resources and, in the end, even more public disillusionment with the whole idea of aid.
Claire Melamed is head of the Growth, Poverty and Inequality program at the London-based Overseas Development Institute.