Posts Tagged ‘Chronic Poverty’

Talk the talk – but not walk the walk

1 December, 2008

That’s the way Larry Elliott in The Guardian sums up the donors lack of urgency in meeting the MDGs. Commenting on the just released UNESCO Education for All report, he writes:

“… donor countries can talk the talk but not walk the walk. According to the Unesco study, the aid required for even the most basic primary education provision in poor countries is US$11 bn (£7.2bn) a year. In 2006, spending amounted to around $4bn, leaving a funding gap of $7bn. To put that figure into context, it is around 10% of what Britain spent this autumn recapitalising the banking system”.

Maybe they will walk the walk at the UN Financing for Development summit now underway in Doha. But I wouldn’t hold your breath. “When financial systems fail, the consequences are highly visible and governments act,” concluded UNESCO’s Director-General Koïchiro Matsuura. He added “When education systems fail the consequences are less visible, but no less real”.

I would add that education is the only investment you can be sure of getting at least some return on – provided it’s of good quality and children complete a minimum of 4 years primary education. Well-educated people earn more in the labour market, and find it easier to absorb new technologies and methods when they run micro-enterprises and farms. Education is a means to break the inter-generational transmission of chronic poverty (see this CPRC study for Bangladesh).

And even if it didn’t raise income much – which might be the case in economies that are growing only slowly – it certainly improves health status, especially of children, when mothers are educated. Educated mothers are 50% more likely to immunize their children than mothers with no schooling (go here). Gender inequality in education has high costs for both the family and society (see this IFPRI study).

So the chronic underfunding of education reminds me of that old quotation: if you think education is expensive, try ignorance.

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The “Dutch Disease” Effects of Aid in Uganda

1 December, 2008

In my recent post on Sorious Samura’s programme for Panorama on BBC One – an expose of aid to Africa, in particular to Sierra Leone and Uganda – I said we would come back on whether Uganda is experiencing a negative impact from the aid flows.

Remember the issue is whether foreign aid to Uganda is deterring export production via a “Dutch Disease” effect. If so, then aid is having perverse effects, hindering rather than helping economic growth.

How does this work?

Short explanation: A capital inflow like foreign aid raises domestic demand. This pushes up domestic prices and, if the exchange rate is not fixed by the government, the currency tends to appreciate as well (a shilling buys more dollars). Hence: exporting is less profitable and imports are cheaper (putting pressure on domestic producers of import-substitutes – for example domestic food crops suffer competition from cheaper food imports). Result: economic growth falls.

(Long explanation: The money is spent on two types of goods and services. First, non-tradables, that is items whose prices are mainly determined by domestic supply and demand. The price of a haircut in Kampala for example. Haircuts aren’t internationally traded. Second, tradables. These are goods and services whose prices are driven by international markets. The price of Uganda’s coffee, for example (Uganda is a ‘price-taker’ in commodity markets: some countries are big enough exporters to affect world prices – Saudi Arabia and oil, for example). A demand expansion caused by a capital inflow tends to push up the prices of non-tradables more than tradables, because the former are less-responsive (more inelastic, as economists say) in supply. The ratio of non-tradable prices relative to tradables prices rises, making it more profitable to produce the former. If the exchange rate is flexible – i.e. the central bank doesn’t fix it as a matter of policy – then it tends to appreciate as well. This adds to the appreciation of the real exchange rate that is caused by the rise in domestic prices as non-tradables prices outpace tradables prices. Result: people give up producing tradables such as coffee and move into the non-tradables sector, and growth falls).

Aid is not the only capital inflow that might cause this. The term Dutch Disease was first coined (and is most often used) to describe the impact of a natural resource windfall (natural gas in the case of 1970s Netherlands). Nigeria and other oil exporters suffered catastrophically from Dutch Disease in the 1970s when oil prices boomed (resulting in a severe contraction in Nigeria’s agriculture, a highly tradable sector).

However, much depends on what aid (or oil revenue) is used for. If it finances infrastructure construction, and if this is the right kind of infrastructure, then aid will have a supply-expanding effect. This could be of sufficient scale to offset any Dutch Disease effect (or the latter might be evident for a while until the infrastructure is built and then productivity effect kicks in: see Chris Adam and David Bevan).

So much for the theory. What about Uganda? The country has certainly had a large injection of aid, which has a big budgetary impact (see Martin Brownbridge and Emmanuel Tumusiime-Mutebile). An IMF study, by Mwanza Nkusu argues that Dutch Disease does not necessarily occur – especially when the economy has unused capacity (which is typical of countries like Uganda recovering from civil war). So the academic jury is still out.

What does recent data tell us? Economic growth was just under 10 per cent over 2007-08 according to a recent IMF staff mission to Uganda. Exports grew by 50 per cent over the same period. The Fund expects both to fall – the result of the global financial crisis that is weakening commodity prices (go here). Uganda is dealing with high inflation (core inflation is 14.5 per cent) – but this is more the result of the run-up (until recently) in global energy and food prices. The shilling has depreciated, not appreciated, recently. So, no indication of aid having Dutch Disease effects: the shilling is down, not up, and exports are up, not down.

But certainly the economy faces a tricky adjustment as it responds to the global economic shock of the last 6 months (true of all low-income, primary-commodity dependent, economies).

Whatever the other effects of aid on Uganda (whether it is being well spent, whether it targets the poor effectively etc.) there does not seem to be a Dutch Disease effect – at least recently. Perhaps more worrying is the potential Dutch Disease effect of the oil revenues that come on stream next year. If Uganda can manage oil well then it will be the first country in Africa to do so. Now that would be an achievement.

Tony Addison is Executive Director of the Brooks World Poverty Institute, University of Manchester.

“A fool at 40 is a fool forever”

24 November, 2008

Internationally acclaimed film maker Sorious Samura has a critical article on aid on the BBC News web site in advance of his Panorama programme on aid to Sierra Leone and Uganda – which is broadcast tonight (see our post a few days ago). He writes:

“Where I come from in West Africa, we have a saying: “A fool at 40 is a fool forever”, and most African countries have now been independent for over 40 years. Most are blessed with all the elements to help compete on a global stage….. And yet today, my continent, which is home to 10% of the world’s population, represents just 1% of global trade. I have no doubt we have to take responsibility for our failures. We can’t afford to keep playing the blame game. But when 50 years of foreign aid has failed to lift Africa out of poverty, could corruption be the reason?”

Much of what he says hits the nail on the head. Corruption has been pervasive, and the Rich World must take its share of the blame – for everyone taking a bribe, there is someone giving. And ‘grand corruption’ has been spectacularly rampant in Africa’s oil sector (see EITI here). My IDPM Colleague, Sarah Bracking, has a new book out on corruption and development and what is being done to reduce it (go here).

One point that I do take issue with in Sorious Samura’s article is his view that Uganda is being crippled by what economists term ‘Dutch Disease’, resulting from large aid inflows:

“Large inflows of foreign currency push up the value of the Ugandan shilling making its agricultural and manufactured goods less price competitive. This results in fewer exports and less home-grown, sustainable earnings for the country. Local entrepreneurs such as coffee growers and flower exporters should be cashing in on rising food and commodity prices across the globe at the moment, but they are finding themselves crowded out of their own economy by foreign aid dollars”.

Maybe, but I would like to see hard evidence of this in Uganda’s case. Aid also funds infrastructure investment which, when well-designed, reduces the costs of production, marketing and transport. This raises the profitability of businesses that use the infrastructure. This can more than offset the disincentive to export production resulting from the currency appreciation that Samura worries about, making exporting more profitable, not less, after aid.

As I said it has to be well-designed aid. Aid that simply goes to raising consumption won’t do the trick (although if it is consumption of the poor – including humanitarian aid – then I worry less). And nobody doubts that Africa needs a lot more infrastructure – partly to change the pattern of infrastructure that was created to serve the colonial economy. That pattern still dominates much of Africa 40 years on. Disadvantaged regions, in which chronic poverty is high, especially need better transport infrastructure. Tim Harford, the Undercover Economist, quotes a study that road transport in Francophone Africa is six times more expensive than in Pakistan.

So, I look forward to tonight’s Panorama programme. Sorious Samura will be rightly hard-hitting. We can’t tolerate corruption. And we need well-designed and well-implemented aid. In the meantime, I shall be reading up about Uganda’s aid programme, and whether “Dutch Disease” has been a problem. If you have some suggestions, do please send them along.

Tony Addison is Executive Director of the Brooks World Poverty Institute, University of Manchester.

Addicted to Aid?

19 November, 2008

Next week’s Panorama on BBC One is running a programme on aid to two countries for which Britain is one of the biggest donors. To judge from the blurb, it’s going to be very critical:

“Reporter Sorious Samura visits Uganda and his home country of Sierra Leone to reveal how aid money is lost, stolen and frittered away. He stops at a showpiece hospital, run by a well-funded health department, that looks like a warzone – yet its carpark is home to dozens of new 4x4s for ministry staff. He questions a former minister accused of stealing funds and offers his vision of how Africans can take control of their own destiny”.

Sorious Samuara has done some brilliant films exposing Africa’s “big men” and their corrupt ways, the other side of the coin to the region’s hunger and poverty (go here). But I do hope that he offers more than the usual critique of aid in the Panorama programme.

Yes, corruption is rife in Sierra Leone (it was a big issue in the last elections, with a clean-up promised: see this BBC report). And on a recent visit to Uganda I saw that the local media is full of stories of corruption (the benefits of a free press in Africa! See The New Vision). DFID is presently “ghost-busting” in Uganda (go here).

But I very much doubt that either Sierra Leone, Uganda (or Mozambique – another post-conflict country) would be where they are today without the aid they received to help reconstruction.

This is not in any way to argue that graft or misuse of aid money should be tolerated. But I get tired of the one-sided criticisms of aid that are trotted out repeatedly. For some background reading before the programme check out: the Chronic Poverty Report for Uganda, Joe Hanlon on corruption in Sierra Leone, a special issue of the Swedish Economic Policy Review on aid, and Roger Riddell Does Foreign Aid Really Work? – the best account by far of what aid can, and cannot, do.

So we shall see what Panorama concludes – especially, as Sorious Samura asks: how can Africans take control of their own destiny and graduate the continent away from aid dependence? Let us know what you think of the programme – and the big issues that it tackles.

The New Realities of Philanthrocapitalism

18 November, 2008

BWPI’s Mike Edwards’ book on business-led philanthropy, “Just Another Emperor?” is attracting a lot of attention – especially in the current financial climate. You can follow the debate on OpenDemocracy. More later.

A Fun Way to Harness the Energy of Children to Deliver Clean Water

12 November, 2008

In the discussion of my recent post about bottled water I mentioned that sales of bottled water at Manchester University support water pumps in Africa. Specifically, Playpump, a wonderful invention from South Africa.

As children spin on a roundabout, clean water is pumped from underground into storage tanks. The pumps cost about US$9,500 to install. They are much faster and pump at a more reliable rate than hand-driven pumps, and can supply up to 1,400 litres of water an hour.

Better water infrastructure in Africa not only reduces the incidence of the main water-borne illnesses, but also reduces the amount of time that communities spend collecting water from (often dirty) ponds and rivers. Since water collection is often an activity for girls, requiring them to walk many hours when water is inaccessible, it provides more time for them – including more time in school. More information on Playpump can be found here.

Bottled Water. To Buy or Not to Buy?

9 November, 2008

Too few people across the developing world have access to safe water. Too often they end up walking miles to unsafe water sources or, if they live in urban areas, purchasing water from expensive private sources. Safe water and sanitation are one of the main mechanisms to cut infant mortality from water borne diseases. Big donor and government investments are now underway (see the Asian Development Bank for instance).

Actress Thandie Newton explains in today’s FT why she is an ambassador of Volvic and World Vision’s campaign, in which Volvic supplies 10 litres of water in Africa for every litre of water bought in the UK (go here and to World Vision).

Frankly, I try to avoid bottled water whenever I can – costly and environmentally unfriendly. But if I have to buy – and have you tried to get water in an airport recently? what happened to the water fountains? – then Thandie’s rationale might persuade me to choose Volvic. She says:

“I wanted to see if my cynical attitude could be changed and World Vision did change it. Bottled water isn’t going to go away and so I’d rather there was a brand that donates large sums of money to genuinely valuable causes, and which creates philanthropic competition between brands. I’m not a blinkered purist. I know that by infiltrating these large corporations, I’m in a much better position to suggest changes. Right now, for example, I’m encouraging Volvic to switch to biodegradable containers”.

Fair point. In the meantime, can I have a glass of (tap) water please?

Like to Know How to Live on a Dollar a Day?

9 November, 2008

Then go to the One Dollar Diet Project – you will be shocked at how difficult it is. Christopher Greenslate and Kerri Leonard tried it for a month. To survive the two Californians had to give up most purchased food and make their own from the raw ingredients. Many vegetables were too expensive, and they had to forage. Vitamin intake became a serious problem. The two school teachers found that they could not sustain their previous energy levels. The average American eats $7 worth of food per day, but it can go below a dollar late in the month before pay day or when food stamps run out. In a New York Times article on the project, Christopher says: “I challenge anyone to live on a dollar a day and eat fresh food in this country”.

This resonates with the British debate around food and poverty, which has been given another boost by Jamie Oliver (see our earlier posts). Obesity is generally above average among low-income groups in rich socities. Why? One reason is that junk foods (energy dense: with the most calories and fewest nutrients per ounce) are cheaper than nutrient rich, lower-calorie foods like fruits and vegetables.

Pablo Monsivais and Adam Drewnowski found that junk food is not only less expensive, but that it has gone up less in price than nutrient rich, lower-calorie foods. In their Seattle study, the cost of the latter is $18.16/1,000 kcal, compared with $1.76/1,000 kcal for the most energy-dense (junk) food. Over a 2-year period, junk food actually fell by – 1.8% in price while the least energy-dense foods saw a price rise of 19.5 per cent.

Finns for a Flight Tax

7 November, 2008

To finance the purchase of drugs to combat the main killer diseases in poor countries, France introduced a levy (an ‘international solidarity fee’) on air tickets back in 2006 (go here). Could Finland be next? 87 per cent of Finns back a levy of 1-4 euros on airtickets, according to KEPA, Finland’s service centre for development co-operation, as reported in Helsingin Sanomat. Among the young (15 to 24-year-old respondents) support is overwhelming: 93 per cent. KEPA reckons that this could generate 16 million euros a year – quite a modest sum, but then if every European country introduced the levy it would add up.

The airlines are hostile – they live on thin margins. But the levy is one euro per passenger when flying (economy class) within Europe and four euros on intercontinental flights. This will hardly deter most people from flying (less than the cost of the sandwich that a lot of airlines now charge for). The proposal has generated support elsewhere in Scandinavia (Norway, for instance).

The air ticket tax is one of the few proposals for innovative finance that has taken off (excuse the pun). The other is an International Finance Facility for child vaccination (IFFm) which originated with the UK’s HM Treasury (IFFm is a pilot for a much larger IFF that is designed to mobilize more aid through the sale of IFF bonds).

The pros and cons of the different innovative finance mechanisms – including the Tobin tax – were reviewed in a UNU-WIDER study undertaken for the UN General Assembly (go here). Interest in innovative finance waxes and wanes alongside traditional official (aid) flows and private capital flows – which are much larger (on development finance go here). Maybe next year’s meeting on a ‘New Bretton Woods’ (or whatever it is called) might make progress. In the meantime we have the UN’s Financing for Development meeting in Doha, 29 November to 2 December. More on Doha soon.


Get Fair on UK Poverty

19 October, 2008

The UK has got a lot richer over the last twenty years – we are the world’s fifth richest country – but not fairer. Inequality has risen, and 12.8 million Brits live in poverty (30% of children, and 17% of older folk). That’s the message of Get Fair – a national campaign calling for an end to poverty in the UK by 2020.

The coalition now consists of more than 50 organizations. They work on poverty right across society, including among children, older people, refugees, and the disabled. Get Fair includes housing groups, as well as faith and community groups.

Two at least of their recommendations could help Britain dig itself out the recession, namely invest £4bn measures to halve child poverty by 2010 and improve the take-up of existing benefits (they estimate that this would help 500,000 pensioners out of poverty).

On 4 October, Britain’s biggest ever event to end child poverty was held in Trafalgar Square, London, organized by End Child Poverty. And Poverty Action Week takes place 31 January to 8 February 2009, organized by Church Action on Poverty.