Monday, April 29, 2013

DONOR BILLIONS OUT THE DOOR, GOOD RIDDANCE?



Last week it was revealed that donors were pulling the plug on budget support because we have failed to live up to obligations we made to clamp down harder on corruption and expand the tax base.

Consistent economic growth over the last two decades has led to high revenue collections to the point that now donor money accounts for one in three shillings in the budget down from a near 70% in the 80s and 90s.

However donor funds accounted for a more significant portion of the development budget, so withdrawal will cause more than a little bother.

We can expect a slow down in classroom, health center and road building projects as government scrambles to plug the holes left by the pull out of aid.

The donors are not pulling out of the country all together but want to reserve the right to channel these billions into project support.

Budget support as opposed to project support meant donors would contribute to the budget and government would spend the funds according to a pre-arranged plan, while project support would allow donors to cherry pick initiatives they want to support, without being dictated to by the government priorities.

By shifting to project support the donors think they can shield their money better from the grubby fingers of our corrupt officials while government’s concern is that these inflows uncontrolled by the treasury could upset the delicate balance of macroeconomic stability.

Two weeks ago the New Vision run a cover picture of a beggar seating under an umbrella in animated conversation on her mobile phone. The irony was not lost on many readers.

There is something insidious about free money. It saps individuals and even nations of their sense of self-reliance, creativity and makes us beholden to the charity giver.

If this aid cut is effected it would be the best thing that has happened to this country in a long time.

There will be some discomfort, not unlike the pain the child who leaves home suffers as he has to take a dip in the lifestyle he is accustomed to in his father’s house as he casts off into adulthood and independence.

Whether the pain becomes a more permanent fixture of our lives depends on several things.

Historically these donor collective actions are not as coherent as they look.

Beyond the stated objective of aiding poor Africans, aid is used as a tool of influence. To cut off aid is to lose influence. Donors use aid to ensure governments see things their way, many times regardless of the existing reality. It is also a huge industry that creates thousands of jobs for local constituents and provides business for contractors at home.

Given all these factors it’s is unlikely that the donors, with their different home context can maintain unity. It is not for individual countries or agencies to continue negotiating with offending governments.

Also with the emergence of the BRICS (Brazil, Russia, India, China & South Africa) whose developmental demands are often more pressing that the richer west, there are now alternative sources of aid.

But assuming the donors will not break ranks with each other and the BRICS will not come in to write blank cheques to the treasury, then government will have to make some hard but long overdue decisions.

To keep our prodigious growth figures rolling we going to have to bridge the gaps in the developmental budget by, cutting down on public administration, plugging the leaks due to corruption, roping in more tax payers and considering borrowing from the Ugandan public for more than just keeping inflation at bay.

In short our paper pushers will have to exercise more thought than it takes to cut and paste aid contracts and display dexterity with a fork and knife.

The easier scenario for a bureaucrat h,  is to eat humble pie and grovel before the donors and have them rescind their position.

For the long term good of the country we need to bite the bullet and start thinking of a life without recourse to western aid.

It will have implications in every sphere of our lives.

As a bare minimum the government will be more responsive to the productive sector of the economy and not pander to rent seekers and hecklers that are our political elite.

They will see more value in a smaller cabinet, smaller parliament, fewer districts and shift this money to building  roads, railways and dams, which unlike the top heavy public administration, will lower the cost and improve the ease of doing business in this country.

A country is only as viable as its private sector we learnt with the collapse of the iron curtain.

What aid does is it weakens the private sector by providing little incentive for the government to engage meaningfully to facilitate business growth, after all any revenue shortfalls can bridged by a quick trip to Washington (forget video conferencing there is no per diem in that).

I am being naïve of course. The aid taps will be unstopped by this time next year and it will be business as usual.

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