Wednesday, February 18, 2015

AID NEEDS TO BE RECONFIGURED TO BENEFIT THE RECIPIENTS


Last week three articles in the local and international press caught my eye.

In our very own New Vision former finance minister and now Uganda Revenue Authority (URA) Gerald Sendaula repeated the sad fact that we pay too little tax as a proportion of our economic output – 11%. He suggests that land should be taxed to bridge this gap. He pointed out that whereas agriculture, which is based on land, accounted for three in every ten shillings of GDP it accounted for less than one percent of tax collections. 

The other article was in the Economist, which lamented that since the Haiti earthquake in 2010, when the country was literally flattened, there is little real improvement to show for the $9.5b (sh27trillion) outpouring of charity that gushed into the Caribbean island state.

An important point made in the article was because of the endemic corruption in Haiti’s bureaucracy the aid agents circumvented the government to get to the recipients. However this had the unintended consequence of not exercising the institutions, so now those same neglected institutions cannot ensure continuity of some of the projects the donors left behind like health centers and water purifying plants.

And finally across the border from us host, President Paul Kagame told the East African Capital Markets Conference held in Kigali.

“The question of preference between markets and aid can only be asked in Africa, not in any other region of this world. Let’s not be diplomatic, let’s not gloss over issues. Markets are markets. We know what they offer outweigh what we have in aid by thousands of times. All kinds of wealth lying all over the place in Africa and being recycled to us in forms of aid and in the end we are told, you must be humble and quiet and not say anything. Let’s not be diplomatic, let’s not gloss over issues. Markets are markets. We know what they offer outweigh what we have in aid by thousand of times.
Aid is more political than anything else. Markets are less political, they are neutral.”


In the first instance we see that we actually have the capacity to raise much more tax in this country, but we don’t. And that the aid industry we have been seduced to think is willing to bail us out, actually does us little good. And finally that aid is about exerting political influence and less about doing any good for the real recipients of this aid....


We really need no convincing about these facts in Uganda.

For instance despite the massive amounts of money poured into the health and education setcors, judging by their results in terms of increased school dropouts and poor facilities, it’s hard to make a reasonable value-for-money justification for the received funds.

But for a fraction of the same cost the private sector has resuscitated commerce and industry and their taxes, which have risen a hundredfold in the last three decades, have ensured a much improved Uganda. Which is not saying very much, but at least significant improvement has been recorded.

The Haitian experience was inevitable for a number of well-known reasons.

One, that a lot of aid is often lost in administrative costs – those four wheel drive monsters and the expatriates who whiz around in them don’t come cheap. And secondly, these aid workers totally oblivious to the local context often get the project designs so wrong that they are unusable after they have upped and left.

And finally aid agencies not unlike governments, are more concerned with the inputs – classrooms built, clinics kitted and boreholes sunk that the actual output in terms of real sustainable improvements in the living standards of the beneficiary communities.

But what if we tapped the markets for our financing needs? Oh no! The donor experts will say, it will burst your borrowing limits and make your debt unsustainable.

A valid concern but only if we are going to splurge on luxury imports and white  elephants like stadiums, palatial state houses and fleets of fuel guzzling 4WDs for our officials. If however we are going to spend that money on generating electricity, sprucing up our telecom networks, laying more tarmac road or building railways and opening up water ways, such projects will generate economic activity and pay their way.

Beyond that the markets that lend us this money will verify the viability of the projects and lend if there is a real business case for them. Because the markets would rather be paid than chase down their debt from reluctant borrowers. Not all the time, but enough times to ensure a critical mass of these projects wlll come in, on time, under budget and live a lasting impression.


"One of two things have to change. Either the aid industry changes the way they do business to, for instance the many billions remain in the beneficiary communities in a sustainable way, which is unlikely soon.

Or we rethink the way we think about markets and recognise that they have something we want and we have something they want. A mutually beneficial relationship...


The second part can be helped when we realise that we are actually a rich country, a rich continent not only because of the value under the soil or the industriousness of our people but also because the evidence is there that we have supported and helped the west thrive, first through slavery and cheap raw materials and increasingly now via net outflows from our countries, although official figures show we are aid recipients.

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