#03 development cooperation
Brian Cooksey

Aid, Governance and Corruption Control in Tanzania

The OECD's Development Co-operation Report for 2009 claims that "The international aid effort now adds up to less than the sum of its parts". If this is true, then continued rapid growth in aid transfers is likely to contribute to further aid absorption problems, as well as institutional atrophy and deteriorating governance and corruption control among aid recipients. This article considers aid for good governance and anti-corruption, using Tanzania as an example.

Table 1: Top 10 ODA recipients in Africa 2008 (Source: http://www.oecd.org/dataoecd/40/27/42139250.pdf)

Over the last decade, development aid to poor African countries has increased significantly in volume and now comes from a more diversified range of sources, thus increasing competition and undermining coordination efforts. Net Official Development Assistance (ODA) to Africa increased by a third between 2005 and 2008, reaching USD 44 billion – even though part of this amount is consumed by aid agencies and commercial interests in the home country. Multilateral aid increased from USD 11.5 billion in 2006 to 16.2 billion in 2008. The European Union (EU), the Worldbank's International Development Association (IDA) and the Asian Development Fund (ADF) were the main multilateral donors.

Table 2: Top 10 ODA donors to Africa 2008 (Source: http://www.oecd.org/dataoecd/40/27/42139250.pdf)

From the late twentieth century, debt relief and additional aid to implement Poverty Reduction Strategy Papers (PRSP) locked developing countries into a new global policy framework designed to replace conditionality by local ownership of development policy.[1] Civil society lobbies and activists have kept up the moral pressure on donor agencies to maintain or increase net transfers. The current global financial crisis has not undermined aid donors' commitments to further growth.

At the same time, the number of bilateral donors and sources of concessionary loans continues to rise. Deutscher and Fyson[2] report 280 bilateral donor agencies, 242 multilateral programs, 24 development banks and about 40 UN agencies. In addition, new mega-philanthropies have come on stream. The Gates Foundation had an endowment of USD 33.5 billion as of December 31, 2009, out of which it finances its Global Development Program. Private foundations and NGOs 'add to the complexity.' In 2008 there were an estimated 340,000 development projects around the world. Data on Chinese aid transfers are treated as state secrets. Chinese ODA to Africa has been estimated at USD 1.4 billion in 2007.[3]

The emergence of China as a major source of soft loans and investor in natural resource and infrastructure projects is having a profound impact on the pre-existing aid relationship, and strengthened the bargaining hand of aid recipients vis-à-vis their traditional donors. The view that the Chinese are soft on bad governance and prepared to tolerate or participate in corruption is challenged by informed observers.

Global development funds include the Global Environmental Facility (GEF) and four global HIV/AIDS programmes: UN-AIDS, the (US) President's Emergency Plan for AIDS Relief (PEPFAR), the Global Fund to Fight AIDS, Tuberculosis and Malaria (GF), and the World Bank's Multi-Country HIV/AIDS Program for Africa (the MAP). According to Wikileaks, since 1991, GEF has spent nearly USD 50 billion on environmental protection worldwide. PEPFAR committed USD 15 billion for August 2003. During 2001-2010, the Global Fund (GF) spent nearly USD 20 billion on 600 interventions in 145 countries. The Millennium Challenge Account (MCA) allocated over USD 6 billion in its first four years. A multi-billion dollar global warming fund known as Reduced Emissions from Deforestation and Degradation (REDD) is under preparation.[4]

International NGOs and Faith-Based Organisations (FBOs) have also grown in number and size over time. Non-state actors are said to have spent two-thirds of all OECD-sourced aid worldwide in 2006, worth USD 325 billion.[5] Some INGOs/FBOs receive state funding, others are privately financed, or a combination of the two. CARE, a US-based INGO, had a global budget of over USD 600 million in 2007, making it far larger than many bilateral aid organisations.

1.2 Consequences of aid proliferation

The increasing complexity of the global development aid architecture sketched above led the OECD's Development assistance Committee (DAC) to introduce reform efforts focused on improving aid delivery through aid harmonisation, coordination and de-fragmentation in the Paris Declaration on Aid Effectiveness in 2005. Yet there is little evidence to date that it has had much practical effect. Boesen states that:
"the 27 EU countries ... are all busy with their own aid systems rather than building a strong joint European institution that could compete in quality and financial muscle with institutions such as the World Bank."[6] The OECD/DAC Development Co-operation Report (2009) "concluded that the ever growing number of donors and aid agencies and mechanisms across the world is making aid increasingly fragmented and reducing its effectiveness. As a result the international aid effort now adds up to less than the sum of its parts." [7]

According to Trade Negotiations Insights, the EU could save € 3-6 billion per annum "by streamlining the delivery of overseas development aid. …The proliferation of different donors and fragmented aid programs present the greatest obstacle to the cost-effective distribution of development assistance." The volatility of EU aid "makes it difficult for developing countries to effectively allocate aid funds, reducing the value of aid by between 8 and 20 percent."[8]

There is a history of failed attempts at aid coordination. It is still valid today, that in sum “all donors want to coordinate, but no one wants to be coordinated.”[9]

We conclude that the continued growth and proliferation of the aid industry virtually rules out any likelihood of effective supply-side coordination or defragmentation in the foreseeable future.

Consequences of aid dependency for corruption control

Aid dependency has a number of potential negative consequences, including: inflationary pressures that undermine exports (the "Dutch disease"); declining tax collection performance; executive accountability to donors rather than citizens and tax-payers; the temptation to postpone difficult policy reforms; crowding-out private investment; the atrophy of state administrative structures and capacities; and stimulating rent-seeking and corruption. According to Knack, "analyses of cross-country data provide evidence that higher aid levels erode the quality of governance, as measured by indexes of bureaucratic quality, corruption, and the rule of law."[10]

In the following section we consider the consequences of aid proliferation on corruption control and governance more generally using Tanzania as a case study of a highly aid-dependent state.

2. The consequences of aid proliferation on corruption control in an aid-dependent state

Net ODA to Tanzania rose from USD 29 per capita in 1996, to 36 in 2001 and 58 in 2008. In 2009, fourteen donors pledged over USD 830 million for the Tanzanian recurrent budget, up from USD 750 million the previous year. Development aid finances 30-40 percent of Tanzania’s recurrent spending and most of its capital budget. In addition, large amounts of off budget aid are channelled through civil society organisations. In 2008, PEPFAR spent USD 140 million in Tanzania, working through 36 ‘implementing partners.’ Between 2002 and 2009 the Global Fund Board approved grants worth USD 785 million for Tanzania. Tanzania netted over USD 600 million for infrastructural development under the Millennium Challenge Account (MCA). Tanzania will receive up to USD 100 million in REDD credits over the next five years.[11]

Experience and research suggest that aid stimulates rent-seeking and that aid givers do not enforce their anti-corruption principles in practice. As a result, serious corruption frequently goes undetected and unsanctioned.[12] Even when donors come across clear evidence of corruption in their programmes, they are usually reluctant to blow the whistle or impose sanctions that could disrupt future aid flows. Official anti-corruption efforts are half-hearted and widely seen as designed to satisfy donor rather than local constituencies.

Suggestions that corruption is linked to the misuse of aid prompt defensive reactions by both givers and recipients. Textbox 1 reports a case where the Tanzanian government faced accusations of large-scale corruption in a bilateral donor-funded programme.

Textbox 1: Corruption in a Norwegian aid saga In 2009, the Norwegian government took the unprecedented step of reclaiming a large portion of a USD 60 million 12-year grant to the Tanzanian Ministry of Natural Resources and Tourism on the grounds that much of the grant could not be properly accounted for. This conclusion was based on a critical external evaluation of the Management of Natural Resources Programme (MNRP) and a subsequent financial review of certain components of the programme. The review concluded that 50-70 percent of project funds had been spent on seminars, workshops, and travel costs. A third of all expenses were undocumented. In all, half of the USD 60 million was estimated to have been lost through corruption and mismanagement. In one sub-project, government officials were accused of allocating themselves a third of project funds in allowances. The accountant identified the following weaknesses: poor quality financial management and reporting; lack of technical capacity and manpower; lack of budgetary control mechanisms; ineffective internal control, monitoring and evaluation; no/improper records and accounting system; and improper allocation of expenses to activities. The systematic misuse of programme funds had gone on for a decade despite annual audits by the Auditor General, opinions on these by international auditors, and regular field trips and mid-term reviews by Norwegian officials. Key officials on both the Tanzanian and the Norwegian side were very upset with the entire exercise, and subsequent events suggest attempts to trivialise the nature of the alleged theft in order to get Norwegian aid ‘back on track’—with an even bigger REDD programme, involving the same MNRT. The Tanzanian government finally agreed to repay a small fraction of the supposedly looted funds.[13]

International comparisons suggest that Tanzania has performed relatively well in corruption control over the last decade. Between 1998 and 2007, Tanzania’s score in Transparency International’s Corruption Perception Index (CPI) improved steadily, only to slump in 2008 after revelations of political and grand corruption on an unprecedented scale challenged the donors’ view that Tanzania was an anti-corruption success story.

Trends in the degree of corruption involving the misuse of aid cannot be known with confidence, in part because the Tanzanian government has placed a virtual cordon sanitaire around the more ‘sensitive’ areas, including projects that are implemented through Project Implementation Units (PIU) that offer major opportunities for patronage and plunder.

After more than a decade of donor-financed reform, the budgetary process remains opaque, allowing for large-scale transfers between ministries and departments that elude parliamentary or other oversight.[14] In public sector management, public procurement, local government decentralisation, service delivery, governance programmes and legal reform the picture is depressingly similar: long-term donor-funded activities leading to minimal improvements in state capacity and effectiveness. Large additional funds have not been turned into more public goods and better social services. Despite unprecedented economic growth and ten years of PRSP implementation, the incidence of poverty has hardly changed, but inequality has risen.[15]

Aid provides low-risk rent-seeking opportunities to the ruling elite and sections of the private sector. The Drivers of Change research programme found that the executive enjoys wide discretionary powers, that aid has little impact on policy-making, and that the level of executive accountability is very limited.[16] In such a context, official looting and private sector rent-seeking are the norm. Ongoing research suggests that the nature and extent of plunder and rent-seeking discourage investment and enterprise and undermine the country’s development potential.[17]

Space prevents a discussion of the numerous ways in which the national budget is plundered through rent-seeking and cronyism and the mismanagement of natural resources that leads to environmental degradation and huge losses of revenue.

Lack of coordination on the part of donors may lead to overfunding certain sectors and activities, both in government and the non-state sector. The amounts spent on travel, meetings, seminars and workshops by government and NGO officials can reach scandalous proportions. Global Fund disbursements are so large that abuse is inevitable. An audit report by the Office of the Inspector General of the GF in Tanzania (June 2009) points to serious shortcomings in the way the grants are managed and monitored in the country. It raises concerns about the supply chain, financial and programme management and reporting.

The above discussion suggests that donors’ inability to coordinate ever larger aid flows contributes to widespread corruption and waste. It is hardly surprising, therefore, that more direct efforts to combat corruption have also failed to deliver. Aid agencies have attempted to improve the budgetary process and to strengthen the judiciary, parliament, anti-corruption agencies, ethics and human rights commissions and supreme audit. Outside government, the EU and almost all bilateral donors have sponsored civil society organisations and the press as agents of consciousness-raising and public transparency. These donor initiatives have generally failed to achieve lasting change in the desired direction, suggesting that the negative effects of aid listed above (and no doubt other factors) effectively undermined their successful implementation.

Although donors continue to finance projects, General Budget Support (GBS) has become the preferred aid modality. The main risks attached to GBS are, of course, the corruption and waste in central government that undermine the budgetary process and public spending. The support to government and non-state actors sketched above is designed largely to improve budgeting, spending and accountability. To date, there is little evidence of major achievements commensurate with the human and financial investments involved, though in recent years the media have increased transparency and public awareness.

3. Conclusions: whither "corruption control"?

This article argues that efforts to coordinate aid have been seriously undermined by the proliferation of development assistance in recent years. The growth and diversification of the aid industry during the first decade of the 21st century have served to exacerbate aid’s inherent shortcomings. There is no global aid regulator to address the negative externalities thus generated. Neither is there a mechanism to weed out the non-performers or excess capacity. A prisoner’s dilemma prevents individual agencies from trying to improve their performance in the absence of collective action.[18] According to Faust, for donors "the challenge of overcoming their own collective-action problems [is] probably the most difficult task of all".[19]

Over the years, it has become increasingly clear that, barring civil war and state failure, there are virtually no conditions – including addressing corruption – that could seriously compromise long-term aid flows. Promises trigger the aid, not performance. The failure of donor conditionality under structural adjustment led to the ownership discourse around PRSP. Formally, at least, the policy regime has to be locally owned, in order to assure effective implementation. There are still conditions on large swathes of aid, and these are still ignored with relative impunity. GBS has intensified the plunder of public monies.

While preaching transparency, aid agencies are frequently complicit in covering up evidence of corruption and waste, and are not responding energetically to a growing body of evidence documenting the failure of aid to kick-start major institutional reforms, economic growth and poverty reduction. The failure of governance programmes to improve transparency and accountability has led some researchers to urge aid agencies to abandon attempts to impose western-inspired governance institutions on developing countries.[20]

In recent years, a number of donors have begun to integrate a political economy approach into their strategic planning, programme design and evaluation processes. Research has revealed what goes on behind the façade of the state, and why and how informal, patronage-based institutions and processes shape so much of how things work in developing countries like Tanzania. It remains to be seen how these insights can be mainstreamed in order to make aid more effective.

The notion that aid volumes need to increase in order to reduce poverty does not stand up to critical analysis. It is not a question of the needs of the poor but of the institutional capacity of aid-dependent countries like Tanzania to put the aid to good use. The view that, beyond a certain point, development aid to badly governed countries is counterproductive remains challenging for most observers.

Weak administrative capacity means that pro-active aid coordination and selectivity by aid-dependent recipients are not likely to emerge any time soon. A cynic might argue that recipients benefit from opacity and inter-donor competition, which allow them to play donors off against each-other. The view that African élites have been adept at putting aid to work in their political interests is compatible with the view that short-term political success is bought at the cost of long-term economic failure.1 In this scenario, the negative consequences of aid steadily swamp the positive aspects, until aid is simply propping up a bloated state apparatus that has ceased to function for the majority of the people.

Whereas during the Cold War aid was used to support horribly corrupt anti-communist regimes in Africa, Latin America and Asia, aid is now mobilised in support of the global fight against terror. East Africa is a proven target for terrorist attacks and a strategic location for US military activities in Africa and the Indian Ocean. Can we draw a parallel between the former dictators and the current leaders of Africa in terms of showering them with aid, tolerating their mal-governance and turning a blind eye to their systemic corruption as long as they remain ‘on side’?

In recent years there have been some major efforts in OECD countries to coordinate international efforts to trace the proceeds of dirty money--corruption, money laundering, organised crime--and to bring corrupt politician and businessman to book. These initiatives have shown some positive results, but multiple jurisdictions and competition between global financial centres have put limits on what can be achieved. Only a minute fraction of stolen public assets is ever recovered. More concerted efforts along these lines would seem to be more promising that continuing to pursue failed good governance and corruption control initiatives in countries where development aid provides a major stimulus to poor governance and corruption.

This article is an edited version of: ‘Can aid agencies really help combat corruption? An overview of donor policies and practices in East Africa’, a paper presented at the III ANCORAGE-NET Biannual Meeting Protecting Aid Funds in Unstable Governance Environments: Towards an Integrated Strategy, Lisbon, 18–19 May 2010.

References

[1] Booth, David 2011. ‘Aid, Institutions and Governance: What Have We Learned?’, Development Policy Review, 29 (Supplement 1): 5-26.
[2] Deutscher, Eckhard and Sara Fyson 2008. ‘Improving the Effectiveness of Aid’, Finance and Development, IMF, Washington, September.
[3] Bräutigam, Deborah 2009. The Dragon’s Gift: The Real Story of China in Africa, Oxford: Oxford University Press.
[4] Nelson 2010:304.
[5] Zakumumpa, Henry 2009. ‘Foreign aid, NGOs: The new colonial powers in Africa?’, African, Dar es Salaam, 6 January.
[6] Boesen, Nils 2010. ‘Is the aid system at a tipping point?’, The Broker, Issue 18, February.
[7] IPS 2009. ‘Africa: Aid fragmentation worse despite Paris Declaration’, Thisday, Dar es Salaam, 18 March.
[8] Trade Negotiations Insights 2009. ‘Transaction costs add up for the EU’s overseas development aid’, International Centre for Trade and Sustainable Development, No. 09, Vol. 8, November.
[9] Whittington, Dale and Craig Calhoun (no date). ‘Who really wants donor coordination’, Development Policy Review, Vol. 6, No. 3, pp. 295-309.
[10] Knack, Steven 2000. ‘Aid dependency and the quality of governance: A cross-country empirical analysis’, Washington: World Bank, July.
[11] Nelson 2010.
[12] Cooksey Brian 2003. ‘Aid and Corruption: A Worm’s-Eye View of Donor Policies and Practices’, 11th International Anti-Corruption Conference, Seoul, South Korea, 26-29 May. Cooksey Brian 2004. ‘Elixir or poison chalice? The relevance of aid to East Africa’, 8th Africa Stock Exchange Conference and Nairobi Stock Exchange Golden Jubilee, Nairobi, Kenya, 23-26 November. Cooksey Brian 2007a. ‘Trends in corruption control in Tanzania: Why perceptions matter’, paper presented at the Annual Research Workshop of the Norwegian Development Research Association, CMI, Bergen, November 5-7. Cooksey Brian 2010a. ‘Trends in Corruption in Tanzania: Who wants to know?’ in Kjell Havnevik and Aida C. Isinika (eds), Tanzania in Transition – From Nyerere to Mkapa, Mkuki na Nyota.
[13] Cooksey et al 2006; Jansen 2009
[14] Tilley, Helen 2009. ‘Missing the Point: Accountability and aid effectiveness in Tanzania, 2000-2009’, SA Annual Conference 2009: Contemporary Crises and New Opportunities, 15 September.
[15] Research and Analysis Working Group 2009. Poverty and Human Development Report 2009, REPOA Dar es Salaam. [16] Oxford Policy Management, CMI and REPOA 2005. ‘Understanding patterns of accountability in Tanzania Component 3: Analysis of values, incentives and power relations in the budget allocation process’, August.
[17] African Power and Politics Programme (APPP) funded by DFID 2011. ‘The Political Economy of the Investment Climate in Tanzania’.
[18] Birdsall, Nancy and Savedoff, William 2010. Cash on Delivery: A New Approach to Foreign Aid, Washington CC: centre for Global Development.
[19] Faust, Jörg 2010. ‘Policy Experiments, Democratic Ownership and Development Assistance’, Development Policy Review 28 (5): 515-34.
[20] Grindle, Merilee 2004. ‘Good Enough Governance: Poverty Reduction and Reform in Developing Countries’, Governance: An International Journal of Policy, Administration and Institutions, 17 (4): 525-48. Kelsall, Tim 2008. ‘Going with the Grain in African Development?’ Development Policy Review, 26 (6), November, pp 627-655. Booth, David 2011. ‘Aid, Institutions and Governance: What Have We Learned?’, Development Policy Review, 29 (Supplement 1): 5-26.

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