Aid in Fragile States: What Can Aid in Fragile States: What Can - - PowerPoint PPT Presentation

Aid in Fragile States: What Can Aid in Fragile States: What Can Work

Tony Addison Tony Addison UNU-WIDER www.wider.unu.edu

Context Context

• Fragile states have very mixed characteristics
• Some are large aid recipients, some receive

Some are large aid recipients, some receive very little Wh h h i d fi d h

• What they have in common: donors find them

tough to work with

• Weak governance & weak implementation

capacity dominate discussion of fragile states capacity dominate discussion of fragile states

The Gordian Knot The Gordian Knot

The Gordian Knot The Gordian Knot

• Economic growth – cutting through the

tangled knot of fragility & its politics g g y p

• If aid promotes growth, and growth promotes

peace then aid delivers a ‘double dividend’ peace, then aid delivers a double dividend

• Growth can achieve much – not least by

delivering rising domestic revenues

• To build states & reduce social (ethnic)
• To build states & reduce social (ethnic)

inequalities via pro-poor spending

Public Finance & Service Delivery Public Finance & Service Delivery

C i l t di t ib ti th f it f th

• Crucial to distributing the fruits of growth
• Poverty-reducing expenditure as a share of

domestic revenue doubled in Uganda & domestic revenue doubled in Uganda & Mozambique, rose by a half in Ethiopia (99-06)

• Resource rich fragile states: poverty reducing
• Resource-rich fragile states: poverty-reducing

expenditures stagnant (e.g. Guinea)

• Of the 8 countries whose real GDP per capita rose
• Of the 8 countries whose real GDP per capita rose

by more than 50% over 1997-07, only 1 was non- fragile & 5 of the 8 were resource-rich g

• Innovation in disbursement – e.g. AusAid working

with churches in fragile states in Pacific g

Growthis both Stabilizing & Destabilizing

• Conflict & instability in Kenya, Madagascar &

(northern) Uganda followed strong growth

• Pakistan has achieved strong growth – but

now a failing state? now a failing state?

• Naxalite insurgency in India – despite (or

because of) strong growth because of) strong growth

• Gujarat (India) highest growth of all Indian

b l l states but worst communal violence

• ‘Arab Spring’ today after a decade of growth

p g y g

Quality of Growth Quality of Growth

• High unemployment + high inequality is a
• High unemployment + high inequality is a

combustible mix, growth or not h l l

• High spatial inequalityeven in success stories –

Uganda (fall in overall poverty rate)

• Building growth around the poor – strengthens

the INTERNAL engine of growth the INTERNAL engine of growth

• e.g. Guatemala vs. El Salvador: both Post-Conflict.

Social protection in El Salvador (part aid Social protection in El Salvador (part aid- financed) cut poverty. Guatemala: stagnation

• BUT internal growth engine not enough

Engagement with the Global Economy Engagement with the Global Economy

il i l ll ( ll

• Fragile economies – mostly small (small

populations & low per capita income)

• 19 out of the 35 fragile states on the DFID list

have populations of 10 mn or less

• Post-war growth bounce stimulates domestic

demand & the internal growth engine

• but even if Sierra Leone (fragile) doubled its per

capita income, its economy would still be less p , y than one-quarter the size of (non-fragile) Tanzania (which is small economy, globally) y g y

The Missing Middle The Missing Middle

• Middle-classes are thin – most people are poor a

Middle classes are thin most people are poor, a few are very wealthy in fragile states

• This MISSING MIDDLE is inter twined with
• This MISSING MIDDLE is inter-twined with

another missing middle (lack of small & medium- sized enterprises) sized enterprises)

• Impetus for democratization is therefore weak +

job creation is weak job creation is weak

• What to do? Look to the diasporas – with their

k l d f l b l l h i th i it l knowledge of global value chains + their capital

• Example of Success: Uganda’s Asians

Conclusion Conclusion

h k h i h k

• What Works, What Might Work
• Focusing aid & technical assistance on building

g g public finance (Success: Uganda, Mozambique, Ethiopia, Rwanda) q , p , )

• Innovation in service delivery (AusAid in

Pacific) Pacific)

• Social Protection (El Salvador)
• Encouraging the return home of diasporas

capital (Uganda & maybe North Africa)