AID EFFECTIVENESS, DFID’S RESPONSE AND THE IMPACT OF CHINA ON AFRICA

1. AID EFFECTIVENESS, DFID’S RESPONSE AND THE IMPACT OF CHINA ON AFRICA International Poverty Reduction Research Centre 6 July 2006

2. MORE EFFECTIVE AID • Supporting developing country leadership and broad national ownership • Comprehensive – addressing multi-dimensional nature of poverty • Alignment with developing country systems and procedures (long term and predictable approach) • Better joined up working by donors • Focusing on the desired outcomes in support of the MDGs • Strengthening mutual accountability between donors and recipients

3. WHAT SHOULD WE BE DOING? • Supporting partner countries to set priorities and manage donor coordination • Alignment of assistance strategy with country priorities (Poverty Reduction Strategy or similar) • Use and/or strengthening of government systems: public financial management; procurement; disbursement; reporting (M&E) • Joint working with other donors (including common arrangements for planning, funding and managing aid) • Improving quality of government – donor dialogue (ie. open dialogue between partners that respects national policy making processes) • Increasing country and programme focus

4. MILESTONES IN 2005/6 • Gleneagles – commitments on more aid to be delivered through country led processes • 2005 Poverty Reduction Strategy Review – lesson learning • Commitments on Better Aid - Paris Declaration on Aid Effectiveness • WP III and Comprehensive Spending Review – Doing development better • UK commitment to 0.7% target by 2013 – UK aid programme will treble from £5 - £15 billion a year by 2015

5. LESSONS FROM LAST 5 YEARS – POVERTY REDUCTION STRATEGY EVALUATIONS AND REVIEW • Progress in some but not all countries – initial conditions important, need for flexibility • Difficult to judge impact on outcomes • Evidence of institutional change – foundations for “better government” • Approach not realising full potential e.g limited change in donor behaviour • International pressure to demonstrate results – need for realistic expectations

6. ACHIEVEMENTS TO DATE (A) Most progress made in countries with clear commitment to poverty reduction and with reasonable capacity (B) More engagement with civil society (C) More attention to alignment

7. PRIORITIES FOR IMPROVING POVERTY REDUCTION STRATEGIES • Prioritisation - sequencing • Strategic focus – importance of growth • Scaling up scenarios • Cross cutting issues – gender, environment • Focus on results - poverty analysis and monitoring and common objectives • Implementation and capacity constraints – long term focus

8. INSTITUTIONAL ISSUES • Ownership – line ministries, Parliaments, civil society, local government • Political economy – where do poverty reduction strategies sit in political priorities/agendas? • Better systems – policy, planning, budgeting, monitoring • Central versus local level engagement • Participation as a route to domestic accountability • Donor behaviour - harmonisation and alignment

9. THE LEAKY BUCKET? • It’s our aid – we have our own targets and priorities to meet • Our aid needs to be visible for us to maintain our influence • Government systems are weak and unreliable • Aid is spread too thinly so that it fails to make a long term difference • We’re overstretched by working in too many sectors • Our aid is not enough to tackle the whole problem

10. FUTURE CHALLENGES FOR DONORS • Where and how to scale up aid? • Alignment in difficult environments (politics, governance and capacity) • Minimum standards on poverty reduction strategies – should there be any? • Predictability – can we deliver? • Mutual accountability – are we ready to be judged? • The other 95% of aid – multilaterals, bilaterals • Accountability and results – demonstrating aid works and aid effectiveness makes a difference – reducing scepticism about aid

11. DFID POLICY RESPONSE • Substantial increases in DFID’s overall annual programme – from £5 billion in 2005 to £15 billion in 2015 • Scaling up aid - more aid to low income countries and under aided countries • New instruments which promote ownership (e.g budget support) • Conditionality paper – common benchmarks – aid not tied to progress on specific policies • Joint frameworks – public financial management • Medium term action plan on aid effectiveness – response to Paris • Longer term agreements in some countries - Afghanistan, Vietnam, Tanzania • Approach in fragile states

12. HOW WILL DFID SCALE UP TO MEET THE 0.7% TARGET 2. Country-led approach (not vertical funds) 1. Deliver 2005 commitments 3. Improve aid allocation: orphans/ darlings; countries with worst indicators, least resources 4. Improve aid effectiveness: predictability, harmonisation, accountability, conditionality etc 5. Include fragile states 6. Capacity-building and aid absorption 7. Multilateral allocations required to support objectives (e.g. via a more coherent architecture) 8. Support “resources and results meeting”, DAC co-ordination on forward aid projections, aid allocation, fragile states watch list, political conditionality 9. Launch International Finance Facility (IFF) 10. Manage risks (climate change, oil prices); show results (health, education); avoid corruption

13. Laid out in White Papers 1 and 2; International Development Act Poverty reduction and commitment to Millennium Declaration and the MDGs, (enshrined by PSAs) Human Rights Responsibility to Protect and recognition of limits to sovereignty Predictable aid flows & long term relationships with countries Need to have a country-level approach as well as addressing global level issues Existing commitments eg. 90% of DFID’s bilateral spend will be in low income countries, commitment to Africa etc Headcount pressures The core DFID objectives and obligations What choices and trade-offs need to be made? • Transfer of resources and influencing and promoting change to make effective use of all aid not just DFID’s • Country led approach – alignment with country Poverty Reduction Strategies (as committed to in the Paris declaration) • Supporting good performers as well as countries with greatest need as well as fragile states • Recognition of the importance of global public goods • Reduce transactions costs and number/burden of donors • Minimum fiduciary accountability/commitment to development by recipients • Addressing social exclusion … but there are additional important objectives for DFID … … and other factors that influence resource allocation

14. CHINA IS AN (EXPONENTIALLY) GROWING PLAYER IN AFRICA DFID bilateral aid to Africa: $1.5 billion (2004/05) Cumulative growth rate: 35% (2000/01 – 04/05) China’s trade with Africa: $39.7 billion (2005) Cumulative growth rate: 610% (1999-2005) Annual growth rate: 35%

15. CHINA AND AFRICA: FACTS AND FIGURES • Trade volume: $40 bn (2005) $100 bn (2010) • 800 Chinese companies have invested $1 bn in Africa • 480 China-Africa joint ventures • 78,000 Chinese workers in Africa engage in engineering and labour work • Tariffs scrapped on 190 kinds of imported goods from 28 African countries • In 2004, 45,000 Chinese tourists visited Egypt and South Africa, while a further 26,200 visited 12 other approved destinations in Africa. • China is increasingly engaged in state-owned enterprise reform and privatisation (e.g. Nigeria). CHINA TO ADD 1-2% TO AFRICA’S GROWTH IN 2006

16. ADDRESS AT THE UN MILLENNIUM REVIEW SUMMIT • Strong endorsement of the UN • Strong endorsement of the Millennium Development Goals • Five point plan of debt relief, tariff-free access, concessionary loans, manpower training and medicines • Establishment of International Poverty Reduction Centre in Beijing • Followed up at African Head of State level in Beijing in early-November 2006

17. IMPLICATIONS • China really matters and it matters big! • New relationship needed – no longer development assistance, but strategic partnership of equals • Sustainability has to be at the core - without Chinese buy-in there is limited prospects for sustainable development at the global level • Implies a cross-country, cross-departmental and long-term agenda

18. WHAT’S THE OVERALL ASSESSMENT? - NEGATIVES • Many Africans concerned – accusing Chinese companies of underbidding local firms and not hiring African workers • African and international voices – pursuit of national interest ‘sold as’ south-south co-operation. Africa risks losing out (again) • International observers concerned – say that the way China does business undermines local efforts to increase transparency and good governance and international efforts at macroeconomic reform led by the World Bank and the IMF

19. WHAT’S THE OVERALL ASSESSMENT? - POSITIVES • It’s growth and trade, not aid, that will generate the sustainable resources to pay for e.g. Hilary Benn’s call for an NHS for Africa • Roads, bridges and dams built by Chinese firms are low cost, good quality & completed in fraction of the time normally required in Africa • China contributed 1,500 peacekeepers for UN Missions across Africa • Cancelled $10 billion in bilateral debt • Sends medical teams • Trains thousands of African workers in a way we have stopped doing • China has considerable power which can be used to good effect e.g. Iran, North Korea

20. CHINESE MESSAGES? • Encourage China to join and play increasing role in multilateral development fora, in-country donor groups and consultative processes • Look at an approach which more closely relates to NEPAD and the AU • Follow international aid standards as promoted by DAC • Stand ready to help China understand implications of new arrangements such as the Extractive Industries Transparency Initiative, the Africa Infrastructure Consortium, the Partners Forum, and the Investment Climate Facility