If you want aid to be efficient and go to those that need it most, then leave low income countries aside

A few days back, writting on the different commentaries and papers published on the run up to the MDG summit in new York, I mentioned an interesting article by Andy Sumner, which highlighted this remarkable fact:

‘In 1990, 93% of the world’s poor people lived in poor countries – meaning low-income countries (LICs)…Three-quarters of the world’s approximately 1.3 billion poor people now live in middle- income countries (MICs) and only about a quarter of the world’s poor live in the remaining 39 low-income countries, largely in sub-Saharan Africa. This is then a startling change over two decades and it implies there is a new ‘bottom billion’ who do not live in fragile and conflict-affected states but largely in stable, middle-income countries.

Data visualisation on the Guardian Data Blog (click to go to the entry on Somner’s article by Jonathan Glennie

This, I noted briefly at the time, was an extremely interesting find with potentially important consequences, as it should make everyone think hard about where development actions (and money) are being targetted to. And last Monday, Owen Barder picked also on the findings of this artice (and others), on a blog post reflecting on the MDG-related discussions and on the «three development narratives» that are emerging. The last of these three (The challenge is increasingly inequality, not absolute poverty), Ower insightfully writes:

has profound implications for development policy, and my sense is that the discussion in New York is not yet grappling with these issues. (…) if three quarters of the world’s poor live in middle income countries, the challenge is to reduce inequality in these countries. The figures suggest that the biggest causes of poverty are not lack of development in the country as a whole, but political, economic and social marginalisation of particular groups in countries that are otherwise doing quite well. (…)
For some people this suggests that we should reconceptualise development as the ability of all the world’s citizens to live decent lives, rather a problem of economic industrialisation of poor countries. This view has the advantage of focusing on people and communities, rather than countries. (…)
On this view, poverty is a problem of political and economic marginalisation which can affect communities within industrialised, industrialising and low income countries. It calls for a different kind of policy agenda, which is as much to do with empowerment and political voice as the transfer of resources and investment in public services.

Clearly, the realisation that development is more about politics than technical solutions is one that is (or should) slowly gaining weight in academic and policy-making circles. Yet, this, for a number of reasons, will not result (or at least not in the short term) on the finishing of aid bugets and the end of the current aid system. Which means that we should ask how do these findings should affect actual aid policies (still based on «the transfer of resources and investment in public services»).
I was going over some of these questions while reading a paper on a related topic. The paper, by Jörg Faust of the German Development Institute D-I-E, is titled «Do Less Transparent Donors Allocate Aid Differently?» which:

studies the variance of aid allocation patterns across donor countries. It relates this variance of aid allocation patterns to different levels of political transparency within donor countries. Where political transparency is high, donor governments are more accountable and have less maneuvering space to diverge from technocratic expertise and citizen’s preferences. An empirical test, using data for the 1998-2008 period confirms this hypothesis. Donor countries with higher levels of political transparency allocate aid more according to recipient countries’ neediness and institutional performance.

This is an interesting finding, and part of the growing research on a topic (aid transparency) which is quickly becoming one of the most pressing issues for donor countries, as it is closely related to some of the goals defined on the aid efficiency agenda set by the Paris Declaration and the Accra Agenda for Action (AAA). Initiatives like the International Aid Transparency Initiatives (IATI) are pressing for donors to be more transparent, and this is getting some responses from organisations like USAID and DfID (see this Poverty Matters blog entry); a demand which touches also on the activities of NGOs (as this Aid Watchers debate shows).
But I’m going off-topic here… What I actually wanted to highlight was this brief extract from Faust’s paper. On the topic of aid allocation criteria, it reads:

«Targeting aid alone according to the institutional and/or policy performance of potential
recipients nevertheless bears the problem of structurally disadvantaging the neediest countries. When primarily focusing on institutional or policy performance, aid allocation will come along with a bias in favor of middle income countries.”

This bias (I assume) had traditionally been seen as quite an important issue that needed to corrected, for although it may be the case that middle income countries are more efficient, what aid was targeted to do (and especially after the Millenium Declaration, and the «bottom billion» debate) was to help the people that needed it the most. This is, the people that are living on the poorest countries. Or so people thought. Because if the reality now is that the poorest and neediest peope ARE in fact living in middle income countries, this presents a bit of an issue. The answer to this is probably to focus on communities, not countries, as Owen and others point out. But keeping the country-lenses on for a minute, what would this mean? Could it be that a focus on both performance and need could result on a shift on aid allocation to middle income countries (even if here it is targetted to the poorest communities), at the expense of the poorest countries? How should this be done? Low income countries: you have 25% of the world’s poorest people, you you should do with 25% of the resources? Or should aid for the time being remaing focussed on low income countres while new development strategies are devised? And should development strategies be markedly different for low income countries, and for middle income countries? This probably is the case, so that both, low and middle income, groups have a more targeted approach to their specific needs, bout how would these approaches be devised and by whom?
Important questions all of them which should not be ignored. The reality appears to be different from what development planners and practicioners thought it to be. What this means is that it is high time to change the strategy. Sticking to a misconceived strategy, and even devoting more resources to it, would unfortunately not make this reality go away.
UPDATE: Just saw this Aid Info article by George Gelber which details the recent Swedish and British transparency initiatives

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