Cash Aid for Africa

STOCKHOLM – Europe has made an ambitious commitment to scale up its aid to Africa, and Africa’s challenges call for that greater engagement. But boosting aid to countries that are already aid-dependent requires clearer delivery mechanisms and a degree of budgetary predictability. Something new is called for, and cash transfers directly to poor people could be an alternative − but only as a part of a longer-term vision of partner countries’ welfare systems.

The European Union has committed itself and its member states to increase aid flows to 0.56% of GDP by 2010 and 0.7% by 2015 − with a big focus on Africa. The combined aid commitments of OECD Development Assistance Committee member countries would mean a doubling of official development assistance to Africa between 2004 and 2010 – that is, if they are honored.

It is, after all, fair to question whether donor countries will stick to these commitments and, indeed, whether conditions in partner countries will permit them to. But a theoretical doubling of African aid by 2010 − with the possibility of even more after that − offers a huge opportunity to combat poverty. So tackling any obstacles that could inhibit the effective application of these additional resources is a priority.

While Africa’s needs are relatively well known, there are challenges in scaling up aid to tackle them. This reflects such problems as macroeconomic management, aid-dependency syndromes, absorption capacity, transaction costs, and − related to all of it − the risk of decreasing returns as aid levels rise. Given the current aid-to-GDP ratios in sub-Saharan Africa − with approximately half of countries yielding ratios of above 10% even before future increases in aid are taken into account − these challenges must be taken seriously.