More efficient foreign aid

Press, 11 December 1989, Page 12

More efficient foreign aid

From the “Economist,” London

AN OLD saw about money spent on advertising is that half of it works, but nobody knows which half. The same might be said about aid to Africa. How else to explain a 10 per cent fall in income per head in black Africa between 1980 and 1987, when it was receiving foreign aid worth an average of SUSI 3 billion a year? In 1987 a study found that half of the completed rural-develop-ment projects financed by the World Bank in Africa failed. In its report on the sub-Saharan economy, published this week, the Bank acknowledges “countless examples of badly chosen and poorly designed public investments," including some in which it, and other donors, took

part. Perhaps the aid industry could do with an infusion of Japanese efficiency. In 1988 Japan gave away 5U59.1 billion in foreign aid (second only to the United States with SUS9.B billion). Its help for Africa has increased tenfold since the late 19705, reaching JUS9OO million last year. One Japanese innovation is a “non-project grant” programme with three special features. First, the aid given under it is untied — it does not have to be spent on buying Japanese goods. Second, it is handed out fast: the money given must be spent within a year. Last, it is explicitly intended to help poor countries buy urgently needed

imports of spare parts or raw materials. The value of such grants is that they enable firms with idle capacity (many African factories operate at less than 30 per cent capacity) to boost production. Beer supplies in Zambia were in danger of drying up until Japan gave the cash needed to import essential brewing equipment at a 16 per cent discount below previous prices. And a Ghanaian company used the Japanese fund to import the high-quality machete blades needed to harvest the 1989 cocoa crop. It all adds up to another way in which Japan beats its competitors. ©The Economist