Africa calling: supporting projects with aid—like better mobile phone banking technology—creates opportunities for the private sector
Why should Britain’s foreign aid be protected from spending cuts? As British households are being hit by unprecedented reductions in public spending, it seems fair that expenditure on developing countries should share the pain. Besides, private remittances by immigrants to their home countries are now far larger than public giving, and governments of many poor nations are more excited by doing business deals with Asia than by aid from Europe. There is a strong case against treating aid differently from everything else. But there is an even stronger one for doing just that.
For a start, both parties in the coalition (as well as the previous government) made clear commitments on foreign aid. Past donor behaviour has been full of cheap claims to moral authority. The Gleneagles summit in 2005, at which Tony Blair achieved a high-point in British popularity ratings by corralling the G8 into promising money for Africa, conveniently rehabilitated his reputation post-Iraq. But it is one thing to promise, another to deliver. Privately, the other G8 leaders were furious with Blair about what they saw as a shoddy PR trick at their expense, and there was never a realistic prospect that they would match cheap talk with costly action.
Today, David Cameron’s commitment to the aid budget—to increase it to 0.7 per cent of gross national income by 2013—is a different matter. Made before the election, against a background of mounting fiscal stress, it helpfully identified him as a one-nation Conservative. But once in office he had a good excuse to walk away from it: he could have blamed his economic inheritance. Yet he kept his word. At a time when other European governments have been wriggling out of their promises, Britain has acquired a new moral authority.
I say “Britain” rather than just “the British government,” because the election campaign revealed a level of mass concern for the world’s poor which is, I believe, unique to our society. The Conservative and Liberal manifestos were united on a pledge not only to protect the aid budget, but to increase it. Both parties presumably took this stance because they saw it as a vote-winner: their polls and focus groups must have told them that ordinary citizens cared about global poverty.
This is a reality insufficiently appreciated by the liberal elite. Last year I was asked to speak at a department for international development (DfID) event designed to promote the case for aid, at which the permanent secretary asked: “How do we tell someone from Sheffield why the aid budget should be protected?” The implication in this question was wrong. People who themselves have faced hardship are actually most likely, I think, to empathise with the more desperate struggles of the world’s poor. When I gave three lectures for the Royal Economic Society about African poverty in 2006, I insisted on launching the series in Sheffield. The turnout of 1,000 comfortably exceeded the combined London and Edinburgh audiences. It was the largest the society had ever had. Indeed, the continued commitment of the government to aid, underpinned by the support of Britain’s people, is a matter of wonderment for the G8’s other development agencies, which see themselves as bereft of national support.
It is important to ask, though, what exactly our aid money will do. There is mounting cynicism about aid—some of it amply justified by past donor practices (see “Bad aid,” Prospect, May 2010). Yet few realise just how smart and highly geared modern British aid can be. Perhaps the most sensational recent economic development in Africa has been the explosive growth of “branchless” telephone banking in Kenya. Launched by Vodafone subsidiary Safaricom in 2007, the M-Pesa system allows people with no access to a bank to deposit and withdraw cash at their local airtime seller, and to transfer money via their mobile phones. It is now used by nearly 30 per cent of the population and has drastically reduced the cost of transactions for households and small businesses. In May this year, on the back of this payments system, an electronic savings facility, M-Kesho, was launched, and already it has nearly 170,000 depositors. Although M-Pesa is privately run, DfID thought up the idea, spent money successfully piloting it, and demonstrated to the private sector that there was a market opportunity. British aid was smart, and thereby catalytic.
DfID supports many such initiatives. I help to run a new DfID-funded organisation, the International Growth Centre (IGC), which aims to boost the economies of the poorest countries by providing economic advice based on the latest research. For example, the IGC arranged for one of the world’s leading experts on taxing natural resource extraction to advise one African government. Just putting into practice the suggested reforms would recover the entire cost of the IGC many times over.
Meanwhile, Andrew Mitchell, the new secretary of state for international development, is already vigorously weeding out the programmes that are underperforming. He is insisting on value-for-money and demonstrable results, so DfID’s performance, already the envy of all other bilateral agencies, is likely to get even better.
DfID spending on social priorities can also be highly cost-effective. As Mitchell notes, DfID can educate a child in the developing world for around 2 per cent of what it would cost in Britain, so a strategy of curbing immigration while increasing aid may be of benefit to the world’s poorest. By educating one less Bangladeshi child in Britain, we could educate 50 more in Bangladesh. Norway, long regarded as the gold standard in terms of development generosity, has made precisely this choice: big aid, small immigration. Judging by our last election campaign, this is what most ordinary British people want—and it might well be more development-friendly.
While Britain is not in a position to lecture other countries, we have earned the right to propose and partner. In Kenya, with M-Pesa, DfID had the intelligence and leadership to overcome the co-ordination problems that had stifled a big opportunity. In global public policy the need for intelligence and co-ordination is far greater, but the payoff can be correspondingly larger. The priorities of our new government, and indeed British voters, should be a source of national pride—not a target for criticism.
Why should Britain’s foreign aid be protected from spending cuts? As British households are being hit by unprecedented reductions in public spending, it seems fair that expenditure on developing countries should share the pain. Besides, private remittances by immigrants to their home countries are now far larger than public giving, and governments of many poor nations are more excited by doing business deals with Asia than by aid from Europe. There is a strong case against treating aid differently from everything else. But there is an even stronger one for doing just that.
For a start, both parties in the coalition (as well as the previous government) made clear commitments on foreign aid. Past donor behaviour has been full of cheap claims to moral authority. The Gleneagles summit in 2005, at which Tony Blair achieved a high-point in British popularity ratings by corralling the G8 into promising money for Africa, conveniently rehabilitated his reputation post-Iraq. But it is one thing to promise, another to deliver. Privately, the other G8 leaders were furious with Blair about what they saw as a shoddy PR trick at their expense, and there was never a realistic prospect that they would match cheap talk with costly action.
Today, David Cameron’s commitment to the aid budget—to increase it to 0.7 per cent of gross national income by 2013—is a different matter. Made before the election, against a background of mounting fiscal stress, it helpfully identified him as a one-nation Conservative. But once in office he had a good excuse to walk away from it: he could have blamed his economic inheritance. Yet he kept his word. At a time when other European governments have been wriggling out of their promises, Britain has acquired a new moral authority.
I say “Britain” rather than just “the British government,” because the election campaign revealed a level of mass concern for the world’s poor which is, I believe, unique to our society. The Conservative and Liberal manifestos were united on a pledge not only to protect the aid budget, but to increase it. Both parties presumably took this stance because they saw it as a vote-winner: their polls and focus groups must have told them that ordinary citizens cared about global poverty.
This is a reality insufficiently appreciated by the liberal elite. Last year I was asked to speak at a department for international development (DfID) event designed to promote the case for aid, at which the permanent secretary asked: “How do we tell someone from Sheffield why the aid budget should be protected?” The implication in this question was wrong. People who themselves have faced hardship are actually most likely, I think, to empathise with the more desperate struggles of the world’s poor. When I gave three lectures for the Royal Economic Society about African poverty in 2006, I insisted on launching the series in Sheffield. The turnout of 1,000 comfortably exceeded the combined London and Edinburgh audiences. It was the largest the society had ever had. Indeed, the continued commitment of the government to aid, underpinned by the support of Britain’s people, is a matter of wonderment for the G8’s other development agencies, which see themselves as bereft of national support.
It is important to ask, though, what exactly our aid money will do. There is mounting cynicism about aid—some of it amply justified by past donor practices (see “Bad aid,” Prospect, May 2010). Yet few realise just how smart and highly geared modern British aid can be. Perhaps the most sensational recent economic development in Africa has been the explosive growth of “branchless” telephone banking in Kenya. Launched by Vodafone subsidiary Safaricom in 2007, the M-Pesa system allows people with no access to a bank to deposit and withdraw cash at their local airtime seller, and to transfer money via their mobile phones. It is now used by nearly 30 per cent of the population and has drastically reduced the cost of transactions for households and small businesses. In May this year, on the back of this payments system, an electronic savings facility, M-Kesho, was launched, and already it has nearly 170,000 depositors. Although M-Pesa is privately run, DfID thought up the idea, spent money successfully piloting it, and demonstrated to the private sector that there was a market opportunity. British aid was smart, and thereby catalytic.
DfID supports many such initiatives. I help to run a new DfID-funded organisation, the International Growth Centre (IGC), which aims to boost the economies of the poorest countries by providing economic advice based on the latest research. For example, the IGC arranged for one of the world’s leading experts on taxing natural resource extraction to advise one African government. Just putting into practice the suggested reforms would recover the entire cost of the IGC many times over.
Meanwhile, Andrew Mitchell, the new secretary of state for international development, is already vigorously weeding out the programmes that are underperforming. He is insisting on value-for-money and demonstrable results, so DfID’s performance, already the envy of all other bilateral agencies, is likely to get even better.
DfID spending on social priorities can also be highly cost-effective. As Mitchell notes, DfID can educate a child in the developing world for around 2 per cent of what it would cost in Britain, so a strategy of curbing immigration while increasing aid may be of benefit to the world’s poorest. By educating one less Bangladeshi child in Britain, we could educate 50 more in Bangladesh. Norway, long regarded as the gold standard in terms of development generosity, has made precisely this choice: big aid, small immigration. Judging by our last election campaign, this is what most ordinary British people want—and it might well be more development-friendly.
While Britain is not in a position to lecture other countries, we have earned the right to propose and partner. In Kenya, with M-Pesa, DfID had the intelligence and leadership to overcome the co-ordination problems that had stifled a big opportunity. In global public policy the need for intelligence and co-ordination is far greater, but the payoff can be correspondingly larger. The priorities of our new government, and indeed British voters, should be a source of national pride—not a target for criticism.
