01 May 2013

Should the UK give aid to South Africa?

Today's aid furore (there seems to be one per day) is on South Africa, the country of my birth.

DFID announced it will end ODA to South Africa in 2015.  There are three levels at which to look at this.

First, at a South Africa specific level, there is not much new here.  The DFID Bilateral Aid Review (BAR) of 2011 planned ODA to South Africa of £19m a year from FY11/12 through to FY14/15.  I would have thought the South African government would have seen the writing on the wall back in 2011.  The South African government's main complaints now seem to focus on the process--on how the termination was decided without consultation and the timing of its announcements at a major conference.  We will never know the story behind that.

Second, we have another example of DFID ending a programme of funding to a country that has strong economic growth but with high levels of poverty--just like India.

As I argued in an earlier post, ending aid to India in 2015 is not something I agree with. There are some smaller, catalytic roles that DFID could have played around building the capacity of civil society, promoting research, and leveraging other funding.

What is South African case for such an intervention?  Well, South Africa is certainly not India.  The DFID programme in India is over 10 times the size of the South Africa programme and GDP is growing much slower in South Africa (about 2-3% per year since 2008) than in India.  But there is one commonality: poverty rates are high (headcount poverty in South Africa was 54% in 2008).  But in India poverty rates are declining--in South Africa they are stuck (56% in 1993) and the Gini coefficient, a marker of inequality, is actually going up (from 0.66 in 1993 to 0.70 in 2008). (see this paper from South African poverty analysis gurus Murray Leibbrandt and Ingrid Woolard).  I used to work on poverty dynamics in South Africa back in the 90s and these numbers are really discouraging.

(Note: several of you have told me I have the poverty data wrong--well, I attach another paper which shows how complicated it is--some estimates show modest declines, some estimates show increases, some show stagnation. What all the estimates agree on is that inequality is static.)

So, is South Africa an economic powerhouse as the DFID Secretary of State Justine Greening says?  Maybe-- don't forget South Africa's GDP/capita is about $11,000, similar to Brazil. But it is also a "wellbeing weakling"--it is not turning this growth into human development.  Other countries in Africa have done a better job at this conversion (e.g. Kenya, Malawi, Rwanda--see this new Boston Consulting report profiled in the Economist) and much of that must be down to governance arrangements.

What could a mere £19m do?  Well, as Joanna Kerr, head of ActionAid International (and an IDS alum), based in South Africa, notes, outsiders have a key role in supporting civil society (for example, harrying the government into signing up to the Scaling Up Nutrition movement).  Perhaps.  But rising inequality makes me wonder whether this level of funding can achieve anything.

Finally, there is the issue of the role of agencies like DFID in reducing poverty in middle income countries. No one has cracked this yet, and it seems to me this is always going to be a case by case assessment (see the IDS Rising Power programme). True, there are 20 million people living below the poverty line in South Africa--many more than in some other African countries.  But whereas India is still a poor country (with a GDP per capita less than half of Brazil or South Africa) South Africa is not.  South Africans can change their inequality profiles at the ballot box, just as Brazil has done. I don't think India has enough wealth or enough disaffection (because the Gini is decreasing, albeit slowly) to be able to do this yet.

Given that ODA is relatively small ($138bn) it has to be prioritised. So I think DFID has gotten this one right on substance, whatever the rights and wrongs of the process.

And of course the announcement doesn't hurt the Coalition in the run up to the UK local council elections which are tomorrow.


Owen Tudor TUC said...

It's worth noting that DFID is NOT ending aid to South Africa, any more than it is to India, because DFID gives money to multilateral bodies that spend some of that UK money in South Africa (for all I know, probably more than the relatively small £19m which is bilateral aid.) In purely aid terms, I doubt it makes much difference whether the money reaches SA bilaterally or multilaterally, so if the argument is right for bilateral aid, it must also be right for multilateral aid and vice versa. This makes a mockery of decisions based on GDP alone. The question then becomes: what good is being got for the money, and there it comes down to choices about WHAT to fund. The implication is that DFID thinks it makes less good decisions about its bilateral aid in SA than multilateral agencies do with their aid, which is a weird conclusion to draw. I suspect, therefore, that DFID's decision is NOT based on aid criteria but others, and that's what worries me about this decision.

Laurence said...

The poverty numbers you cite are based on a national poverty line that is more than 3 times the value of the international $1.25 line. Using the latter, poverty stood at ~13% in 2008. That's down from 26% in 2000.

South Africa's poverty and inequality problems are of course real. But you can't make judgments about allocations across countries without using a common poverty line.

Lawrence Haddad said...

Hi Laurence, I have added a paper by Yu to the post--this compares about 8-9 different estimates of poverty trends and finds some go down, some up and others are even--but all show static or increasing inequality. Thanks for the post.

Lawrence Haddad said...

Owen, I know the country and strategic focus of the mulitlateral is one factor going into DFID's funding decision. So while it is not a binary decision as it has to be with the bilateral programme, it is a factor. Thanks for comment.

קידום אורגני said...

Thanks it was fun

Anonymous said...

Hi Lawrence, I think you have touched some valid points in terms of the south african poverty and economy. Im a South African myself and an IDS alumni. I tend to agree with the questioning of the termination of funds from DFID mostly the factor they used in doing so. i also like the point of the ballot box (elections) playing a big role in our current poverty reduction. This is one weapon (If i may call it so)that we need to look at. Im not saying it will work, but it might make changes.