The ambiguity of foreign aid and the consultant’s job

In memory of Del Singh

Dharmender Singh Phangurha, better known as Del, was one of two Britons among the dead in a suicide attack in Kabul, Afghanistan. Photograph: Adam Smith International/PA, source : The Guardian, 19 Jan 2014

Jean-Pierre Dumas

September 1, 2021

The Afghan debacle is a good opportunity to think about the role of an international consultant in developing countries. They are supposed to implement aid given by external donors (official aid, bilateral multilateral, without speaking the myriad of NGOs). Today some consultants who used to serve in Afghanistan (and other parts of the world) are wondering what is the usefulness of their job.

It is difficult not to be somewhat cynical when one thinks about the usefulness of consultants. But consultants depend on foreign aid. They don’t work in a vacuum, they receive terms of reference (tor), a mandate fixed by the donor (French aid, European Commission, World Bank, Asian Development Bank, IMF).

Foreign aid itself is largely ineffective, so consultants are rarely effective.

Let’s take Afghanistan where millions were spent by all donors particularly the US who took the lead in 2001. Everybody agreed that this new Government needed an infusion of foreign aid to function and to invest. Most of the money spent was wasted (not all of course) confiscated by corrupt ministers, civil servants and wasted by inefficient aid donors.

The country was invaded by aid workers, NGOs, who all had grandiose (and competing plans) to run the country toward development. Money was pouring in and evaporated in the sand. What happened?

- First thing first, when a foreign aid donor settles in a country it starts to buy a large number of four-wheel vehicles, to hire drivers and translators, nothing wrong but look at the UN offices with all these idle cars, useless and pretentious.

- When the UN system receives money for a special mandate in a country, they start to allocate at least 20% to their head quarter, idem for the moralistic NGOs…after we will see.

- After this preliminary stage, we start to wonder what to do. Here come the consultants in all the fields (education, health, security, public finance, tax, customs, macroeconomy, food, women in development, pollution, whatever you think). What do they do? They propose the same thing they have learned or applied in their country; they will call it “best practice”. All are honest, dedicated competent and convinced of their expertise (fight against aid-donor experts is part of the job).

- In parallel with the consultants’ work, there are high-level discussions between the chief of this aid donor based in their respective capitals and who come in the country for two or three days and meet all the ministers of the countries and come back to their capitals saying that they just met all the ministers who told them that tomorrow a significant percentage of girls will be going to primary schools that decentralization will be done, that a new program-performance budgeting is being designated, that they agree with increasing tax mobilization in the country…

What went wrong? Aid donors, consultants, whatever their good will, do not have the power to change the institutions, the government, and the androcracy of a country. Development is not limited to macroeconomy (the stabilization part) nor to microeconomy (the structural part), but includes the political and institutional fields (D. Acemoglu, 2012); they are the key elements of development and are outside the province of development business.

What characterizes Afghanistan and other developing countries in Africa is the lack of a state as is known under our democracy. There is not a centralized state but rival clans (ethnies in Africa), the power of the Afghan Government did not go very far outside Kabul. Provinces are run by small kingdoms who are more confident with machine guns than with computers. The poppy culture is one of the main outputs of Afghanistan, aid donors were looking the other side, saying (rightly) that this is a given and outside their domain; perhaps, but it was one of the main sources of cash in the hand of Talibans.

France, the UK, Spain, Italy societies are the result of a long and painful history of the constitution of a centralized government who has to fight against baronies. They have a skeleton of civil servants trained and honest. This was not achieved in a two-week mission, nor after a two-year contract, it took centuries.

Since the Middle Ages, the kings of France were aiming at asserting their power over the nobility up to the French Revolution. The nobility and the clergy were given exorbitant rights in relation to the rest of the population, the Third Estate. The aristocrats and the clergy not only did not pay tax but were given lands. The “Tiers Etat”, the peasants, the merchants and the entrepreneurs (the bourgeois) have to pay taxes to the king, the nobles and the clergé. The entrepreneurs were hobbled through powerful guilds which prevented newcomers for starting new businesses. This is only in 1789, the French Revolution, that the feudal system was abolished. “Taxes shall be collected from all citizens, and from all property, in the same manner and in the same form.” The guilds and all occupational restrictions were removed creating a “more level playing field” in the country. This was a revolution it took centuries before it happened and was not done on a peaceful and graceful manner. The Third Republic (1870-1940) brought free education with the creation of primary teachers who were the basis of French meritocracy. This is only in the XIX century that was established a corps of tax people honest and competent.

Foreign aid with the best consultants will not replace the time of history.

Needless to say, that law and order were not enforced on the Afghan territory (as in a lot of developing countries), the legal system is inexistent or not functioning, local warlords run parts of the countries without considering the central government. In this respect, foreign aid can only be ineffective and will disappear before being delivered where it is supposed to go (D. Acemoglu & J. Robinson, 2012).

In addition, if officials of the governments are basically corrupt, this is considered as outside the scope of foreign aid. Foreign donors act as if it exists but has no consequences on our jobs. It has consequences it undermines the efficiency and the raison d’être of foreign aid. You may say, we all know that corruption is part of the game, so it is naive to seem obfuscated by it. Well, we understand that Afghanistan and other developing countries have corruption but there is a limit, when corruption is pervasive and it is common knowledge that a part of aid flows is used by officials for their own use, aid should be stopped.

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Corruption is not limited to local people, the UN and official corporations may also siphon off aid money I cannot resist mentioning, as a parenthesis, the oil-for-food program since I used to work for this program (work does not mean involved) in the Iraqian Kurdistan. The oil-for-food program was established by the UN in 1995 to allow Iraq to sell a certain quantity of oil on the world market in exchange for food and medicine for Iraqi citizens. Individuals or organizations sympathetic to the Iraqi regime were offered oil vouchers they can sell in the open market. The seller could retain a commission fee. Needless to say, that these authorizations to sell Iraqi oil was a source of corruption. The GoI was giving these vouchers against a kick back. The companies who were supplying goods against this oil-for-food program were overcharging by up to 10%, the proceeds being shared between the Saddam regime, officials and the suppliers. The UN was not much interested in competitive bidding. The proceeds of oil sold by the Iraqi officials were sent to an escrow account managed by the BNP-New York. The UN Secretary-General, Boutros Boutros-Ghali personally selected BNP to manage the huge Iraqi escrow account (about $64 bn). The BNP New York branch was the sole bank handling funds transfers for the Oil-for-Food Program. An investigation by the US House Committee on International Relations found that BNP Paribas made payments for goods without proof of delivery and allowed payments to third parties not identified as authorized recipients. Investigators estimate that the bank received more than $700 million in fees under the UN program, which began in 1996 and ended after the ouster of Saddam in March 2003 (source: the US House Committee on International Relations). Some may remember the role of Benon Sevan in Iraq. Benon Sevan was the UN executive director for the oil-for-food program in Iraq. Benon Sevan not only accepted but solicited oil vouchers through Saddam Hussein and the UN did not see anything. Benon Sevan sold oil vouchers for at least 11 million barrels of oil worth some $3.5 million to relatives of Boutros-Ghali. When he was asked the source of his fortune, he replied that it came from inheritance from an aunt. In addition, the Volcker’s commission found that under the auspice of the UN, 2000 companies were paying bribes to participate in the program. Some contractors received overpayments by UN officials. In Australia the Australian Wheat Board, the single largest supplier of humanitarian food under the oil-for-food program paid more than $200 million bribes to Saddam’s government. In France, the Volcker’s Commission opened investigations regarding 170 French companies that surcharged on sales of cars and trucks (Peugeot, Renault). A former French ambassador to the UN (1991-95) was charged for receiving illicit contracts to buy oil from Saddam Hussein. Same for a British MOP. Russia the “foreign oil company” was paying more than 8 million dollars in surcharges. So corruption is not limited to poor countries, even the moralistic UN is corrupt.

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The foreign aid cycle repeats itself over and over again. I am amused to read the same terms of reference for the same country asking consultants to perform the same job which was requested five years ago (how many performance budgeting programs financed for an African country by the European Commission, the WB?) They simply don’t see that program budgeting is not possible in a country where you have a separation between the expenditure department and the Treasury. Both departments have different budgetary nomenclature and the Treasury who executes the spending does not have the same classification as the public expenditure department, in addition the executing agency (the Treasury) does not see the need or the interest for implementing expenditure on a programmatic way. The result of it, at least in the French budgetary system, is that there is a program budget presented to please the donors which is nothing else than the traditional budget with pompous titles about values-objectives-outcomes-outputs-performance targets-programs, efficiency, the traditional soup to show how the consultant applies (in the paper) best practice. In fact, at the end of the day each department continues their business as usual. This is a dangerous distraction about the question that the consultant should raise: is that specific (traditional) expenditure useful for the country or useful to please the civil servants? Can we cancel it or at least reduce it, and replace it with a more useful expenditure? All these basic questions are swamped by an “expert soup”. This is true in developing countries as in France too.

One solution used by the IMF and followed by other donors is conditionality. Aid is given (in fact loaned) to the government of a country against change in the policies of the country. All donors nowadays condition their aid to reforms, they establish complex and exhaustive matrix of reforms where all specialists are invited to put conditions. The result is something incomprehensible which will never be respected by the recipient country who will, of course, agree with everything knowing that nothing will be done and that the aid donor’s raison d’être consists to grant or lend the maximum of aid to the country to fulfill its targets to please the management. To set one realistic condition which flows from the diagnostic would be perhaps less glamorous but more efficient.

The George Bush administration undertook to propose political conditionality for example encouraging a country to move toward a market economy or moving toward democracy. For country lacking foreign exchange and moving toward a communist regime (Peru) or moving toward a totalitarian regime (Afghanistan), this could be a possibility: conditioning foreign aid to the liberalization of the country and to respect basic human rights for their population and for women.

Foreign aid is not very effective in dealing with the failure of nations around the world because the political and institutional dimension of the problem is not touched by foreign aid and the expertise of consultants is limited.

You may wonder, does that mean that foreign aid is useless because corrupt and inefficient? Well, this is, of course, not true for all aid, most of it is sometimes useful. Foreign aid should, in my view, work with a marginalist approach and humble way, analyze the situation (this is the diagnostic phase rarely made by consultants who jump to the solutions without knowing the problem), try to improve what is existing and functioning well at the margin (instead, most aid donors (EC) have grandiose blueprint which will never work (make a program budgeting for all ministries in a country for the third, fourth time instead of understanding why it did not work the first time).

After spending years in the development business as an economist, I ask my dear colleagues to help in responding to the question of the usefulness of foreign aid and of our job.

Since I touch upon Afghanistan and the consultant’s job, I would like to remember the memory of my good friend, Del Singh who was killed in 2014 (39 years old) by the Talibans. He was serving as a budgetary expert in Kabul. He loved his work, he wanted to see a more peaceful world. He was friendly, funny, big-hearted, with humour and humble. His dream was to be an MP in the UK or with the European parliament. He told me that when elected he will invite me for lunch at Westminster.

Finally, the job of a consultant may not be so useless since a man as Del who “through 10-year development work in countries such as Afghanistan, Kosovo, Sudan and Sierra Leone, had dedicated his life to working with people across the world who needed his support” Ed Miliban.