Political Transition and Inclusive Development in Malawi; The
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9 The impact of emerging donors on development and poverty reduction Dan Banik and Michael Chasukwa Introduction The traditional foundations of foreign aid have been numerous. In addition to political ideology, foreign policy, commercial interests and national security, there are large elements of altruism and a desire to reduce global poverty. The world of foreign aid is complex and includes Offi cial Development Assistance (ODA, which are concessional fl ows with a grant element of at least 25 per cent) and development, humanitarian and emergency aid provided by non- governmental organizations, civil society organizations, bilateral donors and multilateral agencies. Ever since the end of the Second World War, and the provision of capital by the United States to Europe, there has been considerable interest on the extent to which foreign aid promotes economic development. And many contributions, including feminist theory, participatory and human rights-based approaches, have challenged the assumption that economic growth and market liberalization alone will help to reduce poverty. Indeed, the entire concept of assisting poor countries to achieve economic development and social welfare has been much debated in recent decades. And the international discourse is currently focused on the rapidly changing objectives of aid, the instruments used to deliver aid, the effectiveness of aid measured in terms of concrete results, the players involved in the aid business, and the institutions governing the relationship between developed and developing countries. In recent years, many of the so-called emerging economies are increasingly infl uencing social and economic policies around the world. In particular China, but also India, Brazil and South Africa, are interacting in numerous ways with poorer countries, including so-called South–South dialogues. These give access to natural resources and new and growing markets, and also reduce the dependence of African countries on traditional forms of aid from the Global North. These emerging countries and their policies represent a counterweight to the policies and development aid models that have for long been promoted directly or indirectly (e.g. through multilateral institutions) in poor countries by the Global North. Malawi’s economy is heavily dependent on (Western) foreign aid, which funds almost 40 per cent of the national budget. However, China is increasingly supporting a wide range of projects (from infrastructure and health to education 148 Dan Banik and Michael Chasukwa and agricultural technology) that appear to complement Western efforts to promote development and reduce poverty. The purpose of this chapter is to critically analyse and highlight the impact of ideas, values and tangible benefi ts resulting from China’s engagement in Malawi. Rather than providing budget support to governments, and conditioning aid on support for democracy and gender equality, the Chinese model has consistently emphasized the principles of ‘win–win’, ‘mutual respect’, ‘friendship’ and ‘non-interference’. China has further projected the idea that state-to-state relations ought to be benefi cial for itself and the aid recipient country, and conducive to each other’s national development. Hence, it has introduced in public discourse of Malawi terms such as ‘complementarity’, ‘potential’ and ‘opportunity’. The aim of this chapter is to provide a more nuanced understanding of the nature of foreign aid policies implemented by new donors such as China in Malawi. The study is based on fi eldwork carried out in several phases over a period of fi ve years during which we interviewed key informants from various ministries (e.g. Ministry of Foreign Affairs, Ministry of Trade and Industry), business communities in rural areas, civil society organizations, judges in the Malawian Supreme and High Courts, journalists and editors, Malawian employees involved in Chinese projects and Chinese project staff. We have also examined articles appearing in the print media (e.g. The Nation, Weekend Nation, Daily Times and Malawi News) as well as online media sources. Starting with a brief overview of the history of foreign aid in Malawi, we examine how and to what extent Chinese aid to Malawi has had a positive impact on development and poverty reduction. We argue that Chinese foreign aid and investments have contributed signifi cantly to addressing macro-level national and community problems. Indeed, Chinese aid is remarkable because it focuses on the neglected and ‘orphan’ sectors such as infrastructure and energy. The spillover effects of macro-oriented projects have been the generation of new employment opportunities and the growth of small and medium-scale business enterprises run by Chinese nationals in urban and semi-urban areas where local communities have access to a large range of Chinese products at affordable prices. The controversies surrounding China’s activities in Malawi primarily relate to the inability of local businesses to compete with the Chinese, the quality and durability of infrastructure projects and disagreements between the Malawian and Chinese governments regarding who should cover the high costs of maintaining the Chinese-built infrastructure projects. Development aid to Malawi: A brief overview Malawi’s development indicators are not very impressive, and the International Monetary Fund ranked the country the second worst performing economy in the world in 2013. And in 2015, the World Bank placed Malawi among the poorest in the world based on the GDP per capita. Almost 54 per cent of the population lives on less than US$1.25 a day, and the country faces an acute shortage of foreign exchange, which makes important essential goods, including medicines, The impact of emerging donors 149 extremely diffi cult to access. Moreover, the Malawian economy is highly vulnerable to various types of shocks as it is highly dependent on the agriculture sector, which generates over 90 per cent of foreign exchange earnings and employs around 85 per cent of the population (Chinsinga, 2008). Tobacco accounts for 60 per cent of the country’s foreign exchange earnings, but the weak exporting base in general has put considerable pressure on an economy that is otherwise among the fastest growing consumer markets in the world (Euromonitor Research, 2014). Indeed, consumer spending grew 18.2 per cent in 2014 and total consumer expenditure was expected to reach US$5.6 billion by the end of 2014, refl ecting spending of on average US$335 per capita. The precarious nature of the economy frequently results in budget defi cits, which in turn have highlighted the country’s dependence on foreign aid. Thus, aid as a share of GNI has averaged around 24 per cent over the past two decades. And van der Meer et al. (2008: 17) fi nd that foreign aid as a proportion of the national budget averaged 38 per cent over the period 1994–2006, the bulk of which were grants which constituted 72 per cent of all foreign aid received. Malawi regularly falls short of fi nancial resources to fund government activities, which in turns results in greater reliance on support from foreign donor agencies. Much of the aid from western countries is directed at supporting the national budget. For example, Norway provided NOK50 million in 2013 as budget support to Malawi while an additional NOK250 million was provided to the country through other actors, including government agencies as well as civil society organizations.1 The interaction between the government and various international organizations and donor countries has been consistently fraught with growing tension. While the government has complained of erratic disbursement patterns that have an adverse impact on its ability to deliver effective public service, donors have often frozen or cancelled aid allocations following allegations of mismanagement and large-scale corruption in the public services. Budget support was fi rst suspended in 2002 and then in 2003, 2011 and 2013 due to concerns about abuse of resources. For example, between 2002 and 2005, the Danish Government froze all its aid to Malawi because of allegations of widespread corruption and fi nancial mismanagement. A group of donors – the Common Budgetary Support Group (CABS) – suspended aid in 2003 when president Bakili Muluzi was trying his utmost to amend the Constitution that would allow him to extend the constitutionally provided two-term offi ce to a third term. CABS once again suspended aid during president Bingu wa Mutharika’s second term in offi ce (2009 to mid-2012) on the grounds of worsening economic and political governance, which included several controversial pieces of legislation and executive decisions such as the amendment of the penal code (Injunctions Bill), amendment of the Media Bill and postponement of local government elections. Similarly, Germany froze its general budget support in 2011 because of Malawi’s reluctance to improve local governance and be fi nancially prudent (Resnick, 2012). Following the now infamous ‘Cashgate’ scandal in 2013 – where public offi cials were accused of siphoning off more than US$30 million – several donors 150 Dan Banik and Michael Chasukwa suspended budget support as well as reduced their aid allocations to Malawi. Thus, the CABS and other key donors suspended their budget support in 2013– 14, and are currently non-committal of supporting the national budget in the immediate future until Cashgate as well as other previous scandals (e.g. undocumented use of US$200 million by the