About me.

Andrew M. Mwenda is the founding Managing Editor of The Independent, Uganda’s premier current affairs newsmagazine. One of Foreign Policy magazine 's top 100 Global Thinkers, TED Speaker and Foreign aid Critic

Friday, October 5, 2012

The story of Rwanda Dignity Fund

Donors who cut aid to Kigali inadvertently made it discover a new aspect of its potential – citizen solidarity
When the governments of United States, United Kingdom, Netherlands and Germany cut aid to Rwanda three months ago, I was among those who did not shed a tear. I have always argued that aid is a dysfunctional tool of development policy. In many instances, it forces recipient governments to adopt institutions, policies, and practices that donors fancy rather than what citizens need. All too often, they are good for the donor country (because they evolved organically out of its experience) but are often inappropriate for the recipient nation given its unique history and social structure.
At its root, foreign aid is an inconsistent and, therefore, unreliable source of capital for a country’s development needs.  Its givers who are largely Western governments often have competing agendas and unrealistic demands. They insist that recipient governments behave as international donors wish, short of which, they arbitrarily suspend aid. It is difficult for the recipient country to establish which conduct is acceptable since governments in donor countries change all the time. And every new government comes with its own whims, ambitions, agendas and policies. These are influenced by many factors in the donor country; it may be changing ideology, a campaign by a human rights group or existing security concerns. This arbitrariness makes aid uncertain and hence reducing incentives of the recipient to be consistent about policy.

Compare aid to Foreign Direct Investment (FDI). Because FDI is private money whose shareholders are looking for a good return, those who manage it tend to be realistic and take a long-term view. For example, a company like MTN is unlikely to pull out of a country because a human rights group has made noise about something. If it does, the costs to its shareholders would be enormous; it would lose the capital it had invested. Thus, self-interest makes FDI much more cautious and realistic. Aid is OPM (other people’s money i.e. taxpayer money). Those who manage it lose nothing if they suspend it. So they work largely out of altruism. This self-righteousness makes aid a puritanical, hubristic and, therefore, arbitrary form of capital.

However, the worst effect of aid is to undermine the evolution of an effective state. One of the proxies economists use for effective states is tax administration. The more elaborate and robust the tax administration of any country is, the more effective will be the state. This is because for a government to be able to mobilise revenues from domestic sources in a comprehensive manner, it has to develop a social map of the society over which it presides. It must register every business activity, name every road and street, mark every plot and house, count every employee etc. To build capacity to acquire and utilise such information is a daunting task.

Aid dependent governments have little incentive to invest in building a robust tax administrative apparatus i.e. in penetrating their societies. This is because for every fiscal shortage, they look to international donors to fill the gap. This tends to disarticulate the state from its people. Governments develop limited interest in the productivity of the domestic economy. They also avoid the difficult task of negotiating with their citizens for revenues. Such negotiation is essential to building a culture of democracy and accountability. Unable to appreciate the costs of the incentive structure their aid has created, donors begin to treat their incompetent recipient as they would a child.

In spite of these obvious pathologies, Rwanda under President Paul Kagame has always disproved my argument on each and every one of these dysfunctions. It depends on aid for almost 50 percent of its budget. Yet it has developed one of the most effective tax administrative systems in contemporary Africa. It has little corruption, has kept its government engaged with its citizens, cut down on wastage and adopted policies, practices and institutions that respond of the needs of citizens rather than donors. Ironically this has made donors love Rwanda and hence shower it with more money. The country has been a living disproof of my criticism of aid.

Hence, when donors cut aid to it because of Congo, a country that is the exact opposite of what Rwanda is, they defeated even the little legitimacy they have in giving it. Congo is corrupt. Congo is incompetent. Congo is dysfunctional. Congo has an absent state in most of its territory. Congo misuses aid given to it. Congo has little interest in the welfare of its citizens. Congo does not build roads or schools and hospitals. It does not provide any services to its citizens that are worth talking about. Whether it is healthcare or education, agricultural extension of security, Congo fails on each and every thing. Instead, Congo exports its dysfunctions to its neighbors. It endangers their security, exports refugees to them and more.

It is the Rwandan people who again affirmed my criticism of aid. When donors cut aid, the government called upon its citizens to fill the gap by setting up the Agaciro Development Fund. Agaciro means dignity. Rwandans felt insulted with this callous use of checkbooks as a form of blackmail. Rwandans responded with characteristic solidarity. Peasants, workers, vendors, businessmen and women, civil servants, soldiers, policemen, cleaners, students, professors, taxi drivers, waiters, bartenders – everyone contributed. In just under 30 days (one month), they raised RwF 18 billion (US$ 30 million) in donations to their government – more than the total donors had cut and an unprecedented show of national pride.

Rwandans responded this way because they believe in their government and leadership. Those who accuse Kagame of reigning over a dictatorship may need to go back unto the drawing board. Trust cannot be enforced; it is earned. The people of Rwanda have said again and again in opinion surveys by state research institutions and by international polling firms that they trust their government. In all of them, Rwanda ranks among the world’s leading ten democracies – New Zealand, Sweden, Austria, Australia, Norway, Finland, Denmark etc. Critics say the polls are rigged.

Perhaps donors and their Congolese baby may need to learn that rather than disparage Rwanda and its president, they may need to use them to stabilise that troubled country. Rwanda has the experience, self-interest and proximity to DRC that is vital for a solution to that country.

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