Egypt should maximise its use of available foreign aid, but, with a long history as a recipient, must avoid falling into its traps, argues Talaat Abdel-Malek* Foreign aid is one of those topics that have provided ample room for discussion and controversy over the years. The world has had over 50 years of experience of aid giving and receiving in the post-war era. This experience has enriched our knowledge not only about aid -- a broad subject with numerous interrelated issues -- but also about the entire development process foreign aid supposedly seeks to accelerate. Hundreds of billions of foreign aid dollars have been dished out to developing countries, and hundreds of billions more will be provided in the next few years, even if the pleas for increasing rich countries' aid allocations come to naught. Given this, the question now is how much foreign aid is enough? Let us pretend for a moment that foreign aid resources do not impose a tight constraint on available aid. How much do we really need as an economy at this stage of our development? What type of aid is most effective? Is more aid necessarily better? Implied in these questions is that the amount and mix of foreign aid depends largely on the economic conditions of the recipient country concerned. Egypt has been a long-term recipient of foreign aid from a multiplicity of sources and in a variety of forms. The US aid has been the dominant component in terms of magnitude and coverage, although other sources, including the European Union, have not been insubstantial. Without going into figures, we can confidently say that Egypt's need for all types of foreign aid was much greater in the early 1980s than it is now. There is not much controversy on this point. Like other economies just embarking on a huge reform programme, we needed assistance in many fields, whether in the economic sector or in areas of technical knowledge. A major objective was to build a modern infrastructure after years of neglect, compounded by increasing population pressure and an ailing economy. More and better hospitals, schools, highways, airports and other infrastructure requirements were urgently needed to translate reform decisions into realities. Without foreign aid, Egypt would have either proceeded at a much slower pace or incurred heavy debts that would have taxed its future revenues to the limit. Besides infrastructure, we also had to obtain more food -- especially wheat and other vital commodities -- to fill the gap between local supply and rising demand. So, there is no doubt that foreign aid was instrumental in helping to put Egypt on a faster development track. While there is still work to be done in modernising and completing our infrastructure, priorities in recent years have shifted to other concerns. Emphasis is now more focused on such domains as accelerating reform via privatisation, opening our markets to imports, building a technology base to modernise our sagging industrial structure and strengthening educational and training institutions. It can, therefore, be argued that we need more, not less, foreign aid in the years to come, to meet these challenges that Egypt cannot cope with all by itself. This is a fair argument, but it does not really answer the questions posed above: how much aid, what kind and for how long? A more persuasive (as well as accurate) response to these questions lies in examining whether and how effectively we have been using foreign aid to strengthen our national capacities. The basic thesis presented here is that unless foreign aid received in a particular area "self-destructs" after a reasonable period, our dependence on it can do more harm than good. It stands to reason that we seek foreign assistance to introduce new technology in a hospital or a new production process, for example. But it makes much less sense to keep requesting the same assistance for replication in similar projects, under the pretext that these funds are obtained at little cost. This is a fallacious argument and can be dangerous in terms of its policy implications and the strategic goal of achieving greater self-reliance. Successful development experiences have shown that, once the basic infrastructure is in place, the less foreign aid there is, the more pressure is generated to mobilise local resources to achieve set objectives. This act of mobilisation serves not only to improve resource utilisation, but also to gain freedom from foreign aid strings, explicit or subtle. Whether it is infrastructure, policy support or a business enterprise, the maximum that foreign aid can and should do is show us how the challenge at hand can best be handled in light of experience elsewhere. Even here, the most helpful foreign aid approach is to review with beneficiaries a number of alternatives and jointly choose the most appropriate option. In this way, we gain two important benefits: we actively contribute our in- depth knowledge of the local environment that enhances the success prospects of implementation, and we maximise our learning and acquisition of know-how from the expatriate counterparts. What is in this approach for donors? Donors have repeatedly announced that their key objective is to facilitate development and restructuring of the economy. Their main reward, therefore, will be in the form of more effective institutions and better capacity building in the receiving country. This is not an intangible objective. On the contrary, it can be measured fairly accurately by monitoring how national staff takes over and efficiently manages aid projects after aid has come to an end. In other words, we look at the sustainability of aid-supported projects after foreign inputs have ceased. But donors derive other benefits as well, through recycling a healthy chunk of aid funds back to their respective suppliers of equipment, know-how, and the rest. We must ask: how many aid-assisted projects have been sustained at an acceptable level of efficiency? And what new initiatives have come about with the help of know-how we are assumed to have acquired through foreign aid? Aid would be considered successful if the supported project continues to operate as a viable concern afterwards. But aid becomes even more successful if the newly gained knowledge it has contributed leads to new initiatives, thus producing a positive multiplier effect. In a nutshell, the crucial criterion in foreign aid evaluation does not lie in its magnitude or sophistication as much as in its contribution to national institution and capacity building. Some people may think that this is too narrow a view in approaching aid evaluation. It is not appropriate for assessing emergency type aid (famines or disasters) for example. However, capacity building has to be the dominant yardstick wherever assistance focuses on developmental issues of medium- to-long-term concern, even though other criteria may be applied in special circumstances. Otherwise, aid would act as a band-aid or become self- perpetuating, thus creating over- dependence and causing significant long-term damage. What can be done to produce better aid results? It takes actions on both sides of the aid divide to improve effectiveness. Having had the opportunity to engage in the foreign aid process in aid receiving and aid providing capacities, I believe that certain attitudes and practices need to be urgently reconsidered, though some of these may be difficult to change in the short-run. Let us first address our position as a recipient country. A major shift in our thinking about foreign aid is necessary, especially on the part of the negotiators of aid agreements and those who stand to benefit directly from aid (target sectors or projects). We have to rid ourselves of the mentality that "more is better", and focus instead on the "how" and the "why" issues. How will aid assist in dealing with the situation at hand? Where does the target project fit in the bigger picture? What else is required if aid is to generate maximum benefit? How should we actively contribute? What steps and conditions have to be met in order to ensure sustainability and why? These and other questions need to be addressed professionally, rather than politically, first. We also have to learn to say no at times, even where fund availability is assured. There is nothing worse than agreeing to an aid-funded project simply because the money is there. As a recipient country, we should also place more emphasis on developing a cadre of human resources that handles foreign assistance issues professionally at different levels. We need more skills in three critical areas -- project feasibility and assessment, foreign aid negotiations and project management (during foreign aid and after it ends). In addition, improved government machinery should be devised to achieve better coordination of aid requests and priorities and formulate a coherent national plan. These skills are in short supply. Why not use foreign aid resources to strengthen our national capacity to manage the whole foreign aid process? Vested interests in aid projects are a well-known reality. There is nothing wrong with these interests, provided that those in charge of reviewing aid requests and negotiating agreements do not fall victim to their undue influence, exercised through legitimate lobbying or other means. Falling in that trap leads to sacrificing the public good for private gains. The issues are no less challenging from a donor's point of view. The espoused "partnership" approach to foreign aid needs to be applied more rigorously than hitherto, particularly regarding bilateral aid. Without denying that there is a major political element in foreign aid agreements, donors should address technical and substantive issues more seriously and persistently, especially those related to capacity building, a point on which they have made repeated announcements. This should apply not only to overall agreements but, more importantly, to the specific projects that translate agreements into tangible results. The question of tied aid has been a long-standing problem. The percentage of tied aid has gone up or remained unacceptably high, with few exceptions. In an interview with Al-Ahram on 26 May, Hassan Selim, first under-secretary of the Ministry of International Cooperation, stated that 70 per cent of USAID assistance returns to the American people in one way or the other. This, I suspect, is a very conservative estimate, considering what could be done with the funds allocated in the absence of the strict conditions and restrictions attached. European Union programmes fall in the same category. The tying of aid as such is not the major problem; the consequences are what matter. Exaggerated prices by donor country aid providers, the calibre of experts nominated, inadequate knowledge of local conditions affecting project implementation, reluctance to use more local expertise even where qualifications and experience are on a par with expatriates and bureaucratic procedures in handling aid matters are all serious obstacles that undermine the potential positive impact of aid. One must add the question of transparency -- an issue that many donors, rightly, have repeatedly asked us to improve. Transparency problems, however, exist in donors' practices as well. Situations do arise when donors' aid administrators would do well to practice what they have been preaching. One significant contribution that donor-funded projects could make is to tabulate and make available the huge amount of data they gather on Egypt's sectors and activities (through consulting and survey work), thus helping to establish a badly needed database for public and corporate users. It is realised that data collected under aid projects are treated as strictly confidential, as must be if credibility is to be maintained. Without breaching such confidentiality in any way, the data can be aggregated and processed by sector or size (or similar criteria) so as not to reveal the identity of individual enterprises or agencies. To conclude, we need to ensure that foreign aid is used to help us build our national institutions and human resources to meet an ever-changing and challenging world. We have concentrated here on foreign aid, but must also remember that the most effective type of assistance bilateral donors can offer is to open their markets more to our products and services. This would be much more beneficial, assuming that our exports meet quality and price competition. * The writer is professor of economics at the American University in Cairo and a former senior adviser to the International Trade Centre UNCTAD/GATT, Geneva.
