Development Fund Model

by Goran Hyden

Introduction*

The purpose of this paper is to introduce a novel proposal for how foreign aid can be made more productive in the current context of sub-Saharan Africa. The basic assumption is that foreign aid must be adapted to the specific challenges in these countries: high levels of external dependency; weak public institutions; pressures to democratize; and, low levels of trust. The politically autonomous development fund, that is being proposed here, serves as an intermediary between the donors, on the one hand, and the operative recipients on the other, thereby promoting greater local responsibility and accountability and motivating Africans to take important steps towards improved governance. By helping to aggregate incoming donor finances into sectorial funding mechanisms, these funds reduce the administrative burdens on both donor and recipient sides.

This paper is written as a background paper for discussion. It introduces the challenges and the rationale for these funds and continues to outline their basic features. It ends by raising a number of questions that need to be further addressed before the proposal can be put into operation.

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Goran Hyden, Ph.D., is a Professor of Political Science at the University of Florida. He is the author of Governance And Politics In Africa, No Shortcuts To Progress: African Development Management In Perspective, and Beyond Ujamaa In Tanzania: Underdevelopment and an Uncaptured Peasantry. He is also past president of the African Studies Association.


* This contribution by Goran Hyden served as a background paper to the discussions on Autonomous Development Funds at the Expert Consultation in Uganda in April 1995. It presents the rationale for these funds and outlines in some detail their main features. The background paper is based on four assumptions. The first is that a critical variable in determining the effectiveness of foreign aid is how it is dispensed. This becomes particularly critical in situations where public institutions have lost much of their legitimacy and ability to influence the course of events. The second assumption is that a trusting relationship between donor and recipient is a prerequisite for the good use of foreign aid. Only then will the physical capital (money) that the donors provide begin to be converted into social capital, i.e. institutions that will sustain development efforts based on local commitments. The third assumption is that donors need to be less selfish or nationalistic in their approach to foreign aid and not think that the control they have over the preparation of a given project the more likely it will be that the project will yield positive results. What is needed is a modification of this process so that donor coordination takes place in response to the expressed needs of recipient institutions. Finally, the fourth assumption is that development funding must be available not only at the central, governmental level but also at lower levels. The central control of decision-making, information flow and resource allocation can be broken if local institutions, including local governments, are able to enhance their financial autonomy vis-a-vis central government.The autonomous development fund model, then, is characterised in the following way: it is a public but politically independent institution; it caters for both government and civil society; it is a funding not an operational entity; it aggregates finances from many sources; it brings donors and recipients together in new ways; and it is national in its scope of operation.