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CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 179-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE INTERNATIONAL DEVELOPMENT COMMITTEE
AID UNDER PRESSURE: SUPPORT
FOR DEVELOPMENT ASSISTANCE
Wednesday 4 March 2009 DR DAMBISA MOYO DR NEIL McCULLOCH, DR DAVID McNAIR and DR DIRK WILLEM te VELDE Evidence heard in Public Questions 44 - 114
USE OF THE TRANSCRIPT
Oral Evidence Taken before the International Development Committee on Wednesday 4 March 2009 Members present Malcolm Bruce, in the Chair John Battle John Bercow Mr Mark Hendrick Mr Marsha Singh Andrew Stunell ________________ Witness: Dr Dambisa Moyo, gave evidence. Q44 Chairman: Good morning, Dr Moyo. Welcome to our Committee. Thank you for coming to give evidence. For the record, would you give us your name, please. Dr Moyo: Sure, it is Dr Dambisa Moyo. Q45 Chairman: You are an author and lots of other things. Dr Moyo: Yes, I am an economist and most recently I was an economist at Goldman Sachs for the past eight years. I have just published a book with Penguin press called Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa. I am a full-time author for this year. I have another contract to complete a book called How the West Was Lost, which is looking at the financial crisis and how it is basically a harbinger for what I view as economic shifts longer term, global and political, going forward. Q46 Chairman: We shall look forward to seeing the outcome from that. I confess that I personally have not managed to read your book but I have read some fairly full reviews of it and I think one or two colleagues have read the entire book. I think it would be fair to say it is a challenging book and to some of us, perhaps, counter intuitive, but we are obviously very pleased that you are here to discuss your ideas with us. Very specifically you have called your book Dead Aid, and you have said that aid is harmful and you want it to end in a relatively short space of time. Could you perhaps give us an indication of in which ways you think aid has been actively harmful, perhaps with some specific examples from your own experience. Dr Moyo: Sure. Thank you again to the Committee for giving me the opportunity to come and have this very important discussion. I should give you my disclaimer upfront, which is that I am a very proud African but I am also a very concerned African, which is why I have taken the time to write this book. Just to give you a little bit of the motivation for the book and ultimately my thoughts in the book which I will be very happy to share with you, a product of many years of academic and work experience, including in British universities - I did my doctorate at Oxford in economics - and having spent many years also in the United States, working at the World Bank but also completing a Masters degree at Harvard. Through my work experience and my academic experience but also through the experience of growing up as an African girl, I have come to the view that aid is not working and in fact it is being quite harmful in terms of delivering long-term economic growth and poverty alleviation to the continent. I would like to start off by explaining what I mean by aid in the context of this book. Very simplistically, I define aid in three ways. There is what we call humanitarian aid, which is the aid that we in the global community send to places that have been affected by natural disasters. A good example would be the tsunami in 2004, or, for example, Myanmar (Burma) with their crisis last year and so on. The other type of aid is charitable aid, which is relatively small beer to what I am thinking about. This is the type of monies that individuals, primarily living in the West but again across the globe, put towards charities of their choice; for example, girls' education in Zambia (which is my home country). The book is not dealing with those two types of aid. Those two types of aid certainly have problems with respect to implementation and that are very well documented. Also, in terms of delivery, there has been a lot written about how these types of aid, particularly charitable aid, leads to promulgation of NGOs which ultimately, by and large, do not help to deliver capacity in Africa and in the developing world. But that is another book. This book is really focusing on the third type of aid, which is the billion dollar packages of aid that go from government to government or from multilateral institutions, such as the World Bank, to African governments. I am focusing on Africa here because that is what the book really tries to do. Focusing on that very narrow area, my estimates are that there has been about $1 trillion worth of that type of aid that has gone to Africa in the past 50 years. (That is again discounting all the humanitarian aid and discounting the charitable aid.) I feel it is important to understand that the original architects of the aid model - this is going back to the post-war era, post World War II, after the success of the Marshall Plan - had two targets in terms of aid: (i) it was going to help deliver growth and (ii) it was going to help with poverty alleviation. It is on those two metrics alone which I judge the success of aid to Africa. It is on those two aspects alone that I come to the conclusion that it has not worked. It is very interesting to me that some people think the book is controversial, because I think it is obvious and many of the Africans to whom I have spoken have said, "So what of the book? We all know it's true that poverty has increased." Just to give you some numbers, in the 1970s about 10% of Africa's population was living in poverty. Now around 70% of Africans are living in poverty, many of them living below a dollar a day. In terms of growth, with the exception of the past 10 years, which we can talk about later, we have seen systematically poor growth rates. My former PhD supervisor would describe it as a "sheering off". While the rest of the world was in some cases posting double-digit growth rates, Africa has been declining and in many cases has posted negative growth rates. Q47 Chairman: Nobody would argue with the basic facts you have presented. Obviously the Committee monitors what our Government does, particularly in the context of budget support, and their argument is that they are trying to build up the capacity of governments to run their own programmes rather than them to have them run for them, but you are saying that it encourages corruption. That is one of your arguments. We certainly would be very concerned if there were any evidence that our Government's money was being misappropriated, because we are always looking to ensure that it is properly audited. Paul Collier, in his review of your book, says that what we need is more transparency and more accountability. Your argument is: "Aid does not work, therefore do not have it." His argument is: "Aid does not work if it is not properly directed and not properly accounted for." Do you feel there is any merit in that argument? Dr Moyo: Theoretically, yes, I believe there is merit in that. However, as a practical initiative over the 50-odd years that aid has been in play, we have as a global community and global policymakers tried to ensure that aid is delivered in a transparent and accountable way and that has failed. This is via the conditionality programmes. It seems to me - and I should have prefaced the conversation by saying that my book is meant to be a positive, constructive book, and, importantly, the second half of the book comes up with a list of alternatives. The reason why I think that is important is because I am offering the global debate a better way of delivering growth, given that we have tried to deliver and implement aid in many different fashions which has consistently failed. In theory I do agree. It would be nice if we could implement aid effectively, but we cannot. It is not possible, particularly in an environment where the political system is very weak and government is incentivised to take aid. Q48 Mr Singh: In your book Dr Moyo you mention seven negative effects that aid may have on a country, such as inflation, Dutch disease and the crowding out of foreign investment. Are these consequences inevitable or could policies be adapted to take account of those effects? Dr Moyo: Policy can be implemented to take account of those effects. However, it is very expensive to do that. I give the example in the book of what a government is required to do in the event that they are facing inflationary pressure or, indeed, Dutch disease, where the exchange rate strengthens so dramatically as to kill off the export sector. Very often governments then issue bonds when the currency is very strong, to try to flood the domestic market with the domestic currency, so that it can cause the currency to weaken. Those types of interventions are very, very costly. The estimate that I put in the book is that in places like Uganda it cost the government about $100 million, which they ostensibly do not have to spend on fighting a policy that a priori is not, to my mind, effective. Q49 Mr Singh: Was that inflationary pressure? Dr Moyo: The specific examples I used here was on the back of Dutch disease. Q50 Mr Singh: And you say that was entirely due to the aid that was going into Uganda. Dr Moyo: Yes, absolutely. In the book and in the discourse amongst academics, the evidence is very stark. I picked one example but across the continent there are many examples of this. Q51 Mr Singh: Is there any way of removing that kind of risk? Dr Moyo: As I say, I think the cost of removing that risk would be that the central banks in these countries would have to intervene in the markets. The procedure of intervening means that they would have to issue bonds into the domestic market, which could be inflationary and therefore cause the currencies to depreciate, which is what you want, but the cost of doing that and issuing bonds is very expensive. Q52 John Bercow: You argue that aid has not worked. Many of us can envisage particular circumstances in which particular allocations of aid, if undertaken insensitively, can have the effect of damaging local markets rather than assisting the recipient population. But I confess that I find it difficult to get my mind around - and maybe I would have done so better if I had had the privilege of reading your book which I have not yet done - how as an overall statement it stacks up to say "Aid does not work". Specifically, how do you respond to those who say, "Well, we can demonstrate quite explicitly how it has worked in certain important respects which are the focus of the MDGs[1] and of British Government policy; for example, providing education to millions of children and HIV/AIDS treatment to millions of people." Those are, I think we would say, some of the directly positive consequences and benefits of aid. How would they happen without the aid? Dr Moyo: With respect to the MDGs in particular there have been a number of statements from officials, from the United Nations but also from the broader development community - and I am happy to provide the Committee with the quotes from many of the key officials involved in this - that they are almost certain that Africa will not meet any of the MDGs, as they were spelt out, by 2015. In some cases there is a greater concern - and maybe this is a neo-Malthusian concern - that, given the rapid population growth in the continent and the fact that 50 % of the population is less than the age of 15 on the continent, and also given the shrinkage in resources and demand for resources, that you could see much more instability across the continent. With respect to the MDGs specifically, it is very clear to my mind and I think to the minds of the architects of the MDGs, that those goals are not going to be met whether or not aid has been pumped in, which we know it has. On the point about the implementation, I agree with you that very often people who vociferously defend the fact that the international community should be intervening via aid would point to education or HIV treatments. I agree that those types of interventions have helped, but in a micro way. In reality, to my mind, the goal of aid is ultimately to get Africa to stand on its own two feet and be an equal partner on the global stage. I can guarantee that those types of interventions, such as providing education and scholarships to young children in Africa, although they might be wonderful in the short term will not deliver long-term growth. Ultimately - and this is what we call the micro-macro paradox in the book - you arrive at a situation where a child may have an education but the economy has not grown. Very often when I go to my home country I see a lot of young people on the streets who are in their teens and early twenties who have a very good command of English and they have a good education but there are no jobs and so they are on the streets. That type of situation is what I am really trying to target. In terms of it being a band-aid solution, absolutely, but that is not what aid is supposed to be doing. It is supposed to be alleviating poverty and delivering long-term growth, and on those two metrics it will not work. The other point I would like to make to the Committee is that I strongly believe that the whole aid model, certainly where Africa is concerned, is couched in a sense of pity for the continent. Rather than take a hard-nosed look at the effectiveness and the failures of aid over the past half century as critically as we are looking at the capitalistic model now, we tend to just brush over it and allow for a situation to perpetuate, even though we have seen other emerging countries do incredibly well during the same period that Africa has continued to spiral down. Q53 John Bercow: That is a very interesting response. I cannot help but feel that you have inadvertently, rather than calculatedly no doubt, parodied or even, dare I say it, caricatured some aspects of our aid. I have probably almost spoiled the argument by referring to the MDGs, because it is perfectly clear that the MDGs are not going to be met - although I think it would be hard to argue that they are not going to be met because of the aid: they are not going to be met for a whole plethora of reasons which we do not have time to explore. But let me come back, if I may, Dr Moyo, to this question of particular aid currently provided and to which, because we are the Committee that scrutinises this, DFID is committed, HIV work. The development assistance that we provide on HIV is not just in the manner of immediate relief. It is not just to fight a fire, if I might put it that way; it is also aimed at strengthening the domestic capacity and organisational robustness, if I might put it that way, of the health systems in the recipient countries. It is, in that sense, intended to build for the long tem. Dr Moyo: I think the intention is laudable. In practice I think that is not the case at all. I must say that I do not have specific evidence in respect to the DFID programme that is supporting HIV/AIDS, but if you allow me some indulgence I will give you an example from the United States. Q54 John Bercow: Of course. Dr Moyo: Under the PEPFAR[2] programme the United States had pledged, under the Bush administration, anywhere between $15 and $30 billion to 15 countries to focus on HIV AIDS. There has been a lot written about the parameters under which that aid is delivered and its effectiveness, but just to illustrate why it is ineffective in the narrow sense of capacity building to which you are alluding - because, ultimately, if we can prove that it is building capacity on the ground and building domestic capabilities then I would stand down and say that I am wrong - here is an example of how it does not work. PEPFAR then gives the money to an additional government organisation called OGAC[3] - and I am happy to provide details to the Committee. OGAC then splits that money across four organisations: Harvard University, Columbia University, the Elizabeth Glaser Foundation, and Yale University. After those four institutions are given the money, another set of institutions, USAID and CDC,[4] is another layer of bureaucracy. It has not got to Africa at this point: it is still within the United States. After that level, it is then split to individual organisations, many of which are Western organisations that are supplanted into the African continent. I am sorry to be longwinded about it but, ultimately, the estimate of the amount of the share of the dollar that ends up hitting a clinic in Africa is about 20 cents, with no transfer of knowledge or education to African doctors or African participants on the ground. The PEPFAR programme, as you know, has been a multi-year programme. To sit here and say that some people's lives have been saved because of HIV interventions, I absolutely agree. However, to sit here and say that there has been a transfer of knowledge and that it is benefiting the African continent in terms of Africa attaining the goal of being an equal partner, I disagree. Q55 John Bercow: I understand your thesis, but I am not clear how, in the absence of what may be very imperfect aid, it would be possible to fund basic services like health and education, and, in particular, what would be put in place to ensure that the poorest people had access to them rather than those somewhat above the poorest threshold who could no doubt buy their way in. Dr Moyo: That is a very important question. I think it goes to the heart of the matter. Ultimately, the delivery of services, such as public goods, should be the responsibility of the domestic governance. Ultimately, it is that to which we are aspiring. The only way that African governments can get to a position where they are able to finance that out of their own public purse is if the economy is growing. The fact that African governments are not able to deliver those goods because the public purse is challenged, is ostensibly because we have been under an aid model. As I said to you earlier, we have been in a situation where 10% of the population was impoverished and we are now in a situation where 70% of the population is impoverished. If we continue down this road, who knows, we could be over 90% of the population impoverished, and therefore moving away from what I would call a utopia where the government has taxation and is representing the domestic citizenry. The point that we are skirting around slightly - or I am, certainly - is the issue of the aid model disenfranchising local Africans. The fact that African governments are more beholden and responsive to the donor community means that, ultimately, we cannot get to a situation where African governments are focused on raising the money through the tax system or growing their economies in an accountable manner to the point where they can then deliver the social services that you are talking about. The prescriptions in my book are not meant to be an immediate aid turn-off. The suggestion is basically that we should aggressively pursue a model where, on a step-by-step basis, governments start to move away from the aid model and start to find alternate ways of financing development, such as raising taxes through foreign direct investment, through trade, through the capital markets - and we can talk about that some more - through micro-finance, and, ultimately, through building these economies so that they can use the money to provide the social services. John Bercow: That is very helpful. Thank you very much. Q56 Chairman: This Committee is not responsible, obviously, for the American aid programme. Dr Moyo: No. I understand that. Chairman: I think it would be fair to say that the model you describe in PEPFAR is one which, had our Government pursued it, this Committee would have robustly criticised and rebuked. We have a different approach and we want to explore whether or not there is any qualitative difference and we would like to think there might be. I am going to ask Andrew Stunell to take that forward. Q57 Andrew Stunell: Dr Moyo, you have put forward an extremely seductive argument and of course for many voters and governments it is self-serving: "Let's not give the money, we can find plenty of other things to do with it." I wonder if I could pick up this point about Africa. Are we suffering from Dutch disease here or African disease? If we look at Nigeria, for instance, which has the investment model with oil and loads and loads of money, there are still the same problems of poverty and a failure to tackle the issues which aid is intended to tackle. The alternative model does not seem to be delivering where it is available in Africa and I would be interested in your comment on that. Coming back to my second point, if DFID does not spend its money on aid, what should it spend its money on in order to achieve the results that both you and this Committee want to see? Dr Moyo: Before I answer you, if you do not mind, might I just comment on the fact that I draw on the American example. With respect to DFID, I think what I should do and what I will do is go and look at how many Africans have been employed and educated and how much capacity has been built on the back of the multi-year, multi-decade interventions from DFID, even in the health sector, because I think those are the kind of metrics that would effectively shut me out. Q58 Chairman: We would be delighted to have that information. Dr Moyo: Yes. Thank you. To your question with respect to aid versus other countries that are ostensibly failing across the continent, I would say that you are absolutely right. I am not saying that aid is the only cause of state failure or the failure of governments to deliver economic growth. What I am saying is that aid is a deliberate policy where we sit in London and we say, "Well, I think we should give African countries x additional billion dollars," whereas with something like an oil purse you either have it or you do not, you are either endowed with oil or you are not. That is not to say that there are not a lot of issues. Nigeria is a case in point. Congo (DRC) is an example. The fact that there are many countries in Africa that are still showing what I view as the challenges and the negative externalities of aid - corruption, aid dependency, sort of disenfranchising voters and so on - is really an artefact of deliberate policy, which is why I think it is important for us to tackle that policy. That leads me to the second point: What should DFID do? I believe that the British Government should engage with Africa in the manner that it engages with other developing countries of the world. In the best case scenario, as a trade partner. I personally am not very sanguine, I am not very optimistic that that is going to happen in my lifetime, but there are things like helping to support African governments to come to international markets. The British Government has a wealth of experience in doing that. Training African governments to participate in the capital markets and helping them to understand what that process is is much more beneficial because through the capital markets, by and large, there is an element of accountability and transparency that aid does not provide. The other thing they could do is to help build alliances to the point where they can get Africa to be an equal partner, as I say, on the stage, as opposed to having what I would view as an imbalanced relationship between donor and recipient, where African governments are pretty generally begging and donors are basically dipping into the largesse of the British purse without much result. Q59 Andrew Stunell: Would you say capacity building of African governments and African civic institutions should be the highest priority for the application of this money? Dr Moyo: Here I confess my bias towards economics. I believe that you will not get strong institutions, civil liberties, or a transparent or strong judicial system in a place that is aid dependent because of the corruption and the negative externalities that I have talked about. In that sense I believe that the economy is a deep pre-requisite to delivering on the governance and the democracy and all the positive attributes of a developed society. Q60 Andrew Stunell: To bring you back to Nigeria - and you mentioned DRC. Where there is that capacity, the money is available, maybe the aid is not needed, still we see a failure to achieve the objective we are talking about. Dr Moyo: Yes. Q61 Andrew Stunell: Is governance not at the heart of that? Dr Moyo: I believe it is, but I do not think that aid-supported governance programmes are going to help Nigeria to resolve its quandary. We have started to see improvements already in terms of the democratic process in Nigeria. I think there is a way to go, but certainly the fact that the economic windfalls are much more diversified now, obviously with the liberalisation of the banking sector and telecommunication in Nigeria, you see in their media and press much more of a participation amongst their domestic society - I would argue much more than you would find in many African countries where leadership has been in power for 40 years. I think there is now a very clear transition that Nigeria is going through. I am not saying that it will be stable but I think that they have a much better chance of achieving long-term sustainable development than many African countries that are dependent on aid. Chairman: Perhaps we could now move to the other half of your thesis and I will bring in John Battle. Q62 John Battle: May I say thank you for the book and for writing it, and I want to say thank you for getting us on to the ground of economics. I think economic justice, not charity, is where I start from. As someone who has read the book, I share with you the shift, if I might put it this way, of people in the North and the West regarding Africa as a colonial raiding model and then moving to a pity model. I am glad that you are challenging that. I grew up with that pity model. Sadly, I gave names to children in Africa, who may be nearly my age now, because we were adopting them and all that kind of carry on. I think it was completely unjust. It was not about economic relationships which should be just. I also share with you - which may come as a shock, as someone who set up with an NGO - the thought that NGOs can be barriers to structural development in places where you have to see structural justice through the system as well - and by that I mean institutional development at local level, intermediate level, council and municipal level and government level. NGOs can be in the way, and I accept that. But, to get to the heart of your question, I want to know how much the argument has moved on on the economic model and to test your economic model. In listening to you, I am almost tempted to say, "Come back when you have done the next book as well," because I think the argument is about economic growth but it is also about distribution and taxation and I am not sure we have answered that question. We have not answered it in Britain or America or the rest of the world. You mentioned the finance sector, the banking sector, and in capital markets transparency and accountability is a massive question everywhere now - but we will not go down that track, Chairman, as there are other committees in this building working on that. Let me put a particular question to you about whether aid can be a help, a stimulus and a catalyst that is complementary to supporting financial systems or whether you see it as a complete barrier. If you want alternative models, will they be alternatives or complementary? I will put it in a particular way. You have mentioned in the book that Lord Peter Bauer argued for the growth model for a long time. For 20 years we debated whether it was growth and what would be the implication. We had export-led growth. It is not true that all African countries went backwards. Some had an 8% growth, if we look at the 53 countries of Africa, through export-led growth. But were the profits of that growth shared equitably in developed education and systems? Answer: I do not think they were. Then we went through very heavy conditionality with the World Bank and the whole structure of adjustment programmes, and there was a campaign against conditionality, to trust the governments to develop its own systems - which is why I wonder if your work is not really an attack not on aid but on budget support. I am worrying because then I would say you have an alliance. I sometimes think the NGOs align with those that criticise budget support and I am passionately in favour of governments, budgets and systems, and seeing if we can reform and transform institutions to deliver justice for the people. I see government to government aid as being a catalyst and complementary but not undermining the other systems. How do you respond to that kind of diatribe in response to what I find is a provocative, stimulating book? - and thank you for it. Dr Moyo: Thank you very much. First of all, the book is dedicated to Peter Bauer because he was clearly ahead of his time. He was absolutely right in his predictions. As I am sure many of the Committee members know, he was effectively ostracised from the economics profession. Q63 John Battle: For a while. Dr Moyo: For a while. Q64 John Battle: Keith Joseph championed him here for 20 years. Dr Moyo: That is true, but ---- John Bercow: As did Enoch. Q65 John Battle: Enoch Powell, as well, yes. Dr Moyo: That was much later in his life, though. As you know, he subsequently was bestowed a peerage by former Prime Minister Margaret Thatcher. That said, I completely agree with him. The world was so taken by the view that aid could work that they ignored him. On your point, there is a fundamental statement that I would like to make, which is that no country on this earth has achieved sustainable growth and alleviated poverty by relying on aid. There is not a single one. For the world to be so gripped and obsessed with delivering more aid to Africa when we have no evidence that it works anywhere is problematic. Q66 John Battle: I am not sure it is, because remittances are four times the value of aid alone, remittances from people working abroad. Aid is 10% of the influence they bring. They are getting trade relations right. People say aid and trade, do they not, and remittances - the whole bundle - rather than thinking aid is going to do it? Do you not think there is a disproportionate emphasis on aid on your part? Dr Moyo: No. I just came back from spending time with the President of Rwanda a week and a half ago and in their country 70% of the public budget is aid dependent. The problem is not that there are other sources of financing - remittances, as you say, four times as much as aid investment, trade and so on. The problem is that the government, which is charged with delivering social services and is supposed to deliver the public goods, is primarily financed by aid, which means it disenfranchises the domestic population and that the government is beholden or is catering to another group rather than the people that it is ostensibly supposed to be supporting. Q67 John Battle: If you take Rwanda, the tax system is weak. Take Congo, the tax system is even weaker. It has natural resources. And I could put an argument up that goes straight along Peter Bauer's lines, that if there is export led growth, sell off your minerals and get the money, but if you do not have a tax system for the companies, all that happens is foreign multinationals come in and take the minerals and the people do not get any health care or education. I think that was a central challenge to Peter Bauer's approach. How do you respond to that? Dr Moyo: I would say that as long as governments have an alternative way of financing themselves, financing their armies, financing their lifestyles, they will not need to build the tax bases that are required to deliver long-term growth. That is essentially the problem. The other thing is that I wish aid had not existed in Africa. The Chinas and the Indias of this world, which were poorer than African countries 40 years ago, are now vying for top spots in the world economy, and they have done it without being dependent on aid. But the reality of the situation is that Africa will effectively be emerging from a complementary model, so even in the best case scenario, if my model implements and Africa had five years within which to wean itself off aid, it will not be the case that there will not be any aid going to Africa, it is just that I believe it is incumbent on the global community to move away from this aid model towards what we know works. Because it has not worked. We know what works as well, which is the good news. Q68 John Battle: I live in inner city Leeds and I am an urbanite. I struggle very hard to understand agriculture. I have campaigned in this Committee to increase investment in agriculture, but in 2008 the world tipped over into an urban society. 50% of under‑15s in Africa live primarily in the cities now. I wonder if the world has changed from the analysis of export-led growth because of the dynamics of the urban towns and cities? I am just wondering whether the relationship between economic growth and taxation is going to be an urban question or a rural one, and I think that will challenge us everywhere to look at the change. If I might just press you on economics again, why would a developing country want to raise money issuing bonds rather than through aid when those bonds will carry higher interest rates and stricter conditions? Dr Moyo: I address this question in the book. The financial cost, you are right, it is much more expensive to issue bonds in the international capital market, but there is an additional hidden cost that is not generally factored when people debate aid. What do I mean by that? As someone who has spent time working in the city, I know that if you are selling a product to a client, an investor, the first thing they ask you is what is the country rating or what is the rating of the assets. Most African countries do not have credit ratings and yet this is a relatively objective way of figuring out a credit rating: Are they good? Are they bad? - just as we on an individual basis have credit ratings for our banks. The important thing with that is that those credit ratings determine how much foreign direct investment (FDI) goes to those countries, whether people want to trade in these countries. It reflects how easy it is to do business in these places. In some African countries it takes two years to get a business licence. My point is that, yes, although the financial cost is higher to issue bonds in the capital market, when you factor in the vast amount of money through FDI potential investment and longer-term growth, the fact that you have a negative stigma associated with being aid dependent, the basket case that goes to the World Bank, it means that longer term the costs of relying on aid is higher. Q69 John Battle: What is burning my head up, in a way, is that in Malawi some of our aid money goes into training people. I am massively in favour of training accountants. I think it should be a good profession - justice in the arithmetic. We need more people to do accountancy and not pretend it is an evil science. If we were training treasurers in government departments and people to understand the world of investment, the bond markets and finance, would that not be a good catalytic use of aid? Dr Moyo: I think it would be a step forward. It is funny that you should pick Malawi. As you know, the former President is embroiled in a scandal right now. $11 million has gone missing. Q70 John Battle: That is why we need it. Dr Moyo: It is the tip of the iceberg. This again is the problem with these types of situations. The British Government has given money to a country - and here we have it, $11 million. He has been charged, he has not been indicted, but I think it is quite important. John Battle: We have people who have let systems collapse all over the world, including in banks in London and New York. Chairman: They have locked up some of the ministers in Malawi - certainly when we were there we saw that. I think aid dependency is a point of concern, but it is just worth saying that this is the International Development Committee not the International Aid Committee. We are focused on how we make development work. We are exploring aid dependency. Making aid the basis of the economy I think we would worry about, we do worry about, but getting rid of aid and having no aid at all is really the focus of this discussion, which is really interesting and I think you have given a good explanation of that. Q71 Mr Hendrick: In answer to an earlier question with regard to aid, you talked about the impact it would have on the currency in terms of it becoming weaker and devaluing. You said that, in order to counter that, the issuing of bonds would in itself strengthen currency. Is there not a case for doing what you are suggesting in terms of issuing bonds at the same time as balancing that with aid to make sure that the currency is at a level somewhere in between? Dr Moyo: The fundamental point that I think is important with aid is the negative externality. I picked one thing, the issue of the exchange rate getting stronger, but we have not discussed the other negative externalities, the corruption, the bureaucracy, which is causing these governments to have a lazy muscle. Let me just give you an example. Ethiopia has the second largest population in Sub-Saharan Africa. There are 85 million people. 2% of the population has access to mobile phones and the government is the only one that holds a mobile phone licence. To me, being the utilitarian economist that I view myself, it seems to me it is easier for the government to say, "Okay, we need to raise capital, why not auction off the licence, multiple licences. If we feel like we want to run one of these businesses, we can earn a tariff from that but also it grows the economy." There is proven evidence that through mobile phones there is more trade - a farmer in a rural area can get his foods to port and so on - so they can start to grow the economy that way. What we have seen is that the leadership from Ethiopia has publicly come out and said, "Don't forget us when you're handing out aid packages." So there is this lazy muscle. Q72 Mr Hendrick: Is anybody advising Prime Minister Meles in that direction? Dr Moyo: He was one of the members of the Africa Commission which the British Government underwrote. To me, this is an obvious case. Q73 Chairman: A very good point. Dr Moyo: You have a situation with 85 million people - and I was just in Ethiopia two and a half weeks ago. It is absurd. Anyway, my point is just that, yes, we can focus on these offsetting costs but there are other costs of having large aid flows and it creates this dependency and this lazy muscle. Ethiopia should be saying, "Okay, assume there is no aid, what other things can we be doing?" The economy is on its knees across the continent but Ethiopia is a classic example: 85 million, 2% with mobile phones, why is the government asking for more aid money. Q74 Mr Hendrick: I do remember the British Government in particular at one point was quite supportive and then that support was withdrawn at a later date. You are very complimentary in your book with regard to Chinese investment in Africa. There is a lot of criticism at the moment that with the downturn Chinese companies are leaving, very often without paying their taxes and in a way which is particularly harmful since commodity prices have fallen quite a lot as well. How do you respond to the critics who say that what the Chinese are doing in Africa is not in the interests of the African people? Dr Moyo: I believe that what the Chinese have done in 10 years in Africa has been amazing. It has been tremendous. They have built roads, they have provided jobs to Africans, and they have invested not just in the commodity sector they have, as we know, bought 20% in the largest pan-African bank, and they are diversifying their investments across the continent. This is not to say that what the Chinese are doing in Africa is perfect. It needs a lot of work. They are obviously in Africa to meet their own needs primarily. Again I think it is important and incumbent on African governments to provide adequate policy to ensure that Africans are benefiting from the situation and from the investment coming in from China. Just to point to a survey that I talk about in the book called the Pew Survey, the Pew organisation went to 15 African countries and surveyed Africans, asking them what did they think of the Chinese in Africa, did they think it was better or worse than the Americans or the British or French being in Africa and had they helped. Consistently - the numbers are quite staggering - Africans said that they think that the Chinese have done much better. They have done much better in terms of delivering growth, providing jobs - the things that are important to everyone around the world - and therefore giving Africans a real shot at a livelihood. The short answer is, yes, I think that the Chinese are doing good things. I think there are a lot of challenges. Even in my own country there have been some clashes and big debate about the role of the Chinese, but I think it is important that we focus on ensuring that were African governments accountable to the African people they would make sure that the social constructs and the economic benefits that Africans were getting were meaningful and helpful. So there is a lot of work to be done there, but I think that the Chinese come to Africa and look at Africans as potential business partners, whereas Westerners come to Africa - again it is this pity model - and feel sorry for Africans and they do not view Africa as an investment place. Q75 Mr Hendrick: In the West it is a lot more fashionable now to talk about conditions like improvements in governance, measures to combat corruption, all sorts of strings attached in terms of aid that perhaps in the past were not attached. Another criticism of the Chinese is that they provide the aid in a "no strings attached" way and are quite willing to deal with governments that are at best dubious and at worst corrupt and tyrannical. What is your view on that? Dr Moyo: I think it is quite interesting that from the perspective of an African some of the most evil despots that have ruled the continent, many of them still ruling African countries, have done so under the reign of western involvement in Africa, the Mabutos, the Idi Amins, the Bokassas and so on, so it is very interesting to see that the West now is kind of offended to have the Chinese there doing the same thing. I give an example in the book about how Mugabe is an example. Zimbabwe, even as late as 2006, I have data from DFID, got US $300 million from the US and the UK government. He is still getting money, even at this stage. Besides Britain is maintaining diplomatic ties, as we know, and America - they have an ambassador and a high commissioner stationed in Harare. If you are an African on the ground and you see this and you also see Mugabe coming to Rome, coming to the United Nations meetings - he was in the UN meetings last September in New York - it makes you wonder whether the West really does care about issues of governance and corruption. Why would you be funding $300 million to Mugabe? Why would you allow him to come here? This is a lot of the stuff that is in the media, but this comes to the root of the issue. You cannot point fingers at the Chinese if the Western governments are doing essentially the same thing. It is all bad and ultimately all boils down to accountability. Until African governments are accountable to African people, whether it is the Chinese or Westerners, they will continue to see it as a despots' playground. Q76 Mr Hendrick: Tomorrow the President of Somaliland is visiting. As you know, it is fairly democratic, fairly well run - a big contrast with Somalia, the remaining part of what the UN regards as Somalia. Can I ask you what your view is on that. Clearly this is a relatively stable economic entity in the north that wants recognition, yet the international community would rather see Somalia remain as one state for whatever reason. Dr Moyo: I do not know what the nature of the discussions of that are going to be, so I cannot comment, I am afraid, on whether it is good or bad. I cannot come down hard on that. My family lives in Africa and they suffer the consequences of this whole aid model every day. I would say it will go a long way to moving the continent forward if the West was quite transparent and objective about how it is that it deals with African leaders. There are countless examples. Museveni in Uganda becomes the darling of the Western donor establishment, then 40 years or multi-decades on he does not leave power and it becomes an entrenched part of the problem. Until we all start to say, "How are we going to get Africa on its own two feet?" these conversations are moot. Mr Hendrick: Thank you. Q77 John Battle: The credit crunch internationally, would that not put pressure on private financing now? In a sense, I am moving on to your next book, but if the whole financial systems of the world are clogged up and there is no private money being put forward, if we stop the aid programmes internationally in the next three months, where would the money come from? Dr Moyo: Yes, the credit crunch is a challenge but I do not view it as permanent. We all know that this apocalyptic state is not permanent, so for me I would encourage African governments to start to think about whether or not they will be ready with ratings and so on when the market comes back. But even beyond that, if you look across the world as opposed to focusing on traditional markets, such as the US and Europe, there are still pockets of money. As we know, China has $4 trillion in reserves, the Middle East ... Arguably these places have a better understanding of how to price African risk. I am not saying it is perfect but there are things that need to start to be done. If I can quickly pop in the answer to "What should DFID be doing?" another clear way of intervention with proven results is through microfinance. I was with Professor Yunus last week. In small Bangladesh he is lending $1 billion a year of money that does not come from multilateral institutions, it is from the community itself. The default rate is less than 1%. We have to innovate. We are not going to solve this problem without innovation. Q78 Chairman: You conclude that the financial crisis could be the best thing that has happened to Africa. Dr Moyo: I think so, yes. Q79 Chairman: Other people have said "Be careful what you wish for." You are about to have your model tested. Dr Moyo: Yes. Q80 Chairman: Why do you think and how do you think this crisis can be the best thing that happened to Africa? Dr Moyo: It can be the best thing because Africa needs innovation. In the same way, as I said earlier, we are criticising the capitalistic model but, whatever we say, it is a model that has delivered the greatest amount of wealth and alleviated the most amount of poverty. That is not to say that it does not need to be regulated left unshackled and unfettered it is a problem, but that is a truism. In Africa the preponderance of evidence is on my side, that it has not worked. For me it is important that the aid model is effectively being challenged - as we know, the Italian Government has slashed their budget by 50%, and the British Government, because of the movement in the pound, has the effect of a reduction in the amount of money going to Africa. This could be an opportunity for African governments to sit up and say, "Hang on, if we're not going to get aid, where are we going to find money?" Through trade, through foreign direct investment, through capital markets, in non-traditional markets and so on. I have never said that this model is easy. I think development itself is easy. We do not have to invent the wheel here: we know what works and what does not. The implementation will be difficult, but innovation is the only way to get Africa on its feet. Q81 Chairman: Thank you very much. It has been a very interesting exchange. It has been very provocative. On some of the things you have said the Committee would agree with you. There are others where I think you have challenged us and we will reflect on them. If you are able to give any input on the specifics of a DFID critique, we would value that, because we will have the Secretary of State giving evidence to us. John Battle: I think Dr Moyo would be a breath of fresh air to the Treasury Select Committee also. Q82 Chairman: That is also true, but I would make the point that some of the things you have said are qualitative issues which we would take on board. It is really important that in testing these things we have a challenge and we are made to think and indeed we make our Department think hard about what it is doing and what works. Your contribution is really interesting and really helpful. We are grateful to you for coming in and giving us evidence. Anything you can follow that up with we would be very glad to have from you. Dr Moyo: Thank you. May I also encourage you if you have the time and inclination perhaps to reach out to President Kagame of Rwanda. Therein is a country that is 70% dependent on aid but he is a very vocal criticiser of aid and he is very keen to get his country off of it. It may be interesting to hear where he sees the failure as a policymaker, and arguably Rwanda is one place which could totally guilt trip the world to give more aid but here he is seeing something about the effectiveness of it and how it might be delivered better in terms of long-term aid. Q83 Chairman: I am not sure we can either visit Rwanda or take evidence from him. Dr Moyo: He comes here often. Chairman: We are going to Kenya and Tanzania as part of our inquiry. John Bercow: It would be quite an interesting development for us to invite a sitting president. Q84 Chairman: We have had a prime minister in front of us. The point of us going to Tanzania is that it is one of the largest recipients of direct budget support from the UK Government, and, indeed, there have been questions asked as to whether or not that money is being properly accounted for. That is what we are looking at. I hope that will reassure you that we are indeed addressing some of the questions that you are concerned about. We take the point you made about Rwanda. That is a very interesting suggestion. We will find some way of looking into it. Dr Moyo: Since you have said you are going to Kenya, may I also urge you to visit Kibira, which is in Nairobi, the capital city. It is the largest slum in Africa of one million people. It has been in existence since 1918 and systematically the population has been growing. It is an absolute disaster. Most ironically, first of all, Kenya has one of the highest populations of NGO and aid workers per capita anywhere in the world. Also, UN-Habitat, which is charged with delivering low-cost housing but also clean, safe housing, to people is just a few metres away from this slum. Q85 Chairman: We are going to both. Dr Moyo: Wonderful and I hope you enjoy your trip there. Q86 Chairman: Thank you very much. Dr Moyo: Thank you for having me. I really enjoyed our conversation. Memorandum submitted by Institute of Development Studies Examination of Witnesses Witnesses: Dr Neil McCulloch, Fellow, Institute of Development Studies, Dr David McNair, Senior Economic Justice Adviser, Christian Aid, and Dr Dirk Willem te Velde, Programme Leader (Investment and Growth), Overseas Development Institute, gave evidence. Q87 Chairman: Thank you very much, gentlemen, for coming in. I am sorry it is slightly later than expected but I think you will agree the first session was an interesting and provocative one for us. Perhaps we can start on this. We are looking at aid under pressure: the impact of the global downturn and how it may affect development in the poorest countries. Are you able to give us an assessment of what you think the impact will be? Having just heard Dr Moyo's assessment or read her accounts, do you agree that the crisis actually offers opportunities or is it all downhill for poor people in poor countries? Dr te Velde: I think that the global financial crisis will have a major effect on African countries as well. It started in developed countries but it is now clear that there are lots of countries that are now going to be affected, including African countries. We can do some back-of-the-envelope calculations on that, but we estimate that there might well be an output loss of about US$ 50 billion for sub-Saharan Africa alone. There are a number of channels through which that can work: there could be a decrease in remittances; a decrease in export revenues; a decrease in foreign direct investment; and there might also be a decline in the dollar value of aid. We can also do some back-of the-envelope calculations on that. Q88 Chairman: Given that Dr Moyo was almost implying that it might lead to a resurgence of self-help, people being innovative, do you think that is right? Dr te Velde: I would certainly agree that growth innovation is important. The question of course is: how is that being stimulated? If we look at evidence around the world, does the recession actually help innovation and growth? I am not so sure whether that is the best way to stimulate innovation and growth. I can say that there is a window of opportunity now to engage in good economic policies to respond to the crisis. We have short-term economic policies, fiscal policies, monetary policies. There are also long-term policies, such as private sector development, policies that could be improved - infrastructure development. I think there is a question mark over this. There is a window of opportunity and some countries are more protectionist in a crisis; that would be quite dangerous. We see in the West that there is a danger of becoming more protectionist and therefore I cannot say for sure that the crisis will stimulate more growth and innovation. Dr McNair: Thank you for the opportunity to come and address the committee. Some of what Dr Moyo says we would agree with. The financial crisis is clearly going to impact on the poorest worst. Dirk has talked about a fall in financial flows, a fall in aid, fall in foreign direct investment and also trade finance, the oil that keeps the global trading system working, but we do not see this as a completely negative picture. In a sense, the financial crisis does present a unique opportunity to address some of the global issues which impact negatively on development. There is no doubt that aid is under pressure, but now is not necessarily the time to renege on commitments but to show deeper commitments, and not just through aid but through policy, solidarity and addressing some of the policy coherence issues around development. We are very encouraged to see the Secretary of State's comments to this committee when he was last here that, in addition to supporting developing countries through ODA[5], we need to look at the impact of our policies on trade, on climate change and on tax and essentially support the capacity of developing countries to raise their own revenue for development. I think one of the big things that has been highlighted in this crisis is that external sources of finance are very much pro-cyclical, whether that is investment or ODA or foreign direct investment. We need to think very carefully about the role of domestic resource utilisation, which was very much a theme of the Financing for Development Conference in Doha in November. It is very encouraging that DFID and their tax team are doing a lot of work on supporting the revenue authorities in developing countries and we would very much support that. Dr McCulloch: Thank you for the opportunity to come before the committee. The question was about the impact of the crisis and whether there are opportunities arising. One of the first things that the Institute of Development Studies did when the crisis really broke in a big way last October was to try and assess what southern voices were saying about the impact of the crisis, and so we immediately put together a less well-known book Voices from the South, which I have submitted to the committee. That is a compilation of the views of 21 southern thinkers, academics, policy makers, journalists and so forth from 14 different developing countries as to what they felt the different channels of impact of the crisis might be. I agree with both David and Dirk: I think the immediate impact of the crisis is likely to be extremely negative. One of the areas where I do not agree with Dambisa Moyo's book is that it is putting forward the idea that there are easily available alternative channels of capital. Of course, that reflects the fact that the book was written over the last couple of years and so the channels that it mentions are trade, foreign direct investment, capital markets and so forth. All of these are suffering major shocks, as Dirk mentioned, in the current climate and so aid in that context is rather more important. It was very revealing that --- Q89 Chairman: But she is not wrong that they are the right instruments for development? Dr McCulloch: Absolutely right. I think it is very important to tap these alternative sources of finance, but in the particular climate, as David mentioned, I think it may be extremely difficult to do so. Kenya has already found itself unable to issue a sovereign bond as a consequence of the downturn. Just to come to the issue of whether there are opportunities, I think there is at least one very important opportunity particularly for Africa and that is to try to move towards the institutionalisation of social protection. I was just looking at a new book by Frank Ellis from the University of East Anglia and Stephen Devereux from IDS on social protection in Africa. I was really struck by the fact that social protection efforts throughout Africa are very piecemeal, many of them DFID-funded - there are very large social protection funds funded by DFID in Ethiopia and many other countries - and yet very lacking in comprehensive coverage in a continent which has particular need at this time for more effective social protection. So I do wonder whether or not the crisis may provide an opportunity if you like for social movements within developing countries to argue for much more effective and much more comprehensive social protection. Lesotho has already done it in the form of social pensions and so forth. I think there is a real opportunity in a sense for DFID to be part of the support for a social movement in a variety of African and other countries, which would push for more comprehensive social protection. Q90 John Bercow: I do not know how well you think so far DFID has taken up the challenge of helping developing countries to respond to this and specifically whether you think that DFID has sufficiently sophisticated and robust analytical tools to be able to assess the particular needs of different partner countries on a worthwhile basis. Dr McCulloch: I think there has been a little cottage industry generated over the last couple of months in trying to define vulnerability. I know IDS and ODI have both come up with ways of attempting to assess how vulnerable countries are. DFID have one, the World Bank has one and so forth. Of course the nature of the impact on different countries is going to be very heterogeneous; it depends on the nature of your current account deficit; it depends on the state of your finances, of your ability to respond in a counter-cyclical world; it depends on your reserves and on your exposure to debt, and so on and so forth. My personal view is that DFID have rightly identified social protection against the potential shock to domestic absorption, which this crisis will entail as a major area where they should be putting more emphasis. They have already indicated that they will support this Global Vulnerability Fund, which the World Bank has talked about. One of the areas where I strongly agree with Dambisa Moyo's analysis is that it worries me slightly that this will be a huge international fund from Western donors to support social protection. It is important that DFID are careful not to actually undermine the ability to generate domestic political demand throughout the developing world for those things, rather than it being funded entirely externally. Q91 Andrew Stunell: You have made the case that social protection should be the number one priority and if DFID follows that through, then there are consequences in terms of the UK aid programme. That is to say, we will be spending more on social protection and less on something else. I wondered if I could hear from each of you what you think the something else on which less is spent should be. Dr te Velde: Thank you very much for that question. Let me say first that I think DFID has been doing quite a number of things in response to the crisis and it is also trying to assess vulnerabilities. It is working together with other institutions, as Neil mentioned, with the World Bank and the IMF, which has just put out a paper yesterday, on vulnerabilities. It has also commissioned us to co-ordinate a 10 country case study on the effects of the global financial crisis on developing countries and six of the country case studies are in Africa, all led by African researchers. The other thing that it has done is to try to support the commitments that it has made, commitments to reach 0.7% of GDP, with aid staying at that level. It has also tried to do that internationally and to work with European partners. I think that is a very good thing. Then, in terms of where aid could be spent in order to respond to the crisis, the first task is to make sure that the disbursement channels are right. It is important that funds can actually deliver now and not next year or the year after when recovery might be taking place. The recession is hitting this year. In terms of the specific areas where it could be spent, there are three types of responses: the short term response is fiscal stimulus in terms perhaps of budget support; then social protection issues; but we should not forget long-run development. One of the most effective ways to get yourself out of a crisis is to engage in good and appropriate policies to stimulate growth in the long run. One of the areas of aid on which we have focused in the last year or so is aid for trade; first, thinking about more aid for infrastructure, aid to help trade take place. That is an area where aid can be effective. DFID has recognised that and is rightly putting money and funds into that area. Andrew Stunell: Perhaps before the other gentlemen answer, you have answered the half of the question I did not ask. I can see where we might spend it but what programmes would you judge can take a scaling back? Q92 Chairman: DFID is going to have to find some money from somewhere and it has already re-ordered its priorities, so it has less money to spend and it has also changed its priorities. Dr McNair: To be honest, I do not feel sufficiently qualified to suggest where DFID should cut money. The only thing that I would say is that we need to ensure, as Dr Moyo said and both Neil and Dirk have said, that our aid budget supports the democratic structures that are in place and supports the capacity of developing countries to manage those budgets and should not at any point undermine or in a sense put money in without consideration for those democratic parliamentary structures. Dr McCulloch: Let me give you the political answer and then the real answer. The political answer of course is that DFID does not have to cut. DFID is a long way from meeting its obligations and existing commitments. If one looks at the track of expenditure, we are still supposed to be hitting our 0.56% by 2010 and our 0.7% by 2013. Unless something pretty dramatic happens over the next two or three years, that is simply not going to be met. If DFID did take that target seriously, then it would be ramping up aid substantially and so there would be more than enough money to be able to fund additional funding for social protection without cutting other areas. That is the ideal world. The reality of course is that it will be shuffling money around in different budgets. I had a look yesterday at the sectoral allocation of funds of DFID expenditure over the last few years, the last five years or so. One of the things that struck me most interestingly was the huge growth in expenditure on government and civil society. That is particularly interesting because we have been talking about strengthening government systems. The reason why that money has gone up is because people have recognised the desire for greater ownership, therefore greater money flowing through government systems, and therefore they need to strengthen those systems through better support for public financial management, training accountants, better procurements systems and so forth. So I would very much not like to see a cut back on that, but that is the area that has grown most rapidly in the last few years, and certainly during a crisis it would be a mistake to cut back on the social sectors - health, education, sanitation, water and so forth - and similarly we would almost certainly not want to cut back on the infrastructural work which is likely to create jobs and build useful infrastructure to enable the progression out of the crisis at the end. That is one possibility. I did want to qualify that, though, with one comment. You said that I had made it clear that social protection is where the money ought to go. One of the key findings that comes out of the literature - there is a lot of confusion in the literature - is the damage that is done by aid volatility. It is the fluctuations and sudden changes in fashion in aid which actually damage growth prospects for many developing countries. I feel this very keenly. I worked in a DFID-funded poverty project which achieved a wonderful star rating and then was closed down because the DFID representative told me that they were spending all their money on harmonisation. This sudden change in fashion can be quite harmful. What I think we need to be doing is focusing, as you were pointing out, on aid quality, but we can do that perhaps with much better local knowledge, including not just local DFID staff but staff from the country, as to what works in that particular context. If DFID's government and civil society projects are really delivering the good in that particular country at that particular time, do not cut them. Everybody who works in a local office knows which are the good projects and the things which are really functioning and which do not. We do not rely, in my view, nearly enough upon that local knowledge to steer our aid programme. We believe that we can sit in London and steer it and say, "All right, now we are going to focus on this, and therefore we have to cut back on that". Q93 Chairman: Dr te Velde, you talked about a rainbow stimulus - blue, red and green - as a means of combating recession. I wondered if you could briefly explain what you mean and how you balance across those sectors. Then I have a supplementary question to that. Dr te Velde: Let me first say that there is now a range of institutions calling for a fiscal stimulus to combat recession and that developed counties are engaged in a fiscal stimulus and if developing countries, particularly the poorer developing countries, cannot engage in a fiscal stimulus, then those fiscal stimuli in developed countries and in the richer developing countries might become a beggar thy neighbour economic nationalism against the poorer developing countries. The World Bank has called for a US$ 15 billion Vulnerability Fund for developing countries. Yesterday, the IMF suggested that US$ 25 billion, maybe up to US$ 140 billion, was needed to address the effects of the global financial crisis in concessional lending. So I think that there is clearly rationale for a fiscal stimulus in that sense. The fiscal stimulus of course has most effect if it is put in those places where it has the most effect on addressing the crisis. The general consensus in the literature is that it has particularly large effects in those circumstances where consumers are most clearly constrained. It might not have a big effect in those circumstances where consumers have just over-spent and any fiscal stimulus might still be saved rather than spent. That might well be the case in developing countries. That could be in the form of transfers of money, although I think much of the literature, at least the literature that I am aware of, in terms of spending on aid for trade, would suggest that aid that is spent on stimulating the supply side of economies through investment, in infrastructure and on aid for trade, is particularly effective. In that sense, a stimulus that supports the private sector to develop, much in line with what Dr Moyo mentioned this morning, could be very effective in a number of countries. I do not think we should forget the long run in all of this. We know that there are market failures currently happening. We know that these have affected the financial markets, but we also know that the greatest market failure of all is in climate change and related to activities on the environment and in terms of the adoption of new technologies. In particular, in developing countries what might be really helpful is to stimulate innovation and growth policies so that countries can engage in the adoption of new technologies, which could also be greener. In that sense, we could think about a green stimulus. I think there would be a number of stimuli. Q94 Chairman: You have given a number of ranges of figures that people have suggested for the size of the stimulus should be in size. Bob Zoellick[6] has suggested that 0.7% of the developed countries' stimulus packages should be targeted to developing countries. I am not entirely clear what that figure amounts to. It is a rising figure at the moment. I am not sure, for example, whether the UK stimulus package is £20 billion or £500 billion, depending on which bits you regard as stimulus. Dr te Velde: The number is about £15 billion. The idea, at least in the eyes of the World Bank, is that 0.7% of the global fiscal stimulus should go to developing countries and the global fiscal stimulus at the moment is worth around $2 trillion, in their eyes. Q95 Chairman: Is that a reasonable proposition? Looking at the UK's position, you have already indicated that DFID's budget is under pressure because of the exchange rate more than anything else. Should the UK be identifying a specific proportion of the stimulus and saying, "Actually, we should be identifying that and contributing it towards either our own bilateral funds or to World Bank funds for that purpose?" Dr te Velde: I think it is important that the aid system can play the counter-cyclical role. There are a number of ways through which that can be done bilaterally but primarily I would have thought multilaterally. There are a number of instruments like IDA[7] or the EDF[8] and IMF. Q96 Chairman: I want to tease a bit more. The Prime Minister has already acknowledged that the UK's budget is under pressure and he is saying, "I hope the international institutions will step up to fill the gap". The point I am pressing you on is: do you think the British Government should find some additional money to put into that over and above DFID's current budget? Dr te Velde: I think so, yes. Q97 Mr Hendrick: Could I ask you all what you feel that the multilateral banks should be doing really to help with the problems of the financial crisis? Dr McCulloch: It is very much related to the issue of the fiscal stimulus. I very much support Dirk's idea that we need to make a distinction between short term and longer term. In the longer term and for a very long time, this committee and many others around the world have been looking at the quality of aid, and that is a very important debate. In the short term, there is a huge financing gap and that financing gap will not matter at all for some countries because they can deal with it themselves through their own reserves; for other countries it will be extremely serious and give rise to major adjustment within the country. There is good academic evidence, indeed by Paul Collier, that for countries that experience major shocks of that kind, whether it be from export prices or whatever, you can at least ameliorate some of the damage which is done by significant injections. The International Monetary Fund (IMF) obviously has a very important role to play in that but the World Bank has a very important role to play because it is a large pipeline. I was reading something from the Brookings Institute just a week or so ago, which was pointing out that there is a very large sum of money that is stuck in the disbursement pipeline. This is not money that needs to go through the umpteen steps of the World Bank approval process and go up to the board and be approved; this is money that has already been approved by the board and which is still sitting in a bank account which has not actually yet been disbursed. I think there is a very strong case for giving fairly large amounts of money basically as budget support to plug the gap during the immediate crisis. That of course is not a model for how we would like aid to continue in the longer term. I think for aid to continue in the longer term, we get back to all of the issues associated with how we improve the quality of aid in the longer term. One of the key issues there will be taking seriously the commitments which were made in the Paris Declaration. I was rather saddened to look at the performance under the Paris Declaration, the OECD's Better Aid document, which I am sure you have seen. It shows that really the performance on the commitments which we all made in 2005 has been pretty poor. There have been some areas of progress but we are really nowhere near meeting the targets which were set for 2010 in terms of the amount of money that is going through budget systems or the degree to which country aid programmes are genuinely owned by the governments that are receiving them. Dr McNair: One of the best ways to address the complex problem probably at the moment is to stimulate widespread employment. I agree with Neil's point that if multilateral banks were to stimulate employment domestically through investment in the kinds of green jobs that President Obama was talking about, that could be a very positive role. We need to be careful that the lending that is done by multilateral banks is not subject to the kinds of harmful conditionality which in a sense in some ways has led to this crisis - the idea of liberalisation of financial services, which leaves some developing countries more vulnerable to the kinds of capital flight that would happen in a crisis. Dr te Velde: There are a number of multilateral and regional institutions that could help: the regional development banks, the African Development Bank, the Asian Development Bank and the Inter-American Development Bank. Then there is the IFC[9] as part of the World Bank group that could help, and there is the IMF. All these institutions need at least to examine whether they can front-load some of their disbursements. Could the IDA front-load its disbursements? That will be important. Four weeks ago I was in Cambodia and there the global financial crisis is also having a major effect on that country. It was growing at a very rapid rate of more than 10% and now it is likely to grow at much less than 5% this year. The Asian Development Bank is talking to the Cambodian Government on the early disbursement of infrastructure funds. At the same time, we need to think about longer run growth policies. I was in Kenya last week in discussions about the global financial crisis and the effects that it has had on the East African Community members. There, one of the issues that officials and representatives of the private sector do acknowledge is that further support for custom officials to speed up and discuss the procedures and to improve the investment climate might well be helpful for countries to grow faster and export more and therefore to get out of the crisis faster. In that sense, support by IFC and the World Bank in order to speed up the investment climate will be helpful. Q98 Mr Hendrick: The G20 will be held on London shortly. On the agenda is reform of the international financial architecture. What do you feel needs to be done to the international financial architecture in order to create the best arrangement to deal with the crisis that they have at the moment and stave off any possible future crises? Dr McCulloch: I was reading through Douglas Alexander's speech to Chatham House just a few days ago. I think he is quite right in saying that there needs to be far better representation of developing counties on the board of the Bank and also throughout the international financial institutions. I think that was needed a long time ago. This may well be the moment when we really start seriously pushing forward an agenda. The difficulty of course is that in order to increase representation for some that means decreasing representation for others and getting people to agree a reduction in their vote is fraught. I notice he did not say in his speech that Britain would be happy to take a lower voting share and yet those are the issue which are going to need to be addressed and not just in the World Bank but in other representations. Q99 Chairman: DFID has just appointed a full-time director for the World Bank. Dr McCulloch: What I thought was much more interesting and innovative in his speech, which I very strongly support, is the idea of getting greater decentralisation and local knowledge. The World Bank, for example, has already done a great deal of decentralisation; it is much more decentralised, for example, than the Asian Development Bank with much larger local offices. It is still the case that most World Bank officials - and I speak as a former one - spend most of their time serving the Washington machinery and then speaking directly with senior officials in the developing country rather than getting out into the country and finding out what the issues are, finding out who the key political players are, finding out who the key heads of the organisations are. There is no incentive mechanism within the operations of these institutions for you to do so. DFID officials are in a similar position. I was always struck, sitting as I was in Jakarta for several years, how much time DFID officials spend dealing with London and dealing with the various diktats that come from London rather than going round the country and meeting with Indonesian civil society and so forth. We need to think creatively about how we change the internal mechanics and the internal incentives and indeed the internal reward mechanisms to ensure that the staff of the large institutions have a better grasp of what the key issues are. Doing that will have a much bigger impact upon aid quality than a large number of these recording, box ticking systems that we have put in place. Q100 Andrew Stunell: When times get hard, the obvious thing is for people to tighten their belts. We have identified a number of ways in which that might be a possibility as far as aid goes. Dr McCulloch, you have produced a second contrarian contribution by saying there might not be quite such an obvious connection between recession and reduction. I wonder if you would like to paint that out a little bit for us. Dr McCulloch: I should not take credit for this because I stole half of it from ODI. People like Dirk and myself go and actually look at figures and then look at the broader literature. We were quite surprised that there is no immediate and obvious connection between recession in rich countries and levels of aid flows. Certainly you can point to individual situations like the Nordic banking crisis and so forth where you get major declines or the Japanese crisis of the early 1990s where there were significant declines. When you actually look across 40 years of data, which we have now, of ODA flows from all of the donors, there is no strong association which comes out of that kind of analysis between the level of GDP and the growth of GDP in rich countries and the levels of ODA given. This is a good thing of course; this means that it is not the case that if you have a recession, you automatically will cut aid. It appears to have been the case that aid has been relatively protected in the past. One hopes that that will be the case. This of course may be different because now the recession is much broader, much wider. I do not think there are very many people out there who will put their hand on their heart and say that they do not think that global ODA will fall; I think it may well. Much will depend, though, on the leadership of the big donors. The British are amongst them. Certainly the British Government's continued commitment to its ODA targets and its delivery of those commitments will make a huge difference as to whether or not global aid flows are cut. The other big difference of course will be whether or not the Americans start letting their timetable for doubling their aid contribution within the first term slip or not, but it is a political decision. The point of my submission to the committee was that it is not an inevitable economic rule that aid must decline when there is a recession in the north; it is a political decision as to whether or not aid will be cut. Q101 Andrew Stunell: The example of Italy is a one-off, is it? Dr McCulloch: It is not at all a one-off. Ireland is also cutting its aid. The Japanese have cut the budget support and so forth. There is bound to be political pressure at the local level that something has to be cut. During the presidential elections, this was the only thing that Joe Biden picked up on - if we are going to cut somewhere, let us cut foreign aid. Of course that is a clever thing to say when you are in a presidential election because it is the one community that does not actually vote for you, but the real truth of the matter is that it is a political choice and historically it has not been the case that recessions have induced cuts in aid, so it does not have to happen. Q102 Chairman: Italy's decision emanated from the election rather than the recession. Dr te Velde: If I may add to that, to start out the case for aid is stronger now than it was before the global financial crisis. In that sense, if you think about a policy - aid is a policy in a sense - it is difficult to forecast that. However, we can do some back-of-the-envelope calculations. If you think about the value of UK aid, for instance, in dollar terms, that is likely to decline by quite a big number. Over the last year, the pound has devalued by about one-third or 40%. That will mean a cut in US$ 5 billion in terms of UK aid. In terms of Italian aid and Irish aid, the cuts already announced amount to, say, $5 billion or $6 billion. If other countries are sticking to a particular ratio of aid to GDP, because that is what they are aiming for, you will note the denominator is declining and so GDP is declining. We estimate the output loss to be about 5% in just over two years. If aid has also declined by 5%, then that might mean another decline in aid. If you add all those things together, you might already be looking at a decline of about US$ 20 billion, and that needs to be offset. As I said, the case for aid is stronger now than it was before, and so there needs to be a stimulus of aid that is at least $20 billion, if not more. Q103 John Battle: Listening to the conversation, I am tempted to say, as someone who has pressed for the aid budget to be held, if not increased, that I want to know what the money in the fiscal stimulus has been spent on and what the increased aid might be spent on. I put it in these terms. I have argued in our Parliament that I think we are in very different times now and I get the impression we are just applying old economics and not re-thinking economics. I say that because what we do know from previous recessions is that those that pay the highest price and suffer the most are the poor everywhere. To give a factual example, if you just have a fiscal stimulus, everyone rushes out and builds buildings and we think we have a capital asset we can look at and it is proof that we have done something, but what if we put revenue spend in? I suggested in Parliament for my neighbourhood, to help tackle poverty, that paying 1,000 carers as home helps to work at home looking after people would be a fantastic fiscal stimulus because some of their children might even be able to afford an iPod to keep the economy going. In other words, what does the money go on and can we rethink what the aid budget would be spent on. Getting to the point of the question, at the G20 when we deal with the commitments, we restate existing commitments from Doha, and we are likely to do it again, and everyone will say, "We are doing our best to hold it down and take account of the falling pound". I am asking the question: can we not use this G20 to look at outcomes again in a different way and ask what the effect of our aid programmes is, what are we spending it on, what should it go on. Will fiscal stimulus work if it is spent on revenue to take people out of poverty, or does that only apply to the northern world? Do we hope that a few people in Britain will buy a few more things that are imported from China for which we will then get a bill because we find that their carbon footprint is rather larger than we thought and we are responsible for it? Dr McNair: I think it comes back to the point that stimulation of employment growth is one of the best ways to address these issues. If this global stimulus was spent on creating employment within the social sectors and social protection but also in looking at the kinds of green employment that are required --- Q104 John Battle: You said that previously. What Gordon Brown and Barack Obama have in mind when they talk about green jobs is loft insulation and that is not going to work in Africa. I am pushing you on it because they see the green economy as the challenges of the new technologies, of the renewable energy sources. Has it been thought through enough? I completely agree with you about employment growth. David, how would you imagine that applying in Africa? Has anybody been working on what employment growth would look like, other than digging ditches and filling them in again? Do we have real, sustainable employment growth as the target and has some thought been given to what it might look like? Dr McNair: That is a very good point and we need to invest a lot of money in that kind of analysis, in looking at what kind of employment would benefit African countries. Dr McCulloch: We already know the sorts of things that are likely to generate employment growth and get cash in people's pockets. That is one of the reasons why I was delighted to see that DFID has just announced this big road-building programme and more support for trade. If it takes 28 days to get a shipment of copper from the DRC down to the port and out, that is ludicrous. It takes two days to go the same journey in Europe. One of the reasons is port control and border control and another is terrible roads. Roads are built by people. You can either hire a very expensive Western contractor to come in and build your road and spend lots of money on that, or you can hire lots of local people to build your road. We know from experience that infrastructure expenditure is a very good way of getting money into people's pockets reasonably quickly. What matters, and an analysis has been done by Martin Ravalion and the World Bank, is the quality of the stuff you have built. You do have to have sufficient oversight to make sure that you do not just build shoddy roads. Q105 Mr Hendrick: What about the green jobs - I think you are alluding to green jobs - what examples, what projects? Dr McCulloch: I do not have an answer to that. Q106 Mr Hendrick: I think one of the speakers mentioned that? Dr te Velde: May I answer that in a general sense first and then come back to it? It is important to stimulate growth in Africa and much will come from African countries themselves but also from other developing countries. The constraints to growth are country‑specific, though we cannot say it is going to be this, it is going to be green here, or it is going to be green everywhere, there is going to be an injection of cash anywhere or infrastructure everywhere. There is some analysis going on. The World Bank has been doing that and it is supported by DFID in looking at what are the constraints to growth. In a number of countries you will find that a major constraint to growth is infrastructure, the bottlenecks to infrastructure, whether that is in roads, railways or access to electricity. If you alleviate that binding constraint to growth, that will kick-start the economy and enable the country to reduce poverty. In order to get many jobs, you need to get growth going and productivity growth. Q107 John Battle: I think this is a 1960s model because we are building roads to ports to transport agricultural products to the port and out. It is the export-led growth model. I do not think that is where people are situated; they are in towns. I saw kids coming into the centre of Freetown, who have been involved in violence. They were sitting on a wall; they were paid $20 to hand in their guns. They said to me, "Where are we going to work for the rest of our lives? We live in a city". What are urban jobs and urban trade and development about? I do not think we are even starting to address that question. I am not ruling out agriculture. I am asking the question: Is anybody really working on what it means to generate and create employment in sustainable cities? I do not think we are there. Why do we not use this crisis as an opportunity to address those questions? Please tell me I am wrong. Dr te Velde: I absolutely agree. That is a very good point and it applies not only in African country but across the world. It is the services sector that has been behind growth in the last 10 years. That may be contrary to what many people are thinking but most of the growth has been in services. Dr McCulloch: There is an important link here to the conversation we were having right at the beginning about social protection. Precisely because the expenditure patterns, particularly of the poor, are very much biased towards non-tradeables, particularly on services and locally‑produced stuff rather than exportable stuff, they have much bigger expenditure multipliers when you give them some money. Therefore, we should not just treat cash transfer mechanisms and cash transfer programmes as a social protection thing; they are also a tool of macro-economic policy; they are also injecting demand. You are injecting demand that does not leak out in the form of imports because poor communities in Kenya are not buying iPods; they are just buying locally-produced food and locally-produced services and so forth. Q108 Andrew Stunell: A related issue that we were talking about with Dr Moyo was the taxation system. Dr McNair gave the Christian Aid figure of £160 billion that has gone in tax evasion. That seems to be quite a controversial figure with plenty of different estimates floating around. I wondered if you would like to tell us how that figure arrived on your piece of paper. Dr McNair: First of all, we definitely agree that it is a very complex issue. The figure of £160 billion is an estimate of lost tax revenue on illicit capital movement via trade mis‑pricing and false invoicing, so the way that multinationals trade within or between themselves and mis-price those trades in order to minimise their tax burden. In many ways, that is a common practice and seen a legitimate practice. So it does not cover all tax evasion. As for the way that we calculated it, and I can provide more detail later in written form if you wish, we need three main pieces of information: first, an estimate of the share of reported trade which is in fact illicit; secondly, data on developing countries' trade; and thirdly, data on applicable marginal corporate tax rates in developing countries. The way that we came about this figure: it was based on the best data that we had at the time of writing the report. So we used estimates of illicit capital movement calculated by Ray Baker, who is a senior fellow at the US Center for International Policy and a guest scholar at the Brookings Institute. His estimates of illicit capital flight, which relates to this first requirement for information to calculate the figure, has been quoted extensively by the World Bank and it is based on 550 interviews with heads of trading companies in 11 countries. Before using these estimates, we confirmed that they were broadly consistent with estimates obtained in peer‑reviewed academic analysis of trade statistics, most notably Professor Simon Pak of Penn State University who has advised US Congress on the issue. That was the source of the data on illicit capital flight. We then combined this estimate with data on the total trade of developing countries, which was taken from the World Bank's World Development Indicators, and this gave rise to an estimate of illicit capital movement through developing countries. Then finally we used data on corporate tax rates, again from the World Development Indicators, to estimate implied tax revenue loss. Because the World Bank's data on tax rates is far from complete, we used average tax rates for countries of particular income groups. It was based on that figure for illicit capital movement, which has been referred to frequently by the World Bank and then we imputed lost tax revenue to that. This is an estimate and we fully recognise the need for further research on this issue, and we are now in the process of working with Professor Simon Pak to produce more up-to-date and complete estimates. We are also working to produce a tax data set, which will be relatively complete in its coverage of the sources of revenue. What we were trying to do with this figure is, in a sense, get the issue on the agenda and identify the scale of the issue. What we need now is more investment in robust research on what is actually happening as a result of trade mispricing and the amount of money flowing out of development projects as a result of this. Q109 Andrew Stunell: You have clearly done that; you have put it on the agenda and the Secretary of State has gone to the trouble of saying he does not agree with your figure. Just taking that forward, the British Government is saying that at the G20 meeting it is going to put this kind of issue much higher up on the agenda. First of all, I suppose I can ask you if you believe it but perhaps more relevantly what exactly needs to happen operationally at G20 to make a difference? Dr McNair: I think this is one of the key issues that I talked about earlier where the financial crisis provides a huge opportunity for development in terms of addressing the kinds of flows that are happening globally. The role of financial capacity or financial secrecy in both facilitating the kinds of risks that banks have taken and that caused the crisis in the first place but also facilitating trade mis-pricing need to be addressed. It is encouraging to see that the Prime Minister, as well as President Obama, President Sarkozy and others are starting to take this issue seriously. There are two things that need to be addressed. The first is the way that multinationals are required to account for their profits. At the moment, they are required to account on a global consolidated basis and that is great for shareholders but it does not tell us where profits are being made and where taxes are being paid. One of the issues with transfer pricing is that revenue authorities in developed countries, never mind developing countries, find it very difficult to monitor the kinds of things that are going on. If multinational companies were required to report this on a country-by-country basis, then they would be in a much better position to target resources towards companies that they feel are abusing the transfer pricing system. I think the second thing that needs to be addressed is financial transparency in tax havens, and particularly the implementation of a multilateral agreement on automatic information exchange of tax payments. Currently, there are bilateral agreements, tax information exchange agreements, but part of the problem with those agreements is that they are negotiated bilaterally and tax havens and other jurisdictions will agree tax agreements with very powerful economic partners, because they are obliged to, but when developing countries come looking for that information, it is not necessarily forthcoming. Those are the two things that we think should happen at the G20. Q110 John Battle: Some of you have mentioned the need to boost trade and aid for trade will be a way of spending the resources. What impact do you think the downturn is having on international trade in goods from developing countries? Are there any figures or statistics to show that already trade is shutting down, as it were, and shutting them out? Dr McCulloch: Immediately the crisis broke, we started work on a set of research projects, one of which is to use the global trade model, which we have in the Institute of Development Studies, to look at the impact of recession on trade. We are in the process of producing a paper for DFID which will be launched at a research workshop on 26 March. I will be very happy to give the committee an early copy. The broad conclusion of that paper is that the impact on trade will be marked, particularly on export revenues. But one very interesting conclusion, if you feed all the numbers into the global model and turn the handle, is that much depends on the oil importing or exporting status of the country because the reduction in demand from the OECD has a significant impact on lowering the price of oil. Of course we have seen enormous falls in the price of oil since last year as a result of the popping of the speculative bubble, but the decline in demand from the OECD will also reduce the price of oil relative to where it was before. That is of course good for oil importers but particularly bad for the net oil exporters. Again, it is a differentiated story. Q111 John Battle: Presumably that applies to other minerals and metals too? Dr McCulloch: Yes, it applies to other minerals and metals as well, but particularly oil. I am happy to send that information. Q112 John Battle: And trade in food? You may remember that this time last year we were discussing the food crisis and the price of rice. How is that affecting the trade in food? Dr McCulloch: I do not have the detailed figures of trade in food, although food is obviously included in the model. It is nothing like as significant a component of overall export revenue obviously as oil. The thing that really drives the figures is the relative oil dependency or otherwise of the countries. Q113 John Battle: I take the point that you made earlier about building roads. I think there are some proposals for roads and also opening up border posts and things like that. Will it do enough to boost trade? Is there enough push behind that to make a difference? If you are seeing the figures coming down, will they send them in the counter-cyclical direction? Dr McCulloch: Presently, I think no. DFID and some other donors too have neglected more economic reforms for a little while. I am glad to see us getting back in that area. I worked for some time on investment climate reforms in Indonesia. Investment climate reforms can yield significant dividends. One of the key ones is border posts and trying to improve customs and so forth. The only difficulty there is that it is a long and complex process. This is institutional reform which has to deal with the micro-political dynamics of getting a better system in place, so it cannot necessarily be done overnight. Dr te Velde: I agree with Neil. I think there is evidence of a trade shut-down, particularly in Asia where trade was growing at 20% year on year up until October last year and then in November/December it started to plummet with negative growth rates. From the provisional material that we are getting from the country case studies, that is also the case in some of the poorer countries. In Bangladesh there is the first decline in trade for seven years. Particularly in the Asian countries, manufacturing exports are being hit particularly hard. In some of the poorer African and some Latin American countries it is commodity export revenues that are declining, price decline and a volume decline: The two things together mean that the effects of the global financial crisis may not have hit those countries through the financial channel at least as yet, but more through the trade channel and that is a big factor. Q114 John Battle: There was a little bit buried in the FT that I recall, and nobody dare mention the expression "green shoots of cars", but it was looking at transportation and shipping rates, and shipping rates have gone up in the last week, and also the hire of vans and trucks has increased in the last week. China has increased its importation of steel for the first time in the last seven months. I am asking about whether in Neil's system of managing trade you look at transportation that moves the trade as part of your analysis. In other words, if shipping rates are increasing and there is a sign of movement there and if people are hiring more vans and trucks on the roads, even in Europe or in South-East Asia, that is a sign as well. Do you pick that up in your data? Dr McCulloch: We did not pick it up in the data. Bear in mind that that increase is relative to a dramatic collapse which we saw in both shipping rates and trucks and so forth. It is good to see not quite green shoots of recovery but a little bit of movement. There is another thing I wanted to mention, specifically in relation to the food crisis. Dirk mentioned that ODI have a project in 10 countries looking at the impact of the crisis. DFID also commissioned IDS to do the qualitative part of that. We are working on pilot projects in five countries qualitatively doing research down in rural communities and in urban communities as well specifically looking at the way in which they are responding to the crisis. One of the most interesting things which we have got back from the initial data is that people feel anxious. One of the reasons they feel anxious is because they have already exhausted a lot of their capital, their assets if you like, dealing with the food price shock, so they are already vulnerable to further decline as a consequence of last year. Chairman: The common thread between the two sets of evidence this morning is, first of all that we should listen to the voice of the recipient countries and poor people more than we do, and, secondly, that what they really want to do is to be able to participate in a dynamic real economy. If both those things were to happen, we might have better development. The debate is around the role of aid and social protection. I think we have had two interesting sessions and we are very grateful to you for what you have put into it. I am sorry if you feel you have been compressed. You actually have not been in the end because we have just let the time run, but it felt like it. I think that is the sign of a good session where there is clearly a good exchange of information and ideas. Thank you all three of you very much for coming [1] Millennium Development Goals [2] President's Emergency Plan for AIDS Relief [3] Office of the U.S. Global AIDS Coordinator [4] Centre for Disease Control and Prevention [5] Official Development Assistance [6] President of the World Bank [7] International Development Association [8] European Development fund [9] International Finance Corporation |