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MEMORANDOM TO US House of Repres

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MEMORANDOM TO US House of Repres Powered By Docstoc
					                                     MEMORANDOM

TO: U.S House of Representatives Committee on Foreign Relations; U.S. Senate
Committee on Foreign Affairs
FROM: Pro-African Lobbyists (Jennifer Covert, Jane Franklin, Bilen Fraye, Alyssa
Galloway)
DATE: 03/06/08
SUBJET: We recommend restructuring U.S aid with a combination of the micro-credit
and debt cancellation alternatives, to solve the problem of misallocation of U.S foreign
aid to Sub-Saharan Africa.

EXECUTIVE SUMMARY: The new policy would restructure the status quo of US aid
to Sub-Saharan Africa by including funding for micro-credits and considering debt
cancellation for countries that show good governance. The status quo has not succeeded
in money actually going to that which it is intended. Restructuring the status quo would
include current micro-credit and debt cancellation programs, which have proven to be
successful. A new entity should be formed consisting of representatives from
international and domestic organizations to increase the transparency of money transfer
to the specific development projects. A structured monitoring system will be required
and reinforce transparency of the program.

1. PROBLEM:
The amount of US aid to Sub-Saharan Africa (hereinafter referred to collectively as
"Africa") is inadequate because of the inefficient manner in which it is allocated at two
levels. At the global level, the most aid tends to be given to the least-needy countries and
allocated in terms of military and emergency food aid. (See Appendix A). The aid which
is disbursed to countries in need, such as African nations, tends to be disbursed to
governments rather than directly to the people.

Consequences: According to the Cato Institute, the misallocation of foreign aid has
“enabled government officials to embezzle large amounts of money and misspend much
on loss-making projectsi.” In many cases, the governments receiving foreign aid fail to
adequately disburse it among the population, thereby rendering the people unable to
better their situations in any way. Part of the source of conflict and strife in this region is
the corruption of the governments, so disbursing food and money to the very people
responsible for oppressing the population with the expectation that they will, in turn,
allocate it efficiently within the country, is not realistic. Countries are actually
empowering these corrupt governments and widening the gap between the "haves" and
the "have nots." Additionally, the types of aid given from other global actors do not
provide any sort of sustainability for the African people.ii There is a grave need for aid
to this region (see Appendix B), but failure to reform the methods by which this aid is
allocated and disbursed will only perpetuate the cycles of instability that Africa is
experiencing today.

Evidence: The Brookings Institute reported that, although the current administration
claimed in 2005 that US foreign aid to Africa had “tripled,” much of this increase was in
the form of emergency food aid and had, in fact, only increased 56% from FY2000 to
FY2004.iii Additionally, while the Child Survival and Health Programs Fund was
increased primarily for HIV/AIDS assistance, the overall contribution to the African
Development Fund decreased by 12%. The only programs that had even doubled, not
tripled, in the region between FY2000 and FY2004 were foreign military financing
(increased by 109%) and emergency food aid (increased by 159%).iv

Since the 1960’s, billions of dollars of aid has been given to Africa. In fact, on average,
aid to Africa has been fourfold what Asia has received;v however, this continues to be the
world’s poorest continent and grows increasingly poorer. According to a study
conducted by the United Nations, “the per capita gross national product is at poverty
levels… [and] the report showed that the African countries are not using their money
wisely.vi” Thus, although money is being allocated to African countries, the money is not
being used appropriately, or not being used at all for the people but embezzled by the
government officials.

2. CONTEXT:

On September 4, 1961, the United State’s Congress passed The U.S. Foreign Assistance
Act of 1961. The Act recognized U.S. foreign assistance programs and mandated the
creation of an agency, which would help administer economic assistance programs. In
November of 1961, President Kennedy used this mandate to create the U.S. Agency for
International Development (USAID.) The establishment of USAID was used to unify all
existing U.S. aid efforts involved with economic and technical assistance operations
including the International Cooperation Agency, the Development Loan Fund, the
Export-Import Bank, and the Food for Peace program of the Department of Agriculture.
USAID, additional, address the goal of setting different divisions within the organizations
that would address particular regions and countries around the world, with the goal of
setting up country-by-country programs in regards to development and long term
planning.vii

USAID Africa initially “focused on such initiatives as the education of the leadership of
the newly-independent countries and meeting other economic and social imperatives.”viii
Currently, USAID Sub-Saharan Africa is underway in 47 countries on the continent, with
a current objective is “helping African governments, institutions, and African-based
organizations incorporate good governance principles and innovative approaches to
health, education, economic growth, agriculture, and environment programs.”ix

Funding of USAID Sub-Saharan Africa programs is proposed each year by the
organization and approved through Congress and the Office of Management and Budget
(OMB). For the Fiscal Year of 2000, USAID requested $7,212,000,000 for administered
programs, including those jointly administered with the State Department.x Of that,
$7,212,000,000, USAID Sub-Saharan Africa requested $745 million in development
assistance, $73 million in Economic Support Funds, and $134 million in Food For Peace
funds.xi
In regards to all US Foreign Aid to Africa between 1961 and 2000,
               U.S. official development assistance to Sub-Saharan Africa increased
               from $358 million to $1.14 billion in constant 2000 dollars, an
               inflation-adjusted increase of 218 percent. U.S. aid to Africa as a
               percentage of the entire U.S. aid budget rose more than fourfold, from
               2.5 percent in 1961 to 11.4 percent in 2000. But that aid has had poor
               results. xii
Aid having “poor results,” is once again, another reminder that US aid to Sub-Saharan
Africa is inadequate. The question that arises from this is how should accountability be
determined and how can it be ensured that the aid given to countries is being used
appropriately and efficiently when transferred from the United States to Sub-Saharan
Africa.

One of the major factors that contributes to the inadequate funding in Sub-Saharan Africa
is the distribution of aid funds. Although the aid is distributed into certain categories when
requested on the United States side, this does not mean that the aid is landing in the rights
hands once it enters Africa. Although there are many great programs in place, the process
of how the aid is received in Africa is not as tightly monitored as one would assume. This
is due to a number of internal and external determinants that directly correlate with the
overall problem.

Internally, there are many determinants that contribute to the problem of the inadequate
funding in Sub-Saharan Africa. One determinant is that of the history of Africa itself and
the fact that most African countries do have strong diplomatic relationships.
               Africa…is complicated by cultural, political, and security problems.
               There is a widely contrasting development potential among African
               countries, resulting both from an uneven distribution of natural
               resources and different degrees of development of social and
               economic infrastructure.xiii
To further add to this problem is the ethic conflict in individual countries that add bias to
the decision makers in office due to the fact that party or ethic culture in power is more
likely to assist their own, rather then the country as a whole. Another internal
determinate, which adds on to this, is corruption within African governments and
communities which leads to loss in aid due to government officials and community
organizers, etc pocketing money and/or resources that they have been given to distribute.
In fact, an African Union report published in August of 2004 stated that “Africa loses an
estimated $148 billion annually to corrupt practices, …[representing] 25 percent of the
continent’s Gross Domestic Product (GDP).xiv”

The major external determinant therefore is the actual allocation of funds from the United
States to Africa. Currently, the United States distributes funds to Sub-Saharan Africa
through USAID programs, the African Development Fund, PEPFAR and many other
governmental organizations. And although the US has tightened its lock around funds,
creating stricter requirements on how funds are transferred, African officials and
community organizations still find ways to use funds inappropriately or hoard resources.
This is due to the fact that there is no receiving entity located on the African side of the
transfer.
To further understand the problem regarding the allocation of funds, it is important to
understand the key stakeholders involved. On the United State’s side there the President
and his cabinet, congressmen, USAID Africa, as well as the various other aid
commissions present in the United States, and lobbying organizations for Africa all of
which determine what African States need financially. On the African side there are the
governmental officials as well as numerous African based organizations that assist in
carrying out aid programs. However, as mentioned before many individuals are corrupt
and the money is not dispersed appropriately or at all in many cases. The people of Africa
are stakeholders as well, but they do not have any role in the decision making process in
most cases. Internationally, there is the United Nations and its role in regards to US
foreign aid mostly through UN dues and the G8’s New Partnership for Africa's
Development (Nepad).xv


3. CRITERIA:

To compare alternatives we will compare efficiency, sustainability, and transparency of
money allocation to assess the benefits of all alternatives.

Efficiency Foreign aid is geared to help the impoverished with health care, improved
education, food, and entrepreneurial opportunities. A good policy will assure that the
money is issued to people who will distribute it as it was intended.

Sustainability: The goal of foreign aid is to secure sustainability by improving and
maintaining health, income, amongst other necessities, therefore ensuring appropriate
distribution occurs. An unsustainable policy will perpetuate poverty and waste foreign
aid.

Transparency of money allocation The process of money transfer between hands from
beginning to end is complete and used towards the original purpose, without incurring
further costs or debts. If successful, it provides a clear overview of the difference in the
lives of the people.



4. ALTERNATIVES:

A. Misallocation of US Aid to Sub-Saharan Africa
The current aid to Africa has failed in allocating aid to countries that need it the most, and
that which has been allocated has predominantly been misused by the receiving African
parties. In addition, U.S’ contribution in the form of military and emergency aid has not
accomplished much in sustainable living. It is not efficient, in that the aid fails to make a
substantial difference in the lives of the majority of Africans. The past four decades have
proven that Africa’s level of poverty cannot be alleviated solely on this type of aid that
continues to be distributed. The lack of strict guidelines and transparency as to how to
use the aid money by African governments has resulted in the misallocation of the
resources. Giving aid annually creates a cycle of dependency, particularly when the same
African countries are simultaneously paying off their loans with high interest rates. The
annual repayments of high debts automatically take away from the aid money that
governments are receiving. The way that US aid currently operates fails to provide a
sustainable way of living and discourages self-dependency.

B. Cancellation of debts in African countries, coupled with the allocation of
restructured U.S aid
Debt cancellation requires that the IMF and other institutions write off the debts that most
of the African countries have incurred. The U.S with the collaboration of other members
of the G8 countries will pay off these debts that the IMF cancels. For countries to qualify
for debt cancellation, they must show good governance and meet certain criteria, such as
government transparency, accountability, and stability. The G8 members have already
been successful in canceling the debts of 14 African countries in 2005. Those who
qualified have had relatively stable governments and they were among the highly
indebted poor countries (HIPC). If countries who have had their debts cancelled also
receive aid, they can allocate the money appropriately and focus on development projects
that can be sustainable in the long-run. (See Appendix C)

Advantages:
African countries are paying off over 14 billion dollars every year in debt. This money
could be invested in infrastructure, healthcare, education and other development projects.
It has been proven that a number of African countries that have demonstrated the success
of debt cancellation. “In Burundi, elimination of school fees in 2005 has allowed an
additional 300,000 children to enroll”, correspondingly, “in Mozambique, debt relief
allowed the government to provide free immunization to all children.” According to the
Christian Science Monitor, “the $40 billion debt cancellation agreed to by rich nation
finance ministers will, for instance, enable Zambia to hire 7,000 new teachers. Likewise,
Tanzania will no longer spend 12 percent of its annual budget on servicing its debts.
Instead, it could build new hospitals and roads.”xvi

Disadvantages
Although debts are cancelled it does not assure that governments will in all honesty
allocate the money appropriately (corruption).


C. Funding micro-credit schemes as part of U.S aid to Sub-Saharan Africa
Micro-credit programs are small loans that are extended to micro-entrepreneurs to start a
small business. The money either comes from banks that are involved in this scheme or
from non-governmental organizations. The destination of the funds primarily includes
agriculture, distribution, trading, small craft and processing industries. The loans usually
have very low or no interest rates and their repayment rate have been over 98 percent
over the past several years. Micro-credits have been geared towards women, because
they tend to be more responsible and benefit their whole family.

Advantages
Micro-credit programs have shown substantive changes in the lives of people in a smaller
scale. Supporting NGOs and establishing more banks that provide micro-credits to poor
people who want to generate income can actually be more sustainable in the long run.
Micro-credit programs are good ways of supporting the local population to depend on
themselves for their livelihoods. This creates creativity and entrepreneurships among the
locals, which diversifies and enriches the countries’ economies. The fact that micro-
credits operate at the local levels facilitates the monitoring and effectiveness of the
program. It also helps in particular those in deep poverty by improving their social status
and encouraging capacity building in career development. The overall repayment rate of
micro-credits is incredibly high and is estimated to be at 98 percent.
According to a 1997 report to the UN Secretary General, “UNICEF has supported micro
credit programs in such countries as Bangladesh, Benin, Brazil, Cambodia, China, Egypt,
Ghana, Guatemala, India, Kenya, Nepal, the United Republic of Tanzania and Viet Nam.
Recent evaluations and impact assessments conducted in two countries, Egypt and Viet
Nam have shown that micro credit can improve the well-being of the borrowers and that
the impact is greatest when credit is combined with support for access to basic social
services.”xvii

Disadvantages.
The down side of the micro-credit programs is the limit on the amount of loans a person
can receive and therefore it discourages more established businesses to expand their
business through these loans. In addition, the incentive to free ride could be high since
there is no collateral necessary for borrowing.

                       Efficiency             Sustainability          Transparency
Status Quo             Inefficient            Highly                  Not Transparent
                                              Unsustainable
Debt Cancellation      Efficient              Sustainable             Relatively
                                                                      Transparent
Micro-Credit           Highly Efficient       Highly Sustainable      Highly Transparent


5. RECOMMENDATION:

We recommend a combination of the micro - credit and debt cancellation alternatives
since they highly complement each other. If these alternatives are applied simultaneously
they can be more sustainable than the aid geared solely towards food, healthcare and
education. A restructured US aid coupled with debt cancellation and micro-credits
schemes can achieve more fruitful results and can help African countries stand on their
own two feet.
6. IMPLEMENTATION PLAN:

For financial aid use to become transparent, a program combining micro-credit and the
debt consolidation programs must be implemented. What must be changed is the
receiving party of the financial aid. We recommend each African state elect a group of
officials from current non-profits and NGOs to band together and create a “receiving
entity.” The entity would disburse aid money to the participants of the micro-credit and
debt consolidation programs, along with monitoring the program and working closely
with the participants
Appendix A: United Nations Human Development Report on the United States’
allocation of foreign aid.




               (Source: http://statastic.com/2006/07/14/us-foreign-aid/)


Appendix B: World Bank/OECD calculation of net overseas development assistance,
relative to GNI (2003).




(Source: http://news.bbc.co.uk/2/shared/spl/hi/africa/05/africa_economy/html/debt.stm)
Appendix C: Debt service as a percentage of government revenue, 2003




              (Source: IDA and IMF, HIPC initiative update, April 2005)
                                       REFERENCES:

i           www.cato.org/pubs/handbook/hb109/hb_109-69.pdf. 19 February 2008.
ii          http://www.globalissues.org/TradeRelated/Debt/USAid.asp. 18 February 2008.
iii         http://www.brookings.edu/articles/2005/0627africa_rice.aspx. 19 February 2008.
iv          Ibid
v           http://www.ccds.charlotte.nc.us/History/Africa/03/burrow/burrow.htm. 19 February
2008.
vi          Ibid.
vii
     http://www.usaid.gov/about_usaid/usaidhist.html. 17 February 2008.
viii
     Ibid.
ix
    http://www.usaid.gov/locations/sub-saharan_africa/. 17 February 2008.
x
   http://www.usaid.gov/pubs/cp2000/cp00bud.html. 5 March 2008.
xi
    http://www.usaid.gov/pubs/cp2000/afr/afr_over.html. 5 March 2008.
xii
     http://www.cato.org/pubs/handbook/hb109/hb_109-69.pdf. 5 March 2008.
xiii
     http://links.jstor.org/sici?sici=0002-7162(196407)354%3C65%3AAATA%3E2.0.CO%3B2-
K#abstract. 6 March 2008.
xiv
     http://craigeisele.wordpress.com/2007/12/04/ayittey-points-to-missing-money-in-africa-as-a-
problem/ 6 March 2008.
xv
     http://news.bbc.co.uk/2/hi/business/2069632.stm 6 March 2008.
http://news.bbc.co.uk/2/shared/spl/hi/africa/05/africa_economy/html/debt.stm
xvi
     http://www.csmonitor.com/2005/0613/p01s02-woaf.html, 5 March 2008.
xvii
      http://www.gdrc.org/icm/un-report.html 6 March 2008.

				
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