Assessing alternative forms of foreign aid

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UNIVERSITY OF AMSTERDAM

MSC POLITICAL SCIENCE (TRACK: POLITICAL ECONOMY) MASTER THESIS

GAIA SCOTTO DI MINICO STUDENT NUMBER: 12096911

SUPERVISOR: DR. MICHAEL ONYEBUCHI EZE SECOND READER: DR. ROCCO BELLANOVA

JUNE 21ST 2019

ASSESSING ALTERNATIVE FORMS OF FOREIGN AID

RESEARCH QUESTION: TO WHAT EXTENT ARE CASH-BASED TRANSFERS A BETTER ALTERNATIVE TO TRADITIONAL AID SCHEMES IN THE PURSUANCE OF DEVELOPMENT? A

CASE STUDY OF KENYA WORD COUNT: 20,799

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ABSTRACT

Within the development field, foreign aid has been the cause of an intense political debate ever since the turn of the century. The Paris Declaration on Aid Effectiveness in 2005 was the first legislative piece which acknowledged the gap between the vast resources going into aid and the shortcomings that resulted from it. In particular, with more than $1 trillion poured into the African continent over the last 50 years, the increase of development has not been reflective of this amount. While aid sceptics seem to believe that aid has done more damage to recipients than good, aid optimists point to the successes that have resulted from aid. Somewhere in between this spectrum, aid reformists seek to find solutions to the problems and attempt to reorganize the foreign aid industry in order to get it back on track and serve its original purpose: that of ameliorating the livelihoods of people living in extreme poverty. Ever since the success of cash-based transfers in Latin America, policymakers have been showing increasing attention to this type of foreign aid to unfold its potential in Africa.

This thesis poses the question: “To what extent are cash-based transfers a better alternative to traditional aid schemes in pursuance of development?” and carries out a single case-study of Kenya. It considers two cash-based transfer programs and two traditional aid scheme programs in Kenya that share common control variables and assesses their impact, feedback mechanism, integration of locals, and cost-efficiency in order to determine which foreign aid type performs better. It concludes that cash-based transfers perform better overall but especially in so far as impact and integration of locals.

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“It is no surprise that the process of helping the poor by giving them access to goods and services is fraught with difficulty. There needs to be a system for picking the right project and a system for making sure that the project is carried out as it should be, and for figuring out how much people

are getting out of it and whether it continues to be what they need/want.” Easterly (2008, p.49)

1.1 Subject Introduction and Significance

Aid and humanitarianism are concepts usually associated with benignity and generosity, reserved for good Samaritans looking to spread goodwill. A big portion of regular people living in advanced economies believe in giving back by donating money or time into projects that seek to improve the lives of people overcome with poverty, violence, and oppression. In spite of the good intentions that often involve these altruistic activities, the aid industry’s image has been tarnished over recent years for failing to deliver on its promises and acting according to a hidden agenda. While many continue to support the actions of non-governmental organizations or charity organizations that insist they have the solutions to many of the world’s most pressing problems, more and more evidence has surfaced on the nature of the costs and impact of these same organizations. This evidence has unearthed, in part, that a large proportion of funds are wasted on mundane administrative and bureaucratic activities; that aid schemes act in accordance to blueprints that have no local context of the community they are targeting; and that aid is often used as political leverage for foreign policy. Unfortunately, the problem with the aid industry is not limited to a waste of resources. With more than $1 trillion spent in developmental projects over the last 50 years on the continent of Africa alone, many argue that these resources have only resulted in added instability, corruption, and violence (Moyo, 2008, p.10). Aid has appeared to be the best solution chosen by western

economies, maybe because it is the easiest action to do and maybe because it “fits so comfortably into a moral universe organized around the principles of sin and expiation” (Collier, 2007, p.123). Unsurprisingly, throwing money at a problem rarely leads to successful results. If one digs deeper into the $1 trillion, one would find that it was invested in projects that had a “lack of an explicit basis for their decision-making” (Easterly, 2008, p.56). What is even more revealing is the fact that much of the people now speaking up against these big organizations are the very same people that spent years working for them, namely ex-World Bank economists who underwent years working in the aid industry before recognizing its faults (Engel, 2014, p.1376). One of these economists, Lant Pritchett, describes some of these flaws by explaining that “nearly all World Bank discussions of policies and project design had the character of ‘ignorant armies clashing by the night’- there was heated debates amongst advocates of various activities but rarely any firm evidence presented and

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considered about the likely impact of the proposed actions. Certainly […] there was never any definitive evidence that would inform decisions of funding one broad set of activities versus another or even funding one instrument versus another” (2002, p.251).

Clearly, the aid industry needs to undergo major reforms in order to continue to help those in need of assistance. However, it is also true that there are some success stories within the development field of aid projects delivering excellent results. Positive results were a product of precise research, effective localised solutions, and efficiently allocated funds, amongst other factors, demonstrating that there is no need to pull the plug on foreign aid altogether. Given that there are ways in which aid has served its purpose, this thesis seeks the alternative forms of aid that have worked in the past. In particular, the thesis shines light on a new type of foreign assistance which has gained popularity and success in Latin America to see whether it can be applied elsewhere and exhibit the same developmental achievements. Cash-based transfers are aid programs whereby the organization selects a number of households within a small community to whom it distributes a particular amount of money without any conditions or strings attached. With this in mind, cash-based

transfers already appear to overcome the problems of ulterior motivations, lack of local context, and administrative costs. However, cash-based transfers do not come without their own criticisms and limitations. Namely, that distributing money to the poor and uneducated is not going to change the institutional framework that made them poor and uneducated to begin with. Furthermore, critics are sceptic of the nature of giving money to people who do not know how to spend it “properly” to further their own wellbeing, instead wasting it on bad consumer goods like alcohol or tobacco. Consequently, the thesis aims to answer the research question: “to what extent are cash-based transfer programs a better alternative to traditional aid schemes in the pursuance of development?” by taking the case study of Kenya. It takes into consideration the arguments that have been put forward by both aid sceptics and aid supporters, and follows the line of reasoning of those branded as “aid reformists” to argue that although the aid industry has had successes and contributed to developmental improvements in the past, this has not come without grave mistakes and setbacks. Accordingly, learning from these mistakes can serve the aid industry to improve its strategy and technique to become better in the future. The analysis follows a qualitative comparative method between two cash-based transfer programs and two traditional aid scheme programs in several regions of Kenya and ultimately concludes that cash-based transfer programs deliver better results in so far as impact and local involvement. Although cash-based transfer programs perform better as a whole in this analysis, the thesis does note that when it comes to cost-efficiency and feedback mechanism the results are mixed, actually showing that most programs have made an effort to

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improve the former, and that the latter is a matter of organizational decision-making unrelated to the aid type.

1.2 Theoretical Framework

The research question asks to what extent cash-based transfers are a better alternative to traditional aid schemes in development. This question arose out of the issue that the amount of foreign aid in the past few decades is not reflected in economic and human development indicators despite the importance placed by world leaders on such matters. Given the centrality placed on solving world poverty, illiteracy, access to clean water, and eliminating easily preventable diseases in programs such as the Millennium Development Project and the Sustainable Development Goals, finding a way to make foreign aid more efficient is of utmost importance. The significance of this issue is to improve the lives and livelihoods of the billions of people living in extreme poverty conditions as well as to ensure that the resources organizations pour into these efforts are not wasted.

Foreign aid can be defined as the voluntary transfer of resources from a donor to a recipient (Agarwal, 2018). It can be bilateral, when assistance is given by a government directly to another government, or multilateral when several countries pool together a fund, usually via an international organization, with a specific humanitarian goal in mind (Agarwal, 2018). Voluntary aid or

humanitarian aid derives from non-governmental organizations, typically in response to

catastrophes or calamities (Moyo, 2008, p.14). Development is a process which at the individual scale entails increased skills and capacity, greater freedom, responsibility, and material well-being (Rodney, 1973, p.6). At the societal scale, it implies that all of its members have jointly increased their capacity for dealing with the environment (Rodney, 1973, p.7). Since development is a growth process, and the human race is constantly showing signs of development, it is almost impossible to be a fully “developed” society by these measures (Rodney, 1973, p.7). Likewise, all societies have experienced some rate of growth albeit differing from continent to continent, thereby making “underdeveloped” an inappropriate term to use (Rodney, 1973, p.8). As a result, throughout this thesis, “developing economies” will refer to those who are experiencing development at a slower rate relative to other economies.

The dependent variable in this study is the economic and human development that occurs as a result of foreign aid schemes. In this thesis the dependent variable is measured subjectively by analysing the methods, impact, and perception of recipients in both foreign aid forms. The secondary

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outcomes on development. In order to look at which aid type uses resources more effectively, it also measures cost-efficiency.

The independent variable is the type of foreign aid. In fact, this thesis compares cash-based transfers, in other words the direct transfer of money in physical form to the recipient, to more traditional aid schemes, such as programs that deliver tangible products. Traditional aid schemes can range from building hospitals in remote areas, to delivering books to schools, to distributing canned food. Both are reliant on funds from donors, but they use different strategies to make the best use of their resources.

The control variables include the geographic location, the scale of the programs, and the issue targeted by the program. Controlling these factors makes it easier to ensure that the variable that is causing the dependent variable to change is indeed the foreign aid type.

The thesis hypothesizes that cash-based transfers will prove to be better than traditional aid schemes because this alternative type of foreign aid resembles a bottom-up approach to development. This hypothesis bases itself on the theory of aggregation and collective action within the field of political economy, whereby thinkers assume that the best way to influence society is for individual people to come together and organically combine their actions to influence the aggregate (Caporaso and Levine, 1992). Hence, according to this assumption, societal improvement is based on the capacity of the individual (Owen and Walter, 2017, p.184). Instead of establishing a government which enacts laws and institutions to force citizens to act in a particular way, this thesis argues that good laws and institutions will arise out of the collective actions of the population (Owen and Walter, 2017, p.184). As a matter of fact, the development field is dominated by contrasting camps. The first and most dominant one assumes that the best way to help developing countries is by setting up institutions and good governance via conditionality and forcing them to align themselves with these institutions. The second and more recent one, argues that setting up an ideal government and

expecting a country to act accordingly is unrealistic and unattainable. Instead, institutions that improve development should arise as part of the effort of civilians who carve their own institutions and path to development, one that is adjacent to their context and reality (Owen and Walter, 2017, pp.180-185). This strategy is less direct as it chooses to alter the behaviour of local actors instead of providing a formal and focused program that singularly targets institutions and governance

(Unsworth, 2010). Of course, it can be argued that receiving foreign aid still includes a degree of top-down approach, given that donors are governments, organizations, or individuals from

advanced economies that assume a degree of superiority over the recipients. In this case, even cash-based transfers are not completely bottom-up, given that the resources used for the rise of the

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aggregate is due to foreign resources. However, because cash-based transfers exclude conditionality and act as a sort of soft budget support, this thesis is still abiding to this theoretical framework.

1.3 Chapter Overview

The following section displays a roadmap of the thesis, describing the various components of each chapter.

Chapter Two presents a literature review. The first section reveals an overview of the history and main arguments of the foreign aid industry. The second section discusses the debate put forward by the aid optimists, highlighting the benefits that foreign aid has had thus far, with the examples of a few success stories. The third section looks at the opposing argument presented by aid pessimists who go as far as to state that aid does more harm than good. The fourth section then discusses a middle ground between aid optimists and aid pessimists, known as the aid reform argument which introduces solutions as to how the aid industry can and should change. Finally, the last section presents the cash-based transfer program and its accomplishments and setbacks thus far.

Chapter Three draws a comparative analysis between cash-based transfer programs and traditional aid schemes programs in Kenya. The first section describes the research design and methodology along with strengths and weaknesses. The analysis selects two programs of each aid type which share common control variables such as geographic location, institutional framework, scale of organization, and issue targeted. After describing each program in detail, the chapter goes on to evaluate the programs on the basis of cost-efficiency, involvement of locals, feedback mechanism and impact.

Chapter Four draws a conclusion of the overall paper based on theory, literature, and results. It then puts forward different considerations and reflections as a forethought and as way to keep the

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CHAPTER TWO LITERATURE REVIEW

2.1 Overview

According to the World Bank Data, in 2015 approximately 10% of the world’s entire population lived on less than $1.90 a day (World Bank, 2018). This is the threshold below which it is deemed to be living in “extreme poverty.” Although this figure appears paramount, the Bank does specify that the percentage has decreased 11% from its 2013 levels, and 36% from 1990, resulting in 1.1 billion fewer people living in extreme poverty conditions since 1990 (World Bank, 2018). Most recently however, the rate of poverty reduction has slowed down significantly. Furthermore, though the decline in poverty rates thus far appears to be an outstanding accomplishment, it is essential to recognize that this impact has been felt unevenly between regions. In fact, the majority of people who arose out of extreme poverty are located in South East Asia and China, whilst the Sub-Saharan Africa region actually experienced an increase in the poverty rates (World Bank, 2019). Whilst the former managed to undergo a complete economic and institutional transformation in the last thirty years, 41% of Sub-Saharan Africa is still living below the poverty line (World Bank, 2016). Over 700 million Africans live on less than a dollar a day, with sub-Saharan Africa witnessing the highest proportion of poor people in the world (Moyo, 2008, p.13). In general, the trend in Africa across numerous important human and economic indicators has gone downwards. This phenomenon is occurring despite the fact that ever since the 1990s many industrialized countries have seemingly committed to helping the region prosper. This commitment is translated into circa $1-2.3 trillion on foreign aid across the last 50 years (Easterly, 2006; Moyo, 2008, p.10). It is precisely because of this anomaly that the discussion has been raised on the topic of foreign aid in the field of

international development.

The first extensive foreign aid project was the Marshall Plan1 in 1948 which was aimed at the European countries that had undergone bombings during the Second World War (Hubbard and Duggan, 2009, p.xii). Indeed, Europe was rebuilt successfully in a matter of years and the Marshall Plan was deemed a huge contributor to this accomplishment. During the Cold War, foreign aid took a different meaning. It was a way for countries, in particular the Soviet Union and the United States, to increase their sphere of influence during their ideological battle (Broich, 2017, p.53). Most often, the US or USSR would financially back leaders or instigate a coup d’état to gain additional allies (Brautigam and Knack, 2004, p.275). In the 1980s, the predominant Western economic theory

1_{The Marshall Plan, launched in April 1948 by US Secretary of State George Marshall, sent $13 billion to the Western} European nations of France, Italy, the United Kingdom, Western Germany, Spain etc. with the aim to boost morale, erode the appeal of communism, and help recover the economies in the war-torn nations (Leffler, 2018).

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emphasized that the key to triggering growth was by pumping money into a country’s industries and infrastructure (McDonald, 2017). As a result, the US began spreading the Western model of market-based economies. Through foreign aid and loans, the Bretton Woods institutions2_{such as the}

International Monetary Fund and the World Bank began to implement neoliberalist policies in the countries they were lending to (Oatley, 2016, p.19). Structural adjustment programs3_{, as they}

became known, were meant to promote privatization, deregulation, minimal government intervention, and embrace the global market (Oatley, 2016, p.145). Towards the late 1980s, the Washington Consensus4 created a blueprint for all developing countries to follow but was

ultimately classified as a failure by most scholars as it did not cater to the national and local context (Stiglitz, 1998). Since then we can speak of a new wave of foreign aid, one in which the intentions have slightly shifted and that is supposedly characterized by altruism and humanitarianism through programs like the UN Millennium Development Goals (Banerjee, 2007). But has this shift resulted in improved outcomes? Many scholars would argue that the aid industry is successful in what it does, while others disagree with this statement.

Foreign aid has been the centre of a large debate since the turn of the century, when scholars began to realize that the amount of resources going into developing countries was not reflected in the economic or human growth. Strong claims are made on a daily basis in regards to the potential role of foreign aid in the fight against poverty. The UN Development Program (2005, p.2) states that “international aid is one of the most effective weapons in the war against poverty” but follows up this sentence with “today, that weapon is underused, inefficiently targeted, and in need of repair”. Similarly, the Department for International Development (2006, p.13) asserts: “Aid works. Aid helps reduce poverty by increasing economic growth, improving governance and increasing access to public services.” Still, they add that “some parts of the international aid system have become either too complicated and inefficient or simply do not work at all. They must change.” Further still,

2_{The Bretton Woods institutions, set up in 1944 by the Allies as World War Two ended in Europe, set up an}

international monetary arrangement that shaped the post-war global economy. The system sought deeper economic integration and led to the first big wave of globalization. The institutions that arose out of it were the General Agreements on Tariffs and Trade (the predecessor of the World Trade Organization), the International Monetary Fund, and the World Bank (Oatley, 2016, p.19).

3_{Structural adjustment programs were introduced in 1985 and rested on the belief that governments were too} involved in economic activity, and that economic production was too heavily oriented towards the domestic market. Thus, these programs had the aim to reduce the role of the government and subsequently increase the role of the market. Reforms took on four main areas: trade liberalization, liberalization of foreign direct investment, privatization of state-owned enterprises, and deregulation (Oatley, 2016, p.312).

4_{The Washington Consensus was a program put forward in 1989 by economist John Williamson and approved by the} Bretton Woods institutions, which established a set of policy prescriptions that developing countries should follow in order to ensure development. It was a response to the Latin American debt crisis of the 1980s, although it has since been applied to different areas of the world. Its core values rested on neoliberal thinking and promoted stabilization, privatization, market liberalization, and structural adjustment. (Oatley, 2016, p.150).

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the UN Millennium Project (2005, p.4) provided a bold statement that poverty in the poorest economies has the potential to be reduced only if and when these implement well-designed plans and developed countries match these efforts with “substantial increases in support.”

As can be gathered from the statements hitherto presented, there is much discussion around the potential of aid and with the results, or lack of results, it has produced thus far. On the one hand, “aid optimists” argue that aid serves to build a positive relationship between countries and promotes peace and stability in a vulnerable region. On the other hand, “aid sceptics” or “aid pessimists” maintain that it is a newer form of imperialism and that it is only serving to hold countries back as it does not promote faster economic growth. Somewhere in the middle of this spectrum lie “aid reformists,” who acknowledge the positives that aid has achieved until now but without denying that there have been many problems in the process. They tend to focus on ways to improve the method and delivery of aid, among other things. By comparing traditional aid schemes to alternative forms of aid, this thesis is implying that some changes need to be implemented in the aid industry as it has not reached its full potential. This implication supports the aid reformist argument, which encompasses both the aid optimists’ and the aid pessimists’ discussion. Understanding their differences is crucial for the purpose of this thesis as it gives background to why aid has potential, but only when it undergoes reform.

2.2 Aid Optimists

The following section looks at how so-called “aid optimists” regard foreign aid as successful in its goals. This is necessary to understand as this thesis argues that foreign aid can create good

outcomes when implemented correctly and when the needs of the local population are met. Among these scholars, the most prominent one is Jeffrey Sachs. He argues that aid works, and it saves lives. He bases this claim off the recent data showing that death rates across developing countries have fallen sharply (Demombynes and Trommlerova, 2016) and that aid-supported programs were the primary source of this success as they were vital in delivering healthcare goods and services (Murray et al., 2014). Sachs observes that in 1990, 12 million children around the world died under the age of 5 years old, whilst by 2010 this number had decreased to 7.6 million even with the increase in populations. In particular, children deaths caused by malaria in the African continent were reduced from 1 million in 2004 to 700,000 in 2010. Based on this evidence, he suggests that an increase in aid would allow for still greater progress in the area in the following years: “The opponents of aid are not merely wrong, their vocal antagonism still threatens the funding that is needed to get the job done, to cut child and maternal deaths by enough to meet the

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Millennium Development Goals by 2015 in the poorest countries, and to continue after that to ensure that all people everywhere finally have access to basic health services” (Sachs, 2012). In his opinion then, aid sceptics are hurting progress with the concerns they are raising because they are halting the resources that serve countries in need. Paul Collier (2007, p.100) also believes that “aid does tend to speed up the growth process” based on the fact that over the last 3 decades it has added around 1% to the annual growth rate of the bottom billion economies.5_{Even though this statistic}

does not seem impressive, it is worth noting that over the same period the growth rate of the bottom billion was 0%, meaning that 1% has already made a noticeable difference. According to Collier (2007, p.100) “without aid, cumulatively the countries of the bottom billion would have become much poorer than they are today. Aid has been a holding operation preventing things from falling apart.”

The biggest aid success story that gives testament to the potential of foreign aid was the eradication of smallpox. In 1967, the World Health Organization launched a program calling out the severity of the deathly disease with the aim of completely eradicating it (WHO, 2010). The “Intensified

Smallpox Eradication Programme” carried out a mass vaccination strategy, hoping to vaccinate 100% of the world’s population. It called for extensive international collaboration, measurable objectives, highly-trained personnel, and problem-oriented research (Henderson, 1987). In 1980, the WHO officially declared that the disease had been beaten on a global scale. Not only was it a

remarkable humanitarian success, but it also gave hope for all diseases in the future to be managed and that other issues would be tackled as meticulously (MacAskill, 2015, p.43). It showed that the combination of science, statistics, purpose, and funds could produce fruitful outcomes.

2.3 Aid Pessimists

On the opposite side of the spectrum, “aid sceptics” or “aid pessimists” are not only critical of the potential of foreign aid, but they believe it is causing more harm than good. For the purpose of this thesis, it is crucial to get a glimpse into their discussion as it will shed light onto the fact that the aid industry needs to look to new alternatives to pursue its goals. Moyo (2008, p.10) is one of the loudest aid critics by claiming that the argument that foreign aid can alleviate poverty is a myth as recipients of aid in Africa are “not only worse off, but significantly worse off.” In fact, according to her, the distribution of aid across the continent has caused the poor to grow poorer and the

economic growth to slow down (Moyo, 2008, p.5).

5_{Collier (2007, p.4) defines “bottom billion” as the number of people across the world becoming increasingly poorer} each year and with less of a chance of integrating into the world market and improving their situation.

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When seeking to explain why aid is not working as was originally planned, it is worth going back to the beginning. The Marshall Plan in 1948, as mentioned already, was the first big aid project and proved to be successful across all indicators. Within a matter of years, Western Europe was back to its pre-war levels and had begun to slowly pay back their loans. Although no one denies the success of the Marshall Plan, the main mistake that derived from it was the belief that it could and should be used for developing countries as well (Moss, 2004). This comparison was fundamentally wrong given that post-war Europe was nowhere near similar as Africa today, or following independence (Moyo, 2008, p.16). First and foremost, European countries receiving aid were not wholly

dependent on it, as their own economies were already slowly recuperating (Moss, 2004). Moreover, European nations already had institutions and a constitutional framework in place with skilled labour, a court of law, businesses and civil services (Hubbard and Duggan, 2009, p.22). As a result, most of the funds went into rebuilding infrastructure that had been destroyed by bombings as a way of pumping money to kick off the economy again (Moss, 2004). Undoubtedly, the former allies roughly knew the recipe to follow that had already worked previously for them. They were not experimenting with principles and plans they had never heard of before. Contrastingly, most African nations coming out of colonialism had only extractive institutions6 to work with (Easterly and Levine, 2002). These were institutions that had been put in place by colonizers to benefit the European governments rather than the local population (Brautigam and Knack, 2004, p.259). These extractive institutions were unsustainable and unsuited for long-term stability (Acemoglu and Robinson, 2012, p.88). Consequently, African countries did not have the same foundation to work with as European economies post-war.

This last point links to the next argument, which is that aid sceptics believe foreign aid does not work when the recipient country does not have adequate institutions (Acemoglu and Robinson, 2012, pp.493-496). Many economists and scholars attribute the failure of economic growth to institutions that systemically block the incentives and opportunities of the poor to suit the needs of a handful of elites (McDonald, 2017). The “aid paradox” describes the phenomenon whereby aid tends to be more efficient where there are already good governance and policies in place. However, if aid is being allocated according to effectiveness, it ends up benefitting to those who are in less

6_{Extractive institutions are ones in which power is concentrated in the hands of a small group of elites who face very} little constraints and who extract resources from the rest of the population. Extractive political institutions typically lead to stagnation and poverty as the group in charge only stands to benefit from it (Acemoglu and Robinson, 2012, p.50). When colonizers conquered territory that was naturally resource-rich and population-dense, they would set up extractive institutions such as forced labour and confiscation of produce to drain that territory of its wealth (Diamond, 2012). Conversely, territories that were deemed unfavourable for settling with sparse populations, such as Costa Rica or Australia, left European settlers to develop institutional incentives to reward labour (Diamond, 2012). When these territories gained independence, they inherited their respective institutions.

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need of it (McDonald, 2017). On the other hand, if aid is being allocated according to need, it feeds into corruption and finances bad projects resulting into being “irrelevant at best, and downright counter-productive at worst” (McDonald, 2017). Ultimately, this paradox can serve to explain why so much of foreign aid is destined to middle income economies rather than the “bottom billion” who truly need it (Harrigan, 2011, p.5).

It is precisely stable institutions that international organizations like the World Bank try to set up through their aid scheme programs (Rodrik, 2006, p.977). Although foreign aid in the World Bank and IMF often takes the form of loan, it is their conditionality clause that attracts the most attention. Aid conditionality was a big attribute of the Washington Consensus, whereby international

organizations would only loan or fund projects as long as the recipient countries would follow certain conditions (Rodrik, 2006, pp.973-974). Specifically, they demanded reforms that mimicked the neoliberalist Western model. Although these conditions had the potential to bring significant economic gains, it was soon realized that creating a uniform blueprint for all developing countries and have them undergo a total transformation was counterproductive (Dichter, 2002, p.153). Setting institutions cannot be imposed by an external influence as institutions are embedded in all aspects of the society, and when society is not adjacent to the changes the country is undergoing, it will almost certainly fall apart (Rodrik, 2006, p.978). Other types of conditionality include using the money received via aid to buy specific goods and services which originate from the donor country (Moyo, 2008, p.47). Of course, this fails to spur the local economy as the domestic agriculture suffers from lack of demand.

The lack of stable institutions thus not only fails to make good use of aid, but it serves to foster corruption in a “vicious cycle of aid” (Moyo, 2008, p.43). In this instance, foreign aid keeps supporting corrupt governments, hence providing them with freely usable cash which allows them to continue bypassing the rule of law and deters the establishment of transparent institutions as well as the protection of civil liberties (Bauer, 1948). This environment makes domestic and foreign investment very unappealing, resulting in fewer investments and limited economic growth which leads the country to continue to depend on foreign aid (Hubbard and Duggan, 2009, p.22). Given that foreign aid often continues to flow regardless of whether or not the conditions are met, corrupt leaders continue to use it to suit their needs. Western leaders find themselves stuck between wanting to punish corrupt leaders and helping the poor population. Unfortunately, their inability to take a decision has been a decision in and of itself (Calderisi, 2006). The academic Larry Diamond (2004) found in his research that development agencies continue to give aid to the most corrupt and

unaccountable African nations with well-known authoritarian leaders such as Cameroon, Angola, Eritrea, and Mauritania.

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A further problem highlighted by aid sceptics is “aid dependence.” In fact, foreign aid is believed to engender laziness among African policymakers (Moyo, 2008, p.107). Policymakers are certain that they will continue to receive a steady aid inflow regardless of whether they find solutions to address the poverty problem. This characteristic creates moral hazard, as it induces riskier behaviour that is counter-intuitive with development strategies (Brautigam and Knack, 2004, p.256). Policymakers lack a sense of urgency many believe is required to awaken the country and thus seemingly

relinquish control (Sobhan, 2000). At the same time, governments do not see the need to pursue tax revenues because they see the inflow of aid as a substitute for their own tax revenue (Collier, 2007, p.101). Certainly, the local population responds better to leaders who continue to deliver services but lower taxation at the same time. Not only does lack of tax revenue fail to provide the funds necessary to build infrastructure and provide institutions needed for citizens to lead productive lives (McDonald, 2017) but it also breaks the social fabric, or the natural relationship that exists between a citizen and its government (Moyo, 2008, p.49).

Finally, some argue that foreign aid acts a sort of reparations for the colonial history on the African continent (Collier, 2007, p.100). In this instance, former colonizers have a moral obligation to provide assistance upon those regions they once inflicted suffering (Riddell, 2008, p.147). Hence, it is a manifestation of the guilt experienced by Western society and it therefore does not hold purely altruistic motivations. If this mentality is true, it is dangerous and counterproductive as it

unintentionally continues to feed into the colonialist mindset whereby the West continues to regard African people as “helpless victims waiting for their hero to swoop in” (Collier, 2007, p.100). This mentality, which is the genesis of most leading Western development agencies, is problematic because it sets the tone for the entire operation. Some even go as far as asserting that foreign assistance takes a new form of imperialism, whereby Westerners act as “philanthropic invaders” by stepping in to help countries who have not asked for it (Dichter, 2002, p.152). Acknowledging and tackling the issue of “mental slavery” is essential if the continent wants to approach development (Biko, 1971). The powerful and underrated aftermath of colonialism lives on to this day: it’s the continuous feeling of inferiority in the face of the rest of the world that rules the psychology of the continent. Not just the leaders but everyone in recipient African countries need to become involved in “unlearning and relearning, unthinking and rethinking” the oppressive and dominant philosophies that were drilled into the people for centuries (Mnisi, 2017). It is obvious that development on the continent is ruled by Western ideology and continues to be Western-centric, while Africa needs uniquely African solutions (Mnisi, 2017). The concept of African Renaissance, in fact, is the idea that it will be the African people and nations that shall fight the challenges facing the continent and reach a new area of “enlightenment” that is African at its core (Diop, 1946). The lack of

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empowerment in past aid programs is precisely where they began to fail. Instilling self-confidence in the wider population and giving more control and choices is key if development agencies truly hope for these countries to one day be completely self-dependent.

2.4 Aid Reformists

Having established what scholars merit and criticize about the topic of foreign aid, it is appropriate to examine the third school of thought: aid reform. Those who propose aid reform are somewhere in the middle of the two previous stances. They see the potential of aid, and celebrate the successes it has had thus far, but they are also not blind to the errors and misinterpretations that have come along with it. They seek to examine why some projects have worked, and why some have not in pursuance of adjusting and improving the process for the future. Aid reform was institutionalized at the 2005 Paris Declaration on Aid Effectiveness, when the global economic context raised questions about whether the Western model of development was truly producing the outcomes it claimed (OECD, 2005). Although the Paris Declaration was full of flaws, it was a first step in shedding light on the imperfections of the aid industry (Glennie, 2011). From there on after, more accountability was demanded for the donors to increase transparency and reveal a breakdown of their budget plans. Among the areas of focus, the Paris Declaration sought to strengthen the recipients’

ownership of development strategies; increase the harmonization and collaboration between donors and recipients; eliminate the duplication of efforts; and rationalize donor activities in order to make them as cost-effective as possible (OECD, 2005).

The main difference between the “aid reformist” argument and the previous two is that aid reformists present solutions to the problems based on the results of past projects. Each scholar proposes his or her idea of how aid can be improved, but all fundamentally acknowledge that some changes must be implemented in order to improve aid efficiency.

One factor most aid reformists agree on is the fact that additional aid inflows will not equate to a faster or better development (Gleannie, 2008). This is the concept of diminishing returns, whereby as countries keep on increasing the amount of foreign aid, there is less and less productivity or “less and less bang for the buck” (Collier, 2007, p.100). The first million dollars donated is going to be more productive than the second million, and so on and so forth. In fact, a recent study by the Center for Global Development (Sumner, 2014) estimated that when aid reaches approximately 16% of GDP, it more or less ceases to be effective. Consequently, it can be derived that the call for

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the augmentation of aid to Africa is not going to lead to any promising results.7 Instead of

increasing aid, the focus should be on increasing its efficiency (Collier, 2007, p.151). Several ways of doing this that are discussed in the following paragraphs are: installation of performance

feedback mechanisms, avoidance of duplication by way of unification and coordination of efforts, change of principal agents of aid, introduction of budget support, and elimination of politics. The first way of improving aid efficiency proposes installing a performance feedback mechanism (Riddell, 2008). Indeed, some comment on the “lazy thinking” that dominates the aid industry to illustrate the lack of direct evaluation of the impact of past interventions (Banerjee, 2007). Different theories and ideas are continuously applied in aid projects, but very little of it seems to be based on firm evidence to ensure that it is the best solution to the variables of interest (Pritchett, 2002). This lack of feedback mechanism means that aid funding is not always being allocated effectively, and the aid organizations do not learn from their mistakes, meaning that they are more likely to commit them time and time again (Riddell, 2008; Easterly, 2008).

The second point engages with the fact that one of the biggest problems with aid schemes is that very often there a number of organizations that are working on the same ground to combat the same problem but that are following different guidelines and principles (Easterly, 2008, p.302). This is an issue of grave concern because the outcome of this is not only a duplication of efforts to fight the same problem, but that these resources are twice as wasted because one may cancel the other out. For example, a hospital needs to be built in a rural area and three organizations are on the ground working to make this happen. However, all three of them follow different guidelines that are set by the mother organization, and therefore their efforts clash. Not only could their efforts have been redirected in a second and third rural area that is not receiving any help from organizations, but they take longer to settle and compromise with the other actors involved in order to reach a consensus that suits all. Hence, there is a necessity to unify and coordinate the aid efforts of public

organizations and NGOs (Riddell, 2008) for the sake of avoiding duplication of efforts (Collier, 2007, p.186).

The third proposal of improving aid efficiency is thinking about changing the principal agents of aid. Easterly (2006, p.5) in fact, uses a different approach than all the others. He argues that the aid industry is split into two camps: the planners and the searchers. Planners, for example those who put in place the Millennium Development Goals, are those that follow the traditional aid schemes, such

7_{In 2005, the G8 Summit called for double the amount of foreign aid towards the African continent by 2010 (Sachs,} 2010). The G8 Summit is one of the many examples of powerful nations opting to increase aid as a solution to extreme poverty in Africa and elsewhere. Because the G8 represents eight of the most economically powerful nations on the planet, it showcases the global mentality on the subject.

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as setting up programs or collecting donations on a grand scale, and act according to a top-down approach. Although planners are often motivated by good intentions and use emotional language to get their message across, they do not follow the most efficient method in carrying it out (Easterly, 2006, p.6). In other words, planners apply global blueprints and set out to accomplish big, and sometimes irrational or unattainable, goals. Although big goals can be immensely motivating, they are too often misleading and counterproductive given that the free market does not work with fixed specific goals (Easterly, 2006, p.7). Moreover, attempting to impose a blueprint is patronizing, as it acts with very little knowledge of the local context. Imposing the same step-by-step pathway to development for every country is naïve and can also allude to the colonizer mentality of Western nations coming in “fix” nations, rather than helping them help themselves (Dichter, 2002, p.152). Therefore, according to Easterly (2006, 6), planners which have dominated the aid industry up until now, are not the right people to dictate how development should be reached. Rather, he calls on “searchers”, ergo those who he considers the real agents of change. Searchers, unlike planners, analyse real, small-scale problems and come up with solutions (Easterly, 2006, p.380). They start with making small differences, which eventually aggregate to make impacting change. Instead of relying on blueprints or a top-down approach, they work using a bottom-up approach with short-term goals in mind. Because they are working so closely with the problem at hand, they can rely on feedback and thus be more accountable. Ultimately, according to Easterly (2006, p.380), the best way to reform the aid industry is to allow searchers to dominate it.

An additional proposition of aid efficiency is the concept of budget support introduced by Collier (2007, p.118). This is the idea of giving the recipient government aid and letting it choose how to spend it, thus using it as an additional tax revenue. This idea is a response to all the criticism that come along with aid conditionality, which as has been already discussed reinforces superiority and ignores the local reality. Although this sounds like a good idea in principle, Collier (2007, p.119) does recognize that recent evidence has pointed to the fact that large inflows of aid without any restrictions does not seem to be well spent. Strictly speaking, recipient governments that display strong signs of corruption or authoritarianism will most likely not be distributing that money equally among those who need it. Once again, this brings the conversation back to the aid paradox, whereby only those countries that are stable and well governed can use aid efficiently.

The next point proposed by aid reformists, is the need to take politics out of the equation to ensure genuine interest in development (Harrigan, 2011, p.18; Riddell, 2008). It is almost widely accepted that during the Cold War era the US and Soviet interest in developing countries was not purely altruistic, but rather carried geostrategic motivations. Since the end of the Cold War, people seem to think that because there is no more obvious ideological battle, the motivations have changed, and

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foreign aid has no strings attached. This reasoning is flawed, because it is still most often the case that bilateral aid is targeted to regions that are of geostrategic importance to the donor (Harrigan and Wang, 2011; Deaton, 2013). The most common example is the fact that Middle Eastern countries, that are rich in natural resources, for years have been the world’s largest recipient of foreign aid in per capita income terms and the third largest in absolute terms (Harrigan, 2011, p.1). This is despite the fact that these countries are indeed classified as middle-income countries (Collier and Dollar, 2002). In this case, political motivations are getting in the way of aid reaching those who really need it: those who are living in extreme poverty (Deaton, 2013). Looking to the future, it is best that aid flows are decoupled from past donor tendencies to support pro-Western regimes so as to ensure true human and economic development (Harrigan, 2011, p.4). Unearthing the motives of donors may shed light on the effectiveness of the assistance, as donors that are more politically invested in the recipients’ context will develop a more lax attitude when it comes to monitoring reform

implementation and adequate resource distribution (Harrigan, 2011, p.12).

2.5 Cash-based Transfers

Cash-based transfer is one of the newest propositions put forward by aid reformists, in the hopes of improving the way aid is implemented. Cash-based transfer is the “provision of monetary assistance in the form of physical cash to targeted and vulnerable communities” (World Food Program, 2016). It is a small-scale effort to ensure that development is community-driven and following what resembles a bottom-up approach. The programs usually select a small community in an area ridden with poverty and provide grants to households on a timely basis. The transfers are monitored to record the progress of the families and of the village as a whole, to then analyse the improvements in economic and human development over time.

As a system it carries numerous benefits, which can explain the level of attention it has received. First, the beneficiaries are awarded with a sense of dignity that is often lacking in the aid industry (IRC, 2015). Rather than being told what to do, they can decide for themselves. Consequently, it gives a sense of empowerment, whereby recipients have control over the assistance they have received. Moreover, cash-based transfers have been praised for allowing flexibility and assumes that recipients know their needs better than anyone (WFP, 2016). Since the funds do not go through the lengthy procurement and delivery that traditional aid schemes entail, they are also more time-efficient. Additionally, it is a mechanism that avoids going through the government, which avoids feeding into corruption and ensures that aid is indeed reaching the desired target (Riddell, 2008; Calderisi, 2006). Cash-based transfers often come with no strings attached, combating the

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conditionality clause. With no conditionality, there are no risks the aid is politically motivated and carrying a tone of superiority, nor that it incentivizes certain economic behaviour (IRC, 2015). Furthermore, cash-based transfers are able to cut down on much of the administrative and

bureaucratic costs that the aid industry is often criticised for (Doocy and Tappis, 2015). A lot of the money that is being donated does not reach the ultimate recipients as it gets lost along the way. As a matter of fact, cash-based transfers omit the costs of transportation, storage, operations, etc. Finally, this alternative form of aid has been found to strengthen the local market as it forces recipients to spend the money received in their own villages, thus supporting local producers (WFP, 2016). Along these lines, it has also had a positive effect of the efficiency of service delivery.

Cash-based transfers are also gaining additional support because they resemble remittances, in so far as both are transfers of money deriving from abroad that go straight to the recipient without bypassing the government first. Remittances are defined as “current private transfers from migrant workers who are considered residents of the host country to residents in the workers’ country of origin” (World Bank, 2011). Similar to cash-based transfers, they are seen as “the financial flows transmitted via banks or money transfer operators or conveyed cash-in-hand by migrants on return visits to their family members” (King et al, 2016, p.184). Remittances are considered as a bottom-up approach to development because the resources go directly to the neediest (King et al., 2016, p.184). Past studies have observed that remittances have the tendency to “improve the living conditions of families” as the funds are used for paying off debts, sending children to secondary school, and providing necessary medical care, hence giving families the possibility of their upward social and economic mobility (Suksomboon, 2008, p.462). In fact, remittances are so vital in some countries that they make up to 37% of the national GDP (Global Economy, 2017)8. Underlining the success of remittances is beneficial to the overall line of reasoning of the thesis as cash-based transfers resemble remittances and thus have the potential of being as successful.

Despite the numerous benefits to implementing cash-based transfers, this type of foreign aid is often critiqued by those who believe that giving away money to poor or uneducated people is irrational for they would not know how best to spend it. This is plausible and likely as there is some existing evidence that points to the fact that people do not invest as much into their business ventures or their human capital when awarded with this opportunity (Banerjee and He, 2003). Why are some people considered not reliable to make the right choice in investments on their own lives? For starters, there may be an element of lack of self-control. When someone is not used to having an

8_{This figure is for the country of Tonga as of 2017 which is the country with the highest percentage of remittances as} part of the national GDP. Other countries with comparably high scores are Kyrgyzstan, Haiti, and Tajikistan. In Africa, the country with the highest percentage of remittances of GDP is Lesotho, with 15.5% (Global Economy, 2017).

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extra amount of spendable money to use on top of their daily survival costs, it may be too tempting to spend the money on something that they need right away. Another factor that comes into play in these contexts are family matters. Once one family member has more money than usual, they may be contacted by the family to help out with their own survival and needs. Lastly, there is the

argument that people simply do not know what is good for them. This criticism goes along with the cliché “give a man a fish and you’ll feed him for a day, teach a man to fish and you’ll feed him for a lifetime” which argues that teaching is a priceless act of assistance.

In addition to criticizing the potential of the recipients, cash-based transfers are often disapproved for not tackling the root causes of underdevelopment: inadequate institutions. Given the strong case for institutions proposed by Acemoglu and Robinson (2012), it is not hard to see why critics believe that giving money may feed the hungry and heal the sick but it will not “free people from the

institutions that made them go hungry and sick in the first place” (McDonald, 2017). Accordingly, cash-based transfers are not combating the root of the problem and therefore will not change the structure that made people poor to begin with. Be that as it may, this thesis adheres to different assumptions about the way development unfolds. As the political economy theory of collective action and aggregation claims, it is the accumulation of the small actions and habits of the

individuals that will affect the society as a whole. Along this line of reasoning, institutions cannot be imposed on a country; on the other hand, they need to form organically from the base of society once the lower and middle class begin to enrich themselves enough to demand accountability from the ruling elites (North et al., 2009, p.55). Hence, the bottom-up approach, albeit a seemingly slower process, will allow institutions to be established once the lower and middle class become too powerful to be ignored. Once these institutions are put in place, they are sturdier and more

legitimate, for they arose out of the hard labour and persistence of the local population (North et al., 2009, p.21).

Now that this new system has been introduced, it is worthwhile analysing the success that it has had so far in the field. Most of the research that has been carried out on cash-based transfers has taken place in South America, while Africa has received little attention in these respects (Evans et al., 2014, p.9). Cash-based transfers have proven to be incredibly successful in “alleviating extreme poverty and improving health and education outcomes for children around the world” (Fiszbein and Schady 2009; Baird et al. 2013b). When successfully implemented, they can increase school

enrolments, improve preventative health care, and raise the household consumption of beneficiaries (Evans et al., 2014, p.10). Beyond the beneficiaries themselves, cash-based transfer programs have been found to indirectly improve the outcomes of neighbouring villages or families living in the same community not benefitting from the program (Evans et al., 2014, p.10). The next chapter

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looks at a number of different programs and analyse their success and limitations in comparison to traditional aid programs. It determines which type of foreign aid is more efficient, and more fruitful in outcomes.

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CHAPTER THREE ANALYSIS

3.1 Research Design/Methodology

The thesis carries out a qualitative, small-n analysis to understand the extent to which cash-based transfers provide a better alternative to traditional aid schemes. This type of analysis was chosen because it allows for more in-depth information on fewer number of cases so that there is more certainty on the results reached. Although it is less generalizable than a quantitative analysis, it can ensure causation between variables rather than correlation (Oak Ridge Institute, 2019). The

qualitative method is often criticised for being more subjective, given that the results come from what the researcher perceives them to be. However, there is a recognition of the limitations present throughout this study, which demonstrates self-awareness and self-reflection.

This thesis uses a secondary literature analysis to derive results. Secondary literature analysis is the analysis of either qualitative or quantitative data that has been collected by another or other

researchers (Bryman, 2012, p.13). It is frequently used in situations when starting to collect data is beyond the scope of the researcher carrying out the experiment, so instead relies on what others have found in similar contexts (Dale et al, 1988). Given the time saved on collecting the data, it allows for a more in-depth interpretation of the results (Bryman, 2012, p.312). Because the data used for this thesis has been collected by international bodies, it has the certainty of being more high-quality and being as close to representative as it is possible to achieve (Dale et al, 1988). This is given the fact that they have more resources and people to account for every possible problem and limitation that might occur during the data collection. Additionally, re-analysing could open up a new range of interpretations, especially when considered under a different lens (Bryman, 2012, p.312).

Certainly, secondary literature analysis also has its drawbacks. Above all, the lack of familiarity with the data results and the lengths it took to generate them often attracts criticism (Bryman, 2012, p.315). Moreover, it must be acknowledged that the raw data has already gone through some type of filter or lens by being collected by someone else, which results in the data being less objective. The data used in the analysis derives mainly from annual reports or program reports released by the organizations that have carried out the program and marginally from third party researchers. The former can be accessed from the organization’s website and is therefore primary data; the latter is usually linked to the same website and classifies as secondary data. Reviewing primary data is important because it does not risk being edited or inaccurate according to an unofficial source. Moreover, organizations are held accountable to their budget plans and cost breakdowns therefore are obliged to provide real and accurate data. One of the limitations of this analysis is however the

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fact that some organizations do not release detailed information about their programs to the public or otherwise make it extremely hard to locate. As a result, numerous programs have to be excluded, which also makes the pool of programs to choose from very narrow and might obstruct from

painting a full picture.

Finally, the programs selected are chosen randomly, based on the variables that are being controlled for and with the condition that they release a report which evaluates the impact, method, and

limitations. The cash-based transfer programs are carried out by GiveDirectly and the Center for Global Development with UNICEF. The traditional aid schemes selected are CHOICE

Humanitarian and the International Rescue Committee. Both GiveDirectly and CHOICE Humanitarian are on the smaller and local side of the scale: they are more niche and less well-known. On the other hand, UNICEF and the International Rescue Committee are very big

organizations that act all over the world with a variety of programs. Picking one “small” and one “big” organization balances out the analysis and keeps it fair.

Comparative method

The study follows the comparative method, whereby there is a comparison between cash-based transfers and traditional aid schemes. In fact, the analysis seeks to explain why these different types of aid deliver different results in terms of impact, method, and perception of recipient even though they act on the same geographic location, the same institutional framework, the same scale, and target the same issue.

Cash-based transfers can be made as direct cash payments or bank transfers via mobile phones or e-vouchers (Fenn et al., 2015, p.3). The organizations carrying out this program randomly select a number of households whom they’ve identified as living in extreme poverty and monitor their progress and use of the cash. Conversely, this study classifies traditional aid schemes as those programs that are launched by humanitarian organizations who conduct research into which areas of the world require their assistance and then meticulously plan how to best meet their needs.

Although both have similar goals of helping those poverty-stricken and improving the overall economic well-being of their recipients, they use different ways to do this. Notably, traditional aid schemes distribute tangible goods or provide specific services with the funds they have gathered from donors. Their projects range from building schools, to distributing canned food, to providing technical assistance in hospitals, to launching an educational media campaign on preventative diseases. They decide what the best way to solve an issue is because they have research teams and

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technical experts, whilst cash-based transfer programs assume that the locals know how to solve their own issues best. Whilst traditional aid schemes typically have high administrative costs and extra costs ranging from transport to monitoring, cash-based transfers are able to bypass the majority of these costs as they aim to directly distribute the funds they receive.

Measuring the dependent variable

Before diving into the analysis, it is imperative to understand how to measure the dependent variable. In other words, how does one know whether one aid type performs better than the other? For the sake of being valid and reliable, the analysis looks at how programs describe their impact upon completion, the methods used to reach outcomes, the cost-efficiency of the programs, and the extent to which the recipients perceived the program as beneficial. One of the problems with this analysis is having to rely on the reports that are formulated by the very same organizations that carry out these programs. It is in their best interest to paint an appealing image of their services and therefore this might not always be the most reliable method. However, it is also true that these organizations are accountable to their donors and need to reveal the real picture rather than a tarnished one. Moreover, the analysis also takes into consideration whether these organizations install a feedback mechanism or something similar which invites the opinions of recipients or those working in the field. Ultimately, the results rest on how the programs act in relation to the others. Cost efficiency analysis has the purpose of understanding how resources are being put to use within a project in order to conclude how to maximise the impact of each dollar donated (IRC, 2015). It measures the effectiveness of the foreign aid design and delivery and evaluates the overall humanitarian assistance by understanding how much non-transfer costs there are for every dollar spent (IRC, 2015). Therefore, it is a way of making more appropriate decisions based on evidence from past projects. This is essential as there has been a lack of evidence about the how funds within programs are being spent and which programs are more efficient in achieving better developmental outcomes in their targeted community. As a result, there has been a real disconnect between “the real investment of time and the resources necessary to achieve results” (IRC, 2015). With more transparency and a better understanding of how spending relates to the outputs of a project, aid will be delivered more efficiently (IRC, 2015). Some of the ways which organizations can contribute to producing this type of evidence is by updating the finance and budget-tracking systems, publishing the results of the cost-efficiency analysis reports for public viewing, raising awareness on the importance of cost-efficiency analysis within the humanitarian field, and the creation of a panel that

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sets out a series of standards for improving the cost efficiency and cost effectiveness of humanitarian interventions (IRC, 2015).

The cost-efficiency analysis is carried out by estimating administration and program management costs per dollar transferred to recipients that have different program designs so as to make better decisions on the available funds (IRC, 2015). The cost-transfer ration is the ratio of all non-transfer costs (such as staff time, targeting surveys, and transfer fees) to the value of the money that was transferred to beneficiaries throughout the program (IRC, 2015). The lower the cost-transfer ratio, the lower the administrative cost for every dollar, the better. By comparing the cost-transfer ratio across different programs, there is a clear image of design choices made in regards to the amount transferred, the scale of the programs, and the targeting and transfer methods (IRC. 2015). One of the things to bear in mind while carrying out this analysis is the scale of the programs, seeing as how the bigger the programs the smaller the fixed costs per beneficiary (IRC, 2015). Additionally, in contexts where the price level is relatively low and fewer dollars are transferred to each recipient, the non-transfer costs will be proportionally higher within the programs’ total costs relative to contexts that have higher price levels with larger transfers (IRC, 2015). To put some context, Mexico’s main anti-poverty program “Oportunidades” which launched in the late 1990s and has since reached 6 million people with the aim of improving the national health and education rates for children (Rehorn, 2017) has a cost-transfer ratio of 0.34 and has been branded as one of the world’s most cost-efficient cash-based transfer program (Ward et al, 2010, p.80).

Evaluating cost-efficiency runs into some problems as a lot of foreign aid organizations still do not report on the breakdown of their costs. Instead, they examine their overall project success or

whether they achieved what they had set out to do in the first place. Unfortunately, these reports are usually carried out by those working within the organization, completely omitting any objectivity (Easterly, 2008, p.314). Finally, these reports are most often not accessible to the public. Not having a clear image of where the funds are spent makes it harder to understand what would have happened if that money had been spent elsewhere (Easterly, 2008, p.392).

Strengths and limitations

One of the strengths of this analysis is that it manages to account for many variables which are considered to impact the dependent variable. These are geographic location, scale of the program, issue targeted, and institutional framework of the recipient destination. The geographic location chosen is Kenya, more of which is described in the following section. Choosing one country rather

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than a geographical region or entire continent is favourable because it allows to account for the institutions already in place. It also ensures that recipients face the same government and social protections. Although the programs are carried out in different regions of the country, they all act on what the programs deem to be some of the most poverty-stricken villages, thereby catering to those most in need. Moreover, the analysis tries to select cases that act on more or less similar budgets and sizes, so as to account for the fixed costs that ensue. Naturally, reaching more households spreads the fixed costs over a wider pool of beneficiaries which in turn impacts the cost-efficiency analysis by decreasing the per-household costs of a program (IRC, 2016). Lastly, the programs all try to tackle extreme poverty, in whichever way they deem it best to tackle. Strictly speaking, this means that different organizations believe that ending extreme poverty require different modus operandi. As it will be revealed, cash-based transfers seek to help the poor by giving them money and therefore make a direct correlation between income and wealth. On the contrary, traditional aid schemes tend to want to impact different aspects of society which will indirectly link to economic wellbeing, for instance raising the level of education, or lowering the malnutrition rate.

Some of the variables that are not being controlled for are age and gender of the recipients, as well as ethnicities and religions targeted. This was chosen because it was deemed to be too narrow and specific and it would have been harder to find different programs attesting to all of these variables. However, it was also considered not to be a big defining factor given the fact that although Kenya is made up of 41 different ethnic groups, it is not deemed to be a contributor to political or economic tensions, in so far as up to 70% of the population would choose their national identity over their ethnic identity if faced with the choice (Afrobarometer, 2003).

3.2 Case Study: Kenya

Given the importance on choosing a specific geographic location, it is necessary to explain why Kenya was chosen as the country to carry out this case study analysis as well as briefly describe its institutions and context. Firstly, Africa was chosen as a region because of how, as discussed in the literature review, it is often depicted as a region that is not progressing in developmental terms. Given the success of the Tiger Economies of East Asia, much interest is paid to African countries, in particular the Sub-Saharan ones, to try to understand why they have not reached the same level of “success” even when there are and have been some “success stories” in the continent. With respect to cash-based transfer programs especially, Africa is a new destination of interest, following the success it has had in South America.

Assessing alternative forms of foreign aid

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