0
Dutch development aid policy in private sector
development
An analysis, 1998 - 2007
Master thesis
Author: Klaas de Vries
Student Number: 1323784
Address: Graaf Ottosingel 189 7201 BD Zutphen Phone Number: +316 24089021
Email: klaasdevries1984@gmail.com
University: Rijksuniversiteit Groningen, Faculty of Arts
Course: International Relations and International Organization. Specialization: International Political Economy
1
Table of contents
List of acronyms 2
1. Introduction 4
2. Research Outline 8
3. A short introduction to Dutch development aid policy 13
4. Removing barriers to formalization in Bolivia 18
5. Implementing competition policy in Ethiopia 28
6. Promoting the supply-side response in Rwanda 36
7. The financial sector’s contribution to pro-poor growth in Tanzania 44
8. Enhancing women's market access in Nicaragua 57
9. Constructing inclusive public-private dialogue in Zambia 69
10. Conclusion 76
2
List of Acronyms
ACU Aid Coordination Unit
ADLI Agricultural-Development-Led Industrialization AGCI African Global Competitiveness Initiative
AIV Adviesraad voor Internationale Vraagstukken (Advising Council for
International Questions)
BDS Business Development Services
BEST Business Environment Strengthening Tanzania Programme
DDE Sustainable Economic Development Department in the Ministry of
Foreign affairs of The Netherlands
DPCG Development Partners Coordination Group FDI Foreign Direct Investment
FMO Financieringsmaatschappij voor Ontwikkelingslanden (Finance
cooperation for Developing Countries)
FSS Fondo Social Supplementario (Supplementary Social Fund) GoR Government of Rwanda
GoT Government of Tanzania
GTZ Deutsche Gesellschaft für Technische Zusammenarbeit (German
Corporation for Technical Cooperation)
HIPC Highly Indebted Poor Countries IADB Inter-American Development Bank IMF International Monetary Fund
IOB Inspectie Ontwikkelingssamenwerking en Beleidsevaluatie (Inspection for
Development Cooperation and Policy Evaluation)
MDC Dutch minister for development cooperation MDG Millennium Development Goal
MFI Microfinance Institution
MoU Memorandum of Understanding NGO Non-Governmental Organization.
NIMF Nederlandse Investering Matching Fonds (Dutch Investment Matching
3
OAU Organization of African Unity ODA Official Development Aid
OECD Organization for Economic Cooperation and Development PMS Poverty Monitoring System
PPD Public Private Dialogue
PROSEDE Programa de Servicios de Desarrollo Empresarial (Programme for
Business Development Services)
PRSP Poverty Reduction Strategy Paper
PSOM Programma Samenwerking Opkomende Markten (Program for
Cooperation in Emerging Markets)
SDPRP Sustainable Development Poverty Reduction Paper
SIRESE Sistema de Regulacion Sectoral (System of Sectoral Regulation)
UN United Nations
UNDP United Nations Development Program
US United States
USAID United States Development Aid Organization, Governmental
WRR Wetenschappelijke Raad voor het Regeringsbeleid (Scientific Council for
4
1.
Introduction
“The Netherlands has maintained an active policy in the area of private sector development in the past years.”1
The fragment above is retracted from the reaction of the Dutch ministry of foreign affairs to an evaluative report by the IOB on policies in Africa from 1998 to 2006. In renewed efforts to reduce poverty, private sector development has played a central role.2 This thesis is an analysis of Dutch development cooperation efforts to stimulate private sector development in developing countries to achieve a pattern of pro-poor growth.
Recently, attention for third world development has been given an impulse by the formulation of the MDGs. Poverty reduction is included in the first MDG.3 In order to increase the effectiveness of its development aid, the Netherlands concentrated its development aid in a group of developing countries which it named partner countries. For each one of the partner countries, Dutch policies indicated which MDGs were stimulated through development aid. To analyze to what extent the Netherlands engaged in efforts to help partner countries rapidly achieve MDG 1 through private sector development, the following reserach question will be central in this thesis:
“To what extent has Dutch development cooperation during the period 1998-2007 supported efforts that stimulated private sector development in partner countries that
were helped to rapidly achieve the first Millennium Development Goal?”
The year 1998 is the starting point of the research, because this was the year that the policy approach in which partner countries played a central role was introduced. The research ends in 2007, because this was the end of the period that Agnes van Ardenne was the Dutch minister for development cooperation (MDC). In 2007 Bert Koenders replaced Van Ardenne and introduced his own approach.
1 Maxime Verhagen en Bert Koenders, Beleidsreactie op het rapport ‘Het Nederlandse Afrikabeleid
1998-2006, Evaluatie van de bilaterale samenwerking’ (The Hague 2008), p. 4.
5
The main instrument to answer the central question will be the theoretical framework of the OECD, which describes six topics that are essential if donor countries are to stimulate pro-poor growth in developing countries through private sector development. For each of these topics, this thesis will analyze Dutch efforts in a partner country where policies indicated that the rapid achievement of MDG 1 was a main priority. The theoretical framework will be explained in the following chapter, which features the research outline to answer the main question. But first the terms of private sector development and pro-poor growth will be introduced, followed by the description of the goal and academic justification of the thesis.
Private sector development
The private sector comprises private corporations, households and non-profit institutions serving households.4 The private sector is the major contributor to economic growth and employment creation. Promoting a more dynamic and vibrant private sector consequently plays an essential role in efforts to reduce poverty in developing countries and achieve the MDGs. Factors such as market access and functioning market institutions influence production, risk and employment. These indicators influence the rate and pattern of economic growth. Institutions shape market outcomes and so determine the degree to which they are pro-poor. 5 Because of the increased recognition of the importance of the private sector in the process of development and the pattern of pro-poor growth, donors should pay attention to the status of the private sector in the states that they are aiding.
Pro-poor growth
According to the OECD, private sector development is a vital instrument to achieve a pattern of pro-poor growth.6 Pro-poor growth is described by the World Bank as a pace and pattern of growth that enhances the ability of poor women and men to participate in, contribute to and benefit from growth. Both the pace and the pattern of growth are critical
4
http://stats.oecd.org/glossary/detail.asp?ID=2130, last checked 29-03-10.
6
for long-term and sustainable poverty reduction.7 Another definition is given by Chen and Ravallion. They describe pro-poor growth as growth that reduces poverty.8
Pro-poor growth thus consists of two parts. First of all, it uses the term ‘growth’. Specifically, this growth concerns economic growth. The level of the GDP of a country is in general taken to be an indicator of the economic performance of a country. The GDP is however an average, which is able to camouflage a poverty gap. The poverty gap is the average, over all people, of the gaps between poor people’s living standards and the poverty line. It indicates the average extent to which individuals fall below the poverty line.9
‘Pro-poor’, the other part of the term ‘pro-poor growth’, intends to address the problem of a poverty gap. Policies should be aimed at increasing equality and reducing the number of people that are forced to be living for an income below the so called poverty line.10 The poverty line is a line drawn at the income of 1,08 US$. People that have an income below the poverty line are indicated as living in severe poverty.11 We can therefore speak of a pattern of pro-poor growth when there is a rise in the GDP of a country and, at the same time, a decreasing share of poor people in the population of that country.
Goal and Academic justification
The goal of this thesis is to conclude whether Dutch development aid between 1998 and 2007 supported the different aspects that stimulate pro-poor growth through private sector development in developing countries, according to the theoretical framework of the OECD. If these aspects that influence private sector development were indeed stimulated, this would create an important asset to achieve a pattern of pro-poor growth. Here lies the academic justification of the thesis. The analysis will investigate whether Dutch development aid was spent on instruments that can effectively stimulate private sector development and could help the achievement of the first MDG, which is a central
7 OECD, Promoting pro-poor growth: policy guidance for donors (Paris 2007), p. 11.
8 Shaohua Chen and Martin Ravallion, “How Did the World’s Poorest Fare in the 1990s?”, Review of
Income and Wealth, 47 (3) 2001, p. 19.
9http://info.worldbank.org/etools/docs/library/93518/Hung_0603/Hu_0603/Module4MeasuringPovertyMea
sures.pdf, last checked 16-03-10.
10 Martin Ravallion, Poverty comparisons (Washington 1994), p. 36.
7
8
2.
Research outline
2.1 Basic outline
To answer the main question as well and complete as possible, the research consist of a number of sub-questions. The sub-questions are related to six topics that the OECD regards to be essential for private sector development. Donors can play an important role in stimulating these six factors. By analyzing Dutch efforts related to these six topics in a variety of partner countries, the thesis will provide an adequate image of Dutch development aid activities. The topics are described below.12 At the end of the thesis, the main research question will be answered in a general conclusion.
- Removing barriers to formalization. - Implementing competition policy. - Supporting the supply-side response.
- Improving the financial sector’s contribution to pro-poor growth. - Enhancing women’s market access.
- Increasing public private-dialogue.
Each sub question is the central topic in a chapter in this thesis. The sub questions will be answered by analyzing the situation from 1998 to 2007 in a partner country of the Netherlands, where the rapid achievement of MDG was supported. The outline of each chapter will be explained in the following paragraph.
2.2 Chapter outline
Each chapter will begin with a brief outline of the importance of the related issue, deducted from the theoretical literature of the OECD. After this introduction the situation in a partner country related to this topic will be described. This discription will include the reasons why this particular partner country was chosen to be part of the analysis in that chapter.
9
Following the analysis of the partner country, the efforts of the Netherlands in this partner country will be analyzed. In this analysis, topics that relate to private sector development will play a central role.
Each chapter will end with a conclusion in which an effort will be made to answer the related sub question. The sub questions that will feature in the chapters will be formulated and briefly introduced in the next paragraph.
2.3 Sub questions
As explained, a sub question will be central in each chapter. These subquestions are formulated below.
Removing barriers to formalization
In developing countries, the informal sector forms a large part of the economy. Informality is however not a long-term solution for poverty reduction. Removing barriers to formalization would amongst others mean higher quality jobs, higher investor confidence, stronger social contracts and a broadened tax base.
The sub-question related to this chapter is the following: “To what extent did
Dutch development policy stimulate the removal of barriers to formalization in its partner countries?” Important barriers are regulatory barriers, administrative barriers,
fees and financial requirements, corruption, socio-cultural barriers, lack of key business services and criminality. This chapter should investigate whether the Dutch have contributed to reducing any of these barriers. Bolivia will be the subject of a case study related to this sub question.
Implementing competition policy
10
The following sub-question will be answered in this chapter: “To what extent did
Dutch development policy stimulate the implementation of competition policy in its partner countries?” Donors can assist in this area by providing technical assistance,
capacity building and fund programs of organizations and projects that stimulate competition. The partner country for which this particular sub question will apply is Ethiopia.
Promoting the supply-side response
To achieve a pattern of pro-poor growth, improving the business environment is not enough. Such an improvement should be accompanied by interventions to promote supply-side responses. A lack of access to various kinds of services is a severe constraint for the develoment of firms in developing countries. To strengthen the reforms, donors can provide support to economic institutions, infrastructure, firms or groups of firms. The relevant sub-question is “To what extent did Dutch development policy support the
supply side response in its partner countries?” Rwanda will be the center of attention in
the related chapter.
Improving the financial sector’s contribution to pro-poor growth
The financial sector is an important factor in order to create a pattern of pro-poor growth. A well developed financial system can stimulate consumption by handing the poor access to financial services that they are often denied. Furthermore, the financial sector can facilitate the financing of investments in essential services such as education, health services, business initiatives, and water distribution. The following sub-question matches this topic: “To what extent did Dutch development policy support the improvement of the
financial sector’s contribution to pro-poor growth in its partner countries?” The
financial sector of Tanzania will serve as the subject of analysis.
Enhancing women’s market access
11
cause income inequality. The exclusion of competent females from productive activities results in welfare losses.
Donors can help by, for example, applying gender analysis tools to develop programs and intervention. The relevant sub question is “To what extent did Dutch
development policy enhance women’s market access in its partner countries?” In this
case study, the Nicaraguan situation related to this topic will be analyzed.
Increasing public-private dialogue
Public-private dialogue is an ins
titutional arrangement that brings together a group of public and private sector actors. Important objectives of public private dialogue are creating trust and bridging gaps in views on mutual problems. The goal is to form new policy that is aimed at a better environment for private sector development.
In general, donors should adopt a more daring attitude towards public private dialogue. Donors should not impose their own agenda on the public private dialogue process. They can provide technical assistance, assist in designing support mechanisms and stimulate the role of institutions that play a positive role in using the public private dialogue to achieve a pattern of pro-poor growth. Central to this chapter is this sub-question: “To what extent did Dutch development policy stimulate public-private
dialogue in its partner countries?” The final partner country that will be used for analysis
in the thesis is Zambia.
12
2.4 Schematic structure
The above sub questions will all be answered in line with the following structure.
Sub question
What are the main problems and weaknesses related to the subject in the partner country concerned?
Which partner country has a record that leaves space for significant improvement, related to the subject of the sub question?
To what extent were the policies and efforts sufficient? To what extent were they effective? What were the results for the partner country concerned?
What were the Dutch policies and efforts to solve these problems and improve the weaknesses in the partner country? To what extent were the Dutch policies and efforts in
13
3.
A brief introduction to Dutch development aid
policy
3.1 Dutch development aid policy
3.1.1 Dutch development aid policy before 1998
From 1989 until 1998, Jan Pronk was MDC. Pronk used a program in which environment, gender, urban poverty and research were the main issues. The main goal of this program was to increase the involvement of the poor in decision-making and to improve the access to basic needs. An important achievement in this period was an increased coherence of the policies on development aid and traditional foreign policy. This achievement was the basis for more effective Dutch foreign policy in the future.13
An important point of criticism regarding the policy of Pronk was fragmentation. The critique held that The Netherlands cooperated with too many countries, which caused uncoordinated activities.14 The new cabinet therefore decided to reduce the number of countries in which development would be concentrated.
3.1.2 Dutch development aid policy form 1998 until 2003
In 1998 a new cabinet took office, assigning the post of MDC to Eveline Herfkens. In order to increase the quality and the efficiency of the Dutch development aid, the ‘sectoral approach’ was introduced in 1998-1999. Evaluations showed that isolated projects by donors did not contribute to sustainable poverty reduction. Therefore, Dutch development aid would now be concentrated in a few sectoral areas, selected per country. New policies also included increasing the responsibility of the receiving states and a more open dialogue related to the spending of the aid. This way, development would fit the national policies of the partner countries.15
To counter the implied fragmentation and in order to stimulate efficiency, minister Herfkens introduced a strict country selection in 1999 to reduce the number of
13 Institute of Social Studies, Een wereld van verschil
– Een zaak van iedereen (Amsterdam 2008), p. 9.
14
Institute of Social Studies, Een wereld van verschil – Een zaak van iedereen (Amsterdam 2008), p. 9.
15 Agnes van Ardenne-Van der Hoeve, Beleidsreactie IOB-evaluatie inzake de sectorale benadering,
Brief
14
countries that received Dutch support.16 The countries that were selected to receive development aid are known as the partner countries. There were 22 structural partner countries selected based on three criteria. The first criterion was the presence of poverty in the country and the need for help. The second criterion was the quality of social-economic policy, and the final criterion was the extent to which there was good governance in the country concerned. Additional criteria were the added value of a bilateral relation and the extent to which the partner country could successfully absorb the development aid.17
Another 26 countries were selected to receive aid. These 26 partner countries would receive aid on the issues of environment, good governance and human rights, and peace building. These 26 countries completed the group of 48 partner countries that the Dutch government supported with development aid.18
3.1.3 Dutch development policy from 2003 until 2007
After the 2002 elections, Eveline Herfkens was succeeded by Agnes van Ardenne. In 2003, she became MDC. Ardenne was known for her socialization of development cooperation. The purpose of the socialization was to increase the involvement of Dutch civilians, companies, societal organizations, unions, agricultural organizations, and governments in developmental activities.
One of the main goals of the new Dutch government was to increase the efficiency and quality of Dutch development aid. Amongst other measures, the number of partner countries was reduced to achieve these goals. The reason for this reduction was that the capacity, manpower and resources could be used more effective when increasingly concentrated.19 The number of partner countries was reduced from 48 to 36. The 36 partner countries included the 22 structural partners, plus 14 partner countries that received aid on the issues of environment, good governance and human rights, and peace
16 Institute of Social Studies, Een wereld van verschil
– Een zaak van iedereen (Amsterdam 2008), p. 10.
17 Dutch ministry of foreign affairs, Nederlandse ontwikkelingssamenwerking en de Millennium
Ontwikkelingsdoelen (The Hague 2007), p. 20.
18
Dutch ministry of foreign affairs, Nederlandse ontwikkelingssamenwerking en de Millennium
Ontwikkelingsdoelen (The Hague 2007), p. 20-21.
15
building. The criteria used to select the partner countries were the same as in the 1999 selection.20
The coherence and harmonization of Dutch and international development aid policies were essential to minister Van Ardenne. To achieve increased coherence and harmonization, Van Ardenne integrated the MDGs in her policy. By committing to internationally agreed development goals, the Dutch development aid policy increased its level of coherence.21 Minister Van Ardenne also positioned the Netherlands as a coordinating country in the international field of development aid, which supported harmonization of Dutch policies in relation to the policies of other donors.22
3.2 The Highly Indebted Poor Countries Initiative
One of the important instruments in Dutch development cooperation between 1998 and 2007 was participation in the HIPC. Initiated by the World Bank and the IMF in 1996, the HIPC intends to relief poor countries of severe debt. The goal is to use debt relief as a tool to create a higher potential for sustainable development. The argumentation holds that debt relief boosts social spending, reduces debt service, and improves public debt management. This should give the qualifying countries more space and resources to effectively fight corruption.
The Netherlands is one of the most dedicated supporters of the HIPC and has been one of the first countries to act in line with HIPC policies on several occasions. For example in the case of Bolivia, which is subject to research in this thesis. The HIPC has a role in topics of private sector development for cases presented in this thesis, for this reason the HIPC is briefly introduced at this point.
A two-step process is the basis of the HIPC. This process involves the criteria that countries have to meet in order to qualify for debt relief. At the first step, countries have to fulfill four criteria. The first criterion is that countries have to be eligible to borrow from the World Bank. The second criterion is that countries must face an unsustainable debt burden that cannot be addressed through normal debt relief mechanisms. The third
20 Dutch ministry of foreign affairs, Nederlandse ontwikkelingssamenwerking en de Millennium
Ontwikkelingsdoelen (The Hague 2007), p. 21.
21 Agnes Van Ardenne-Van der Hoeve, Aan elkaar verplicht (The Hague 2003), p. 6. 22 Institute of Social Studies, Een wereld van verschil
16
criterion is that countries have to establish a track record of reform and sound policies through IMF and World Bank programmes. The final criterion involves the development of a PRSP, through a broad-based participatory process in the country. Once the criteria of the first step have been meet, the so-called HIPC decision point has been reached. This means that the country concerned is eligible for debt relief and may begin receiving interim relief on its debt.
To complete the second step of the HIPC, a country has to meet another three criteria. First of all, countries have to establish a further track record of good performance under programs supported by loans from the IMF and the World Bank. The second criterion in the second step is the implementation of satisfactory key reforms, agreed at the decision point. The final criterion for this step is the adoption and implementation of its PRSP for at least one year.
Once a country meets all these criteria, it has reached the HIPC Completion point. The IMF and the World Bank will decide that a country qualifies to receive full and irrevocable reduction in debt available under the HIPC initiative. So far, forty countries have qualified to receive full debt relief. The countries that are part of the investigation in this thesis all belong to this group of forty countries.23
3.3 Financieringsmaatschappij voor Ontwikkelingslanden
The FMO is the main supplier of credit on behalf of the Dutch government and palys an important role for Ducth development cooperation in the partner countries. The FMO tries to improve access to credit in developing countries, its activities are relevant for several of the countries involved in this thesis. The Dutch government is the main shareholder of the FMO: it owns 51% of stocks. The other stocks are owned by more than 140 Dutch companies, including banks. The FMO invests approximately 500 million Euros in developing countries, on a yearly basis. These resources are mainly used to provide capital for financial institutions. The resources will then be used by the local financial institutions to finance local companies.
Although the FMO bases the use of its resources on conditions that are shaped by the market, it does not operate like a commercial banking institution. The FMO invests in
17
areas and cases that regular banks would not, due to high risk. In cases where the risk of investment is too high for FMO standards, the Dutch government will provide extra funds.
The goal of the FMO is to provide access to credit for entrepreneurs. There are several funds and projects through which the FMO provides credit. The Massif fund, that came into existence in 2006, aims at providing financial resources for small businesses and micro-entrepreneurs by strengthening financial intermediaries.24 This also serves lower income households. Another way the FMO tries to improve credit access for smaller entrepreneurs are investments in financial institutions.25
18
4.
Removing barriers to formalisation in Bolivia
4.1 The role of removing barriers to formalization in private sector development 4.1.1 Introduction
As explained in the research outline, informality plays an important role in the economy of developing countries.26 The informal economy is the central topic in this chapter, the
sub question applicable is the following: “To what extent did Dutch development policy
stimulate the removal of barriers to formalisation in its partner countries?” The purpose
of this chapter is to discover whether Dutch efforts have stimulated the reduction of barriers to formalization.
4.1.2 Economic environment in Bolivia
The Partner country selected for this topic is Bolivia, where 62.7% of the households were estimated to live in poverty. Poverty is especially severe in rural areas, where the incidence of poverty was 81.7%.27 Bolivia was among the countries with the largest informal sectors in the world. In the final decade of the twentieth century, the share of informal employment in the total employment averaged 63.6%. This was the second highest percentage in Latin America, after Paraguay.28 This high rate of informal employment also harmed Bolivian productivity. Between 1970 and 2000, the growth of factor productivity was 0.2%, which was one of the lowest growth rates worldwide.29
Higher productivity is associated with formality.30 Formal firms operate on a larger scale and enjoy better access to credit. The access to credit is also a problem in Bolivia. Private lenders charged interest rates up to 48%, which made it very unattractive
26
OECD, Promoting pro-poor growth: policy guidance for donors (Paris 2007), p. 76.
27 Cecilia Ugaz and Catherine Waddams Price, Utility privatization and regulation: A fair deal for
consumers? (Geneva 2003), p. 204.
28 Jacques Charmes, Informal sector, poverty and gender (Versailles 2000), p. 6.
29http://books.google.nl/books?id=4q1YR1ApLMQC&pg=PA103&lpg=PA103&dq=barriers+to+formaliza
tion+bolivia&source=bl&ots=MA7e5DWeQV&sig=4H9qZ08X0FMnVDSJsLDQFfRTAWM#v=onepage &q&f=true, p. 2. (larrazabal).
19
to lend money.31 Furthermore, in rural areas credit was virtually unobtainable for anyone except very large producers.32
In order to improve credit access for the poor, Bolivia had a relatively well-developed NGO sector. Numerous non-profit and donor-supported organisations provided microcredit type loans. Initially, the microcredit type loans were a succes. The total loan numbers grew from 120,000 in 1990 to 415,600 in 1998.33 Amongst the reasons for this succes were the stable economic environment during the 1990s, the absence of commercial bank involvement, adequate regulatory supervision, and the formalization of MFIs. Bolivia would, however, be confronted with a crisis that would damage the formalisation of credit and credit access.
The number of outstanding loans rose too fast in the late 1990s. This was the result of fierce competition with consumer credit. As a result, the MFI evaluations of potential clients became less strict. This led to growing indebtedness among the population. The absence of a credit reporting system with complete coverage of the microfinance sector added to this development. 34 The results of this crisis were a decrease in the portfolios of commercial banks and consumer loans and a decrease in the growth of MFI loans.35
In the mid-1990s, the Bolivian government started the privatization of state-owned firms. The privatization was accompanied by a new regulatory framework that sought to promote efficiency and competition.36 The most important law in this regard was the SIRESE law. The law was initially intended to regulate the sector of infrastructure, but would also be used to create a regulatory framework in the sectors of electricity, telecommunications, hydrocarbons, potable water, and transportations. SIRESE also created an agency that was responsible for system-wide coordination,
31 Heywood Fleisig, The Right to Borrow (Washington 1995), p 2.
32 Stephen Klasen, Melanie Grosse, et al, Operationalizing Pro-Poor Growth: Country Case Study: Bolivia
(Goettingen 2004), p.23.
33
Alain de Janvry, Gustavo Gordillo, et al, Credit Bureaus and the Rural Microfinance Sector Peru,
Guatemala, Bolivia (Berkeley 2003), p. 100.
34 Alain de Janvry, Gustavo Gordillo, et al, Credit Bureaus and the Rural Microfinance Sector Peru,
Guatemala, Bolivia (Berkeley 2003), p. 104.
35 Alain de Janvry, Gustavo Gordillo, et al, Credit Bureaus and the Rural Microfinance Sector Peru,
Guatemala, Bolivia (Berkeley 2003), p. 93.
36 Cecilia Ugaz and Catherine Waddams Price, Utility privatization and regulation: A fair deal for
20
appeals and evaluation. Market competition was also introduced as an important new aspect in the mentioned sectors.
For households, the new policy increased access to services for the sectors mentioned above. Access to telephone services even doubled between 1994 and 1999. However, the data only covers major urban areas.37 Access to services in rural areas is usually more problematic, the data is therefore incomplete.
New policies did not only result in a new regulatory framework. A tax reform was also a result of these policies. The reformed policies resulted in a relatively low formal tax rate.38 A problem that remains, however, is high corruption In a sample of 1997 of countries all over the world, Bolivia scored the worst, indicating the magnitude of the corruption problem in Bolivia.39
4.1.3 Costs and benefits of formalisation in Bolivia
This thesis concentrates on developing the private sector in order to achieve a pattern of pro-poor growth.40 In this perspective, removing barriers to formalisation play an important role. Entrepreneurs calculate the economic costs and benefits of their activities, they will embrace formality up to the point where the benefits outweigh the costs. 41
One of these costs is the loss of flexibility. Informal enterprises can relatively easy move around their resources from sector to sector. Formal entrepreneurs face important restrictions to reallocate factors among sectors. Another disadvatage is that barriers to registration are time consuming and expensive. The same goes for other regulations linked with a firm’s management. These regulations are costly and complex, especially those concerning labor regulations and tax collection. Taxes are another
37 Cecilia Ugaz and Catherine Waddams Price, Utility privatization and regulation: A fair deal for
consumers? (Geneva 2003), p. 213. 38http://siteresources.worldbank.org/INTWBIGOVANTCOR/Resources/unofficial.pdf, p. 2. 39http://siteresources.worldbank.org/INTWBIGOVANTCOR/Resources/unofficial.pdf, p. 3. 40 http://books.google.nl/books?id=4q1YR1ApLMQC&pg=PA103&lpg=PA103&dq=barriers+to+formalizati on+bolivia&source=bl&ots=MA7e5DWeQV&sig=4H9qZ08X0FMnVDSJsLDQFfRTAWM#v=onepage& q&f=true, p. 21. (Mosley)
21
disadvantage for firms that formalise their activities. Transaction taxes increase the tax burden well above regional avarage.42
The benefits potentially outweigh the costs. The benefits include better protection for workers, growing economies of scale, avoiding penalties of being informal, access to market support services, access to foreign markets and government procurement, and access to finance.43 However, these benefits have to be substantial in order to outweigh the costs of formalization. The question in the rest of this chapter is if Dutch policies were designed to support this cause. Attention will be paid to the areas where Bolivia faced problems and needed to improve, these areas are access to credit, the reduction of informal employment as a share of total employment, corruption, and the regulatory burden in Bolivia.
4.2 Dutch policies and efforts 4.2.1 Introduction, debt relief
As mentioned in the previous paragraph, the areas where Bolivia faced problems in reducing barriers to formalisation and so develop its private sector were access to credit, the reduction of formal employment, corruption, and the regualtory burden. Of these factors, the Netherlands only engaged in actions to improve access to credit directly. The Netherlands was involved in the HIPC initiative, which intended to relief debt in third world countries. Through debt relief, access to credit should have been improved and made it more attractive for companies to enter the formal sector.
Between 1990 and 1999, donors engaged in debt relief for Bolivia. The Netherlands, as one of the most prominent development aid donors in Bolivia, played an important role in this process. In 1999, most of bilateral debt was forgiven. The sum of remaining bilateral debt was 16 million Euros, which was around 33% of the debt relief
22
between 1990 and 1999. In the same period, Bolivia was also relieved of a part of its multilateral debt. In 1998, the Dutch made a contribution of 7 million Euros.44
The results of Dutch debt relief cannot be distinguished from those produced by other donors and creditors. However, the Netherlands played a leading role in Bolivian debt relief through the HIPC initiative. The Netherlands was the first donor to deposit funds in the IMF Trust Fund. Furthermore, the Netherlands always choose the most favourable option for Bolivia in the Paris Club Agreements, which served the coordination of the HIPC initiative.45
Because of the debt relief during the 1990s, Bolivia’s debt profile could be considered as sustainable. Because donors stressed the importance of poverty reduction, public investment in social sectors increased. These investments improved access to social facilities for the poor. There is no strong evidence that debt relief has triggered private sector investment, but the private sector benefited from the increased outsourcing of public works. And although debt relief did not increase economic growth and poverty incidence in income remained severe, the Bolivian private sector enjoyed a rise in foreign private investment. Furthermore, additional loans made it possible to start restructuring the Pension Fund system.46
4.2.2 Efforts by the FMO in Bolivia
Over 2006 and 2007, the FMO invested nearly 21 million Euros in Bolivia through the Massif Fund.47 Before 2006, the FMO mainly invested in Bolivia via its Small-scale Enterprise fund. Another way the FMO tried to improve credit access for smaller entrepreneurs were the investments in financial institutions.48
Funds of the FMO also aimed at supporting microcredit in Bolivia. The FMO invested millions in Banco Sol, which was the largest Bolivian provider of microcredit.49
44 Eisa Abdelgalil and Willem Cornelissen, Results of international debt relief in Bolivia (Rotterdam 2003),
p. 21-22.
45 Eisa Abdelgalil and Willem Cornelissen, Results of international debt relief in Bolivia (Rotterdam 2003),
p. 59.
46 Eisa Abdelgalil and Willem Cornelissen, Results of international debt relief in Bolivia (Rotterdam 2003),
p. 59-60.
47
FMO, Annual report 2006 (The Hague 2007) and Annual report 2007 (The Hague 2008).
23
Microcredit loans are small, they therefore hardly represented a value of more than 1% of provided domestic credit in most countries. In Bolivia, however, microcredit represented a relatively high share of provided domestic credit of 7%. This indicates that microcredit had a relatively high influence in the Bolivian economy.
Although the FMO contributed to the development of a functioning microcredit market, the Dutch strategy for 2008-2011 shows that challenges remain. Athough interest rates were lower at the end of period of the research, bank credit in the private sector has decreased over this same period.50 Dutch evaluation stresses that the Netherlands should have had a greater impact in solving the shortage of facilities that relate to work- and risk capital.51 These factors, when available, contribute to the attractiveness for firms to enter the formal market.52
4.2.3 Corruption
Another area in which the Netherlands took an active stance that could benefit private sector development was the reduction op corruption in Bolivia. The Mesa administration, which governed Bolivia between 2003 and 2005, tried to improve governance by making a priority of fighting corruption.53 The Ducth government was pleased with this approach of the Mesa administration and expressed its intention to support the ‘Justicia para Todos’54 programme. This programme aims to secure access to the legal system and judges for all people in Bolivia. This was a severe problem in Bolivia at the time, which stimulated an enivironment where corruption could play a dominant role in the economy.55
The Dutch embassy was involved in a project to reduce corruption. The embassy supported the ‘Ferias a la Inversa’ programme between 2005 and 2007. This programme was designed to provide technical assistance for small and medium firms. One of the
50http://www.iadb.org/research/LatinMacroWatch/CountryTable.cfm?country=Bolivia&lang=en, last
checked 28-12-2010.
51
Multi jaren strategisch plan 2008-2011, Management summary, Paragraph 4.3, provided by the Royal Dutch Embassy in La Paz.
52 OECD, Promoting pro-poor growth: policy guidance for donors (Paris 2007), p. 79.
53http://www.cidob.org/es/documentacio/biografias_lideres_politicos/america_del_sur/bolivia/carlos_mesa
_gisbert, last checked 11-09-2010.
54
Translation: Justice for everyone.
55 Agnes Ardenne-Van der Hoeve, Vaststelling van de begrotingsstaat van het Ministerie van Buitenlandse
24
goals of this project was to improve transperancy in order to reduce corruption.56 The Netherlands supported efforts to fight corruption and reduce the regulatory burden, by stimulating initiatives that aim to improve access to the legal system. An important aspect in the latter case was the adoption of a new Bolivian constitution that came into effect in 2009.57 The process of adoption of the new constitution took years. The new constitution changes the judicial framework in Bolivia and is expected to be an improvement compared to the framework that was in effect during the period 1998-2007, in terms of transperancy and efficiency in institutions that operated in the legal system.58
A World Bank study in Mongolia showed that corruption is one of the main disbursement for private sector development. The evidence in the report showed that corruption and a lack of transperancy affect almost every sphere of business activity. It has a negative influence on firms accessing finance, building market relationships, enhancing productivity, growth and creating jobs.59 For this reason, corruption will play a role in several of the other chapters of this thesis as well.
4.2.4 Informal employment
Another area, besides access to credit and corruption, where Bolivia encountered problems, and that is important in reducing barriers to formality, was informal employment. In order to stimulate private sector development, the high level of informal employment as a share of total employment in Bolivia should have decreased.60 The earlier mentioned Ferias a la Inversa programme provided technical assistance to improve skills and transperancy and stimulates the formalisation of Bolivian firms.61 However, the support for this programme was an exception in Dutch development cooperation policies for Bolivia. Besides this programme, the Netherlands did not engage in efforts that would
56 Programa Ferias a la Inversa(2005-2007), program description provided by the Royal Dutch Embassy
in La Paz.
57http://www.guardian.co.uk/world/2009/jan/26/bolivia, last checked 01-11-2010.
58 Multi jaren strategisch plan 2008-2011, Management summary, provided by the Royal Dutch Embassy
in La Paz.
59
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/EXTEAPREG TOPFINFINSECDEV/0,,contentMDK:20982676~menuPK:589816~pagePK:64215727~piPK:64215696~t heSitePK:589810,00.html, last checked 28-12-2010.
60
Jacques Charmes, Informal sector, poverty and gender (Versailles 2000), p. 6.
61 Programa Ferias a la Inversa(2005-2007), program description provided by the Royal Dutch Embassy
25
reduce formal employment. Notions that can be connected to this topic never occured in Dutch policies or related documents.
The Netherlands were mainly active in the education sector of Bolivia. Since the adoption of the sector wide approach, the number of sectors of the Bolivian economy that received Dutch development aid has been reduced drastically, because of the concentration of funds in the area of education.62 Although this policy was in line with efforts to achieve MDG 2, it did not have a direct effect on private sector development.
4.2.5 Failure of the sector wide approach
The sector wide approach is considered to have failed in Bolivia. There were several reasons for this failure, which were both problems created by the Dutch as well as problems on the side of the Bolivians. The first reason was the absence of coordination. The sector wide approach was supposed to be implemented in coordination with the Bolivian government, but this proved to be problematic. Problems in coordination between the Dutch and the Bolivian government especially became apparent related to the topic of decentralization. Where the governmnet of Bolivia stressed the importance of decentralization for its development, the Dutch government decided to abandon decentralization as as a prominent sector in the Dutch development programme.63
There was also a lack of coordination between the Dutch national level of development assistance and the Dutch agencies that were responsible for the implementation of the policies. The Dutch embassy in La Paz, for example, protested when the Dutch government pulled the plug on small projects that especially benefited the poor.
A second reason were the goals of the Netherlands’ development programme. According to various commentators, these goals were not realistic. Because a small elite in Bolivian politics wanted to remain in power, efforts to change and improve governance in Bolivia had minimal effect due to a lack of cooperation by the Bolivian elite.64 Another
62 Nico van Niekerk, Willem Cornelissen, and Fernando Ruiz Mier, IOB Evaluation sector-wide approach:
Working document Bolivia (The Hague 2005), p. 22.
63
IOB, From project aid to sector support: An evaluation of the sector-wide approach in Dutch bilateral
aid 1998-2005 (The Hague 2006), p. 111.
26
problem was that the Dutch goals would have to be achieved within a timeframe that was far too short.65
4.3 Conclusion
Private sector development through reducing barriers to formalization was only incidentally adressed by Dutch policies and Dutch policy instruments in Bolivia. The Netherlands did stimulate potential private sector development by being one of the main supporters for the HIPC initiative in Bolivia. The HIPC initiative was relevant, because access to credit was one of the main problems for the poor in Bolivia. Efforts by the FMO also adressed this issue.
Indirectly, the Netherlands also tried to aid the fight against corruption in Bolivia. Corruption in Bolivia was at a level that could frustrate private sector development. The Dutch intention to support the fight against corruption was realized by supporting the ‘Justicia para Todos’ and the ‘Ferias a la Inversa’ programmes. Furthermore, initiatives to reduce the regulatory burden and a new Bolivian constitution were supported. However, cooperation of the Bolivian government could have been better. Corruption in the law departments was especially harmful.66 The Dutch embassy tried to convince the Bolivian government to do more about corruption, by addressing the lack of attention for the topic in the Bolivian PRSP.67
Despite the efforts described above the answer to the question “To what extent
did Dutch development policy stimulate the removing of barriers to formalisation in its partner countries?” is mainly negative. The sector-wide approach applied by the
Netherlands failed to address the important problems in Bolivia that harmed private sector development and the achievement of a pattern of pro-poor growth.
The circumstances in Bolivia made it hard for the sectoral approach to succeed, for example because of forms of elitism and corruption. Another important reason for the failure of the sector-wide approach was a lack of communication between the Dutch government and the Dutch embassy in La Paz and between the Dutch government and the government of Bolivia.
65
Nienke Jagersma, Goed bestuur; van concept naar criterium (Utrecht 2005), p. 57.
27
28
5.
Implementing competition policy in Ethiopia
5.1 The role of competition policy in private sector development 5.1.1 Introduction
There is a strong correlation between the effectiveness of competition policy and growth, especially in the long run.68 It raises the standard of living in general and if markets are to
work well for the poor, then competition is essential.69 The benefits of competition are lower prices, better quality of products, and increased choice of products. As indicated in the previous chapter, jobs are an important route to poverty reduction. Competitive markets are more likely to provide job opportunities for the poor.70
Other benefits of effective competition include the contributions it holds for innovation and productivity. An important effect of those benefits is that it increases the prospects for investment.71 For farmers, competition means they will have cheaper inputs and better transportation opportunities for their crops. Competition law also reduces the scope for arbitrary decisions and corruption.72 And finally, anti-competitive actions of both firms and governments can lead to market failures. Effective competition policy reduces market uncertainty and the chance for a market to fail.73
The question related to this chapter is therefore: “To what extent did Dutch
development policy stimulate the implementation of competition policy in its partner countries?” The partner country that will be used for the case study to answer this
question is Ethiopia. The particular reasons to pick Ethiopia are explained below.
5.1.2 Ethiopia and competition policy
According to the World development indicators report, Ethiopia tied with Congo for the 209th place in the world for GNP per capita income. This was lowest income in the
68 Mark Dutz and Aydin Hayri, Does more intense competition lead to higher growth?(April 2000), p. 12. 69 OECD, Promoting pro-poor growth: policy guidance for donors (Paris 2007), p. 87.
70 OECD, Promoting pro-poor growth: policy guidance for donors (Paris 2007), p. 86. 71
World Bank Group, World Development Report 2005 (Washington 2004).
29
survey.74 The annual growth of GDP decreased in the mid-1990s and GDP was reduced in 1998/1999. Needless to say, poverty in Ethiopia is severe.
Ethiopia’s economy is based on agriculture. Roughly 85% of the population depends on income derived from the agricultural sector.75 Although a high percentage of the population is employed in agriculture, under-nourishment is still an enormous problem in Ethiopia and agricultural imports are needed.76
The data provided above indicated that pro-poor growth was necessary in Ethiopia. Competition policy could play an important role in achieving this pattern of pro-poor growth, since the agricultural sector was a dominant factor in the Ethiopian economy and farmers benefit from effective competition policy. In order to attract FDI, competition is also essential.
Since 1992, the investment climate in Ethiopia has improved. After the fall of communism in 1991, liberalization started one year later.77 Between 1992 and 1997, the liberalization stimulated a rise in domestic investment from 11.9% to 19.1%. But there was no vision developed as to how investment should be promoted in the future, such a vision was needed in order to attract FDI. If there would be a successful promotion of investment, Ethiopia could attract large amounts of FDI because of its potential in terms of resource endowment and geographical location. But instead, Ethiopia received an insignificant share of FDI inflow in the 1990s in comparison with other countries in the region.78
Competition, investment and innovation are highly interconnected. Ethiopia needed investment in order to innovate its economy, only then could it be competitive in the global economy. Innovation-based competition is essential for firms to survive both in the domestic and global markets. As explained earlier, innovation is stimulated by competition.
74
World Bank Group, World development indicators 1999 (Washington 1999), p. 12.
75 Markos Ezra, Ecological Degradation, Rural Poverty, and Migration in Ethiopia: A Contextual Analysis
(New Jersey 2001), p. 5.
76 Berhanu Adenew, “The Food Security Role of Agriculture in Ethiopia”, Journal of Agricultural and
Development Economics 1 (1) 2004, p. 138.
77
Kostas Loukeris, “Contending political ideologies in Ethiopia after 1991”, Polis, Revue Camerounaise de
science politique, 12 (Special edition) 2004 - 2005, p. 2.
30
5.1.3 The Ethiopian PRSPs
The Ethiopian government cannot directly control private and foreign investment or innovation, but it can directly influence competition policies. In the Ethiopian PRSP, the Ethiopian government acknowledged the relevance of creating a level playing field for the development of the private sector. Although a PRSP is meant to be developed by a government in cooperation with other societal actors, the Ethiopian PRSP of 2000 has been criticized for being a solitary government effort.79 This does however mean that the 2000 PRSP represented the way the government would like to achieve economic development.
Creating a level playing field for the Ethiopian economy was apparently an important factor for the Ethiopian government. Competition plays a central role where a level playing field is concerned. A level playing field can be defined as public-private competition that is structured in such a fashion as to be competitively neutral.80
In 2002, the initial PRSP was followed by the SDPRP, which was basically an improved version of the PRSP of the year before. Contrary to the PRSP, societal actors other than the government did play a role in the formation of the SDPRP.81 Private sector development was again expected to be one of the main ways to achieve general economic development and pro-poor growth.82
One should note, however, the large amount of criticism the PRSP and the SDPRP have received in past years. The first criticism concerned the weak argumentation in both the documents. Arguments were far too abstract to retrieve plausible solutions and actions for relieving poverty.83 Second, the presentation of the poverty level and the possible achievements were too optimistic. The documents indicated a reduction of the people with an income under the poverty line. In reality, there were strong indications
79 AIV, Pro poor growth in de bilaterale partnerlanden in sub Sahara Afrika (Advice no. 29) (The Hague
2003), p.34.
80 Lawrence Martin, Determining a Level Playing Field for Public-Private Competition (New York 1999). 81 AIV, Pro poor growth in de bilaterale partnerlanden in sub Sahara Afrika (Advice no. 29) (The Hague
2003), p.34
82 AIV, Pro poor growth in de bilaterale partnerlanden in sub Sahara Afrika (Advice no. 29) (The Hague
2003), p 35
83 AIV, Pro poor growth in de bilaterale partnerlanden in sub Sahara Afrika (Advice no. 29) (The Hague
31
that there was a rise of people with incomes that fell under the poverty line.84 The third source of criticism was the absence of a qualitative analysis.85 Finally, the central ADLI programme has been subject to criticism. The Ethiopian government aims to stimulate the commercial development and Ethiopian food security through this programme.86 However, since this programme was characterized by a traditional way of agricultural production, its potential for industrial development is questioned.87
At the beginning of the period investigated in this thesis, Ethiopia did not have competition laws, laws that stimulated the creation of a level playing field or laws that discouraged anti-competitive actions. It would take Ethiopia until the year 2003 to issue such laws. Several sectors of the Ethiopian market could, to a certain extent, be described as monopolistic. Examples are the markets of telecommunications, electricity, cement, soft drinks, plastics, and soap.
The introduction of competition law in Ethiopia in 2003 means that before the law was introduced, Dutch policies directed at stimulating competition in Ethiopia could be directed at promoting the development of competition law. After 2003, these policies could be directed at implementing and improving competition and competition law in Ethiopia. The following part of this chapter will analyze whether this was the case.
5.2 Dutch policies and efforts
5.2.1 Introduction, Dutch policies related to the Ethiopian dispute with Eritrea
Dutch policies for Ethiopia were aligned with those for other countries in the ‘Horn of Africa’ region. The region consists of the countries Ethiopia, Eritrea, Sudan, Somalia, and Djibouti.88 The main problems in this region were armed conflicts and the HIV/AIDS
84 AIV, Pro poor growth in de bilaterale partnerlanden in sub Sahara Afrika (Advice no. 29) (The Hague
2003), p 35
85 AIV, Pro poor growth in de bilaterale partnerlanden in sub Sahara Afrika (Advice no. 29) (The Hague
2003), p 35
86http://webapps01.un.org/nvp/frontend!policy.action?id=124, last checked 23-12-2010.
87 AIV, Pro poor growth in de bilaterale partnerlanden in sub Sahara Afrika (Advice no. 29) (The Hague
2003), p 36
88 Ben Bot and Agnes van Ardenne-Van der Hoeve, Notitie De Hoorn van Afrika 2004 (The Hague 2004),
32
epidemic. The Netherlands did have a direct interest in developing the region, because of the flow of refugees to Europe from these countries.89
One of the most prominent conflicts in the region involved Ethiopia. A new episode in the border conflict with Eritrea started in 1998. After mediation of the OAU and the US, a peace treaty was signed in 2000. Ethiopia and Eritrea agreed that a border commission would issue a final and binding verdict on the border between the two countries. In 2003, Ethiopia declared it no longer had confidence in the border commission. This was mainly due to the issue of the city of Badme, for which the border commission decided would become part of Eritrea. This development damaged the peace process.90
Despite the armed conflict in the border region near Eritrea, Ethiopia was added to the list of partner countries of the Netherlands in 1999. The reasons to add Ethiopia were the severe poverty, relatively good economic policies and the progress in the area of good governance and democratization. However, if the armed activities continued over time, development assistance could be frozen as a consequence of those actions.
In 2000, the Dutch minister of foreign affairs declared that the time was ripe to increase development aid for Ethiopia. A final solution for the conflict with Eritrea seemed close and this would be a positive development for the Ethiopian economy. The main reason for a positive economic impulse would be the decrease in military spending. Furthermore, increasing development aid would send a clear political message to the Ethiopian government, indicating the importance of peace in the region for the policies of donor countries. Development aid was not resumed in total yet in 2000. Macro-economic aid was not provided, because this could result in financing the remaining debts of the conflict with Eritrea.91
Because of the limited support for Ethiopia, the country ranked only tenth for received Dutch bilateral aid between 1998 and 2006, amongst sub-Saharan African
89 Ben Bot and Agnes van Ardenne-Van der Hoeve, Notitie De Hoorn van Afrika 2004 (The Hague 2004),
p. 2-3.
90 Ben Bot and Agnes van Ardenne-Van der Hoeve, Notitie De Hoorn van Afrika 2004 (The Hague 2004),
p. 4-5.
91 Jozias van Aartsen, Landenbeleid structurele bilaterale hulp,
Brief van de minister voor
33
countries.92 Other donors did not assess the situation in Ethiopia like the Netherlands and did not reduce development aid because of the border conflict. This reduced the status of the Netherlands as a bilateral donor and harmed the influence of its development aid as a political instrument.93
5.2.2 Sectoral aid
In total, Dutch bilateral development aid for Ethiopia amounted to 263 million Euros, between 1998 and 2006.94 The main sectors to receive this aid in Ethiopia were education and healthcare. Between 2000 and 2003, agriculture was also one of the sectors with priority, but after 2003 the focus on education and healthcare was increased further. After 2005, good governance became an important topic as well.95
The retreat of support for the agricultural sector was regretted by the Ethiopian government. The Dutch support in this sector was seen as valuable, but was nevertheless cancelled. Even though policies indicated that sectors for support should be selected in coordination with the local government. In reality, this did not happen.96 The choices for sectors in Ethiopia did also not align with the priorities in its PRSP, indicating a difference in priorities between the Netherlands and the international community.97
Most of the attention in Dutch development cooperation was directed at achieving the goals for the sectors mentioned above. The Dutch government did support programmes to stimulate private sector development. The Program for Cooperation in Emerging Markets (PSOM) was such a programme, which supported Dutch investment in Ethiopia. In 2004, the PSOM project was active in twenty developing countries with a
92 IOB, Het Nederlandse Afrikabeleid 1998-2006, ‘Evaluatie van de bilaterale samenwerkingNederlandse
beleidsintenties 1998-2006’, IOB Evaluaties (308) 2008, p. 130.
93 IOB, Het Nederlandse Afrikabeleid 1998-2006, ‘Evaluatie van de bilaterale samenwerkingNederlandse
beleidsintenties 1998-2006’, IOB Evaluaties (308) 2008, p. 165.
94
IOB, Het Nederlandse Afrikabeleid 1998-2006, ‘Evaluatie van de bilaterale samenwerkingNederlandse beleidsintenties 1998-2006’, IOB Evaluaties (308) 2008, p. 130.
95 IOB, Het Nederlandse Afrikabeleid 1998-2006, ‘Evaluatie van de bilaterale samenwerkingNederlandse
beleidsintenties 1998-2006’, IOB Evaluaties (308) 2008, p. 203.
96 IOB, Het Nederlandse Afrikabeleid 1998-2006, ‘Evaluatie van de bilaterale samenwerkingNederlandse
beleidsintenties 1998-2006’, IOB Evaluaties (308) 2008, p. 203.
97 IOB, Het Nederlandse Afrikabeleid 1998-2006, ‘Evaluatie van de bilaterale samenwerkingNederlandse
34
budget of thirty million Euros. The investments of PSOM could mainly be found in agriculture, which was the most important sector for the Ethiopian economy.98
Although PSOM aimed at developing the private sector, it hardly addressed the aspect of competition. It merely supported firms, not the environment in which these firms operated. Organizations that did stimulate competition in Ethiopia were USAID and the World Bank, for example via the AGCI initiative of USAID since 2006.99
5.3 Conclusion
The information provided in this chapter showed two evident problems for Dutch development aid in Ethiopia. First, there was the problem of lingering armed conflict with Eritrea. Treaties did not guarantee a structural solution to the sources of the conflict at either side. The question is to what extent this should have been reflected in the level of development aid provided by donor countries. The risk of directly or indirectly financing arms and military supplies was present if development aid was provided on a large scale. However, not providing development aid on a large scale might not have had the desired effect of poverty relief for the Ethiopian population.
The second problem was the relation between Dutch sectoral approach and the Ethiopian PRSP. In the case of Ethiopia, there clearly was a difference between Dutch policy guidance and practice. Policies indicated that local authorities and stakeholders should have been consulted and involved in selecting the sectors.100 Since one of the main goals in the PRSP was to build capacity for the private sector, not linking Dutch priorities to those in the PRSP is relevant for this thesis. Especially since the main problem for the successful execution of the plans in the PRSP was financing these plans.101 The Netherlands could have provided for a part of these finances, but choose not to.
98
http://www.evd.nl/zoeken/showbouwsteen.asp?bstnum=163036&location#Information, leaflet 2004, last checked 06-09-2010.
99http://www.usaid.gov/locations/sub-saharan_africa/initiatives/AGCI_prog-description.pdf, last checked
06-09-2010.
100 IOB, Het Nederlandse Afrikabeleid 1998-2006, ‘Evaluatie van de bilaterale samenwerkingNederlandse
beleidsintenties 1998-2006’, IOB Evaluaties (308) 2008, p. 105
101 AIV, Pro poor growth in de bilaterale partnerlanden in sub Sahara Afrika (Advice no. 29) (The Hague
35
What does this mean for the answer to the question asked at the beginning of this chapter: “To what extent did Dutch development policy stimulate the implementation of
competition policy in its partner countries?”. The Dutch government seems to have made
the choice to support issues that were important in their own worldwide policies, but which were neglected in the Ethiopian PRSP. For the development of the private sector in Ethiopia in general and implementing competition policies in particular, this was a negative development. One should however take notion of the questionable strength of the Ethiopian PRSP. As mentioned, societal actors were initially ignored in the formation of the PRSP. Furthermore, the arguments and information provided were at least partly incorrect and there are no mechanisms that are capable of successfully implementing the policies.
