I have a Master’s Degree in Economics from a top UK university. I am a full-time economist working for a leading global economic consultancy firm. I have provided consultancy services for a number of governments in the field of economic development. The majority of my work focuses on macroeconomic development for developing countries. Through my job I have worked extensively in Africa. I have a broad based understanding of both the practical and theoretical applications for economics and have had a number of my papers published by leading agencies. I have also successfully completed a number of courses with the World Bank in areas such as trade, poverty and growth.

Influences on the Flow of Aid to MENA countries

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INTRODUCTION
It is by now well documented that donor interests as well as recipient needs have strong influences on the geographical allocation of aid. The beneficial impacts that aid transfers have on recipient countries can often be, in the sight of the donor, incidental to the more prominent motivations of maintaining spheres of influence, political or military alliances or promoting export trade (Maizels and Nissanke, 1984, 876). Hjertholm and White (1998) argue that the one constant in the ‘history’ of aid has been the distortion of developmental aid programmes to meet donor country’s commercial and political needs. McGillivray (1989) measured the performance of donor countries’ distribution of aid based on the extent to which it reflected recipient need and found the United States to be the poorest performer. The United States incidentally is the largest bilateral donor of aid to MENA countries (DAC-Online, 2006). Arab bilateral donors too have been criticised for allocating aid based on donor interests. Neumayer (2003) finds strong evidence to suggest that Arab donors are more likely to give aid to other Arab and Islamic countries, and, particularly in the case of Saudi Arabia, countries that have similar voting patterns to the state in the UN General Assembly. Multilateral donors, while less motivated by political and economic interests, are not completely immune from these factors either. Harrigan, Wang and El-Said (2005, 262) find that both recipient needs and donor interests influence the granting of IMF and World Bank loans to the MENA region. However, Neumayer (2004, 292) finds Western multilateral aid is better focused on poor countries in need of aid than Arab multilateral agencies are, the latter allocating more aid away from the least developed countries and more towards middle-income countries.

The focus of this paper is on aid to the MENA region, which covers twenty countries reaching from Western Sahara to Iran, with Islam and Arabic playing defining roles in the region’s culture (DFID, 2003). With its protracted Arab-Israeli conflict and America’s war on terror the MENA region has “arguably become the political epicentre of world crises” (Harrigan et al., 2005, 247). In addition, the vast majority of the world’s oil reserves are located in MENA countries making it economically one of the most strategically important regions in the world. However, as a result of violent conflict, weak economic and institutional structures and limitations imposed upon individual rights and freedoms, the MENA region has seen the percentage of its population living on less than US$2 a day increase from 20 to 21 percent of the population, while the percentage living on less than US$1 a day remained constant throughout the 1990s. As well as this, economic growth has been slower than all other regions except sub-Saharan Africa and unemployment stands at 25 percent of the region’s population (DFID, 2003, 4).            

It would appear that both donor interests and recipient needs play an important role in the allocation of aid to the MENA region. It is in this context that this paper will focus on aid flows to the MENA region with particular emphasis placed on the roles that recipient needs and donor interests play in the allocation of aid throughout the region.  However, it is first necessary to get a clear picture of who the main donors and recipients to the region are and how much aid the region receives.

Aid flows to and within the MENA region
With the end of the Cold War, a strong emphasis was placed on the poverty orientation of aid. This meant that throughout the 1990s the MENA region saw its share of aid flows diminish (Hjertholm and White, 1998, 26). However, with the invasion of Iraq in 2003 the MENA region has seen its political and strategic importance in the global arena drastically increase, and with it aid flows into the region have also rapidly increased. For 2004–05 Iraq received US$12,924 million in ODA from DAC countries, almost five times more than the second largest recipient in the same period, Nigeria (DAC-Online, 2006).

In 2004–2005 the MENA region was the second largest recipient of ODA, with sub-Saharan Africa being the only region to receive more aid. In this period MENA received US$17,447 million in bilateral ODA from DAC countries alone, accounting for roughly 20 percent of all DAC ODA granted during that period (DAC-Online). This has been a recurring trend since the 1960s with MENA receiving nearly $329 billion in aid transfers from 1960 to 2001 (Harrigan et al., 2005, 249). The United States has consistently been the largest bilateral donor to MENA, allocating almost 40 percent of its ODA to the region in 2004–2005. US ODA accounted for approximately 50 percent of all DAC ODA in that same period.

Figure 1 shows DAC countries’ total ODA disbursements to the MENA region for the period 1973–2005. What is particularly striking is that since the 2003 invasion of Iraq there has been a rapid and substantial rise in the amount of ODA committed to the region, and there was a similar rise during the first Gulf War. However, there has been a substantial and consistent flow of ODA from DAC members to the MENA region stretching back to the late 1950s.

Figure 1. Data Source: DAC-Online

Arab donors have also played a significant role in the allocation of aid to the MENA region particularly since the early 1970s. Aid from Arab countries has historically been volatile and prone to substantial changes from period to period. Neumayer (2002, 9) gives three reasons for this volatility including the strong sensitivity to oil prices of Arab donors, conflicts in the region which have cost Arab countries enormous amounts in war and post-war efforts and a certain amount of what is referred to in the literature as ‘Aid fatigue’ has begun to set in over time. However, Arab donors have been praised for historically being far more generous donors than DAC countries in the amount of aid they give as a percentage of GNI. Between 1975–79, Arab donors allocated 3.5 percent of GNI to aid, well above the recommended 0.7 percent by the UN, yet over time Arab donors have become increasingly less generous with only 0.24 percent of GNI allocated to aid between 1995 and 99, 60 percent of which went to other Arab countries (Neumayer, 2002, 11, 12). Shihata and Mabro (1979, 161) argued that because Arab aid was funded from oil revenues which are the ‘monetary realisation of an asset’, actual Arab generosity is far greater than what is at first apparent. As well as this, since Arab aid is rarely tied the benefits to recipients are far greater.

Table 1 provides an overview of ODA disbursements provided by DAC countries, Arab countries, and Arab Aid Agency aid over the period 1974–2005.

Table 1

	1975–79	1980–84	1985–89	1990–94	1995–99	2000–04
Net Official Development Assistance (ODA)
Arab Countries	5,238.1	5,710.8	2,618.2	2,137.4	464.0	1899.37*
Arab agencies	578.3	305.2	108.3	190.4	-13.2	na
DAC	10,869.9	17,684.9	28,030.4	41,448.7	37,731.3	40,441.67

Figure 2 below presents similar finding to those in Table 1 presented in graphical form.

Source: Harrigan et al. (2005: 249) Source of net ODA disbursement (US$ million-2000 prices). Non-DAC is taken as proxy for GCC aid.

Multilateral aid from the IMF and World Bank as well as Arab agencies has been a constant and stable source of aid to the region since the late 1960s and overtook the volume of GCC aid in the early 1990s.

The MENA region has a total regional population of 301 million or 6 percent of the global population. In 2002, 2.1 percent of the total population lived in absolute poverty (below US$1 a day) (UN MDG Statistical Annex, 2006). Compared to sub-Saharan Africa or Southern Asia where 11 percent and 31 percent live in absolute poverty respectively, while there is little doubt that some MENA countries are in need of aid the question arises: should the MENA region be receiving so much aid? The next section will explore the role that recipient needs play in the allocation of aid to MENA before going on to see how donor interests might influence the allocation of aid.

Recipient needs
It is generally accepted that countries in most need of aid are those that are poor and have low per capita incomes (McGillivray, 2003, 2). Dollar and Levin (2004) found that since the mid-1990s the poverty focus of aid has increased. Collier and Dollar (1999, 29) developed a measure for the poverty-efficient allocation of aid, based on the idea that while aid was generally allocated more towards poorer countries it is not allocated efficiently with respect to poverty reduction. They found that in order to obtain the maximum reduction in poverty, donors should allocate aid to countries which have large amounts of poverty as well as good policy. However, a recent article by Banerjee and Deaton et al., (2006) seriously criticised the quality of this research. McGillivray and White (1994) argue that a good pattern of aid allocation is one in which aid is allocated primarily in proportion to a country’s needs, the ability of the country to absorb aid flows should be accounted for and aid allocation should be neutral with respect to country population size. Table 2 below shows the actual allocation of aid to MENA countries and what the poverty-efficient allocation of aid should be according to Collier and Dollar. What is apparent is that the MENA region receives a significantly larger amount of ODA than is warranted, had the only factor influencing the allocation of aid been poverty alleviation. This is particularly true in the case of Jordan. However, it is generally acknowledged in the literature that poverty reduction is not the only rationale for aid (Collier & Dollar, 1999). The next section will explore further the role that donor interests play in the allocation of aid to the MENA region.

Table 2. Actual and Poverty-Efficient Allocation of Aid to the MENA Region (% of GDP)

Country	Actual Aid	Poverty-Efficient Allocation
Algeria	0.22%	0.00%
Egypt	1.31%	0.83%
Jordan	3.26%	0.00%
Morocco	0.70%	0.00%
Turkey	0.06%	0.00%
Tunisia	0.29%	0.00%

Source. Collier &Dollar (1999, 35)

Donor interests
Hjertholm and White (1998, 2) state that the one constant in the history of aid has been the distortion of its development objectives for donor countries’ own political and commercial advantage. Hunter (1984, 53) claims that the granting of aid is basically a political decision and therefore aid is first and foremost a tool of foreign policy. Nissanke and Maizels (1984, 891) found strong evidence that bilateral donors’ perceived foreign economic, political and security interests, play a pivotal role in their allocation of aid. whereas multilateral donors allocated aid on recipient needs’ criteria. Similarly, Harrigan, Wang and El-Said (2005, 249) find that donor interest play a significant role in the allocation of aid to MENA, particularly in the case of Egypt, Israel and Jordan.

The USA is undoubtedly the largest bilateral donor to the region, with most of her aid in the past allocated to Israel and Egypt, both of whom are very strong allies to the US in the region. More recently with the ‘post-war’ reconstruction of Iraq, a substantial proportion of US ODA is now going there. The US is also the most influential country in the region both politically and militarily (DFID, 13). The EU also has very strong political and economic interests in the region with programmes such as MEDA creating strong ties between countries around the Mediterranean. With its close proximity and intertwined economic interests it is therefore in the EU’s own interest that the MENA region is both politically and economically stable. There is also strong evidence suggesting that donor interests play an important role in Arab aid as well. Factors such as Arab solidarity, Islamic ties, as well as Israeli opposition have all been cited as positive determinants for the allocation of Arab aid. Neumayer (2006) finds strong statistical evidence that being Arab, Islamic, having similar voting patterns to Saudi Arabia in the UN General Assembly, and not maintaining diplomatic relations with Israel all play an important role in the allocation of Arab aid. However, this is more true for bilateral donors than multilateral donors. Recipient needs also played a role for Arab donors, but only at the gate-keeping stage (Neumayer, 2006, 14). Hunter (1984) claims that Arab aid is first and foremost motivated by security, politico-ideological and economic interests; put more bluntly Arab aid is used ‘as an attempt to buy off a threat by more populous, envious and greedy neighbours in inducing them to believe that friendly relations are more rewarding than hostility would be’ (Neumayer, 2002, 6)¹.

Multilateral donors such as the World Bank and IMF too, are not immune from donor interests. Harrigan et al. (2006, 251) find that the United States clearly has the capacity to exercise leverage over both institutions as a result of weighted voting and does so. In their analysis of programme loans to specific countries in MENA they find that an Arab country’s ‘shift towards a pro-Western foreign policy, peace overtures to Israel, domestic political liberalisation and challenges to Islamic regimes’ all prompted inflows of aid not only from the US but also from the IMF and World Bank (Harrigan et al., 2006, 262).   

What is apparent is that donor interests clearly play an important role in Western as well as Arab aid allocations to the MENA region. The next section will take the case of Egypt and briefly assess the role that recipient needs and donor interests have played in the allocation of aid to the country.

Egypt (a brief case study)
Egypt is the most populous country in the MENA region, with a significant proportion of the population living under US$2 a day. While Egypt is a middle-income country its economy is highly dependent on three main sources of income: tourism, remittances and revenue from the Suez Canal. This makes the economy highly vulnerable to economic shocks. Forty percent of the population is under 15, 55 percent of adult females are illiterate and unemployment stands at 9 percent (DFID, 2003). Egypt is currently undertaking a National Development Plan for 2002–2007 in which it hopes to achieve a number of development objectives including reducing poverty and unemployment and increasing female participation in the economy. Despite the slow pace and poor quality of Egypt’s reforms, Egypt has continued to receive substantial amounts of aid (Harrigan et al., 2005, 255).

The largest bilateral donors to Egypt are the United States (US$750m 2004–05) and the EC (US$224m). The bilateral share of ODA to Egypt was roughly 78 percent for 2005 (DAC-Online). In 2005, ODA made up 1 percent of GNI, which is above the recommended 1999 level of 0.83 percent of GNI (Collier and Dollar, 1999). So why does Egypt continue to receive more than its fair share of aid despite its poor performance in using it to improve development?

The main reason often cited is that Egypt was the first Arab state to sign a peace treaty with Israel. This resulted in Egypt being a favoured recipient of US aid. As well as this Egypt was a strong supporter of coalition forces in the first Gulf War. Shortly after the war ended Egypt was rewarded a large IMF Standby Loan, a World Bank Structural Adjustment Loan and the largest debt write-off in MENA history (Harrigan et al., 2005, 258).  

What the case study shows is that while Egypt is in need of aid, the prime motivation behind almost all Western multilateral and bilateral aid has been political. The political motivations behind the allocation of aid has given Egypt the opportunity to perform poorly in its development programmes without fearing any form of punishment by way of a withdrawal of aid. Similarly, it has meant that the appalling human rights record of Egypt has been allowed to continue for so long.

Cases such as this are common across the whole of the MENA region where political and economic motivations are the prime determinants in the allocation of aid.

Conclusion
This paper has provided a brief analysis of the role that both recipient needs and donor interests play in the allocation of aid. Studies over the last three decades provide strong empirical as well as historical evidence that aid allocations from donor countries depend not only on need but often more importantly on donor economic and political self-interest. This is particularly true of MENA countries. While some countries in MENA are clearly in need of aid, what this paper shows it that the current rationale for much of the present allocation of aid is as a means of influencing recipient behaviour. The political and economic motivations influencing donor countries’ allocation of aid has resulted in a more inefficient outcome with regard to poverty reduction, had the only motivation behind aid been poverty alleviation (Collier & Dollar, 1999).   

The political motivations of Western aid could well be having adverse effects in the region. Inhabitants see aid as an attempt by the US to impose Western-style democracy onto their countries as well as a means of inducing adherence to US foreign interests in the region (Harrigan et al., 2005, 262). This could explain much of the backlash and resistance to Western influences that we are now being witnessing across the region.

Arab donors should increase their role in the region by increasing the volume of aid as well as insuring that flows are constant and less volatile. While there is ample evidence that Arab donors are biased towards other Arab countries this is not necessarily a bad thing as much of the region is in need of aid. Arab donors should replace much of the Western aid to the region which could then be allocated more efficiently to other areas across the globe. However, it is important that Arab donors balance out aid more in favour of low-income countries and away from middle-income countries (Neumayer, 2004, 298).          

Bibliography
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Websites:
DAC-Online www.oecd.org/dac

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¹This quote is Neumayer’s summary of Hunters analysis, not what Neumayer believes himself.