Humanitarian aid has become big business. The 'disaster industry' is a
growth industry and is likely to remain so. Humanitarian spending has
mushroomed, according to OECD/DAC, from US$601 million in 1985 to US$1,058
in 1990, an increase of 76%. By 1994, that figure had more than tripled to
US$3,467 million. Overall, in the space of only three years, the
proportion of aid spent on relieving disasters has undergone a quantum
leap - from 2% of the rich world's total aid budget in 1990 to 7% by 1993.
Likewise, the amount of world food aid has grown from 1,987 million tonnes
in 1987 to 4,214 million tonnes by 1994. The number of those involved in
humanitarian aid has grown too. According to a survey by the OECD in early
1994, there were by then more than 2,500 Northern NGOs registered, not to
mention the hundreds of local NGOs in each developing country receiving
significant amounts of international aid. NGOs have steadily become the
chosen tool of northern donors for carrying out their humanitarian work.
There has also been a marked increase in corporate business participation
and the emergency relief industry has even spawned trade fairs in New York
and Geneva.
Implications of the development of the 'disaster industry'
i. Humanitarian aid, increasingly dependent on the media for each financial input, has clearly become a 'mega-business'. It follows that a large number of actors, on both the giving and receiving side, have developed a vested interest in the perpetuation of relief programmes.
ii. Increasing amounts of humanitarian funds have been diverted by governments away from multilateral agencies and towards their own internationally operating NGOs who thus find themselves increasingly 'donor driven'.
iii. Accordingly, humanitarian assistance has become an arm of donor countries' foreign policy, with an accompanying increase in competition and lack of coordination in the field. Moreover, NGOs are not subject to any form of international monitoring.
iv. The sums of money involved in humanitarian operations are sufficiently huge that such operations have become a major national monetary resource for many recipients and thus a resource worth competing for or manipulating by local or national officials.
v. In today's climate of reducing budget deficits in OECD countries, a further tightening of funding can be expected. This suggests that donors will become more concerned to ensure that aid is cost effective and that relief operations really do respond to the recipients' needs in the rehabilitation, as well as the emergency, phase. As a result, commensurately higher standards will be required. This suggests that there will be more stringent reporting requirements and demands for greater professionalism.
vi. Relief agencies will increasingly find themselves carrying out activities previously considered the responsibility of the host nation, thus becoming involved in politically sensitive issues of governance.
vii. Lastly, the shift toward post-emergency reconstruction will open up
more opportunities for host country manipulation of the international
relief effort. Relief agencies' field operations will increasingly have to
confront the problem of institutionalised corruption.
Three conclusions emerge from the above. First,
humanitarian organisations will have to guard against accountability to
donors superseding accountability to beneficiaries. Second,
the shift in emphasis from answering immediate needs to promoting
self-sufficiency will demand that relief practitioners become more
conscious of the wider, longer-term implications of their actions.
Third, the dilemma faced by relief agencies of getting
the job done while not undermining the local authorities will become more
acute.
Lack of economic forethought
In recent years, there has been a large number of instances of major international humanitarian aid interventions where the aftermath has not left the desired legacy. That is to say, results have not been commensurate with the money spent nor with the thousands of man/woman hours devoted to the task. What is the reason for such failure? One of the answers lies in the fact that relief agencies have overlooked the economic impacts of their interventions. Two reasons explain this.
1. Relief agencies do not have a regular budget for humanitarian
intervention. Each emergency necessitates a public appeal that can often
lead to NGOs competing for access to the same funding source. When
reporting to donors, relief agencies are naturally concerned with showing
that the funds have been well spent; rarely are they concerned with the
wider picture - the side-effects of their spending actions.
2. There is still no concrete recognition that every
externally-financed relief agency, irrespective of its activities, has an
inescapable economic impact, whether direct or indirect, on the host
country. The more unstable the country and the more the local society and
basic infrastructure have disintegrated, the greater the impact of the
relief agencies. The fact that an agency's mandate may not mention the
wider economic considerations is not a valid excuse.
Economic impact
i. Monetary implications: All intervention programmes that bring in hard currency have a major monetary impact, an impact that is compounded when the money is spent within a relatively short space of time. It is further compounded when the amount of money brought in is significant in terms of the mass of local currency. For example, at the height of the UNTAC operation in Cambodia, the proportion of US dollars to Riels (the local currency) reached an astonishing 2:1 (US$270 million inflow as against 300 million Riels - the equivalent then of U$136 million - in circulation).
ii. Inflation: The influx of additional hard cash will obviously have an inflationary impact on the cost of living. If the local people cannot raise their income at a rate at least equal to the pace of the domestic price increase, they get poorer.
iii. Exchange rate: International relief agencies' choice of whether to use US dollars or another hard currency instead of the local currency for their local payments cannot but affect the existing exchange rate. This impact has wider implications when agencies make use of the black market rather than the official exchange rate. If, for allegedly practical reasons, the choice is to use US dollars only (or Deutschmarks as in the case of the former Yugoslavia), the effect is to create a dual currency economy or to exacerbate an existing one. The former results in national authorities losing what little control they might have had over monetary policy; and their economic management consequently becomes more difficult. The net effect is often the adoption of an inappropriate exchange rate with a subsequent negative impact on the profitability of the export sector, once revived.
iv. National budget: Future budgetary effects for the host country are invariably overlooked by relief agencies. Firstly, donors focus on media-attractive projects to the detriment of low-profile yet equally necessary projects that still, somehow, have to be implemented and paid for. Secondly and more importantly, however, are the effects of international projects which do not have a sustainable financial strategy (ie when operating or life-time costs are under-financed) and which simply add to the burden of recurrent costs that have to be charged to the national budget in future years.
v. Labour market: When international agencies attract suitable local staff by offering salaries that are double, or more than double, the local average, it has three major effects on the salary structure of the labour market. Firstly, it leads to an internal brain drain towards the newly established 'relief' sector. This in turn can have debilitating spin-offs on existing public sector personnel, especially those involved in providing such essential services as health and education. Thirdly, an international agency's local personnel policy can start a salary race among the international community as each agency attempts to retain existing staff. Similar multiplier effects can also be found in the food and housing markets, not to mention the ancillary service sectors among which the impact on prostitution cannot be ignored.
vi. Informal sector: When societies break down, the informal sector always shows the first signs of economic resurgence. While the short term advantages for relief agencies of using what may be the only efficient sector of the economy are understandable, there may be two long term consequences that impede national reconstruction. Firstly, it reduces future official revenue sources, thereby contributing to the nascent government's traditional cash flow problem. Secondly, it diverts what scarce local capital may become available away from productive investment in essential goods to tertiary sector activities that are geared almost solely towards providing profitable services to the international community.
vii. Corruption: Corruption is endemic in all crisis situations and tackling the problem is difficult. The more rigorous agencies have adopted a two-pronged approach: firstly, to accept only a certain level of 'sweetening' (up to 10%) and, secondly, to enlist the support of donor embassies in the host country to put pressure on the government to prevent the most flagrant abuses.
viii. Collusion: Because humanitarian agencies are a
conduit for external funds, host country authorities and the private
commercial sector (both foreign and local) have an interest in encouraging
their continued presence. A 'contact culture' thus grows up. Once in
place, the bargaining position of the foreign relief agency tends to be
weak, partly because they are generally poor negotiators and partly
because many have no pre-set deadlines for when they should terminate
their intervention. This form of collusion will only be contained if all
relief agencies develop, and make known to the authorities during the
post-conflict phase, a clear 'exit' strategy to which they adhere.
Conclusion
Relief agencies cannot always prevent their operations from having
unexpected economic consequences but they must become more aware that such
effects occur in all cases and that action should be taken to
mitigate, whenever possible, the least desirable of such impacts.
1. Relief agencies should consistently use a simple set of criteria to evaluate each project. Four points recommended for inclusion in any checklist of criteria are:
i. Are there, or will there be, any inter-sectoral linkages for the beneficiaries? What would happen if the project did not go ahead?
ii. What is the local capacity for implementation and eventual domestic management? What would be the consequences if the local community found that it could not keep the project running once the funding/assistance agency pulled out?
iii. How will the project contribute to kick-starting economic growth or sustaining it in the near future? Is there any risk that its recurrent costs may strain budgetary maintenance funds in the future?
iv. Are follow-up procedures to be implemented and, if so, for how long?
2. Relief agencies need to recognise that having a well-planned cut-off point for intervention is just as important to an appropriately managed operation as ensuring the organisation's rapid arrival on the scene in the first place. Developing a clear cut-off point is a function of having had a clear objective for the operation before it was launched. That is for each individual agency to determine for itself, bearing in mind, perhaps, that humanitarian aid intervention has its limits. Sooner or later, the responsibility for a people's well-being must lie with the country's chosen authorities and not with the international relief community.
Robin Davies spent 25 years in the GATT Se cretariat as Senior Economist specialising in the problems of developing countries. He is currently working in Sarajevo as a consultant. A longer version of this article was first published in the Journal of International Relations, Vol 3, No 1, July-December 1995, under the title 'Economic implications of humanitarian aid in war-torn areas and poor host countries'.
April 1997