Foreign Aid in Post-Conflict Countries: The Case of South Sudan

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INTRODUCTION

The purpose of this paper is twofold. First, it examines the approach to foreign aid being used in South Sudan, which reflects the new thinking in providing assistance to post-conflict countries. The United States Agency for International Development (USAID) adopted the extensive empirical work by Collier, Hoeffler, and Soderbom (1) in its policy and program guide to economic growth in post-conflict countries. (2) Second, by building upon this new approach the paper suggests how foreign aid can mitigate the risk of violent conflict recurring in the newly independent South Sudan. It explores strategies for growth and development by encouraging the private sector to take the lead in addressing key impediments to business development, trade, and investment. It concludes with some observations of future challenges for South Sudan. (3)

Sixty years of development experience demonstrate there are multiple paths to growth and development, all of which have records of success or failure under certain circumstances. From the 1950s through the early 1980s, foreign aid emphasized overcoming market failures through active government interventions and balanced growth, with focus shifting to the basic needs and redistribution with growth approaches of the 1970s. (4) Reaction to failed and excessive government interventions led to critical scrutiny and comparison between market and government failures. Critics pointed to the pervasive government failures in addressing basic needs and redistribution without growth, most notably in sub-Saharan Africa and South Asia. Yet there were also successes, particularly in countries such as Japan and the East Asian Tigers. Between 1980s and 1990s, development strategies shifted to promote market liberalization, privatization, and stabilization. This shift gave rise to the structural adjustment and market fundamentalism as approaches to development with renewed emphasis on growth. (5) It produced development successes, particularly in the economic growth and rising standards of living in China. India, Brazil, and other emerging economies. However, the successes of many of these countries were not primarily attributable to market fundamentalism along the line of the structural adjustment programs advocated by the World Bank, International Monetary Fund (IMF), and U.S. Treasury. (6) Rather, these countries successfully combined market-based approaches with active government interventions and socioeconomic development policies. Market fundamentalism as an approach had its share of unequivocal failures in Africa, Latin America, and South Asia; arguably the largest of all was the global financial crisis and the Great Recession of 2007-2008 that originated in the developed world and affected both developed and developing countries. (7)

For the first time since the 1970s, a significant number of countries in Sub-Saharan Africa (SSA) have experienced high rates of economic growth. According to the IMF's regional economic outlook report, the economies of twenty of the SSA countries grew at an annual average of more than 6 percent during 2004-2008 and more than 4 percent in 29 more nations. (8) The growth pattern is consistent across a wide variety of national traits: low income and middle income: resource rich and resource poor; and coastal as well as landlocked. The region, though adversely affected by the 2007-2009 global economic and financial crises, has recovered. It is expected to grow at the annual average of more than 5 percent in the near future. Major factors that have contributed to the emerging pattern of high and sustained growth are: pro-growth macroeconomic stability; improved economic governance; and a decline in the number of violent conflicts. Foreign aid has played a major role not only in ending conflicts but also in post-conflict recovery. Most of the recent foreign aid debate that attracted headline attention tended to focus on aid effectiveness at the ultimate level of per capita economic growth and poverty reduction, with less emphasis on the role of foreign aid in assisting recipient countries in removing impediments to the path toward these ultimate goals. …