All entries for January 2022

January 26, 2022

Using specific–purpose grants to achieve development goals

Using grants blog

Photo credit: Jens Buurgaard Nielsen (creative commons)

Written by Jamelia Harris

How can specific-purpose grants be designed to better achieve development goals? This blog sets out important design considerations and argues that a delicate balance between grant conditions and preserving the autonomy of sub-national governments must be achieved to enable accountable service delivery.

Decentralisation has been increasing in developing countries, oftentimes, with the encouragement of development partners. It is estimated that intergovernmental transfers account for about 60 per cent of total local government revenues in developing countries. Given this trend, the question of the relative share of conditional/specific-purpose grants versus unconditional general grants becomes important.

There is growing evidence that large increases in grants, without adequately taking account of the incentives/disincentives created, have the potential to create unforeseen problems in terms of local government performance and longer-term sustainability. Given this, many have advocated for specific-purpose or conditional grants as they have the potential to enhance fiscal equalisation at the sub-national level, improve economic efficiency, and promote greater accountability and service delivery. Empirically, conditional grants dwarf unconditional ones in countries like Uganda and Tanzania.

How should such specific purpose grants then be designed? This is precisely the type of question that concerns countries like Ethiopia as it reviews its specific purpose grants.

A team of researchers and development consultants from Fiscus has been involved in investigating the answers to this question as part of a technical assistance programme to the Government of Ethiopia. As part of the process, a comprehensive review of conditional grants in Rwanda, Kenya, South Africa, Uganda, and India was undertaken. From this, four key lessons emerge that should guide developing countries in designing specific purpose grants.

1. Clear conditions must be set for conditional transfers

There should be clear agreement between central and sub-national governments on conditions of the grant. In Kenya, this includes input-based conditions such as a specified expenditure type, output-based conditions such as achieving a set level of service delivery under a performance-based system, and/or a grant-matching requirement where the sub-national government agrees to contribute an agreed percentage. In Rwanda, specific-purpose grants target set sub-accounts, and performance contracts or imihigo are agreed with district-level mayors. India requires states to commit a matching grant, which varies based on regional development. Uganda uses a performance-based financing approach. South Africa legislates conditional grants under the annually updated Division of Revenue Act. The Act requires all grant programmes to publish a clear framework setting out rules for allocation and use, measurable objectives, disbursement schedules, reporting requirements and records of past performance. In all five countries, conditions have been credited with improving services delivery.

2. Robust monitoring systems need to be established

Given that clear conditions are agreed, a robust monitoring system is required where results can be documented and tracked. Although Kenya has a strong framework for setting conditions, documenting results is one of the weaknesses of the system. This means that service delivery gains and progress toward development outcomes could be even higher. In contrast, Rwanda has drawn on the traditional imihigo system to enhance accountability. Imigiho targets are linked to performance metrics and scores. Monitoring systems have improved significantly in South Africa. Here, monthly and quarterly sub-national government reports on revenue, expenditures and non-financial performance are submitted to relevant sector departments and the National Treasury, who in turn submit quarterly reports to Parliament. A strong monitoring system improves intergovernmental accountability and service delivery at the sub-national level.

3. Sub-national capacity should be considered

An assumption underlying decentralisation is that sub-national governments can deliver once they have access to finances. Evidence from India and South Africa suggest that regional-level implementation capacity can often constrain service delivery. This implies that effort must be placed on strengthening local capacity when intergovernmental transfer systems are being reformed. This may be done through a conditional grant similar to the Capacity-Building Grant in South Africa, which aims to develop management, planning, technical and budgeting skills in municipalities.

4. A balance with regional autonomy is needed

Some have argued that earmarked transfers, if excessively used, can limit regional spending autonomy. For instance, 80 per cent of transfers to districts in Rwanda are earmarked for precise activities, with only 20 per cent left for discretionary spending. Conditional transfers should therefore be cognisant of the larger decentralisation agenda, which often aims to give more power to subnational governments. For example, if regions are responsible for education spending, an earmarked grant can complement this by focusing on the poorest schools or poorest children. In so doing, the fiscal autonomy of the regions is preserved, but pro-poor spending is enhanced.

In sum, specific-purpose grants have significant potential to enhance service delivery and achieve development goals. To maximise benefits, these instruments should have set conditions and robust mentoring frameworks, which are cognisant of local capabilities and respectful of subnational autonomy.

Jamelia Harris is a Research Economist at Fiscus and Visiting Research Fellow at the Politics and International Studies Department, University of Warwick. Her research spans a range of topics and includes foreign aid and the labour market, political patronage, and government finances.


January 04, 2022

Return migration: The making of ‘brain circulation’

return migration blog

Source: IOM, July 2021

Written by: Toli J. Amare (Blog Competition shortlist entry)

Migration has been one of the key dimensions of globalisation with ‘brain drain’ increasingly becoming a key feature, and one of the main benefits to the home country in the form of remittances and foreign currency. However, recently, owing to factors like local changes in the emerging nations, the flow of migrants has started to change from the developed world to the developing nations in different regions of the world including Eastern Europe, East Asian countries, and some African countries. For example, Ethiopia until recently has been the linchpin for its economic development and was able to attract a large number of returnees. Ethiopian returnees are playing a vital role in facilitating economic growth and technology transfer. According to a report by the United Nations Agency for International Migration, (2019) the last decade has seen an unprecedented increase in the number of return migrants across the globe. Following this, a long tradition of war for talent which most of the emerging nations are assumed to have lost is shifting because of the change in the dynamics of migration.

Two things might have contributed to the change in the wave of migration. Firstly, the immigration policies, regimes, and xenophobia in the host countries might have facilitated the relevance of returning home. For instance, the rise of Donald Trump had initiated a zero-tolerance immigration policy in the United States with lasting impacts. Second, local transformations in the home countries might have aroused migrants’ interests to contribute to their homeland. Emerging nations have an unexploited market, they hold huge business potential for returnee ventures. Returnees hold abundant skills, experiences, and networks that could be used in facilitating the home country’s economy (Saxenian, 2005). Recently, I interviewed around 30 Ethiopian returnees who are engaged in business for my PhD research project. A returnee from the US explained:

“Migration gives you a chance to see things you have never been aware of, and value what you tend to take for granted. It helps you develop a unique personality and identity. It teaches you respect for work, rules, time, and many skills useable after the return”.

Return migration has resulted in two major outcomes. First, it made it possible for talents to be shared and circulated. It has reoriented the labeling of migration from ‘brain drain’ to ‘brain circulation’ and ‘brain gain’ by signifying migration as an opportunity and a beacon of hope in driving local economic development (Saxenian, 2005). Evidence from Asian countries shows that return migrants are transforming the socio-economic and political environment of their home countries (Gruenhagen, 2019; Gruenhagen and Davidsson 2018). Second, emerging nations who had been assumed losers in the global war for talent have started to fetch their fair share from migration, turning the lose-win tradition to triple wins i.e., the migrants, the host countries, and home countries. This assures a reconsideration of migration from a liability to an opportunity for emerging nations. In line with this, migration is now considered to be one of the pillar elements necessary to achieve the Sustainable Development Goals of 2030. However, it does not seem to be easy to maximise the benefits of migration in emerging economies.

The paradox of keeping the brain circulating

Despite varied accrued benefits from migrants living abroad, in some cases, policymakers in emerging economies seem to fix their focus mainly on remittances, and yet to recognise their post-return role. Particularly, African nations seem not to prepare well to take advantage of this phenomenon. For this reason, returnee migrants face two main challenges. The first one is the institutional gap (Gruenhagen, 2019). Often bureaucracy is a primal bottleneck in the emerging nations. Returnees who worked and/or studied in developed nations often expect a different institutional setup that can accommodate their needs. However, corruption and lengthy bureaucracy tend to hold returnees back. There are misconceptions about returning among the policymakers. For example, returnees are assumed to be people who seek to maximise their sole benefits without any regard to the homeland, an idea that drives returnees to frustrations. An excerpt from an interview with another Ethiopian returnee reinforces this:

“Despite the good system and lovely social life, the system in this country needs a huge work. People are assigned to positions based on blood relations, nothing about knowledge and capacity. They do not have respect for a person, they do not talk to you well, imagine how bad it is for the country. I hope it will be taking shape soon. Additionally, most of the officials are corrupt, they ask you [for] cash straight”.

The second is an interpersonal challenge (Mreji and Barnard, 2021). After working in the advanced liberal nations for years, returnees often find it difficult to reintegrate into the society they once left, making them feel alienated due to their absence. Returnees are often assumed to be people with enough cash to spend and support. Due to their better economic position, they are often considered to be responsible for their close ties. This adds to the grand challenge, finally hindering their contribution potential.

Therefore, given the potential of migrants in propelling the economy, and in light of the above challenges, regimes have to improve to take advantage of returnee migrants. Emerging nations need to revisit their policymaking to accommodate the growing interest of returnees. Apart from the remittances, migrants are potential entrepreneurs, carriers of foreign knowledge, and facilitators of innovation and technology transfer to revitalise and transform the local economy.

References

Gruenhagen, J. H., & Davidsson, P. (2018). Returnee entrepreneurs: Do they all boost emerging economies?. International Review of Entrepreneurship, 16(4).

Gruenhagen, J. H. (2019). Returnee entrepreneurs and the institutional environment: case study insights from China. International Journal of Emerging Markets.

Mreji, P., & Barnard, H. (2021). The micro-foundations of the returnee liability: The interpersonal challenges of returnee entrepreneurs in Kenya. Journal of International Management, 27(2), 100846.

Saxenian, A. (2021). Brain circulation and capitalist dynamics: Chinese chipmaking and the Silicon Valley-Hsinchu-Shanghai Triangle. In The economic sociology of capitalism(pp. 325-351). Princeton University Press.

Saxenian, A. (2005). From brain drain to brain circulation: Transnational communities and regional upgrading in India and China. Studies in comparative international development, 40(2), 35-61.

Author Bio:

Toli J. Amare is a Doctoral Candidate in Management in the Department of Management, Addis Ababa University, Ethiopia. Occasionally, he visits Jonkoping International Business School in Sweden as part of a collaborative programme between Addis Ababa University and Jonkoping University in Sweden. His research interests are entrepreneurship and small business, strategy, and management practices. Currently, he is working on his dissertation entitled - Enablers and challenges of returnee Entrepreneurship in Ethiopia.


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