Notes: See next post down for the usual pre-mtg background from DavidG. I removed the footnotes from Nile’s paper to make it easier to read. Sorry for the late notice.

Nile Regina El Wardani, MPH, MPhil, PhD
Short Excerpt
The Historical Role of Donors and the Price of Aid:
A Case Study of Agriculture & AID in Egypt

Over the past five decades, Egypt has been a major recipient of foreign aid from many
sources including the U.S., Western Europe, Japan and international financial organisations
such as the Islamic Development Bank (IDB), the International Bank for Reconstruction and
Development (IBRD), the Soviet Union, Eastern European countries, China and many Arab
states. Largely because of the geo-political importance of Egypt to the West, and in line with
the Camp David Accord, Egypt remains the second largest recipient of USAID funds after
Israel.

US policy leverage, over the past three decades, has greatly influenced macroeconomic policy
in Egypt. Egypt’s path to a market-oriented economy following 40 years of heavy state
intervention in resource allocation has yielded significant positive macroeconomic results
according to the WB, IMF and USAID.2 Regional experts however often do not agree with
this analysis.

The literature on foreign aid suggests that there is a price to pay for aid (Payer 1991, Mitchell
1991, Zolo 1992, Chomsky 1989). Donor countries give aid to encourage certain policies in
recipient countries. This leads to the hypothesis that the source of foreign aid has an impact
on political and economic policies and reforms. Generally speaking, increased levels of aid
from the East (USSR, China) have led to higher levels of state intervention, while aid from
the West has resulted in less governmental involvement with a move towards privatisation, a
liberalised market, and policies that reflect a more market-driven capitalist economic
framework (Lofgren 1993). Bennett’s (1995) research on the role of government in adjusting
economies looked at the capacity to assume new roles in the health sector, suggesting a new
paradigm:

As a result of changing ideologies, donor pressure and fiscal constraints, many
countries since the 1980s have experienced reforms in the role of government. Neoliberal thinking, put into practice through stabilisation and structural adjustment programmes, has advocated a reduction in the size and functions of the state. The new conventional view is that the state should not directly provide service, unless market
failure makes direct provision necessary. Rather, the state should become an indirect
provider, adopting a role, which ensures that essential services are provided, but not
necessarily producing or delivering these services (Bennet 1995:1).

The purpose for such governmental reforms is to encourage diversity of service providers
through greater private sector participation, service deregulation, and by contracting out
services (Bennet 1995). The state should serve more as an enabler and regulator, rather than a
provider and financier of services. Reforms should encourage competition, managerial
responsibility, accountability, and consumer choice (USAID 2002). Focusing on reforms that
have been implemented in developing countries, Bennet (1995) attempts to identify capacities
and preconditions necessary for successful reform. He concludes that only where considerable
experience exists is it possible to understand the factors contributing towards success of a
particular reform. Unfortunately, many reform measures have been implemented with little or
no evaluation of past success or failure. As a result, many reform programmes executed under
development assistance do not produce the desired results (World Bank 2001).
This was the situation in the US-led Egyptian agricultural reforms of the 1980s. Mitchell’s
(1991) case study illustrates the failure of reforms that are not homegrown or well researched.
Much can be learned from this historical account that should be considered as HSR initiatives
take place in Egypt. Mitchell argues in America’s Egypt: Discourse of the Development
Industry that while millions of Egyptians benefited from the development work of USAID
and the World Bank, the price may not have been worth it.

For decades, USAID and WB have introduced reform measures in developing countries by
persuading willing elites in developing countries that American funds, technology, and
management-styles will be the solution. By looking at a reform case study that has
measurable results much can be learned. Although this study concerns agriculture (and not
health), the method of defining the problem and introducing American methods as a solution
is nearly the same as HSR. It is therefore useful to investigate this case further.

USAID and WB expertise and intelligence narrowly defined Egypt’s economic problems as
due primarily to overpopulation and substandard technology and management. Mitchell
(1991) argued that this narrow definition suited their development objectives. However,
Mitchell contends that the real problem was “powerlessness and social inequality,” issues that
the researcher will later argue are relevant to policymaking in HSR. This powerlessness and
inequality state Mitchell (1991), Ibrahim (1995) and Stork (1995), extends to all resources,
including land, water, health care, and political and social resources.

The agricultural reforms of 1980s focused on investing in US technology (to give higher
yields), US-style management (to become more efficient with the resources available), and
privatisation (for cash crops). These are the same foci of health sector reform today. USAID’s
powerful political stature – and its ability to find willing elites in Egypt who would summarily
benefit from rent-seeking as hundreds of millions of dollars were brought into the country –
made the reform possible.

USAID worked exclusively with political and economic elites (policymakers) making it easy
to form and implement US-style policy solutions without input from farmers or the
peasantry, a situation this researcher argues has repeated itself to some degree within HSR.
The outcome of the agricultural reform was higher production costs, instead of the promised
higher yields. Financial imbalances occurred and political, social and land equalities were
accentuated. Farmers were forced to spend more for technological advancements, while their
yield, and therefore income, declined. Agricultural reform initiatives were first financed by
grants from USAID but over the years this financing was transformed into WB loans signed
by the GOE, by then dependent on carrying out such reforms. This research shows that HSR
has begun to follow the same pattern. HSR initiatives in the early 1980s began with grant
funds from USAID. As the reform initiatives continued and dependency ensued, the GOE
signed loans to finance ongoing HSR initiatives.

This outcome within the agricultural sector created unforeseen problems. In order to repay
loans, USAID and WB encouraged the farming of cash crops. Increasingly less land was
devoted to growing staple foods for Egyptian consumption and more to exported cash crops
like cotton, which was volatile to international market changes, taxation and embargoes. Yet
the GOE, at the insistence (through loan conditionalities) of USAID and WB, continued to cut
subsidises for the growth of staple foods and encouraged subsidised farming of cotton and
livestock. Egypt now no longer produces enough staple foods to feed its people and is
dependent on wheat imports from the US. With the enormous growth in livestock farming,
Egypt now produces more food for livestock than for people. As a result of these USinitiated reform policies, Egypt became the world’s largest importer of US wheat (Mitchell
1991).

Ironically, tens of billions of dollars per year is spent by the US government to keep
American wheat farmers from planting, thus controlling the supply and driving up the
consumer price of wheat. At the same time, Egyptian wheat farmers are preventing from
receiving subsidies from the GOE.

Prior to these reforms, staple crop production had kept pace with needs of the growing
population, allowing Egypt to feed its people. During these reforms, livestock production
doubled that of staple food production in terms of farmed land. Today most of the US wheat
purchased by Egypt is bought on loans contributing to the external debt of Egypt. HSR has
taken a similar course. It was financed entirely by grants until 1997, when the MOHP signed
a loan with the WB in the amount of $200 million to pay for ongoing HSR initiatives.
USAID, a state agency, part of the US public sector, has identified as a main goal the cutting
back of the public sector in Egypt through privatisation, cutting of subsidies, and decreasing
the public sector work force. However, by its very presence within the Egyptian public sector,
Mitchell (1991) argues, USAID is strengthening the wealth, power, and resources of the state
and state elites. He argues that USAID is thus part of the problem it claims to want to
eradicate. Yet because the discourse of development must present itself as rational,
intelligent, and unbiased, USAID is not likely to diagnose itself as an integral aspect of the
problem.

Mitchell further argues that this difficulty reflects a much larger fallacy central to this thesis,
that of GG and the neo-liberal economic ideology, which advocates for expanding
privatisation throughout all sectors. The WB and USAID state that the problems of a country
like Egypt are in part due to a lack of GG and restrictions placed on the private sector, which
prohibit Egypt from competing in a globalised world-market. Perhaps the most significant
counter argument to this view is exemplified in the world grain market. One of the donor
arguments against Egypt producing the staple foods it needs is that it cannot compete in a
world market against the low grain prices of US farmers. Yet low US grain prices are a
product of US subsidies and market controls advantageous to the US. While the results of
HSR policies have yet to emerge, reforms in other sectors such as agriculture are illustrative
of what to avoid.

Donors, especially, USAID and the WB have played a significant role in Egypt since 1975
and continue today. Who has benefited from the policies being implemented is not always
clear. What is known is that almost every penny of the $15 billion budget for economic
assistance to Egypt from USAID (1974 to 1991) was allocated directly to US corporations (in
the US) for the purchase of US grains, US technology, US technical assistance, and other
American goods (Mitchell 1991). Still one must state that millions of Egyptians have
benefited from US economic assistance, at least in the short term. Benefits, whether short or
long term, have come at the price of dependence on American-style management, technology,
technical assistance, machinery, food imports, and enormous debt. The result is that vast US
government subsidies are provided to the so-called private sector in the US both directly by
the purchase of billions of dollars of products and technical expertise through USAID and
also indirectly by converting Egypt into a huge US market.

The role and influence of USAID goes beyond the economic realm. Today the US is the
largest supplier of Egyptian imports. This dependence and the ensuing levels of debt have
given the US a powerful position of influence within Egypt. With this strong foothold,
USAID conducts cabinet level dialogue with the GOE on macroeconomic and foreign policy.
This policy leverage has now become the principal criterion for which USAID development
projects in Egypt are evaluated Mitchell (1991), Makram-Ebeid (1989), Esposito (1996) and
Mernissi (1992).

(NOTE THIS IS AN EXCERPT AND NOT A FULL TEXT DOCUMENT