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. One area where foreign aid has had encouraging results is in post-conflict economic recovery and growth. South Sudan, which seceded from Sudan and became an independent nation on July 9, 2011, is such a case.
The 2005 Comprehensive Peace Agreement (CPA), facilitated by the United States through the State Department and USAID, officially ended the 22-year civil war in Sudan. As Sudan approached the CPA-scheduled referendum in January 2011 to decide whether South Sudan would secede from the North and become an independent nation, there were reports that Khartoum was deploying its army with heavy weapons along the North-South border in the fall of 2010. In response, the South threatened to proclaim its independence unilaterally and destroy its own oil infrastructure rather than allow its occupation. With the support from the international community, South Sudan managed to hold the referendum peacefully and as scheduled, with nearly 99 percent of voters in favor of separation from the North. (9) Some observers, however, have suggested that South Sudan will be born a failed state. (10) The most important challenge for donors that have facilitated the change is how to assist the newly independent South Sudan in maintaining peace and security and avoiding the return of conflict.
This paper is limited and modest in scope. It primarily attempts to show how foreign aid can be used as a catalyst to prevent fragile states from returning to violent conflict by promoting sustained economic recovery, growth, and critical economic reforms in a post-conflict situation. The rationale --the what and why questions--is based on empirical models suggested by Collier and others and the new way of thinking adopted by major donors, such as the United Sates, which has provided substantial development assistance to address the new challenges posed by politically fragile states. Given the amount of aid going to politically fragile countries (nearly 40 percent of total aid in recent years), it is an important public policy issue in itself. (11)
However, it is beyond the scope of this paper to address the larger question of aid effectiveness (or lack thereof) in socio-political and economic development in general--issues such as equity and distribution of benefits from economic growth and development, gender, human development, basic social service provision, public goods, governance, accountability, and justice. (12)
THE POLITICAL ECONOMY OF AID IN POST-CONFLICT SITUATIONS: NEW THINKING AND NEW APPROACH
The classic theoretical framework for analyzing economic growth in developing countries is the Harrod and Domar growth model and the Solow model. (13) Other models emphasizing structural change include Lewis's two-sector model, labor surplus and the dualistic nature of developing countries. (14) Many newer theories of economic growth and development that became influential in the 1990s emphasized complementarities and coordination in investments undertaken by many and different agents. When complementarities are significantly present, an action taken by one firm, worker, or organization increases the incentives for other agents to take similar actions. (15)
These models provide theoretical insights for shaping policies for growth and development. They also generally assume a stable country--one with political stability, absence of violence, and legitimacy of the state. (16) State fragility is viewed as a pre-development stage. When confronted with a situation of a country emerging from violent conflict, the traditional approach for aid donors is to intervene in a sequential, discrete manner to bring about political stability and the absence of violence before economic growth and development. Following this line of thinking, a familiar framework for donor assistance in a post-conflict situation generally involves four phases of efforts along a continuum, each with characteristic program emphases: (1) relief and humanitarian assistance; (2) disarmament, demobilization and reintegration of soldiers, refugees and internally displaced persons into the warless economy and society; (3) reconstruction of physical infrastructure and institutions; and (4) the introduction of reforms in economic policy, governance, and institutions. (17) This sequential approach places economic issues, policy and institutional reforms toward the end of the relief-to-development continuum.
A new way of thinking about sequencing for growth and development. supported by recent empirical evidence, challenges the sequential, non-overlapping approach and raises the question of whether addressing economic issues should be delayed until the last phase. Paul Collier, a leading expert on African economies and post-conflict countries, and others (18) argue that external peacekeepers supported, for example, by the United Nations and robust economic growth have both proven to be more critical than political reform in preventing a return to conflict. (19) Many donors are absorbing lessons learned from the empirical literature, but organizational learning and reprogramming is an incremental and at times slow process. The United Sates, through USAID, has recently addressed this question with its new policy and program guidance. According to USAID, "The relief community has already begun to abandon this obsolete 'relief to development continuum' concept and many interventions geared to facilitate economic growth have been adopted at the very beginning of the rebuilding process [concurrently with political reform], much earlier than traditionally has been the case." (20) A new approach is emerging which places less emphasis on a discrete, sequential approach and argues for an overlapping sequence of categories of assistance. Specifically. foreign aid should...