What has aid ever done for growth?

Girish Menon, our Director of International Programmes, explains why he thinks ending extreme poverty - including clean water and safe sanitation for all - is possible by 2030.


5 Jul 2013
With the deadline for the achievement of the current Millennium Development Goals (MDGs) expiring at the end of in 2015, world leaders are discussing what the next set of goals should be. 

A lot of attention has been given to the possible new goal of ending extreme poverty by 2030. Especially considering that the current goal, to halve world poverty by 2015, was achieved five years early.

As part of this debate, WaterAid is calling for everyone, everywhere to have access to water and sanitation by 2030. We are delighted to see that there is a growing consensus that these basic essential life saving services are crucial for lifting people out of poverty.

Before looking to future goals, it is important to examine how nearly one billion people have been taken out of extreme poverty since 1990. Between 1990 and 2008 (the last year a global figure can be calculated), over 660 million people had been taken out of extreme poverty. It is estimated that in 2010 this number rose to nearly one billion. The official UN MDG figures define extreme poverty as living off less than US$1.25 a day, so although this is an achievement, the number of people living just above this extreme poverty line is higher than ever.

An article and poverty briefing in The Economist suggests that this change has less to do with MDGs and aid more generally and more to do with increased capitalism and free trade - leading to economic growth.

The article references 'one estimate' which says two-thirds of this reduction in extreme poverty is due to economic growth and the other third comes from greater equality within countries. The article is not clear though as to where this estimate comes from and what evidence base this assumption is predicated on. Regardless, I would argue that it is a somewhat overly simplistic view to a very complicated problem.

The article also doesn't consider the possibility that increases in economic growth may not have been generated wholly by increased capitalism and free trade - for example, it doesn't take into consideration that aid and international development is also a driver of growth.

Just one example can be seen in a 2012 World Health Organisation Report which estimates that universal access to water and sanitation could add £140 billion to global growth, year on year. 

The report also estimates to the converse, that lack of sanitation alone causes £166 billion a year in global economic losses. This estimate is all the staggering, considering how the author sites that it is a conservative estimate.

Considering that two billion people have gained access to clean drinking water, and 1.8 billion people have gained access to sanitation in the last two decades, it is likely that tens if not hundreds of billions in growth over the last two decades rests solely on these improvements alone. Is it a wise economist who dismisses such drivers of growth?

If you think that this is a one-off, I would point you towards research by the World Bank's Water and Sanitation Programme, that have estimated that the annual economic impact of inadequate sanitation in India alone is estimated at over £34 billion and poor sanitation in Nigeria costs nearly £2 billion a year.

So it stands to reason that work in this area, like that done by WaterAid, would have a significant impact towards improving economic growth in what the aid sector calls the developing world, but investors would refer to as emerging markets. Simply put, without safe water or sanitation, people can be trapped in a cycle of poverty and disease. People waste what could otherwise be economically productive time collecting dirty water, people die prematurely, and open sewerage causes disease to spread through communities.

Improved access to clean water and sanitation leads to gains by governments, business and society from healthier and more productive workforces, greater participation in and lower drop out from education (especially among girls), lower mortality and morbidity, increases in tourism and many other key drivers of economic growth, and frankly, this is just scratching the surface of the gains made by just improving access to just two basic services: water and sanitation.

If you add health, education, women's empowerment, agriculture, conflict prevention and a whole host of other areas, then you are talking about economic gains that make a substantial global impact. It would be difficult to argue that international aid has not made an immense contribution to these.

With this in mind it is important that in the discussions about what replace the MDGs, we don't just look only at the big picture economic issues such as liberalising markets and removing tariffs. 

We must also make sure more basic needs are met, such as water, food, sanitation and health so that more people are able to participate in these market, which in turn will increase growth and reduce poverty. These are key drivers for human development.

Aid, trade and growth are interconnected, and to dismiss the contribution that has been made - and will be made in the future - by aid and development is to leave an important factor out of the ledger. Let's celebrate greater growth in the developing world, but let's also recognise the contribution that aid and development make to achieving this.

This article originally appeared in the Huffington Post here.