By Nuno Gil, Professor of New Infrastructure Development, Alliance Manchester Business School, The University of Manchester
After many decades of development assistance, we are still failing the poor. We have reached a broad consensus that promoting economic growth and welfare requires a two-pronged approach: building institutions matters, but building infrastructure matters too. Hence, focusing development assistance on one goal at the expense of the other will not work. Yet, frustratingly, development assistance is only now starting to look for ways to become truly ambidextrous.
If we go back to the first decades of development assistance, the prevailing approach was to emphasise stand-alone infrastructure projects. At the time, traditional donors used limited conditionality and the deals were not transparent. But by the mid-1980s, the donor community realised that this choice was leading to disappointing results in terms of poverty alleviation and economic growth. By focusing on quick infrastructure building at the expense of institutional reforms and local capability building, the ruling elites could exploit weak institutions, turning the new infrastructure projects into instruments to enrich themselves and capture more rents.
By the early 1990s, a so-called “Washington consensus” emerged that shifted the focus to reforms to promote privatisation, property rights, and trade liberalisation. But less than a decade later, donors could no longer ignore the rapid growth of countries in East Asia where the building of infrastructure by the state had played a pivotal role. A post-Washington consensus then emerged by which the role of development assistance became to enable “societal transformation”. Under this new paradigm – which still prevails today – infrastructure building returned to the centre of the donors’ agenda. Yet, the organising principle became to precede the disbursement of funds with capability building and state reforms to enact participatory approaches, stakeholder enfranchisement, and probity in using public resources.
Today, we must recognise that the current paradigm has failed to equip poor countries with basic infrastructure to cope with rapid population growth, migration to cities, and a climate crisis. At the crux of the problem is the fact that institutions building takes a long time. And as the infrastructure gap has widened, poor countries have turned unsurprisingly to emerging donors for help, notably China, but also Gulf countries and others. Similar to the traditional donors decades earlier, emerging donors do not condition project lending on state reforms. Yet, despite warnings by traditional donors, lacking an alternative, many (but not all) borrowers doubled down on their bets, which has radically changed the development landscape.
Recently, traditional donors have called for greater collaboration with emerging donors – “working together, we can ensure there is a good harvest”, said IMF in 2018. At the policy level, in 2018, a Chinese-IMF Capacity Development Centre was set up to train Chinese officials. In a 2020 report, the OECD Development Centre/African Centre for Economic Transformation (ACET) called for a rethinking of development assistance frameworks. And in the recent draft of the 14th Five Year Plan, China mentions overseas investment legislation (推动境外投资立法), opening the door for loan conditionality. Yet, although co-operation at policy level is good, action on the ground is urgent. But this not easy because traditional donors operate in a highly constrained institutional environment. Further, as fiscal pressures mount post-COVID, they may be tempted to cut aid budgets (the UK is a case in point). So where does this leave us?
When an organisation faces contradicting requirements, and the pursuit of both goals simultaneously is necessary to succeed, the organisation needs to become ambidextrous if it wants survive. This precept suggests that we need to find innovative ways of organising to enable synergies between the development projects sponsored by traditional donors with the projects enabled by emerging donors. In other words, we need to find ways to integrate sets of task structures and outcomes that will nonetheless have to remain structurally independent.
Let me give an example. After the Arab spring, the world turned to help Egypt, a country “too big to fail”. So, whilst the IMF made lending available under the condition of economic reforms, aid flowed too from the Gulf States. Additionally, attention turned to the problem of urban informality. In Egypt, as in most African countries, two thirds of the urban population live in slums and informal settlements, deprived of basic amenities, land tenure, and opportunity to realise their potential. But if the demographics make it urgent to build millions of social houses, it is equally urgent to reform the social housing market and enfranchise slum dwellers. Yet, if we keep relying on aid conditioned on state reforms, clearly we will fail. Let’s be realistic: upgrading a slum using a participatory approach can take up to 10 years. In the same period, Cairo’s population alone will have grown by 5 million people if not more.
To tackle this major challenge in Egypt, on the one hand, the World Bank, UN Habitat, the EU and others chose to focus on slum upgrades, housing market reforms, and capability building. On the other hand, emboldened by aid from emerging donors, the Egyptian state focused on developing social housing. But critically, rather than insisting on reforming the opaque supply side of the housing market, traditional donors sought instead to create synergies to prevent the state from squandering more public resources in “ghost” cities in the desert as had happened in the past. Thus, through a shared vision to tackle urban poverty, leadership and integrative processes, a certain level of unprecedented lateral coordination was achieved between state social housing projects and the projects that were sponsored by traditional donors. Put differently, development became “ambidextrous”.
In sum, ambidextrous development builds on the organising principle that we need to tackle two orthogonal goals simultaneously. This makes traditional donors responsible for the creation of conditions that enable process and output synergies between dissimilar enterprises without compromising their principles. In doing so, ambidextrous development balances investment in institutions building for sustainable solutions, with quick action to fill pressing infrastructure gaps. And arguably, as the ruling elites agree to give space to incremental reforms elsewhere, these reforms will build to a tipping point that will enable the institutions to hold and increase their ground against predators. The more we see development as ambidextrous– and crucially, the more development leaders are empowered to pursue synergies – the more we all gain.