The Political Economy of Pooled Development Funds in Malawi - The Case of Local Development Fund

This thesis examines how power shapes the institutional design of aid modalities, particularly pooled development funds. Pooled development funds, as an aid modality, emphasise that both donors and aid recipients have the same interests and goals to be achieved through development aid such that all actors easily agree to exercise formal power when making decisions regarding the institutional design of a particular pooled development fund. Pooled development funds also encourage all the actors to exercise formal power, based on formal institutions, in a way that contributes to the accomplishment of each of their goals, and to a reduction in operational costs. However, using the case study of Malawi’s Local Development Fund, this thesis argues that both formal and informal power shape the institutional design of pooled development funds by controlling and manipulating agenda-setting, and decision-making in both institutions - formal and informal. Whilst this thesis establishes that it is undisputable that donors retain a lot of power in their interaction with aid-dependent countries, it is also argued that aid recipients have their own ways of exercising power upon donors, including foot-dragging; paying lip service to aid agreements; holding onto information; and deliberate inclusion or exclusion of certain players so as to manipulate decisions in favour of the establishment of an institutional design that will serve to their advantage. This thesis also argues that local bureaucrats and political elites in Malawi rely on informal power to shape the institutional design of aid modalities whilst donors depend on formal power to influence institutional arrangements for resource disbursement. The exercise of formal and informal power in the institutional design of pooled development funds reflects those interests of the actors who contribute resources to the pool. Thus, power is used instrumentally by players in the aid industry to achieve their interests, including political and policy influence; monetary gains, visibility and patronage; high remuneration; and personal and institutional prestige due to increased budgetary funds and professional development. As much as this thesis pays attention to both formal and informal power by focusing on the rules of the game in order to examine the institutional design of aid modalities, much attention is also paid to informal institutions and their significance in development aid in Malawi. The thesis employs qualitative methodology, focusing on Malawi as it is one of the top countries in Sub-Saharan Africa for receiving overseas development assistance: about 40% of the national budget comes from donors. This thesis draws from empirical data collected through sixty-seven (67) key informant interviews and thirteen (13) focus group discussions from six months of fieldwork in Malawi. The Local Development Fund (LDF) was sampled as a case study for two reasons. First, LDF is a pooled fund with contributions both from donors and the Malawi government, hence providing an opportunity to examine various power dynamics regarding how they shape institutional design of pooled development funds. The second reason for sampling the LDF is that though established in 2008, is yet to be studied from a perspective of power and institutional design therefore there is a gap that should be filled. The originality claim of this thesis is its empirical contribution to filling the gap in the literature on the institutional design of aid modalities by locating the agency of aid recipients and better understanding of the role of informal power in delivering development aid effectively