Opinion / Columnist
The curse of foreign aid
03 Nov 2017 at 05:08hrs | Views
Foreign aid, by design or accident, has unfortunately become the most powerful tool which certain western governments continue to use to keep Africa a begging continent.
In his book titled The Great Escape, Angus Deaton, an expert on global poverty and foreign aid and the newest winner of the Nobel Prize in economics, declares that foreign aid does more harm than good. According to him, it corrupts governments and rarely reaches the poor.
In his considered judgment, global poverty today is no longer a result of lack of resources or opportunity, but of poor institutions, poor government and toxic politics. Though billions of dollars in official aid still flow from donor governments to recipient governments, they have failed to erase poverty but have rather served commercial interests at home or bought political allies abroad.
Deaton is, of course, not the only economist to condemn the adverse impact of foreign aid to recipient countries.
Numerous theories and literature list many sources of failure of foreign aid, but most of them do agree on the fact that foreign aid results in short-term interventions which somehow lack lasting sustainable social and economic impact.
For decades, foreign aid has been used for development project support, supplementing national budgets, for debt relief, and to attain the Millennium Development Goals (MDGs) which include the provision of primary universal basic education, the eradication of poverty and hunger, the reduction of child mortality and maternal health, the combating of communicable diseases (HIV and Aids, malaria), ensuring environmental sustainability and strengthening of partnership among nations. These goals were supposed to result in sustainable development of recipient countries, however, these loans and grants have shown little if not adverse results.
According to William Easterly, a developmental economist and author of the book - The White Man's Burden - he estimated that in the last four decades, the West has poured in excess of us$2,3 trillion of aid into Africa but, to this day, poverty and underdevelopment remain a common feature in many recipient African states.
In 2014, a sensational report released and authored by 13 United Kingdom and Africa-based non-governmental organisations, which include Health Poverty Action, Jubilee Debt Campaign and World Development Movement, claimed that Western countries are using aid to Africa as a smokescreen to hide the "sustained looting" of the continent, as it loses nearly US$60 billion a year through tax evasion, climate change mitigation, and the flight of profits earned by foreign multi-national companies.
The report further suggests that, although sub-Saharan Africa receives US$134 billion each year in loans, foreign investment and development aid, their research suggested that US$192 billion leaves the region, leaving a US$58 billion shortfall.
In other words, more money is going out of Africa than what is coming in, leaving millions of Africans destitute and poor. Resource extraction is being done under the aid smokescreen.
The report also claimed that, while western countries send about US$30 billion in development aid to Africa every year, more than six times that amount leaves the continent, "mainly to the same countries providing that aid".
In addition to the above, has been the participation of China as an alternative source of "friendly" aid to Africa. China's approach of non-interference in internal affairs of recipient countries has seen the influence of China increasing in Africa.
Although China claims to avoid imposing political views, ideals, or principles onto recipient countries - reflected in the "unconditional" nature of its support, there is incontrovertible proof that China's motives are primarily resource extraction, and that China is using unconditional aid in exchange for favourable access.
In addition, China is also often accused of providing "rogue aid" by entering into donor relationships with states with records of significant human rights abuse.
From all the existing evidence, it is clear that Africa is definitely not the ultimate beneficiary of foreign aid. A paradigm shift needs to be drawn for the scope of foreign aid in developing countries to yield fruitful results and the two key issues which need attention include;
l Eradicating the aid dependency syndrome - There is dire need for aid recipient countries to assert their responsibility to development and to be less reliant on aid. This requires not only a change of attitude, but the building of institutional framework in aid recipient countries which fosters savings culture, leadership accountability, rule of law and the proper management and allocation of resources.
l Better economic development policies - It is clear that in the presence of poor policies, aid has no positive effect on growth whatsoever. The continued imposition of policies which are donor-driven and may not necessarily address the key social and grass roots issues remain a hindrance to effective use of aid to foster sustainable economic and social development that is internally driven by donor recipient countries. Aid which does not improve the living standards of the poor rural zones, empower the lives of marginalised citizens, and not lead to inclusive macro-economic development should not be entertained nor accepted.
In her book titled Dead Aid, development economist Dambisa Moyo clearly articulates what needs to change when it comes to foreign aid. In her own words, she says "It's time to stop pretending that the aid-based development model currently in place will generate sustained economic growth in the world's poorest countries. It will not."
According to Moyo, the net result of aid-dependency is that instead of having a functioning Africa, managed by Africans for Africans, what is left is one where outsiders attempt to map its destiny and call the shots.
She encourages developing countries to rather deliberately create new economic plans that rely less on aid and more on trade and investment from private capital markets.
Another critical issue raised by Moyo in her book is the effect of aid on local capital markets and the business sector in recipient countries. According to her analysis, foreign aid props up corrupt governments - providing them with freely usable cash.
These corrupt governments interfere with the rule of law, the establishment of transparent civil institutions and the protection of civil liberties, making both domestic and foreign investment in poor countries unattractive.
Greater opacity and fewer investments reduce economic growth, which leads to fewer job opportunities and increasing poverty levels. In response to growing poverty, donors give more aid, which continues the downward spiral of poverty. This is the vicious cycle of aid.
"The cycle chokes off desperately needed investment, instils a culture of dependency, and facilitates rampant and systematic corruption, all with deleterious consequences for growth. The cycle that, in fact, perpetuates underdevelopment, and guarantees economic failure in the poorest aid-dependent countries," she writes.
There is also overwhelming evidence that when foreign aid programmes lack accountability and checks and balances, they tend to act as substitutes for tax revenues.
The tax receipts then become a source of corruption and abuse and are diverted to unproductive and often wasteful purposes rather than to productive public sectors such as health, education and infrastructure development.
It has also been noted that in countries which have seen high levels of aid, governments have tended to be less interested in fostering entrepreneurs and the development of a strong middle class than in furthering their own financial interests.
Without a strong economic voice a middle class is powerless to take its government to task. With easy access to cash from foreign aid, a government remains all-powerful, accountable only to its aid donors and not to its citizens. Inhibited in its growth, the middle class never reaches that critical mass that historically has proven essential for a country's economic and political success. Instead of growing a strong vibrant middle class to fuel economic growth alleviating poverty, aid kills growth while inadvertently increasing poverty.
The obvious conclusions from all of the issues raised above is that aid does not help the poor, it actually empowers and entrenches their rulers and an elite who soon pursue own political interests and not national interest. It can therefore increase oppression, stifle the growth of a strong middle class and further marginalise the poor who are the intended ultimate beneficiaries.
Secondly, aid is not a critical requisite for sustainable development because it can distort local markets. It tends to create a false sense of security for governments, lead to abuse of tax revenues and increase corruption which result in serious policy inefficiencies which stifle economic growth. It tends to have a short term impact and may offer temporary relief but does not foster the creation of sustainable incomes in the long term, especially for the marginalised poor.
Foreign aid has therefore not achieved its intended objectives and this requires a totally new and informed approach if Africa is to rise through its own initiative and steam.
Musewe is an economist and political analyst based in Harare Zimbabwe. These New Perspectives column is coordinated by Lovemore Kadenge, president of the Zimbabwe Economics Society (ZES cell +263 772 382 852 and email kadenge.zes@gmail.com
In his book titled The Great Escape, Angus Deaton, an expert on global poverty and foreign aid and the newest winner of the Nobel Prize in economics, declares that foreign aid does more harm than good. According to him, it corrupts governments and rarely reaches the poor.
In his considered judgment, global poverty today is no longer a result of lack of resources or opportunity, but of poor institutions, poor government and toxic politics. Though billions of dollars in official aid still flow from donor governments to recipient governments, they have failed to erase poverty but have rather served commercial interests at home or bought political allies abroad.
Deaton is, of course, not the only economist to condemn the adverse impact of foreign aid to recipient countries.
Numerous theories and literature list many sources of failure of foreign aid, but most of them do agree on the fact that foreign aid results in short-term interventions which somehow lack lasting sustainable social and economic impact.
For decades, foreign aid has been used for development project support, supplementing national budgets, for debt relief, and to attain the Millennium Development Goals (MDGs) which include the provision of primary universal basic education, the eradication of poverty and hunger, the reduction of child mortality and maternal health, the combating of communicable diseases (HIV and Aids, malaria), ensuring environmental sustainability and strengthening of partnership among nations. These goals were supposed to result in sustainable development of recipient countries, however, these loans and grants have shown little if not adverse results.
According to William Easterly, a developmental economist and author of the book - The White Man's Burden - he estimated that in the last four decades, the West has poured in excess of us$2,3 trillion of aid into Africa but, to this day, poverty and underdevelopment remain a common feature in many recipient African states.
In 2014, a sensational report released and authored by 13 United Kingdom and Africa-based non-governmental organisations, which include Health Poverty Action, Jubilee Debt Campaign and World Development Movement, claimed that Western countries are using aid to Africa as a smokescreen to hide the "sustained looting" of the continent, as it loses nearly US$60 billion a year through tax evasion, climate change mitigation, and the flight of profits earned by foreign multi-national companies.
The report further suggests that, although sub-Saharan Africa receives US$134 billion each year in loans, foreign investment and development aid, their research suggested that US$192 billion leaves the region, leaving a US$58 billion shortfall.
In other words, more money is going out of Africa than what is coming in, leaving millions of Africans destitute and poor. Resource extraction is being done under the aid smokescreen.
The report also claimed that, while western countries send about US$30 billion in development aid to Africa every year, more than six times that amount leaves the continent, "mainly to the same countries providing that aid".
In addition to the above, has been the participation of China as an alternative source of "friendly" aid to Africa. China's approach of non-interference in internal affairs of recipient countries has seen the influence of China increasing in Africa.
Although China claims to avoid imposing political views, ideals, or principles onto recipient countries - reflected in the "unconditional" nature of its support, there is incontrovertible proof that China's motives are primarily resource extraction, and that China is using unconditional aid in exchange for favourable access.
In addition, China is also often accused of providing "rogue aid" by entering into donor relationships with states with records of significant human rights abuse.
From all the existing evidence, it is clear that Africa is definitely not the ultimate beneficiary of foreign aid. A paradigm shift needs to be drawn for the scope of foreign aid in developing countries to yield fruitful results and the two key issues which need attention include;
l Eradicating the aid dependency syndrome - There is dire need for aid recipient countries to assert their responsibility to development and to be less reliant on aid. This requires not only a change of attitude, but the building of institutional framework in aid recipient countries which fosters savings culture, leadership accountability, rule of law and the proper management and allocation of resources.
l Better economic development policies - It is clear that in the presence of poor policies, aid has no positive effect on growth whatsoever. The continued imposition of policies which are donor-driven and may not necessarily address the key social and grass roots issues remain a hindrance to effective use of aid to foster sustainable economic and social development that is internally driven by donor recipient countries. Aid which does not improve the living standards of the poor rural zones, empower the lives of marginalised citizens, and not lead to inclusive macro-economic development should not be entertained nor accepted.
In her book titled Dead Aid, development economist Dambisa Moyo clearly articulates what needs to change when it comes to foreign aid. In her own words, she says "It's time to stop pretending that the aid-based development model currently in place will generate sustained economic growth in the world's poorest countries. It will not."
According to Moyo, the net result of aid-dependency is that instead of having a functioning Africa, managed by Africans for Africans, what is left is one where outsiders attempt to map its destiny and call the shots.
She encourages developing countries to rather deliberately create new economic plans that rely less on aid and more on trade and investment from private capital markets.
Another critical issue raised by Moyo in her book is the effect of aid on local capital markets and the business sector in recipient countries. According to her analysis, foreign aid props up corrupt governments - providing them with freely usable cash.
These corrupt governments interfere with the rule of law, the establishment of transparent civil institutions and the protection of civil liberties, making both domestic and foreign investment in poor countries unattractive.
Greater opacity and fewer investments reduce economic growth, which leads to fewer job opportunities and increasing poverty levels. In response to growing poverty, donors give more aid, which continues the downward spiral of poverty. This is the vicious cycle of aid.
"The cycle chokes off desperately needed investment, instils a culture of dependency, and facilitates rampant and systematic corruption, all with deleterious consequences for growth. The cycle that, in fact, perpetuates underdevelopment, and guarantees economic failure in the poorest aid-dependent countries," she writes.
There is also overwhelming evidence that when foreign aid programmes lack accountability and checks and balances, they tend to act as substitutes for tax revenues.
The tax receipts then become a source of corruption and abuse and are diverted to unproductive and often wasteful purposes rather than to productive public sectors such as health, education and infrastructure development.
It has also been noted that in countries which have seen high levels of aid, governments have tended to be less interested in fostering entrepreneurs and the development of a strong middle class than in furthering their own financial interests.
Without a strong economic voice a middle class is powerless to take its government to task. With easy access to cash from foreign aid, a government remains all-powerful, accountable only to its aid donors and not to its citizens. Inhibited in its growth, the middle class never reaches that critical mass that historically has proven essential for a country's economic and political success. Instead of growing a strong vibrant middle class to fuel economic growth alleviating poverty, aid kills growth while inadvertently increasing poverty.
The obvious conclusions from all of the issues raised above is that aid does not help the poor, it actually empowers and entrenches their rulers and an elite who soon pursue own political interests and not national interest. It can therefore increase oppression, stifle the growth of a strong middle class and further marginalise the poor who are the intended ultimate beneficiaries.
Secondly, aid is not a critical requisite for sustainable development because it can distort local markets. It tends to create a false sense of security for governments, lead to abuse of tax revenues and increase corruption which result in serious policy inefficiencies which stifle economic growth. It tends to have a short term impact and may offer temporary relief but does not foster the creation of sustainable incomes in the long term, especially for the marginalised poor.
Foreign aid has therefore not achieved its intended objectives and this requires a totally new and informed approach if Africa is to rise through its own initiative and steam.
Musewe is an economist and political analyst based in Harare Zimbabwe. These New Perspectives column is coordinated by Lovemore Kadenge, president of the Zimbabwe Economics Society (ZES cell +263 772 382 852 and email kadenge.zes@gmail.com
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