The Trouble with Aid
In the economic turmoil currently affecting the industrialised world, the arguments I set out in my book, The Trouble With Aid: Why Less Could Mean More for Africa, become even more pertinent. As donor governments look for ways to cut expenditure on non-priority activities, some campaigners will shift away from a call to double aid to Africa, towards trying to ensure that aid at least does not begin to tail off. But to continue to focus our attention on aid would be to ignore the mistakes of the past, and to miss the opportunities presented by the present context.
In the book I argue that campaigning for more aid should be a low priority for those concerned about poverty reduction, human rights and democracy in Africa. The optimism that aid is making a big difference to the lives of poor Africans is not shared by most analysts on the African continent. In a literature review carried out for the Overseas Development Institute, Moses Isooba of Uganda’s Community Development Resource Network found that, ‘A majority of civil society actors in Africa see aid as a fundamental cause of Africa’s deepening poverty.’ Rather than accepting the simplistic notion that more aid equals less poverty, we need to look at the evidence. All of it. In contrast to aid optimists and aid pessimists, who selectively use evidence either to support or dismiss aid, this “aid realism” recognizes that the impacts of aid are complex.
I break down aid’s impacts into four categories. Direct impacts are the easiest to measure and are the ones we hear about most in the media – how many people have been vaccinated, how many schools have been built, and so on. These impacts are very often positive. Receiving large amounts of aid also has macroeconomic consequences because large inflows of foreign money affect prices and incentives. But the two most important impacts, and potentially the most harmful, are aid conditions and aid dependency. The new global context offers new possibilities to make progress on these two vital issues which Africa campaigners must seize before the window of opportunity closes.
The policy conditions attached to aid have arguably had greater consequences in the lives of Africans than the direct impacts of the way the money has actually been spent. Within two decades the whole economic direction of a continent has changed, largely as a consequence of aid, and while some people have gained, many more have suffered as a result. But now the credibility of donor countries to insist that recipients adopt certain economic policies has been severely undermined. The failure of these donors properly to regulate the financial markets is the main cause of the current global meltdown. Meanwhile western governments have elaborated huge spending plans not only to nationalise banks, but also to protect key industries from collapse – policy options effectively denied to African countries facing far greater crises in the last few decades, at the insistence of these same governments. One of the key calls I make in the book is that the arrogance with which a specific set of liberal economic policies are being foisted on Africa must stop, and that the coming decade must be a decade of policy freedom, in which African governments are allowed to govern as they see fit. Reduced confidence in the West’s economic model brings this objective a few steps closer – campaigners should turn up the heat.
It is generally agreed that shortcomings in the accountability and effectiveness of African governments in recent decades have been a major part of the problem of low or negative growth and insignificant poverty reduction. What is less discussed, but is becoming increasingly clear, is that dependency on aid from foreign donors has undermined the development of the basic institutions needed to govern and the vital link of accountability between state and citizen. According to Siapha Kamara of the Social Enterprise Development (SEND) Foundation of West Africa, ‘the more African governments are dependent on international aid the less ordinary citizens such as farmers, workers, teachers or nurses have a meaningful say in politics and economic policies.’1
The overhaul of the global financial system now being called for by the world’s leading governments provides a unique opportunity to undo some of the measures that until now have prevented Africa from maximising its development resources. One key aspect that is coming under increasing scrutiny is the complex global web of tax havens that serves no serious purpose for rich nations or poor, but is responsible for allowing dodgy deals, theft and crime to abound. Africa loses far more every year through capital flight to tax havens than it receives in aid. Plugging this leak, cracking down on corruption (including the demand side), and building better financial systems which, among other things, could make more credit available to small and medium sized businesses, would open the way to reducing dependence on aid. Such possibilities have also become more likely since the crisis began.
In many countries aid has done more harm than good. Rather than seek more of it, most African governments should set out plans to reduce the amount they receive over the next decade or so. Even when it is playing a positive role, which it certainly can sometimes, aid is far less important than a whole range of other measures rich governments need to take to support development in Africa. Campaigners should spend their limited time and resources on more important issues that would make a substantial and sustainable difference to Africa – I make suggestions for what these should be in my book.
African countries have reduced poverty when they have implemented the right policies, and when foreign governments have taken supportive measures. Aid has been at best marginal to this effort, and at worst has frequently undermined it. In 2009 the opportunity exists for African governments to make strides towards policy freedom and aid independence. It will not be easy, but the course should be set.
1 Kamara 2005.
I work as a financial officer in one Slovak foundation focusing on Eastern Europe and Western Balkans and we mainly provide ODA in the form of know-how transfer in the areas ofÂ institutionalÂ capacity building and development of civil society as we had recent experiences in these areas on our own. Therefore I must agree that giving money alone won’t help, it’s important to look for added valueÂ money brings.Â I would be maybe less critical towards liberalism, I think in the long run it ensures wealth creation, but it must be implemented slowly and step by step. Asian Tigers have protected their infant industries for a long time and they still do it. But it is important to understand that government meddling is many times harmful and come with a hefty price. Giving loans to cronies with unhealthy companies will result in crisis. Pouring money into economy at real negative interest rates caused this crisis in the first place, financial markets only helped to spread it.Â I agree that microcredits and new approaches like BOP are essential but the problem are not tax havens, problem is bad governance (supported by ODA which delays the acountability to citizens), bad or no education and therefore inadequate and poorly developed human capital. If it is more than twice as cheap to polish diamonds in India than in Africa then something is wrong and protectionism may delay the solution but won’t resolve it. Trade barriers imposed by rich countries and CAP are other major obstacles…
I agree that African governments need to adopt policies that favor economic independence. Aid is an evil to most of developing nations but a necessary evil. History tells us that aid has worked for development before. I believe that aid can still work but it has to be functional aid. Germany, Japan and south Korea are good examples of aid at work. I believe that its not just about aid but what kind of aid. There are also situations like that in Zimbabwe where it is apparent that if aid comes around it is prone to abuse from unrepenting greedy politicians. People have been making these tales about how different the cultural, political and economic background of Africa is, and that it is impossible to make policies that are similar to those adopted by the Western countries, that is hogwash. It is an excuseÂ toÂ mal administration.
Africa needs all the aid it can get but it only need to be fruitful in the long run. I believe that if you give a country with a huge capacity of resources the necessaryÂ capitalÂ underÂ effective administration, that country will definitely deliver.
Â I agree with you Lawrence, the major challenge that these African states have is on the leadership. That actually affects the functionality of the system of it altogether. Africa is blessed with a sound and wealthy resources base but what is lacking is the Human resource capital to bankrole all these mireds of projects that have been there simce immomeral period.
its time to rejuvinate Africa by bringing on board serious administrators who have the necessary skills to take us to cannan.
Â i want to reiliterate that, a system that does not aim at istilling good corporate govenance would not achieve abything. Adress these maladministration habits and everything would sort themselves.
What about aid in the event of national crisis? Should the world stand back and watch?