display | more...

 

Foreign Aid:  The Wrong Road to Take?

 

“If you want to kill a proud man, feed his every need and you will make him a slave.”

Guelwaar, Ousmane Sembene
 

“…I’ve never seen a country develop itself through aid or credit… Countries that have developed – in Europe, America, Japan, Asian countries like Taiwan, Korea, and Singapore – have all believed in free markets. There is no mystery there. Africa took the wrong road after independence.”

Senegalese President Abdoulaye Wade

  

Foreign aid has traditionally been seen as something temporary that can only complement existing national resources and efforts of a struggling nation. But after over forty years of existence, it seems more and more like aid has acquired something of a permanent nature. In many African countries, it has even become a considerable force in the national economy, making those countries more or less completely dependent on foreign aid. Although its major objective has been and continues to be the fighting of poverty by supporting economic growth and development in the world’s least-developed countries, few are the leaders like filmmaker Sembene and President Wade, African and otherwise, who have realized that aid alone cannot ensure economic growth, and that this dependence on outside sources of revenue can be only detrimental to the goal of long term sustainable development. Yet, in recent years, studies have begun to show that there is little positive connection between foreign aid, and growth and development. The African region continues to fall behind the rest of the world by virtually any measure despite prolonged aid efforts, but to what extent are foreign aid and investment the source of this demise? Despite the growing worldwide disillusionment with the performance of aid, rather than trying to show that foreign aid is the source of this general economic demise or to analyze the extent to which aid works (which would be impossible when we cannot know how events would have unfolded had aid not been provided), I will only seek to point out the key deficiencies in the way aid is provided and implemented, and to offer recommendations as to how aid can be made more effective, based on the leading studies in this area.

Impact of Aid

Africa’s need for aid remains high, given the continent’s prevailing levels of poverty and inability to attract private foreign capital. However, several events and changes have taken place in the post Cold War world economy that have raised questions of motive and justification for aid in Africa. First are the security motives for aid (by the competing United States and Russia) that have largely disappeared with the end of the Cold War. Second, as a result of the dissolution of the Soviet Union, its controlled economy, and its influence in Eastern Europe, the competition for available resources has increased among the world’s developing economies. Third, Western European donor countries have ran into economic difficulties as well, and have been concentrating their funding on combating their own budget deficits. Finally, continuing economic growth in the donor countries has sparked a new preference for market forces over state-led growth. In Africa, this has translated into donors who are more concerned with policies for achieving growth, rather than maintaining high levels of aid flows, and who do not necessarily equate the two. Although these budgetary trends and general disillusionment account for most of the decline in aid in recent years (about 6% per year from 1995-1999), there has also been identified a discrepancy between the amount of aid promised by donors and the amount of aid actually disbursed.  The OECD shows that promises of aid actually increased between 1997 and 1999, but disbursement of funds remained the same, and attributes this to a lack of administrative capacity of the governments.

This is not to undermine the impact of past aid on the continent. Historically, individual donor efforts from governments and NGOs have helped to construct infrastructure, systems of health and education, and new agricultural technologies. Indicators of human welfare, such as the infant mortality rate and the literacy rate, have shown improvement across Africa. At the same time, donor efforts have not succeeded in fostering economic growth and poverty alleviation in most African countries and from 1980 to 1993, Africa’s rate of economic growth as a whole was negative. In addition, aid has had a disappointing record of promoting institution building, such as a primary health system, that is not highly dependant on resources outside the immediate donor and which does not foster any appropriation of these institutions by national or local governments.

There are, of course, other factors to be considered in the big picture of African development. Changes in terms of trade and the international environment help explain the downward trends in specific periods and countries. For example, fluctuating gas prices and the economic crises of the 1970s in the oil-exporting nations might have reversed previous aid achievements, and the economic specialization of Burkina Faso, Chad, Ethiopia, Mali, and Uganda between 1950-1999 caused a drop in their share of total world exports and their annual growth. However, Africa’s marginal involvement in globalization means that its economy is less affected by events in the rest of the world; for example, the trade slowdown following September 11 is not expected to greatly change overall performance, except indirectly through a further reduction in aid by the donor countries. Furthermore, one must not underestimate the economic influence of the individual governments’ economic policies, political instability and civil conflict, the endowment of physical and human resources, and political systems. When taken together, these factors suggest that aid has not directly led to sustained economic growth in most African countries, and that only reform of aid policies coupled with long-term domestic growth policies can reverse these trends.

Deficiencies of Aid

As a leading scholar on the subject, Nicolas van de Walle has identified three critical deficiencies that help explain the lack of performance of aid in Africa. First, is a lack of recipient “ownership” of development projects and programs. Donors dominate the aid process, paying inadequate attention to the government’s preferences for how to use and distribute the aid, and the governments, being weak and “cash-strapped,” tend to defer to donor expertise. Thus, even projects identified by the donor as being good and effective often fail because of a lack of appropriation and integration on the part of the local governments who subsequently view them as donor responsibility.

Second is the poor management and coordination of aid from an ever-increasing number of donor agencies. Recipient governments often end up exhausting their limited managerial capacities to track these projects and integrate them into their own development strategies. Although individual donors have attempted at times to establish mechanisms to facilitate this coordination, this is another example of a project that must be undertaken by the local governments that would be best placed to integrate the efforts of the numerous donors into a national development strategy, rather than unconditionally and indiscriminately accepting any form of aid.

Third, the achievements of aid-funded projects are often undermined when donor funds end, because of an inability to cover recurrent costs. This is yet another illustration of a management problem on the part of the governments, who do not keep track of the incoming aid from donor agencies themselves, and thus often fail to plan for the withdrawal of aid. Finally, because of this resulting proliferation of stand-alone projects that bypass local institutions, aid too rarely contributes to more permanent institution building.

The Example of Senegal

These three points overlap in many respects and are best illustrated by a case study of a number of government and NGO projects undertaken in Senegal. Historically, Senegal, on the Westernmost point in Africa, has been one of the most assisted countries in the world. Indeed, it has, at one time or another, managed to be on almost every donor’s top recipient list, even though this special status has began to erode in the past decade (aid levels falling 22% from the high reached in 1990). Nevertheless, despite these extraordinarily high levels of ODA (Official Development Assistance) and the fact that it is politically one of the most stable countries in Africa with a form of multiparty democracy since the mid-1970s, Senegal’s economic performance has been largely disappointing. Its GDP per capita has hardly grown in real terms since independence, fluctuating between 400 and 600 USD over the course of the last decade (consistently about 200 USD under the average for Africa as a whole). The proportionately high amount of aid does not account for the drop in GDP (the devaluation of the CFA franc in 1994 is to blame for that); rather, it shows that a high amount of aid does not necessarily imply an economic improvement. It is necessary to further analyze the breakdown, management, and coordination of the aid.

The most important donor to Senegal is France by a wide margin, but Japan, the European Union, and the World Bank also constitute a large percentage of aid. The sectional breakdown of this aid has remained much the same since the 1980s, with budgetary assistance and the social sectors each taking about a third of the total in 1994, followed by agriculture and the water sanitation sector. However, a breakdown of this aid to the social sector would show, for example that much of this aid has gone to tertiary education and hospital care, rather than the more directly poverty-stricken basic education and primary health care sub-sectors. This is an excellent example of stand-alone projects that bypass local institution building, and thus do not promote more permanent solutions.

Evidence suggests that Senegal’s capacity to manage aid is also found to be wanting. Aid projects actually undertaken by Senegal are most often not subject to government evaluation or systematic planning, and ministers and donors use this weakness in the system to get their personal priorities and projects adopted (rather than those that the government of Senegal put forth in the development plan). On the other hand, the donors too can be accused to different degrees of passively accepting bad aid management. For example, Canadian aid policies tend to be driven from the top and, therefore, can be out of step with recipient authorities who lack ownership of the issue at hand. The partnership between donor and recipient often tends to break down during the phase following the project identification level and at the implementation phase. Illustrative of this are two Canadian projects in the forestry sector: the government-executed project to protect farmland on the northern coast was fully in line with the wishes of the people benefiting from it, while a forestry protection project, operated jointly by a government department and a Canadian firm, was seen as restricting access to an income generating resource without providing alternatives.

Finally, aid coordination in Senegal has proven to be particularly important given the especially large number of major donors operating in the country. Although duplication and overlap of projects due to poor coordination show that there is room for improvement (i.e. in the railway sector, where the use of independent aid and coordination by France, Italy, and Canada has resulted in the employment of incompatible technologies), this is one area where Senegal has found that perfect aid coordination by sector is not the most desirable thing. Having donors compete against one another has allowed the government to play off donors against one another, to have a greater variety of solutions, and to select the best project from its own perspective (and thus achieve ownership of the project). Ideally, the government would use the aid system to its advantage and would have a greater selection of available financial and human capital resources, rather than passively accepting any form of aid.

Reform of Aid Giving

Taken as a whole, we notice that the failure to integrate aid into the government’s own development management efforts is typically a root cause of many of the common problems that undermine the effectiveness of foreign aid. In order to improve the effectiveness of reform, the ability of African states to manage aid resources must also improve, and aid must be better integrated into the government’s overall development planning and budgeting. There are three main ideas for reform of aid-giving that van de Walle proposes.

Governments must first of all restore macroeconomic stability, as a prerequisite to effective aid management. As long as African governments remain in fiscal disequilibria, their governments will not be able to undertake long-term planning and institution building. Second, governments can undertake measures to increase their capacity to manage aid resources effectively. They can do this by reforming and strengthening the civil service that will manage aid and the government; by changing the relationship between donor and recipient to where the governments play a more proactive role; by implementing greater accountability and transparency to improve the performance of African public administrators and increase their level of international trust; and, finally, by instigating broader public discussion (through local press and various professional and civic associations) regarding the management, evaluation, and hidden costs of aid, in order to make them more accountable for their use of aid resources.

Third is the lessening of the managerial burden of aid on governments. This can be done by an increased coordination between recipient governments, by an expansion of program aid only upon the implementation of sound economic policies, and only then by a decreased reliance on NGOs (who may lose funding at any point) to design and implement aid projects.

Conclusion

Then is a country unable to develop through the use of foreign aid? I have tried to prove that the answer to that question is highly dependant on the country receiving the aid and the way it manages this funding. It is perhaps true that to kill a proud man, one must only feed his every need, and that Africa took the wrong road after independence in assuming this position of dependence. However, aid alone has been shown to be unable to significantly contribute to growth and development – it must be accompanied by good management techniques on the part of the governments. Furthermore, this will result in the “ownership” and appropriation of the project by the local community, and thus make it independent of uncertain individual donors, and more likely to become a permanent and self-sustainable institution. The donor countries are far from feeding Africa’s every need, and in many cases worsen and complicate the situation despite their best intentions. It is then up to the African leaders and governments to work with the aid offered to them and figure out ways of using it to their advantage. Once they have the managerial and government institutions present to sustain this system, they will not be far off from using this system to their advantage to distance themselves, and eventually become completely independent of foreign aid.


Node your research papers

Bibliography

  1. African Economic Outlook – 2001/2002. Paris: OECD, 2002. (Joint project of the African Development Bank and the Development Center of the Organization for Economic Cooperation and Development.)
  2. Carlsson, Jeker; Somolekae, Gloria; van de Walle, Nicolas, eds. Foreign Aid in Africa: Learning from country experiences. Uppsala: Nordiska Afrikainstitutet, 1997.
  3. Gordinker, Leon; Weiss, Thomas G. “Devolving Responsibilities: A Framework for Analyzing NGOs and Services.” Third World Quarterly, 1997, Vol.18, Issue 3:  443-456.
  4. Iheduru, Obioma M. “Conflicts and Convergence in African Development Thinking.” Contending Issues in African Development: Advances, Challenges, and the Future. Westport, CT: Greenport Press, 2001: 3-17.
  5. Johnston, Timothy A., and van de Walle, Nicolas. Improving Aid to Africa. Washington, D.C.: Johns Hopkins University Press, 1996.
  6. Joseph, Richard. “Smart Partnerships for African Development: A New Strategic Framework.” Special Report of the United States Institute of Peace. March 15, 2002. <http://www.usip.org.>
  7. Louvel, Roland. Quelle Afrique Pour Quelle Coopération? Mythologie de l’aide française. Paris: Editions l’Harmattan, 1994.
  8. Makhan, Vijay S. Economic Recovery in Africa: The Paradox of Financial Flows. New York: Palgrave MacMillan, 2002.
  9. “The New Partnership for Arcia’s Development (NEPAD).” October 2001, Abuja, Nigeria. <www.nepad.com >
  10. “OAU Assessement of the Implementation of the United Nations New Agenda for the Development of Africa (UN-NADAF).” 1996.
  11. Onishi, Norimitsu. “Senegalese Loner Works to Build Africa, His Way,” New York Times, April 10, 2002: A3.
  12. Postel, Danny. “Out of Africa.” The Chronicle of Higher Education, March 28, 2003. <http://chronicle.com/weekly/v49/i29/29a01601.htm >
  13. “Relaunching Africa’s Economic and Social Development: The Cairo Agenda for Action.” Adopted by the Thirty-First Ordinary Session of the Assembly of Heads of State and Government of the Organization of African Unity, 26-28 June, 1995. Addis Ababa, Ethiopia.
     

Log in or register to write something here or to contact authors.