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Friday, 24 October 2014
The failure of aid in Africa PDF Print E-mail

 

By Kelechi Anyanwu

The aid architecture in Africa presents an apt sad story because the billions of various aid dollars poured into the continent have failed to make the desired impact as Africans are today even poorer and Africa less developed than it was years before

AVAILABLE records suggest that in the last five decades, African countries allegedly received close to US$1 trillion in aid from donor countries and other development agencies. But it is as if the continent has never got anything, prompting many to say that Africa would have even been better off without the aid. Those who posit that development aid has become a disincentive for economic growth readily point to Africa. 

Between 1970 and 1995, according to Fredrik Erixon, Chief Economist at Timbro, a Swedish think-tank, aid to Africa increased rapidly while aid dependency stood at nearly 20 percent in the early 1990s. Measured differently, the mean value of aid as a share of government expenditures in African countries was well above 50 percent between 1975 and 1995. And between 1975 and 1995, GDP per capita growth in Africa shrank and for many years were in negative figures. Indeed, the picture is that the more aid that are claimed to have flowed into Africa, the lower Africans' standard of living.

In a paper published by the Cato Institute entitled African Perspective on Aid: Foreign Assistance Will Not Pull Africa Out of Poverty and authored by Thompson Ayodele, Franklin Cudjoe, Temba Nolutshungu and Charle Sunawabe, the researchers note that per capita GDP of Africans living south of the Sahara declined at an average annual rate of 0.59 percent between 1975 and 2000. Over that period, per capita GDP adjusted for purchasing power parity declined from $1,770 in constant 1995 international dollars to $1,479.

For Nathan Andrews in his paper entitled Foreign Aid and Development in Africa: What the Literature Says and What the Reality is, Journal of African Studies and Development, Vol. 1, 2009, a better appreciation of the internal dynamics of the recipients of aid is more likely to ensure aid contributes to sustainable socio-economic development.

Dambisa Moyo writing in The Wall Street Journal of March 21, 2009 said "over the past 60 years at least $1 trillion of development-related aid are said to have been transferred from rich countries to Africa. Yet real per-capita income today is lower than it was in the 1970s, and more than 50% of the population — over 350 million people — live on less than a dollar a day, a figure that has nearly doubled in two decades".
Whither aid?
For critics, aid has not only helped impede economic growth in Africa, but also led to the huge debt burden many African countries are saddled with today. Moyo notes that even after the very aggressive debt-relief campaigns in the 1990s, African countries still pay close to $20 billion in debt repayments per annum, a stark reminder that debt sucks much of the aid. In order to keep the system going, debt is repaid often at the expense of education and health care. Well-meaning calls to cancel debt mean little when the cancellation is met with the fresh infusion of aid, and the vicious cycle starts up once again.

Not a few agree that aid has failed in Africa. Just as it has lost its focus, aid has become another conduit pipe to enrich technocrats in donor countries while also taking good care of the politically connected in recipient countries. This, more than anything else, seems to have been the most compelling reason to keep the cash cow alive even though there are glaring evidence that it is ineffective, opaque, fuels corruption, and has failed to deliver tangible results. Development aid as presently designed has aided political instability, putting money into the pockets of political tin gods, fuelling and oiling the corruption machines across Africa, encouraging civil wars, poor governance and a highly ineffective bureaucracy. 

Kurt Gerhardt, a former Country Director for the German Development Service (DED) in West Africa, in a report on his experiences in Africa wrote that “development aid to Africa is a blessing for all those directly involved — both on the giving end and on the receiving end. Functionaries on the donor side, at least those abroad, earn good money. Many of those on the receiving end, for their part, know how to organise things in such a way their own personal interest don’t get short shift”. 

Djankev, Montalvo and Raynal-Querol also found that foreign aid could lead politicians in power to engage in rent-seeking activities to appropriate these resources and try to exclude other groups from the political process. By doing so political institutions are damaged because they became less democratic and less representative. “Our findings support this view”, they wrote.

Highlighting the correlation between foreign aid and its negative impact on the political institutions of a country, Djankev et al wrote that the magnitudes are striking. They argue that if the average share of foreign aid over GDP in a country were 1.9 percent over the period 1960-1999, then the recipient country would have gone from the average level of democracy in recipient countries in the initial year to a total absence of democratic institutions. And since most foreign aid is not contingent on the democratic level of the recipient countries, there is no incentive for governments to keep a good level of checks and balances in place. The effect of oil in the long-run is less important: if the average amount of oil revenues over GDP is 12.2 percent over the period, then the recipient country will go from the average level of democracy in recipient countries in the initial year to a total absence of democracy.

Indeed, aid flows into Africa have left the continent worse off. Several aid-recipient countries have seen their primary sources of revenue destroyed completely, thanks to aid-induced complacency and corruption. 

James Bovard, writing on the Continued Failure of Foreign Aid, published by the Cato Institute, notes that since 1960, per capita food production in Africa has fallen 20 percent, roads and bridges are in terrible states across the continent and the people’s confidence in government has taken a dip. Moreso, Simeon Djankev, Jose Montalvo and Marta Reynal-Querol in their paper The Curse of Aid, shows the disconnect between aid and development in Africa. Many other studies have also shown a negative correlation between economic growth and natural resources, a finding often dubbed “the curse of natural resources.”

However, oil and other minerals, they opined, may not be the biggest curse in developing countries. In many of them, the amount of foreign aid is a far larger share of government revenues. In Burkina Faso, for example, aid accounted for two-thirds of the government budget and eight percent of GDP over the period 1985-89. In Mauritania, it accounted for 60% and 22%, respectively, for the period 1980-84. In Rwanda, Vanuatu, The Gambia, Niger, Tonga and Mali, foreign donors provided over a third of the government budget during some five-year period between 1960 and 1999. Several countries are chronically dependent on aid, they added.

For most African countries, aid has unfortunately become the main source of budgetary planning and allocations to the extent that if it fails to come as expected, an entire country would be thrown into fiscal confusion. In 1992 alone, aid was said to have accounted for 12.4% of gross national product (GNP), over 70% of gross domestic savings and investments in sub-Saharan Africa and over 50% of all imports. Such dependency syndrome has not only eroded the accountability of the leaders to those that elected them, rather they have become answerable to the donor countries and agencies many of whom deploy aid in a carrot and stick style to manipulate these leaders. Perhaps nothing demonstrates the dictum that “he who pays the piper, dictates the tune”, more than the aid industry in Africa.

As Nathan Andrews further highlights, under the age-old saying that “you cannot bite the fingers that fed you”, leaders of these countries are unable to speak out when fake and unwanted goods flood their markets, especially from their donor countries. Moreso, this is the reason Africa cannot as a bloc pull its strength in any international fora because they are told which line to tow and what policies to support by donors. 

The inherent flaws
From every indication it is evident that aid is not meant to help its recipients become self-reliant in any way as that will to a great extent wean them off the dependency on their benefactor nations. The available evidence tells that not a single country has been rescued from poverty by aid.

Instead it has produced a chain of countries that has become hopelessly dependent on donor countries to do even the most basic things in their country, turning Africa into a continent of beggar countries.

According to President Abdoulaye Wade of Senegal, “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.”

And because of myriads of conditionalities attached and its hand-out nature, aid as a tool of development has failed woefully in Africa. According to Prof. Paul Collier, policy conditionalities, or structural adjustments, were reservations put on aid until a government agreed to aid implemented in the 1980s. But this did not work. He says aid needs to somehow provide incentives for giving the people power. “Power needs to be transferred from the governments to the people. Aid should be restructured in order to allow for skills building in country,” Prof. Collier suggests.

The major failure of aid in Africa is thus as a result of its structure which many believe is wrongly headed thus cannot deliver. Because of the entrenched interests involved, most aid packages to Africa were not designed to achieve altruistic results. They were simply packaged carrot and stick tools basically designed to massage the political ego of donor countries with little or no regard to the needs of recipients. By failing to understand the culture of the people the aid seeks to help, no effective impacts should be expected, so says Nathan Andrews. 

The basic criticism of aid is that it neither goes where it was intended nor helps those anticipated. Prof. Collier highlights four known traps that contribute to this problem. The first such trap, he says, is the conflict trap. Aid, he advises, should not be used to finance military endeavours. It is difficult to “design aid in such a way that it works even in the environments of poor governance and poor policy that are most at risk of conflict”, he argues.

The second trap he calls the natural resource trap. Countries that are resource rich already have a large volume of capital flowing into their economies. However, it is not being used to its potential. The third trap occurs when a country is entirely landlocked. This one is not too hard to figure out – it is difficult for these countries to engage in global trade.

The fourth trap is that of bad governance. However, “there are three ways in which aid can potentially help turnarounds: incentives, skills, and reinforcement”, says Prof. Collier.

He also points out that “technical assistance is not negligible – money spent on countries with the skilled people who constitute technical assistance is a quarter of total aid flows.”The problem is not that too little money is being provided; rather that technical assistance is not country specific. Aid is also given as budget support, reinforcement for failing states. There is an opportune moment for assisting failing states but it must be done at the right time. Aid cannot be continually poured into failing states and be expected to produce a turnaround. However, if aid is given at the opportune political moment, it can support turnarounds. Prof. Collier suggests that when that moment occurs, “pour in the technical assistance as quickly as possible to help implement reform” and “then, after a few years, start pouring in the money for the government to spend”.

Jeffrey Sachs, a University of Columbia Economist, also agrees the aid architecture is flawed. According to him, if you consider the breakdown of where aid goes and for what purposes, you will understand why it has not been as effective. “In 2002, total gross foreign aid to all developing countries was $76 billion. Dollars that do not contribute to a country’s ability to support basic needs interventions are subtracted. Subtract $6 billion for debt relief grants. Subtract $11 billion, which is the amount developing countries paid to developed nations in that year in the form of loan repayments. Next, subtract the aid given to middle income countries, $16 billion,” he says.

The remainder $43 billion, he explains, is the amount that developing countries received in 2012. But only $12 billion went to low-income countries ($15 billion for all developing countries) in a form that could be deemed budget support for basic needs. 

Prof. Paul Collier in his book The Bottom Billion: Why the Poorest Countries are Failing and What can be Done About it, reveals that the World Bank, until recently, issued only loans, meaning that a country must repay both the loan and the interest rates. In contrast, the European Commission issues grants, which countries need not worry about paying back. This means that “loans have been going to the poorest countries and the grants to the middle-income countries.”

He also notes that motive is more important than delivering on aid. “There are many motives that donors have in providing aid and most of these are more political than economic. Most aid could be defined as gesture politics, designed only to go down well with the donors’ domestic population. It just has to look good; it doesn’t have to be effective,” Prof. Collier says.

What is more? It has created a bunch of very lazy countries that have lost the ability to think creatively about solutions to their development challenges. Even the relatively resource-endowed now wait for hand-outs from the West instead of innovatively searching out ways of growing revenue internally. This, more than anything else, has helped to create what many call “aid tourism”, a situation where most African leaders spend most of their times and scarce resources visiting one western capital or another begging middle-level government functionaries for funds instead of staying home to tackle their development challenges. 

Similarly, donor countries have over the years arrogated to themselves tribal knowledge of Africa, claiming to know where the shoe pinches more than wearer of the shoes. “We have taken too much responsibility for solving Africa’s problems. We have essentially educated them to, when problems arise, call for foreign aid first rather than trying to find solutions themselves,” says Gerhardt. 

According to him, this has led to a deep-rooted malaise of self-incapacitation which is one of the most regrettable results of development cooperation thus far. Add to this is the belief in the West that the solution to Africa’s problems must be concentrated in the West thus any alternative is viewed with suspicion. This led to the failure of African countries to tap into relationships with countries that could be alternative source of development aid such as China, Brazil, India and Russia early enough.

Another trend that has contributed to the failure of aid in Africa is the view prominent in the West that Africans themselves may not have an idea of what is good for them thus the need to always buy into or listen to ideas from donor countries, in spite of the ownership principle the High Level Conference on Aid and Effectiveness seeks to introduce. In reality however, ownership is still downloaded from northern based think tanks, agencies and governments principally because of capacity constraints in the recipient countries and the innate desire of those who pay the piper to dictate the tune”.

Gerhardt informs that while donor sides are not lacking in theories, clever strategies or concepts as international development agencies have cabinets bursting with them. What is lacking, according to him, is a basic understanding and clarity when applying principles. The realization that northern countries cannot develop the South — that people and societies can only do so themselves — is given plenty of lip service. In practice, however, the idea hardly plays a role at all.

Moreso, development experts sent to Africa come from societies that tend to value efficiency and speed to a greater degree than is generally found in Africa. Furthermore, foreign aid workers, as a rule, only spend a few years in a target country. Their desire to “achieve something” often leads them to do more than they should according to the subsidiarity principle. But by doing so, they inhibit Africa’s own momentum and prevent it from growing stronger and evolving internal capacity.

Many want developing countries to escape aid dependency, and most people recognize that this requires sustainable growth and jobs. Because this is such a compelling objective, the development industry has been tempted to justify aid on these grounds. But the evidence from opinion polls and focus groups suggests that the public is willing to support aid which demonstrably meets immediate human needs irrespective of whether this contributes to long-term growth. By setting excessively ambitious objectives for aid, the industry risks alienating the public from their emotional connection with what aid can achieve, and asks to be measured by standards that it is unlikely ever to be able to show that it meets.

There are many flows of finance to developing countries which will contribute to investment and growth, including direct investment, portfolio capital flows and remittances. The main drivers of growth will come from the countries themselves through private and public investment. Aid is a small proportion of the finance for developing countries. But it is a precious resource because, unlike other sources of finance, it can help meet the needs of the most marginalized communities, women and girls, and people living in long-term chronic poverty. If donors want to see aid used effectively, they should demand that it is used for these purposes for which it has a unique contribution to make. But until a year ago none of them made effort to make such demands. Just because growth is a priority does not mean it is a priority for aid.

Moyo flays the way non-Africans have hijacked the pro-aid train, raising money for Africa using negative platforms. She accuses NGOs of being more concerned with keeping their jobs than thoroughly looking into the problems militating against the aid model, which is equally highlighted by Kurt Gerhardt. 
According to him, in Germany alone, the livelihoods of up to 100,000 people are dependent on the development aid industry. One can imagine the outrage that would result should someone seek to dismantle these agencies. But that should be the raison d’etre of these agencies. After decades of providing aid, their continued existence is proof of their failure, adds Gerhardt. 

Moyo notes that “it breaks my heart that people continue to push a model of economic development that does not work and they know it does not work”. She is not alone. Fredrick Erixon, author of Aid and Development: Will it Work this Time? counsels that “sound economic policies, not aid, have lifted millions of Asians out of poverty”.

Genhardt affirms that from his experience in West Africa, it is contrary to the logic of subsidiarity to give a person something that he or she could acquire or produce on their own. Yet in the hopes of doing good, donors have done exactly that far too often in recent decades. For example, a considerable portion of Germany’s bilateral aid, amounting to more than 1.5 billion euros ($2 billion) per year, is given as grants which in effect is a gift. All of the least developed countries tend to receive foreign aid in the form of grants. Two thirds of the countries in sub-Saharan Africa belong to this category.

These perpetual gifts have turned partners into beggars, those who no longer value the things they have been given and consequently have not maintained them well. Apart from a few exceptions, emergency aid being one example, free aid was and remains fundamentally wrong.

Equally culpable critics point out, is the rush by foreign aid workers to quickly produce results, promote quantitative thinking and give short shrift to efforts aimed at helping locals learn how to develop themselves. One example of this erroneous notion is the goal among donor companies, adopted 40 years ago, to donate 0.7 percent of GDP in the form of development aid. It makes no sense to establish amounts before discussing the projects that should be funded with that money. The worst thing about this discussion is that, once again, it is purely quantitative. It feeds the disastrous attitude that more money necessarily means more development. In this way, lessons learned over the past decades are completely ignored.

Aid has not had an appreciable impact on poverty reduction in Africa. Generally, the growth elasticity of poverty is less than unity. A possible reason for this outcome is persistent inequality in the distribution of assets, political influence, or skills, which singly or in tandem can thwart growth from alleviating poverty appreciably. Aid expenditures tend to benefit the non-poor and the urban population disproportionately. The inability or unwillingness of governments to provide universal access to essential public services prevents the poor from taking full advantage of opportunities provided by aid-related economic activity. Maximal poverty reduction inevitably requires active involvement by donors and governments alike to directly target the poor (Bourguignon and da Silva, 2001; Brautigam and Knack, 2004; Hansen and Tarp, 2000).

Another strident voice in the emerging anti-aid campaign ranks is Bill Easterly, who argues that the present model is ineffective because donor countries have failed and continue to fail, by enacting its ill-informed, Utopian aid plans in the same way the colonialists of old assumed it knows what was best for everyone. Easterly, a former research economist at the World Bank and economics professor at New York University, is the author of The White Man’s Burden, a book that questions the continued support for current flawed aid architecture.

He contends that existing aid strategies provide neither accountability nor feedback. Without accountability, broken economic systems are never fixed, and without feedback from the poor who need the aid, no one in charge really understands exactly what trouble spots need fixing, he argues. Propounding what few in the donor community seem oblivious of, Easterly is of the opinion that true victories against poverty are most often achieved through indigenous, ground-level planning. Gerhardt agrees. According to him, only endogenous development — what people and societies achieve themselves with the power of their own minds and hands — can reverse poverty. Development cannot be imposed from outside, he affirms. 

Easterly is also of the view that the high transaction cost of delivering aid and the uncertainties surrounding the net impact of aid on the poor, even when properly delivered, have triggered calls for humility. One approach pleads for modest expectations and advocates aid projects for poor people which focus on tangible improvements in their daily lives.

Prof. Peter Bauer, an Economist at the London School of Economics, coined the term government-to-government transfers. The first recipient of the Milton Friedman Prize for Advancing Liberty, Prof. Bauer warns that grants, systemic government aid programmes, will do the exact opposite of its intent. And that was almost half a century ago. This line of thinking is supported by the claim that for example, when development aid brings water pipes and roads to Africa, it stimulates and strengthens local efforts. But perhaps the opposite is true, because it tends to make African leaders complacent, sitting back to become spectators in their own show in the development process.

But what is to be done? Dambisa Moyo, whose fiery book Dead Aid has drawn more than its fair share of criticism especially from the aid agencies and some pro-aid apostles like Jeffrey Sachs, Bono and the World Bank, contends that Africa should of necessity wean itself off aid dependence. Aid dependence, she says, stalls development. According to her, no country on earth has ever achieved long-term growth and reduced poverty in a meaningful way by relying on aid.

Moyo is of the view that aid is not working in Africa mainly because the governments are not incentivised to do what governments all around the world are expected to do, that is, deliver public goods, education, healthcare, infrastructure and security. Moreso, free money fuels corruption while making the leaders lazy just as the aid architecture rests on a shaky foundation, structured as a handout.

Pouring further billions into funds for the climate, AIDS and other issues may, in fact, be necessary. But it has nothing to do with development aid. These payments will not cause political leaders in the Sahel countries, for example, to make more of an effort to combat soil erosion on their own. These countries could long ago have begun doing something on this issue — they could even have used their masses of unemployed youth for the job. But so far, in cases where something has been done, it generally was the product of foreign initiative and not endogenous.

Says Gerhardt: “Our development aid has not lent enough support to the efforts of people in Africa themselves. Often it has even been an impediment, because our aid was focused too much on the object and too little on the subject. Too often the project or program, not the people, was the focus. The aid passed the people by. The result has placed Africa in an undignified position — and no amount of money from the enormous, globally organized network of aid organizations will free them. Only Africans themselves can accomplish that”.

While aid may continue to be used as a poverty-reduction strategy, recent calls for its scrapping or review is forcing donor and recipients alike to device new methods of ensuring that it does its work: help poor countries to attain self-sufficiency in the long run.

Moreso, with the changing global economic landscape which has brought new donors like China with a brand new style of development aid on the scene, there is the belief that efforts to make aid work will bear more productive fruits.

However, the case of trade as a driver of economic growth has been proven to be a more effective tool for economic development than handouts.

Dr Donald Kaberuka, President of the African Development Bank (AfDB), believes improved trade opportunities for Africa in the face of dwindling ODA, will do Africa much good. According to him, “rich countries would not have to give us aid; trade would create wealth.”

To this end, he urges rich countries to up free trade agreements with Africa. This comes on the heels of the recent call by British Prime Minister David Cameron for an African free trade zone to boost gross domestic product across the continent by $60 billion a year — $20 million more than the world presently gives Africa in aid.

For Mr Jean-Louis Ekra, President of the African Export-Import Bank (AFREXIMBANK), “trade is a powerful engine for economic growth and development. It has been clearly illustrated in South-East Asia and Europe in the early part of the 20th century. I believe that if we were to explore the avenue of trade, it will help our continent go a long way in its development path”.

 

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