11 October, 2012
Over the past 50 years, Sub Saharan Africa has received over "500 billion Dollars in foreign aid" from the Organization for Economic Cooperation and Development member countries (OECD), Arab countries, China, the Breton Wood's institutions (the International Monetary Fund and the World Bank). Yet, the region continues to struggle in a vast ocean of extreme poverty with its concatenation of great despair (high rate of unemployment, high rate of illiteracy, high infant mortality, and poor nutrition, poor healthcare system, poor infrastructure, the list is far from being exhaustive. This heartbreaking paradox brings us to ponder: why foreign aid fails to promote economic growth and development in Sub-Saharan Africa; why it has not been able to move Sub-Saharan Africa from subsistence and survival to a higher living standard. I will attempt to bring light to this question by mainly focusing on both, the exogenous and endogenous causes which have greatly contributed to the tragic failure of foreign aid for development in Sub-Saharan Africa. What could be done to improve foreign aid and make it more effective in the fight against poverty in Sub-Saharan Africa? A brief historical overview of foreign assistance will deepen our understanding of the underlying rationale behind foreign aid in Sub-Saharan Africa.
was in 1947 when European countries, the great majority of which were wracked by
World War II that the United States, under Secretary of State George Marshall,
designed a program that aimed to provide economic assistance to European
countries. The plan provided more than 13 billion dollars for the purpose of
reviving European economies and stabilizing their political structures. George
Marshall called on the Soviet Union to participate in the efforts to rebuild
the European economies which were greatly devastated by the war. He argued that
“our policy is directed not against any country or doctrine, but against
hunger, poverty, desperation, and chaos.” But that call was systematically rejected by
the Soviet Union which was suspicious that the American strategy was a
conspiracy to stop the expansion of Soviet control of the Eastern European
region. The Marshal Plan also known as the
European Recovery Program (ERP) recorded an historical success by reviving the
devastated European economies and raising the Western European GNP by 25%.
Despite this great success, one might ask the following question: what drove policy
makers to design foreign policies? This question takes us to the heart of the realist
view of national security. Rationalists would argue that states, as the primary
unit of analysis, act on the basis of self-interest, and, due to an anarchical
state in the realm of international politics, nations seek to maximize their
power in order to attain their national security and promote their values and
economic welfare. In light of this brief overview, it is apparent that the Marshall
plan was clearly consistent with the realist approach. The plan was designed to
overcome the Soviet Union's threat of the spread of Communism in Eastern Europe
and beyond; it was thus, a policy consisting of containing Communism by
preventing its progression in Western Europe and in the rest of the world. It
was also engineered to boost the American economy because the recipient
countries were bound to purchase their goods and services in the United States.
In either case, aid was designed to promote the donor’s national
interests. The American economic aid program
was extended to Africa and many underdeveloped countries by President Truman
and later by President Kennedy. President Truman announced in his inaugural
speech that "We must embark on
a bold new program for making the benefits of our scientific advances and
industrial progress available for the improvement and growth of underdeveloped
areas. More than half the people of the world are living in conditions
approaching misery. Their food is inadequate. They are victims of disease. Their
economic life is primitive and stagnant. Their poverty is a handicap and a
threat both to them and to more prosperous areas."
If the large commitment of resources to rebuild the devastated European economies has been successful, such has not been, however, the case for Sub-Saharan Africa. Thompson Ayodole, executive director of the Initiative for Public Policy Analysis argued that "Helping Africa is a noble cause, but the campaign has become a theater of the absurd, the blind leading the clueless. The record of Western aid to Africa is one of abysmal failure. More than 500 billion dollars in foreign aid – the equivalent of four Marshall Aid plans – was pumped into Africa between 1960 and 1997. Instead of increasing development, aid has created dependence." This argument implicitly points the finger at both, the blind and the clueless, representing respectively the donors and the recipients of aid, as having shared responsibility in the failure of foreign aid to promote development and growth in Africa.
But let me first focus on the donors' share of responsibility. European experts on the subject of Africa and development have not hesitated to point the finger at foreign assistance as being one of the main causes of African under-development. African scholars, by the same token, have questioned Western generosity toward African development. Both Europeans and Africans came to the conclusion that foreign aid has created a vicious cycle of dependence. According to Deborah Brautigam, “Aid dependence can be defined as a situation in which a country cannot perform many of the core functions of government, such as operations and maintenance, or the delivery of basic public services, without foreign aid funding and expertise.” The inflow of a large amount of aid in the long run forces African states to rely heavily on foreign assistance to support their budgets. This situation encourages reckless fiscal behavior on behalf of African heads of states and loose fiscal policies that engender what economists have coined as "soft budget constraints" (SBC). Soft budget constraint syndrome occurs whenever an organization spends more than its revenues and relies on external subsidies to offset its expenditures and balance its budget. These bailouts allow failed states to continue the same practices that cause them to fail in the first place. And the constant repetition of the same mistakes causes us to ponder to what extent the West understands the dynamic complexities of the African reality.
When Easterly talks about “The arrogance of the West in the face of a very imperfect knowledge”, Robert Kaplan’s narrative comes to mind. Kaplan's observation while travelling in Africa shows that Western views about Africa, far from being flawless, are full of bias. His lack of understanding of the African cosmos, deeply rooted in the African reality brings him to make over-exaggerated and occasionally over-simplified remarks about West Africa. He states that “Crime is what makes West Africa a natural point of departure for my report on what the political character of our planet is likely to be in the twenty-first century….The cities of West Africa at night are some of the unsafest places in the world.” This particular observation is shockingly erroneous when considering the 2006 World Crime Statistics in which no single African nation is listed in the top 37 worst countries. Further, in his description Kaplan says “In the village of Africa it is perfectly natural to feed at any table and lodge in any hut. But in the cities this communal existence no longer holds. You must pay for lodging and be invited for food.” Western scholars like Kaplan, combined with policy makers, are sometimes misled by their European cultural backgrounds and preconceived generalizations about Africa. Their lens of focus is sometimes too narrowed to see the underlying roots of African issues and how to administer the appropriate remedies to alleviate those issues. Dr. William Easterly makes a very sound remark showing how the Western therapy of aid has failed to uplift Africa and how the West keeps administering the same medicine over decades without learning from their past failings. He argues that “the response of the West to Africa’s tragedy has been constant throughout the years, from economist Walt Rostow and John F. Kennedy in 1960 to economist Jeffrey Sachs and Tony Blair in 2005: give more aid. Walt Rostow, motivated by acceleration of the Cold War, called for doubling foreign aid in 1960; World Bank President, McNamara called for doubling of aid in 1973: the World Bank again called for doubling of aid with the end of the Cold War in 1990. World Bank President Wolfensohn called for doubling aid with the beginning of the terrorist wars in 2001. As just noted, G-8 Summit in July 2005 agreed to double aid to Africa. Aid to Africa did rise steadily throughout this period (tripling as a percent of African GDP from the 1970s to 1990s), but African growth remained stuck at zero percent per capita.” As we can see, the result does not match all the efforts deployed by the West to overcome poverty in Sub-Saharan Africa. Easterly concludes by stating that “this review of the literature does not give a lot of grounds for hope that the West can save Africa. Either the various views of the roots of poverty in Africa were too simplistic, or the attempts to change these root causes underestimated the difficulty of doing so from the outside, or both.”
It has been noted that aid is more strategically designed to meet the donors' economic and political goals because of the donor's conditionality. There is a correlation linking foreign assistance and recipient countries 'export. The argument behind this correlation shows that aid is used to give an edge to donor countries that ship their goods to aid recipient countries. This form of aid is known as "tied aid." Tied aid consists of attaching strings to the financial assistance package for the benefit of the aid provider who requires the aid beneficiary to buy noncompetitive goods from the donor country. This practice helps boost the donors' exports and makes aid more costly for the recipients. The value of the aid is substantially reduced;
subsequently, the donors' conditionality becomes
detrimental to the recipient countries' ability to formulate adequately their own
Donors' economic policies do not encourage fair exchange between poor African countries and their European partners; they enact protective measures for certain goods in order to protect their domestic industries. Paradoxically, the policies they recommend to less developed countries are in so many ways inconsistent with development. For example, the ill-framed structural adjustment policies of the IFM and the World Bank set as remedies to stabilize the Sub-Saharan African economy have had devastating socio-economic and environmental effects in Sub-Saharan Africa. Due to the economic turmoil they have been facing, accompanied by a severe drought affecting agricultural activities as the main economic activity, African developing countries have experienced enormous difficulties for the repayment of their debts. The IMF and the World Bank, as their principal lenders have implemented a set of policies directing these countries to liberalize their economies, balance their budgets by undergoing cuts in unproductive sectors and maximize their exports to reduce their deficits. These policies, once implemented, according to the Breton Woods institutions, would help highly indebted countries be able to repay their debts and stabilize their economies. This leads Stewart Frances to state that "The stabilization and adjustment policies they designed were intended to reduce the twin imbalances of external and domestic accounts, and correct policy biases against trade and market forces, in order to establish the basis for sustainable growth. The adjustment programs were adopted with more or less effective implementation in many countries almost continuously throughout the 1980s, dominating policy making and displacing most long run development policies. Because of the pervasiveness, dominance and prolonged nature of the stabilization and adjustment policies, they had wide-ranging medium term consequences not only for the macro economy but also for incomes of the poor and for the social sectors." The structural adjustment program (SAP) was intended to relieve debt and induce growth as to stabilize the Sub Saharan economies. Instead it has greatly contributed to the suffering of “thirty six” nations in Sub-Saharan Africa and to unprecedented environmental degradation. Sustainable development in the social, economic and environmental areas was the poor godfather of structural adjustment. Budget cuts and privatization negatively affected all sectors.
Todd Moss talks about the costs of aid highly "related to the structure, practices and procedure of the current international system… such aid practices are believed to have substantial costs for public administration." According to Moss, many of the problems encountered with aid may be attributed to the structures of aid, making financial assistance very costly to the recipient countries. The resources and energy of government officials are diverted from real development projects towards the profit of donors' agendas and activities.
The structure of aid itself lacks efficiency. Instead of focusing on narrow solvable problems such as clean water supply, donors orient their efforts toward big projects which often do not meet the urgent needs of the African people. Furthermore, there are coordination issues at many levels such as program implementations, policy making, and fund disbursement.
Last, but not least, aid undermines the capacity of Sub-Saharan African governments to engage in serious state-building enterprises. Revenue collection is a key indicator of government capacity. The ability of the government to raise taxes is a very determinant factor in democratic institutions. Todd Moss argues that foreign aid cripples state capacity to collect revenues because it makes recipient countries highly dependent on foreign assistance as a means of subsistence. Tax collection is weak because foreign aid reduces tax burden.
Another detrimental effect of
foreign aid can be seen in the relation between aid and savings. Proponents of
foreign assistance have argued that financial assistance to poor countries has
a positive effect in saving and investment because it raises the level of
income. A substantial influx of aid, to the contrary of all evidence,
substantially decreases savings. By making additional resources available,
foreign aid encourages greater spending. Rather than supplementing domestic
saving, it simply replaces it. Dambisa Moyo states for this reason that “As
foreign aid comes in, domestic savings decline; that is, investment falls. This
is not to give the impression that a whole population is awash with aid money,
as it only reaches relatively few, very select hands. With all the tempting aid
monies can offer, which are notorious fungible, the few spend it on consumer
goods, instead of saving the cash. As savings decline, local banks have less
money to lend for domestic investment. Economic studies confirm this
hypothesis, finding that increases in foreign aid are correlated with declining
domestic savings rates.”
My analysis of the failure of aid to promote sustainable development in Sub-Saharan Africa would be partial and not fully objective if we count donor countries as the only contributing factor toward that failure. Recipient countries, overwhelmingly, carry a fair share of the burden.
Peace and development go hand in hand. Stability is a sine qua non condition for development and long-lasting prosperity. Unfortunately the continent of Africa, from Cairo to the Cape, has witnessed all types of conflicts. The colonial legacy, the Cold War and politics of repressive regimes in Africa have shaped and greatly contributed to the major conflicts in the region. The absence of peace in Sub-Saharan Africa has long undermined foreign assistance efforts to alleviate poverty and establish sustainable development. When speaking about “Development and Conflicts”, Paul Collier states “The relationship between civil war and failures in development is strong and goes in both directions: civil war powerfully retards development; and equally, failures in development substantially increase proneness to civil war. My message is in part a warning: unless the incidence of civil war is sharply reduced by international efforts a substantial group of the poorest countries are likely to be stuck in a ‘conflict trap’ – a cycle of war and economic decline.” Intra-state wars and inter-state wars could have been avoided in many instances if African states rulers were truly committed to the African renaissance ideal.
Leadership is a critical key
component of any successful organization let alone of any successful and well
respected nation. It is ironically unfortunate that "poor" leadership
seems to be the most relevant trait to determine who should be a head of state
or a government official in Sub-Saharan Africa. Robert I. Rotberg, Director of
the Program on Intrastate Conflict at Harvard University, describes the issue in
the following terms: "Africa has long been saddled with poor, even
malevolent, leadership: predatory kleptocrats, military-installed autocrats,
economic illiterates, and puffed postures. By far the most egregious examples
come from Nigeria, the Democratic Republic of the Congo, and Zimbabwe –
countries that have been run into the ground despite their abundant natural
resources. But these cases are by no means unrepresentative: by some measure,
90 percent of Sub-Saharan African nations have experienced despotic rule in the
last three decades."
These leaders' visions do not extend beyond filling their personal Swiss Bank
accounts by embezzling the inflow of financial aid received to uplift the vast
majority of their constituencies. The funds are used for political patronage; leaders
extend their largesse to political supporters and opinion leaders so they can
perpetuate their regimes.
The world's political history has shown that any government which does not derive its power from its citizens is not bound to be accountable to them. Consequently these leaders rule their country through dictatorship regimes. The high flows of assistance they receive from donors do not provide incentives for African governments to adopt sound institutional reforms. Thus leaders are not liable for their bad economic performance as long as there is a substantial flow of money they can use for trivial consumption rather than for sustainable economic growth investment. As Todd Moss states, "Aid is thought to work best in environments with high-quality public institutions (presumably as part of a capable developmental state) and measures of institutions are an increasingly explicit factor for aid disbursement and allocation. Thus, institutional development is an independent variable thought to affect the efficiency of aid." The chronic preexisting weak institutional structures in Sub-Saharan Africa cripple the efficiency of foreign aid to promote the economic welfare of the states. The case of Senegal (West Africa) is eloquent enough to illustrate the inefficient use of aid. Even though the separation of powers is engraved in the Senegalese constitution, that separation is merely theoretical. In reality, both the legislative power and the judicial power are subordinated to the executive power. All decisions made by the president, whether anti-constitutional or anti-social, are de facto approved by both the judicial and legislative branches of government. This state of affairs has encouraged chronic ill-consumption, and constantly misused and mismanaged foreign assistance. The Senegalese government has created irrelevant institutions merely to satisfy political clientele by offering them official seats in these institutions. Alberto Alesina confirmed this by saying that “The benefits of foreign aid have recently been under severe scrutiny. Several observers argue that a large portion of foreign aid flowing from developed to developing countries is wasted and only increases unproductive public consumption. Poor institutional development, corruption, inefficiencies and bureaucratic failure in the developing countries are often cited as reasons for these results”
Recently, the Senegal's President,
Abdoulaye Wade spent millions of dollars on a "328-foot high bronze statue
dubbed the Monument of African Renaissance in Dakar,"
while the vast majority of the Senegalese cannot sustain two meals a day, while
the whole city lacks proper infrastructure and while a 43.6% unemployment rate
is driving the Senegalese youth to risk their lives by embarking on the vast
Atlantic Ocean to the sunny shores of Barcelona in Spain. Many of them lose
their lives in the swells of the Atlantic Ocean before they reach the promised
land of Barcelona. Senegal is only a prototype;
the same issues prevail all over Sub-Saharan Africa. In Ivory Coast for example,
the late President Houphet Boigny built in his hometown, Yamoussoukoro a Catholic
basilica worth over 200 million dollars and claimed that he used his own money.
In Zaire, President Mobuto requested his daughter’s wedding cake to be flown
from Paris to his country. President Mugabe is notorious for his ruthless way
of ruling the country by his reckless mismanagement of funds allocated to fight
hunger, AIDS and poverty in Zimbabwe. Dambisa Moyo gives accounts of President
Mugabe’s misuse of donor funds by stating that “Some African leaders have been
notoriously susceptible to shopping trips (Grace Mugabe, wife of Zimbabwe’s
president, is known for a penchant for shopping at London’s exclusive Harrods
department store) and some may be tempted again.”
We can go on and on with these pitiful cases if it was necessary to prove that
most African heads of state tremendously lack the skills and ethics that make
for true Leadership.
Despite the five decades of foreign assistance in Sub-Saharan Africa with little return in economic performance, should we simply ask donor countries to put a halt in aid and seek other alternatives or should the West reframe the whole aid structure in order to attain more positive goals? Dambisa Moyo's proposal consists of cutting off all aid within a period of five years. She put an emphasis on trade and Foreign Direct Investment (FDI), bond markets (raising money in the capital market), and encouraging micro finance with small loans to African entrepreneurs. She advocates the administration of taxes because it will make citizens more concerned about the whereabouts of their money and therefore will hold government accountable. Transparency is another key element she introduced as being a safeguard to fund disbursements and expenditures. She also strongly urges African states to diversify their trading partners and mentions that China would be the ideal partner because of its trade cooperation policies. Even though China is out for people's interests, Africa can look out for its own interests while benefitting from the infrastructure (roads, railroads, bridges, stadiums, and hospitals) which the Chinese are building on the continent. Dambisa Mayo makes her point by stating that “In an effort to help fast-track Africa’s development, China has in recent years pledged to train 15,000 African professionals, build thirty hospitals and 100 rural schools, and increase the number of Chinese government scholarships to African students from the current 2,000 per year to 4,000 per year by 2009. In 2000, China wrote off US $1.2 billion in African debt. In 2003 it forgave another US $750 million. In 2006 alone, China signed trade deal worth almost US$60 billion.”
Dambisa Mayo’s prescriptions could be effective to a certain extent if they are accompanied with local restricted policy measures to protect the Sub-Saharan economic fabric.
The open market system she gives as a reference is subject to caution. The Infant industries argument is that week economic sectors, especially in developing countries should be protected through tariff barriers, quotas, non-tariff barriers, and subsidies, so they can mature, like their counterparts in developed countries, before they can compete globally. With the use of these protective measures, foreign imported goods are no longer a threat to domestic goods because of their uncompetitive prices.
An open market economy has in some countries induced economic growth while in many other countries it has deepened poverty and widened inequalities within and among nations. Some protective policy measures in key economic sectors should be implemented by less developed countries in order to minimize the negative impacts of a free market economy. Easterly’s view is not as radical as Dambisa Mayo's in asking for a complete cut-off of foreign aid but he still bank on accountability for results on behalf of aid agencies. He demands agencies be realist by making more modest goals for aid. He divides the donors into two groups, the planners who have an outside perspective (IMF, WB, UN, etc) and the researchers who are more associated with the local people. The poor, so to speak, should be empowered and associated in the aid process from delivery to project implementation. Micro loan and micro credit should be encouraged rather than big planner’s projects because the neediest ones have little chance to see the actual money. According to Easterly, aid should not be tailored to be a general solution for all cases. It should take into consideration the specificity of each country because each culture is different. Based on his case studies, he has showed that aid can work in sectors such as primary education and healthcare. His final conclusion is: “In short, the West cannot save Africa but rich country aid can still do good. The escalation of Western interventions in Africa shows arrogance in the face of very imperfect knowledge. Once economists discard arrogance, there is hope to hold donors accountable for such focused outcomes as well-maintained roads, water supply, medicines, nutritional supplements, and textbooks, to improve the well-being of the poorest people in the world. It is time to solve the second tragedy of foreign aid! It’s up to people who care about the poor to hold aid agencies accountable for results. Foreign aid should go towards figuring out what works to help poor people with their most desperate needs, independent evaluation and transparency. So that the next $568 billion of foreign aid to Africa does get 12-cent medicine to keep sick children from dying from malaria, does get $4 bed nets to Africans to prevent malaria, does get the $3 per new mother that would prevent millions of child deaths, so that the next $568 billion of foreign aid to Africa does reach the poor.”
Paul Collier argues that ”To maximize the reduction in poverty, aid should be allocated to countries that have large amounts of poverty and good policy. The presence of large-scale poverty is obviously necessary if aid is to have a large effect on poverty reduction. The good policy ensures that aid has a positive impact. In the remainder of this paper we formalize this idea, examine the extent to which donors are already behaving optimally, and estimate the gains in poverty reduction that could be achieved through a more efficient allocation of existing aid volumes.” Paul Collier’s argument is about aid reallocation based on two conditions: the level of poverty and the level of quality of policies. Policy matters; it is an independent variable which greatly affects the outcome of aid. When sound policies in a good institutional environment are enacted, aid becomes more effective. What often happens is, in the absence of trusted institutions, the funds are not correctly channeled to the real beneficiaries meaning, the people at the lower end of the social spectrum, people who no doubt need it the most. It seems like that Paul Collier's call was seized as an opportunity for the Bush administration to combat terrorism while fighting against poverty. Certain criteria needed to be met before a country may be eligible. Eligibility requires a high level of scrutiny which countries must go through before they benefit from the funds. Under the MCA (Millennium Challenge Account) certain aid strategies such as cash on delivery (COD) were implemented to ensure the effectiveness of the United States assistance funds. There were measurable assessments for progress put in place to ensure the impartial allocation of the funds. Both donors and recipients seek to collaborate through information-sharing so that they can evaluate what works and what doesn’t.
Donors and recipient countries cannot persevere in the same failing practices of aid allocation and expect a positive return. Both donors and recipients of aid have to commit themselves through a sincere collaboration to address the structural issues curbing the positive impact of financial assistance. All players have to understand that aid is not a cure to underdevelopment; it is merely a stepping stone into the long road of development. And for Sub-Saharan Africa to engage in a serious economic grow, it has to break its aid- dependency development-centered perspective and redirect its focus toward mobilizing its own resources for a long term sustainable grow and poverty alleviation.
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11 October, 2012
11 October, 2012
11 October, 2012
11 October, 2012