Does Aid work?

Does Aid work?

 

Introduction

In the entire world, people who belong to the bottom of the pyramid and who are considered to be the poorest, surviving on less than $2.50 a day or sometimes going hungry, are approximately four billion. It is estimated that out of the four billion who belong to the class of the poor, one billion go hungry every day with absolutely nothing to eat, and a third of these are in Sub-Saharan Africa. It is surprising that about 60% of the untilled land in the world is also found in Africa[1]. Due to identification of these facts, several aids have been directed to this part of the world, and stable economies such as the United States, China, and the United Kingdom among others have formed close relationships with the poor states, pumping billions of dollars each year in an attempt to bridge the gap between the poor and the rich[2]. While this has failed several times, many other innovative projects have been introduced to bring a new perspective to the system of administering aid, for instance, the Millennium Development Plan rolled out by the United Nations. The big question is: does aid really work? This paper champions the thesis that as long as poor countries with special focus on Africa continue depending on foreign aid, their economic stability will forever remain in question due to the ineffectiveness of such programs.

What Aid has managed to achieve so Far

It is true to posit that we live in an unbalanced world, where there is a huge gap between the poor and the rich. It is a moral issue for such concerns to be addressed, and stable economies have always stepped in to bring some sense of equality between these two disparities. Some of the fundamental contributions that foreign aid has managed to bring to Africa include free basic healthcare, education, and primary needs like food and clothing. A stunning example is the case of HIV/AIDS, which requires expensive drugs to be sustained. It is estimated that one patient would require approximately $500 each month to be able to get all the drugs, and leave a healthy life with the infection[3]. As obvious as it is, most African countries cannot manage to sustain this exorbitant budget, thus foreign economies have ably stepped in to supplement these deficits. This is a commendable job and it indeed certain that a substantial portion of the African population could have been wiped out if this aid was not in place.

In the perspective of saving lives, foreign aid has been effective in most poor parts of the world. But is this its primary aim? According to the Millennium Development goals, it is targeted that the entire globe would witness a tremendous decrease of the proportion of the poor by half come the year 2015 working with a benchmark of 1990[4]. It was also a viable prospect that all people in the poor countries would be able to achieve the requirements of basic education as well as comprehensive healthcare by the above date. Now that the deadline is just two years ahead, the possibility of achieving is very blur. Inasmuch as foreign aid has managed to save lives, it is still very far from addressing economic equitability, and poor countries will remain in the same state of even worse if the aid programs are not given a proper thought.

Why Aid has not Succeeded

Traditionally, it was always the belief that foreign aid would be very effective in spurring economic growth and alleviating poverty in Sub-Saharan Africa and other poor parts of the world. However, a number of empirical researches have shown that there is a zero correlation between economic growth and inflows of foreign aid. Berg and Luis-Felipe had earlier presented some evidence that foreign aid might actually work in countries that have good governance, and this became the new criteria for awarding such aids[5]. In the backdrop of this standard, the Millennium Challenge Accounts introduced by the U.S. was initiated, but even after this, this perspective has been challenged as well. Despite the good intentions that donors have, financial aids have always fallen on the wrong hands, being misappropriated in the worst possible manner, and ending up being a source of political disagreements. It is estimated that Africa, being the poorest of all continents, has received over $1 trillion in the past 50 years in terms of aid which target projects such as healthcare, infrastructure, agriculture, and education among others[6]. The major reason these aids have not created much positive impact is because they are given without proper conditions attached to them.

A practical focus on agriculture gives reliable information regarding the reason behind the failure of aid. Since this is the most important pillar of African economy, it is without doubt that it has failed due to lack of infrastructural development such as roads, irrigation, tools, machinery, and land titles[7]. This condition has forced Africa, which is recognized as having the largest proportion of untilled land, caught in a nexus of aid-dependence while the governments are still deprived of the essential capabilities to initiate sound reforms that would help attract investors, thereby spurring economic growth and poverty reduction.

Due to the nature of political climate and governance in Sub-Saharan African States, it becomes very challenging to accept and initiate sound economic projects with aid funds. It is common knowledge that aid is never returnable, and is given as a free gift or lease. Most recipients, therefore, do not feel the burden to effectively utilize these resources for a productive result. A study by the World Bank revealed that out of the 50 countries that are ranked as worst-performing according to ease of doing business, sub-Saharan Africa is host to 33 of them[8]. It is evident in this countries the bearing that political climate has on economic growth. Moreover, the level of corruption and misappropriation of funds cannot allow for the financial aid to be used effectively. In the Transparency International Corruption Perceptions Index of 2011, it was confirmed that 44 out of the 48 countries in Sub-Saharan Africa scored below five on a scale ranging from zero to ten. This means that even if funds released with good intentions are given to the poor countries, they would never be used for the purposes for which they were originally meant. Lipton, Michael, and Toye state that if $1 million was given out in aid, only a third of that would probably reach the poor, but still, its economic impact other than saving lives and  solving short-term problems such as hunger would not be felt[9].

Across many poor states, policy inertia has had dire consequences as far as aid is concerned. Because these states have not in place proper policies to monitor the receipt and use of aid, most of it ends up being misappropriated. For instance, the overdependence of African states on foreign aid to finance basic requirements of citizens such as education, healthcare, infrastructure, and security makes these states lazy and uncommitted to the plight of their people. This pervasive culture makes it hard for citizens to hold African governments accountable for provision of the basic requirements, as well as effective appropriation of funds received as aid. Indeed, no government of independent entity in these recipient nations has taken a serious concern into the aid funds, thus no follow-up is made. As a result, influential people in whose hands these funds are entrusted use them largely to enrich themselves, rather than putting up innovative projects that would see the poor gain economically[10]. As opposed to the original goal of these projects, the gap between the poor and the rich has continued to widen due to centralization and misuse of aid brought about by inexistence of stringent policies.

Consider the nature of politics in developed countries: there exists a contract of sovereignty between the people and the incumbent government. As the citizens pay taxes, the government has a sworn responsibility to provide basic requirements to them, failure to which they are voted out of office. In other words, the major motivation behind delivering to the people is staying in office. In the situation of African countries, where the taxpayers’ contribution towards the sustainability of these economies has been replaced by foreign aid, leaders rationally have more commitment towards pleasing their donors and getting more help from them than they are to the people who elected them into office. In this perspective, aid only severes the relationship between the constituents and the government, and brings the veracity of the contract between them under complete disregard. According to Riddell, this condition goes contrary to the expectation of donors, who largely act in good faith with a single goal in mind: to spur economic growth[11].

Another familiar trend that is causing the unfortunate failure of foreign aid is the belief of poor states that help will always come, when the right situation presents itself. It is understandable that in case of natural calamities such as drought in Ethiopia, floods in Mozambique, and insecurity in Somalia, the international community has the responsibility of stepping in for those countries. However, due to the recurrent nature of this aid, African countries have come to solely depend on them instead of creating a stable and self-reliant background that would be able to address a similar calamity in the future. It is against this backdrop that the failure of foreign aid is manifested strongly in Sub-Saharan Africa, which has assumed that foreign aid is meant for emergencies rather than a source of sustainable development.

Despite the rebuttals presented in this paper, the author does not downplay the contribution of official foreign aid. Empirical literature reveals a very clear message: if the economic growth of a country is fit for poverty reduction, then it can be plausibly inferred that in the absence of aid flows, poverty would surely be lower. However, there are valid grounds on which official aid can be criticized, some of which have been presented in the previous discussions. These include insufficient alignment between recipient and donor governments; fungibility; proliferation of unnecessary donor activities within recipient nations; commercial tying; and incoherent policies among donor activities[12]. These reasons do not offer a basis for disparaging the effectiveness of aid, but give room for criticism, and point out for better ways of improving the situation. Many African countries have taken this path and have proven that through careful and meticulous administering, use, and control of aid, notable economic growth could actually be registered, for instance Rwanda and Ghana[13]. The former was recently crowned the “world’s top reformer” by World Bank for attracting foreign aid and key investments. The latter has been continually viewed as an attractive investment destination after the $750 million debut bond aid given in 2007. They have proven that aid can actually work, but ingredients of self-determination, holistic political and cultural reforms, and policy institutions must be put in place by recipient states.

Conclusion

Aid presents itself as a very emotive issue, particularly because it is primarily meant to close the disparity between the poor and the rich, making it a matter of social debate. While aid had been originally thought to be very effective at reducing poverty through spurring economic growth, empirical evidence has proven that this was just a dream. Basically, the effectiveness of aid is a function of cultural, political, and environmental factors, which are not very favorable in poor countries such as in Sub-Saharan Africa. Thus, a new approach is needed to adequately plan for the release, receipt, use, and control of aid to ensure that it serves its desired purpose among the poor.

 

 

 

Bibliography

Ahler, Hannes, Peter Nunnenkamp, and Axel Dreher. “Does conditionality work? A test for an innovative US aid scheme.(Report).” European Economic Review no. 1: 2012, 138.

Berg, Andrew, and Luis-Felipe Zanna. “Half empty or half full: does aid work? The net impact of aid surges depends on country-specific factors.” Finance & Development, 2010. 17.

Lawson, Marian L. “Does foreign aid work? Efforts to evaluate U.S. foreign assistance.” Congressional Research Service (CRS) Reports And Issue Briefs, 2013.

Lipton, Michael, and J. F. J. Toye. Does Aid Work in India? : A Country Study of the Impact of Official Development Assistance. London: Routledge, 2011.

Monaghan, Peter. “Aid That Does Not Help.(Doing Bad by Doing Good: Why Humanitarian Action Fails) (Book review).” The Chronicle Of Higher Education no. 41, 2013.

Montinola, Gabriella. “When Does Aid Conditionality Work?.” Studies In Comparative International Development 45, no. 3: 2012, 358-382.

Picciotto, Robert. “Does Foreign Aid Really Work? (Foreign Aid: Diplomacy, Development, Domestic Politics) (Book review).” Ethics & International Affairs no. 4: 2007. 477.

Riddell, Roger. Does Foreign Aid Really Work?. Oxford: Oxford University Press, 2007.

 

 

 

  1. Monaghan, Peter. “Aid That Does Not Help.(Doing Bad by Doing Good: Why Humanitarian Action Fails) (Book review).” The Chronicle of Higher Education no. 41, 2013.
  2. Montinola, Gabriella. “When Does Aid Conditionality Work?.” Studies in Comparative International Development 45, no. 3: 2012, 358-382.
  3. Picciotto, Robert. “Does Foreign Aid Really Work? (Foreign Aid: Diplomacy, Development, Domestic Politics) (Book review).” Ethics & International Affairs no. 4: 2007. 477.
  4. Montinola Gabriella, 374.

 

  1. Berg, Andrew, and Luis-Felipe Zanna. “Half empty or half full: does aid work? The net impact of aid surges depends on country-specific factors.” Finance & Development, 2010. 17.
  2. Monaghan Peter, 76.
  3. Lawson, Marian L. “Does foreign aid work? Efforts to evaluate U.S. foreign assistance.” Congressional Research Service (CRS) Reports And Issue Briefs, 2013.
  4. Lawson, Marian L., 57.
  5. Lipton, Michael, and J. F. J. Toye. Does Aid Work in India? : A Country Study of the Impact of Official Development Assistance. London: Routledge, 2011.
  6. Montinola Gabriella, 360.
  7. Riddell, Roger. Does Foreign Aid Really Work?. Oxford: Oxford University Press, 2007.
  8. Monaghan Peter, 74
  9. Ahler, Hannes, Peter Nunnenkamp, and Axel Dreher. “Does conditionality work? A test for an innovative US aid scheme.(Report).” European Economic Review no. 1: 138.

 

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