• Monday, July 22, 2024
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BusinessDay

Foreign aid doesn’t take countries out of poverty

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Foreign aid has long been hailed as a vital tool for combating poverty in developing nations, according to the United Nations (UN). Over the decades, billions of dollars have been channelled from wealthier nations to poorer ones in the hope of fostering economic development, improving healthcare, and alleviating poverty.

However, upon closer examination of the outcomes, a complex and often disappointing reality emerges: despite these efforts, many developing countries, including those in Sub-Saharan Africa, continue to grapple with staggering levels of poverty.

Generously, the intention of the intention of foreign aid is to provide financial and technical assistance to developing countries, thereby fostering economic growth, improving infrastructure, and enhancing the quality of life for their citizens.

“When countries rely heavily on external assistance, they may lose the drive to develop self-sustaining policies and institutions.”

Aid in this context can be categorised into several types: humanitarian assistance, which addresses immediate needs during crises; development aid, aimed at long-term economic growth; and military aid, which focuses on security.

Here, both humanitarian and development aid are considered. However, while proponents of foreign aid, such as the United Nations, argue that foreign aid is key to alleviating poverty by bridging the gap between rich and poor nations, supporting critical infrastructure projects, and enhancing human capital through investments in education and healthcare, others disagree.

Despite the noble intentions, the practical outcomes of foreign aid often fall short of expectations. Several factors contribute to this discrepancy: one major criticism of foreign aid is its potential to foster dependency syndrome. When countries rely heavily on external assistance, they may lose the drive to develop self-sustaining policies and institutions.

Read also: Poverty is a greater threat to a democracy than weak institutions – Dogara

This dependency syndrome has persistently plagued Nigeria and other third-world nations, stifling their economic autonomy and perpetuating structural deficiencies.

Recent studies highlighted in the Nile Journal of Political Science emphasise how this dependency has entrenched itself across various sectors of Nigerian society. It has led to an economy structurally reliant on foreign powers, lacking regional and sectoral complementarity, and failing to achieve auto-centric development.

Corruption is a significant barrier to the effective use of foreign aid. In many cases, aid funds are syphoned off by corrupt officials, leading to misallocation of resources. This not only reduces the intended impact of the aid but also erodes public trust.

Poor management and a lack of proper oversight can result in the inefficient use of aid. Projects might be poorly implemented, with funds being spent on non-priority areas or administrative overheads rather than on direct poverty alleviation.

Large inflows of foreign aid can distort local economies. For example, an influx of aid can appreciate the local currency, making exports less competitive and hurting local industries. Moreover, massive aid inflows can lead to inflationary pressures, reducing the purchasing power of the local population and potentially exacerbating poverty.

Often, aid is tied to the strategic interests of donor countries rather than the needs of the recipient country. Aid may come with conditions that align with the donor’s political or economic objectives, which may not necessarily benefit the recipient’s population.

Furthermore, the conditions attached to aid, such as economic policy changes, can sometimes be detrimental. These conditions might prioritise macroeconomic stability over poverty reduction, leading to austerity measures that hurt the poorest.

Sub-Saharan Africa, despite being a major recipient of aid, continues to grapple with pervasive poverty and economic instability. Despite receiving $36 billion annually in aid, Sub-Saharan Africa remains the poorest region globally.

Official Development Assistance (ODA) provides $134.38 billion in aid globally, with the largest portion going to Sub-Saharan Africa. Despite this substantial aid, half of the countries in Sub-Saharan Africa have poverty rates over 35 percent, and 18 of the top 20 economies with the highest poverty rates are in this region, according to the World Bank.

Read also: Nigeria, foreign aid, and the dependency theory

The case of Nigeria

In 1999, Nigeria found itself at a crossroads. The country had just emerged from decades of military rule and was taking its first steps towards democratic governance. As the new administration took office, one of the most pressing issues was the crippling national debt.

This financial burden severely limited the government’s ability to invest in critical infrastructure and social services, leaving millions of Nigerians in poverty.

The international community recognised the dire situation. The Paris Club, a group of major creditor countries, stepped in with a significant debt relief package for Nigeria. This move was seen as a beacon of hope.

The agreement provided Nigeria with the financial breathing room it desperately needed, allowing the government to redirect funds previously earmarked for debt servicing towards essential development projects.

In 2005, Nigeria received another substantial boost. The Paris Club agreed to an unprecedented debt relief package amounting to approximately $18 billion, according to internetgeography.net.

This decision was monumental, as it marked one of the largest debt relief efforts in history. For Nigeria, this meant a substantial reduction in its external debt and the opportunity to reallocate resources towards development initiatives aimed at improving the lives of its citizens.

The impact of this financial reprieve was immediately felt across the country. Schools that had long been neglected saw renovations and expansions. Healthcare facilities received much-needed upgrades, and new economic initiatives were launched to foster growth and reduce unemployment.

The debt relief was not just about numbers; it was about giving Nigeria a fighting chance to rebuild and prosper.

Fast forward to 2014, and Nigeria continued to benefit from international support. The United States Agency for International Development (USAID) provided over $700 million in aid, focusing on critical areas such as health, education, and economic development.

This assistance was crucial in addressing the country’s most pressing challenges. It helped improve literacy rates, combat diseases, and support economic diversification efforts, laying the foundation for a more resilient and inclusive economy.

From 2015 to 2020, Nigeria’s reliance on foreign aid persisted, highlighting the ongoing need for international support. In 2020, the World Bank approved a $3 billion loan to help Nigeria address the economic impact of the COVID-19 pandemic.

This aid was vital in sustaining social programmes and stabilising the economy during an unprecedented global crisis.

Despite these substantial efforts and financial inflows, the journey towards poverty reduction and sustainable development in Nigeria remains arduous. The country’s struggle with poverty and underdevelopment continues to be a complex issue, influenced by various factors including governance, corruption, and infrastructure deficits.

Read also: Debunking Economic Myths: New minimum wage doesn’t always translate to poverty reduction

Beyond Nigeria

Surprisingly, many of the poorest countries in 2024—BBurundi, the Central African Republic, the Democratic Republic of the Congo, Madagascar, Somalia, and others—were also among the world’s poorest nations a quarter-century ago, according to a world population review.

These countries have consistently received substantial foreign aid, yet they remain entrenched in poverty. What is the problem? The answer often lies in corruption and mismanagement by African leaders, which hinder the effective use of aid and prevent meaningful development.

According to the World Bank, more than 48 percent of those living in sub-Saharan Africa live in poverty despite increased aid from donors.

Renowned economist William Easterly argued that decades of international aid initiatives were far better at feeding bureaucracies than alleviating poverty. One example Easterly cited was Tanzania, which received billions of dollars to improve its road system over a period of many years. Two decades later, Tanzania’s roads were still a disaster, but its bureaucracy had swelled.

“Tanzania produced more than 2,400 reports a year for its aid donors, who sent the beleaguered recipient 1,000 missions of donor officials per year,” Easterly wrote in his famous book “The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much I’ll and So Little Good.”.

Dambisa Moyo, a Zambian-born economist, noted in her book “Dead Aid” that the $1 trillion in aid African countries received from rich countries over the last half-century didn’t just fail to alleviate poverty in Africa; it exacerbated it.

“The notion that aid can alleviate systemic poverty and has done so is a myth,” Moyo said. “Millions in Africa are poorer today because of aid; misery and poverty have not ended but increased,” the now-member of the UK’s House of Lords wrote in her 2009 book.

To address these challenges, a paradigm shift in aid delivery and governance is imperative. Rather than perpetuating dependency, aid should prioritise capacity building, local ownership, and transparency.

Empowering local communities to drive their own development agenda and strengthening institutions can foster resilience and sustainable progress. Moreover, donor countries must align aid strategies with recipient countries’ long-term development priorities, ensuring that investments are targeted and sustainable.

Foreign aid undoubtedly plays a crucial role in addressing immediate humanitarian needs and supporting development initiatives in struggling economies. However, the notion that aid alone can lift countries out of poverty is overly simplistic and often unrealistic.

Without addressing systemic issues such as governance, accountability, and economic inclusivity, foreign aid runs the risk of perpetuating dependency rather than fostering sustainable development.

As the global community continues to grapple with these challenges, a nuanced approach that prioritises local empowerment and long-term resilience remains essential in the quest for poverty eradication.

In essence, while foreign aid can provide temporary relief and support, its transformative impact hinges on addressing underlying structural barriers and empowering communities to chart their own path towards prosperity.