• Monday, December 11, 2023
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The destructive effects of foreign aid (2)

The destructive effects of foreign aid (2)

*continued from last week

Perhaps the greatest argument against open-ended aid is the damage it does to recipient countries’ social contracts and institutions of restraints. Nobel Laureate economist, Angus Deaton, agrees. Having studied poverty extensively in the developing world, worked at the World Bank, and thoroughly reviewed most of the data on aid, the Princeton Economist believes aid is actually making Africa poorer and making governments less effective. “Like revenue from oil or diamonds, wealth from foreign aid can be a corrupting influence on weak governments, “turning what should be beneficial political institutions into toxic ones.” It corrupts governments, empowers dictators and tyrants, and causes conflicts and civil wars since various factions are in competition to capture the state and use it for their personal ends.

The hand that gives is always on top

So why do Western countries keep pumping aid to countries, especially in Africa even though they are structured in such a way that they do not generate growth? The answer may lie in the intention. The United States – and all other aid donors – give aid not for humanitarian or altruistic reasons, but to support their strategic allies, their commercial and economic interests, or their political and moral beliefs. An unstated reason for the Marshall Plan, for instance, was also the desire of the U.S. policymakers to ensure a Europe that would provide a buoyant market for American exports.

Until 2006, the United States aid agency, USAID, boasted openly on its site that the “principal beneficiary of America’s foreign assistance programs has always been the United States. Close to 80% of the US Agency for International Development’s contracts and grants go directly to American firms.” The agency also claimed that aid has “created new markets for American industrial exports and meant hundreds of thousands of jobs for Americans”. Also, the United Kingdom has not been shy affirming that the priority of its aid budget is to promote British trade and political interests.

We can see this working firsthand in Haiti where the earthquake and the massive influx of free food provided the United States with a rare opportunity to expand its rice, poultry, and sugar imports into Haiti. This influx upended local Haitian agriculture, cutting prices and pushing farmers out of business. Interestingly, the United States has been in direct competition with Haitian local rice farmers for the Haitian market. With an American policy banning direct assistance to industries that compete with American exports, local agriculture was quickly put out of business. The United States has remained Haiti’s largest supplier of rice, wheat, corn, sorghum, and millet since then.

Also, when the Obama administration and European countries decided to promote gay rights in Africa, the first instrument they used was the threat of aid withdrawal. Besides, most of international aid is conditional or tied, meaning it must be used to buy goods and services from donor countries.

Read also: The destructive effects of foreign aid (1)

How can aid benefit Africa?

The evidence is clear: humanitarian, bilateral, and multilateral aid, despite the world of good they do, do not lead to growth. African economies fared worse in the 30 years (from the 1970s to the 1990s) that foreign aid soared in Africa. Even when bilateral and multilateral aid were channeled through NGOs, their economies hardly improved. If aid worked, the sheer explosion of NGOs in Africa alone was enough to turn Africa into an Eldorado.

What Africa badly needs is the Marshall Plan-type aid that is targeted at businesses, production, job creation, and provision of infrastructure to support local businesses. The type of aid that enables people to be self-reliant; grows economies, enables governments to raise taxes and revenues from their people, and helps

What Africa badly needs is the Marshall Plan-type aid that is targeted at businesses, production, job creation, and provision of infrastructure to support local businesses accountability in the process.

The Asian model alternative

There may even be a better model – one that eschews aid altogether and positions itself to attract foreign direct investments (FDIs). Investors and capital are out looking for opportunities to make a profit and they would naturally go to places that are welcoming. Asian countries, more than anyone else, understood this, and through a series of reforms, positioned themselves to attract these investors and capital, offering them sweet deals, assuring them of cheap labour, easy and seamless capital mobility, and profit repatriation, and general ease of doing business environment. These investments, in turn, created jobs, grew the economies and public finance and revenue, which were in turn, reinvested to position the countries for higher growth.

Read also: Tinubu’s foreign policy will be guided by “four Ds”- Tuggar

Sadly, while we all cheer the rapid transformation of the Asian Tigers, African countries have simply refused to make themselves available for FDI, preferring bilateral and multilateral aid to governments rather than businesses. It is extremely sad to note that perhaps, only Rwanda in Africa is copying the Asian Tigers’ model, aggressively positioning itself to attract FDIs.

Perhaps, it is the fear of losing control and power. But although I hate to say it, investors don’t care so much about local politics as much as the business environment and the security of their investments and capital. China and Singapore did it. Rwanda is copying that exact model. So far, it appears to be working.

Trade, trade, trade

African countries are notorious for restricting intra-African trade and movement. That is the problem the African Continental Free Trade Area (AfCFTA) was meant to solve. Despite 44 countries depositing their instruments of ratification of the treaty, only four have ratified the Protocol on the movement of people, and only three – Benin, Gambia, and Seychelles – allow visa-free entry to all Africans.

Movement within Africa is still the most restrictive in the world and intra-Africa trade is still notoriously low, at a mere 14.4%. In comparison, inter-European and inter-Asian trade stands at 60% while inter-American trade stands at 40%.

For Africa to grow, it must open itself up to trade. There is no way around this challenge. Intra-African trade has many advantages. First, trade is an engine of growth. Second, it can, at once, solve Africa’s hunger problems and helpless dependence on outside forces for its food supply. We have seen how Africa is helplessly dependent on Ukrainian and Russian grain imports for survival and how the war between those two is causing a huge crisis of living in Africa. Third, rather than Africans specializing in the production of what they do not consume to be able to earn dollars to buy what they consume, intra-Africa trade can do away with the craze for dollars and still ensure self-sustenance in food production if Africans focus on producing what they are good at and what they eat.