International aid to Africa needs an overhaul. Advice on what needs to change – World
Tigist Mekonnen Melesse
Visiting post-doctoral fellow at the Center for Effective Global Action, University of California, Berkeley
Tigist Mekonnen Melesse does not work, consult, own stock or receive funding from any company or organization that would benefit from this article, and has not disclosed any relevant affiliation beyond his academic appointment.
Many African countries still rely heavily on foreign aid. However, several studies have shown that foreign aid has failed to ensure sustainable economic growth and poverty reduction.
It is clear from the data that foreign aid as it is currently practiced has not met its poverty reduction goals in Africa. More than 75% of the world’s poor live in Africa today. In 1970, this figure was 10%. Some forecasts suggest that it could reach 90% by 2030.
Africa is the only continent in the world where public aid inflows exceed private capital inflows by a wide margin. This is problematic because no country in the world has achieved substantial development based on aid.
This highlights the need for reform.
The first is that Africa’s aid-dependent economic model provides “free” money which prevents countries from taking advantage of the opportunities offered by the global economy.
The other is that foreign aid is not a problem in itself, but the misallocation of resources, corruption and poor governance limit Africa’s ability to use aid. As Ambassador of South Korea to South Africa argued, aid is ineffective where there is bad governance, and useless where there is good governance.
Arguments against aid highlight shortcomings in the management of foreign aid. Beneficiary countries pay aid money into poor and inefficient white elephant projects that neither promote growth and development nor build good institutions. And there is misuse of money.
The aim of this article is to provide some key indications on the reforms that should take place. Timely foreign aid reforms can contribute to significant growth and poverty reduction in Africa.
An old debate
Almost 50 years ago, the famous British development economist of Hungarian origin, Peter Bauer, strongly criticized government-to-government assistance as neither necessary nor effective. He argued that this posed the danger of promoting government power, destroying economic incentives and eroding civic initiatives and dynamism.
In 2009, Zambian economist Dambisa Moyo challenged many assumptions about aid in his book Dead help. She argued that aid had not just failed but made Africa’s problems worse.
William Easterly, professor of economics at New York University, was also an opponent. He argues that poverty results from a lack of economic and political rights, and only restoring them will solve the problem.
The arguments put forward by these critics point to the fact that official aid is addictive, promotes corruption, encourages overvaluation of the currency and does not allow countries to take advantage of the opportunities offered by the global economy.
A recent study highlighted the marginal effect of aid on promoting growth in Africa. The research, conducted by Alabama State University professor of economics Shaomeng Jia and Mississippi State University associate professor of economics Claudia R. Williamson, was based on detailed data from 1962 to 2013.
They found that in the absence of good governance and institutions, aid had minimal impact on long-term growth.
One way to reform foreign aid is to dissociate African institutions from an aid-dependent economic model that has led many governments to view aid as a source of income.
Instead, African countries should promote private sector development, entrepreneurship and improved tax culture.
Another way could be to adopt the Marshall Plan. This innovative model of foreign aid was introduced by the United States to help 16 European countries build their economies and strengthen democracy following the devastation of WWII in 1948.
Finally, the way in which aid priorities are set needs to be reviewed. If aid is to promote growth and development, the following five key points must be taken into account.
Economic and foreign aid should be geared towards sustained growth in per capita income by encouraging the shift from agricultural production to manufacturing and a technologically sophisticated service sector. This will force African leaders to rethink their economies, become more democratic, be open to information change and develop their own self-sustaining agendas.
Bilateral or multilateral collaborations must be established with countries which have already pushed back the technological frontier. International aid must be consistent with this.
Governments’ domestic and foreign policies should aim for a development agenda that can embrace growth and lead to eventual reduction in aid dependency.
Poverty and underdevelopment are exacerbated by natural disasters. This underscores the need to direct humanitarian assistance to help countries reinvest in resilience. In addition, developed countries should follow cooperation and diplomacy to resolve issues such as conflicts rather than using aid to pressure governments.
Foreign aid reform must be designed to strengthen the African Continental Free Trade Area agenda. The pact, concluded in 2018, establishes one of the the largest free trade zones in the world. Lessons learned from the eurozone brand as well as from cooperation with the The world trade organization would also be valuable.
Addressing these issues would go a long way in reforming foreign aid for growth and development and achieving the Agenda 2063 of the African Union.