The Aid Trap
“Africa’s disease is not incurable” these were the words of former Nigerian President Olusegun Obasanjo in a CNN interview in 2005 against the backdrop image of a bustling city of Lagos with molue buses when he was the President of Nigeria. Almost ten years after President Obasanjo’s comments there is now ample and clear evidence that Africa’s disease is curable. However, there still exist some African countries that have the semblance of failed states with very weak institutions. Mali, Central African Republic, Libya, Egypt and Somalia are still mired in some conflict or another and on a broader scale many African countries are still heavily dependent on foreign aid. It is a travesty that almost sixty years after the first wave of independence that saw as many as seventeen countries gain independence a vast number of countries are still dependent on aid.
In today’s Africa abundant statistical data shows a lot of economic growth across various sectors but many of these countries still rank very low on the Human Development Index. It is the Human Development Index that really portrays the true picture as to whether a country is improving in its socio-economic development. The Human Development Index is used as a measure of real economic development and it is in these areas that most African countries tend to rely heavily on aid.
For example, the Millennium Development Goals which were formed in 2000 set some targets for African countries to achieve in 2015. The fact is these goals as we move closer to 2015 are nowhere near being achieved. The Millennium Development Goals are One: Eradicating Extreme Poverty and Hunger Goal Two: Achieving Universal Primary Education .Goal Four: Reducing Child Mortality Rates Goal Six: Combating HIV/AIDS, Malaria, and Other Diseases . Goal Three: Promoting Gender Equality and Empowering Women. Goal Five: Improving Maternal Health .Goal Six: Environmental Sustainability and Global Partnership for Development Goal Seven: Ensuring Environmental Sustainability Goal Eight: Developing a Global Partnership for Development.
Since the 1940”s approximately $1 trillion of aid has been transferred from rich countries to Africa. This is nearly $1000 for every man, woman and child in the world today. Despite huge natural resources such as oil and gas, copper, platinum and diamonds most African countries are still heavily reliant on aid from western countries to fund projects in almost all sectors of their economy. This dependency or rather over-dependence on aid has created a culture or cycle of poverty and what could be regarded as a trap.
The aid trap is so glaring that some African countries actually rely on donor funding in order to carry out their national programmes and in some cases aid forms a significant portion of the said country’s GDP. It is this quagmire that this article aims to address. How do countries so heavily reliant on aid break out of the aid trap? Why would a country that is so rich in natural resources still require aid from external sources? What are the conditions attached to aid? Why is aid still being given to a country that obviously cannot pay the money back? Is there any other way to develop a county without aid? What examples if any are there to follow?
In the early 1960’s when most African countries gained independence from their colonial masters France and the United Kingdom it was felt that many of these countries would become beacons of hope as was the case in Ghana under Kwame Nkrumah. It must be noted however that many of these countries relied mostly on a single natural resource which they exported in its raw form. Rather than process their raw materials prior to export the model was simply to export and import all other products which they needed. Also, another challenge which most of these countries faced was that they did not diversify their economy across sectors. Nigeria for example abandoned its main export sector, agriculture when it discovered oil in large commercial quantities. By the mid-1960”s corruption by public officials had also set in and as a result of corruption governments began to get toppled by military officers who alleged that they had come to power in order to save their countries from corrupt leadership and attendant. The January 15, 1966 coup plotters that toppled Prime Minister Tafawa Balewa of Nigeria alleged that they intervened due to the corruption and electoral malpractices that permeated the country.
Aid is not on its own a bad idea, it only becomes toxic when the recipient country now relies on it exclusively for its livelihood. For example, The Marshall Plan by the US which offered aid to Europe after the Second World War in 1945 was very successful. Between 1948 and 1952 the United States transferred over $13 billion to aid in the reconstruction of post-Second World War Europe. By most historical accounts the Marshall Plan not only guaranteed economic success but many credit the programme with the re-establishment of political and social institutions crucial for Western Europe’s ongoing peace and prosperity.
The United States Marshall Plan worked for Europe but aid for Africa did not really work and the following reasons were espoused by Dambisa Moyo” in her bestselling book Dead Aid. In Dambisa”s words’ For one thing, European countries were not wholly dependent on aid. Despite the ravages of war, Western Europe’s economic recovery was already underway, and its economies had other resources to call upon. At its peak, Marshall Plan flows were only 2.5 % of GDP of the larger recipients like France and Germany.
Amazingly, by the end of the 1980”s emerging market debt was at least US $1 trillion, and the cost of servicing these obligations colossal. Indeed, the cost of servicing became so substantial that it eventually dwarfed foreign aid leading to a net revenue flow of $15 billion dollars from poor countries to rich countries. Infact, many African countries were grouped into what was referred to as HIPC (Heavily Indebted Poor Countries) These countries were essentially in a very difficult situation because they had to spend a great portion of their gross domestic product on servicing debts which in turn affected their development goals.
It has also been widely argued that vast sums of aid not only fosters corruption but breeds it. There has been for some time now concerns from the donor community that development assistance earmarked for critical social and economic sectors is being used directly or indirectly to fund unproductive and corrupt expenditures (UNDP”s Human Development Report, 1994) At a hearing before the United States Senate Committee on Foreign Relations in May 2004, experts argued that the World Bank has participated (mostly passively) in the corruption of roughly $100 billion of its loan funds intended for development. It is also a strongly held view that aid supports rent-seeking. Rent seeking is described as the use of governmental authority to take and make money without trade or production of wealth. At a very basic level an example of this is where a government official with access to aid money set aside for public welfare takes the money for his own personal use.
The logic from all the foregoing especially when a closer look is made regarding aid to Africa is that it has not worked and will never work. The most effective way of developing a nation is through old-fashion hard work and transparency as well as good governance. Each country in Africa is blessed with abundant natural resources from Guinea to Congo, Botswana to Libya, and Sudan to Nigeria. The idea of running cap in hand to beg for aid flies in the face of the logic that is the vast natural resources with which many of these countries are endowed and blessed with. It is a tragedy almost to have nations who should be loaning money to others being the ones who have to be constantly bailed out.
The concept of aid was essentially to bring about stability to nations that were struggling to ensure the well-being and welfare of their citizens. It seems that some or many nations saw aid as the be all and end all and therefore chose to rely exclusively on the largesse only to become part of the dangerous cycle.
What should be advocated as we move closer to fourteen years after the millennium and a year to the Millennium Development Goals deadline is trade not aid. Regional integration between African economies will improve the economic prosperity of many African nations. For example, the New Partnership for African Development(NEPAD) WAS FORMED IN ORDER TO REPOSITION Africa’s methods of doing business with the West and other developed nations but so far the impact of NEPAD is yet to be felt on the continent. Recent reports by the World Bank shows however that many African countries especially Rwanda and Mauritius have improved the way of doing business but there is so much that needs to be done. In a continent with multi-currencies e.g Kwanza, Metical, Naira, Rand, Kwacha, Cedi, Shillings and various languages e.g English, Swahili, French, Portugese and Arabic how best can trade be improved given the complexities and the fact that there is no one size fits all solution.
The fact is that higher tariffs affect trade. Import duties on wine in Africa vary from the logical 40% in Botswana, 80% in Nigeria to the bizarre 160% in Zambia and 180% in Uganda. It is these inconsistent regulatory frameworks that affect Africa’s ability to trade with itself. Of course, one is well aware that there are many African countries that are resource poor and landlocked. The position going forward is for the poor countries to reduce the barriers to trade and also seek ways in which they can promote their respective countries as an investment destination. No country in Africa that seeks to develop can do so by relying on aid or moreso, even rich African countries who generally tend to have large populations e.g Egypt, South Africa and Nigeria cannot afford to sit on their laurels. To compete is an attribute that African countries must now imbibe. There is a great potential for African countries to trade with each other because each country has its own competitive advantage. Trade not aid is the logic of the future for Africa.