Photo: Katse Dam, one of Lesotho Highlands Water Project funded with foreign aid. Credit: Ntsoaki Nkoe | IDN-INPS - Photo: 2017

Foreign Aid Not the Answer for Africa

By Ntsoaki Nkoe

MASERU, Lesotho (IDN) – Research indicates that the African continent as a whole receives roughly 50 billion dollars of international aid each year – yet instead of drastically improving the living conditions of those living below the poverty line, this aid often makes the rich richer, the poor poorer and hinders economic growth, not to mention catalysing the vicious cycle of corruption.

Economist Dr. Moeketsi Majoro – former Minister of Economic Planning in Lesotho who has also worked at the International Monetary Fund (IMF) – believes that after the many mistakes made in aid operations, donor countries have now learned lessons about how their generosity had been turned into supporting dictatorships, undermining domestic economic activity and creating dependencies.

According to Majoro, the original concept of foreign aid was based on an intellectual rationale that domestic savings in under-developed countries were not enough to propel these countries into the class of developed countries and that foreign aid was needed to close the gap.

The architecture of global aid has now changed, “there is much less money to give, and private investment seems to be much better in terms of domestic impact than aid has ever been … Thus, no one country today relies heavily on foreign aid and this would, at any rate, be very unwise.”

A few years ago, in an article in Le Journal International under the title ‘Foreign aid is hurting, not helping sub-Saharan Africa’, Juliette Lyons wrote that while foreign aid may be efficient in lessening immediate suffering, “it is not the solution in the long run and does not help provide a stable platform for [receiving] countries to sustainably develop.”

Such aid may have been a success with the U.S. Marshall Plan in the late 1940s, she said, but more recent foreign aid efforts have been found to hinder development where it is indispensable, and they involve so much more money than was needed to rebuild Europe after World War II.

According to Lyons, foreign aid does not appear to be showing any significant progress in alleviating poverty, in African countries at least, and in sub-Saharan Africa in particular, which is home to the greatest part of the world’s “bottom million” in terms of extreme poverty.

Traditional development economics, she continued, has been dominated by the idea that large donations is the solution to the savings gap in developing countries but evidence shows that large influxes of foreign aid can end up doing more harm than good. 

Foreign aid was thought to be the way forward for eliminating extreme poverty but since the 2000s the “big push” theory has been subject to heated debate highlighting the negative consequences of aid which appear to have left developing countries in a worse condition than before.

According to Lyons, aid strengthens corruption in countries where it is already widespread and, unfortunately, this is the case for many of the countries that make up sub-Saharan Africa – foreign aid simply reinforces the amount of resources available to already corrupt specific elite groups of people, thus tipping or keeping the balance of power in the hands of the executive branch of government. “There is a clear correlation between increased aid and a statistically significant increase in corruption.”

Meanwhile, Retšelisitsoe Thamae of the Department of Economics at the National University of Lesotho believes that while foreign aid is not the answer for Africa it is not necessarily negative.

He notes that case studies in Malawi, Uganda and Zambia have indicated that a rise in foreign aid induces an increase in development budget expenditure, suggesting that aid does not discourage tax collection efforts or reduce domestic borrowing.

In his home country, the Lesotho Highlands Water Project (LHWP) seems to have been effective in terms of changing government budgetary allocations and has had a positive impact on development spending, supporting the notion that provision of loans instead of grants results in the effective use of government funds.

LHWP is one of the biggest foreign aid-funded projects in Lesotho and brings millions of maloti (the currency of Lesotho) into the country through the sale of water to South Africa.

However, Thamae points to a sort of vicious circle in which many developing countries are trapped, noting that inflows of foreign aid may encourage governments in these countries to be slack in their tax revenue collection effort and pursue policies that favour larger budget deficits and this, in turn, can result in larger savings-investment gaps requiring more flows of foreign aid. [IDN-InDepthNews – 17 May 2017]

Photo: Katse Dam, one of Lesotho Highlands Water Project funded with foreign aid. Credit: Ntsoaki Nkoe | IDN-INPS

IDN is flagship agency of the International Press Syndicate –

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