Aid: The Formula of Economic Disaster

Aid, this assistance to achieve development has been idolised for many years, and was seen as the ultimate tool that can help Africa to end the economic struggle. Many...

Aid, this assistance to achieve development has been idolised for many years, and was seen as the ultimate tool that can help Africa to end the economic struggle. Many economists and aid agencies have identified Africa as the region in most need of Aid because the high poverty rate, yet the number of poor in China and India is higher (citizen living on less than US$1,25/ day).

The economic development in the African region has become an international affair that seems to be concerning all the world leaders, except the African ones. Western leaders that look at Africa as a desperate region do not miss any chance or opportunity to point out at those latter that their countries are under-performing, and that their local system is not working, and impose a help on a form of Aid (government to government aid) that has reached US$1 trillion, during the last 20 years, yet the economic situation is not getting better (47% of African population was living in extreme poverty in 1990, nowadays 46,8% live in extreme poverty) if we take into consideration the World Bank identification of extreme poverty that is living on US$1,25 per day or less, considering the inflation (US$1 in 1990 equal US$ 1,86 nowadays), and the increase of the population in the continent that almost doubled (629,986,000 in 1990, and 1,166,239,000 in 2015) the poverty rate will reach the 70%. And as aid is increasing every year reaching billions of dollars (Africa has reached US$1 trillion in aid since 1990), it can be clearly stated that the correlation between aid and poverty is negative.

According to the economist Arthur Lewis, Aid has a negative effect on economies because in a country where aid inflows are high, citizens will feel a certain relief and comfort, which will hinder their efforts and reduce the production as they do not fear the starvation anymore. However, this model assumes that the aid will reach out to the people in need that nowadays is very rare because of the corruption.

Researchers from Africa and UK recently published an illustration of aid in Africa that indicates that current practices (such as unjust policies that allow repatriation of multinationals’ profits (the same multinationals that are killing the local businesses – 13,000 to 15,000 are under restructure programmes by foreign governments or multinational corporations), the exodus of skilled labour, and tax dodging) within the continent tend to favour rich countries. The research identified Africa as a Not Poor continent, but reflect the image and reputation of a poor continent as unequal policies, corruption and power disparities, reputation that has been perpetuated by donors (governments and NGOs).

Africa-outline-FINAL-website

                                                                                                                  Source: HeathPovertyAction.org (2015)

This means, basically, that if you take into account the money coming in through aid, investment and remittances ($134 billion), Africa is left with a $58 billion annual loss. To put this into perspective, the money that Africa loses each year is over one and half times the amount of additional money needed to deliver affordable health care to everyone in the whole world. The continent loses US$35,3 billion each year through the tax evasion and other dodgy financial flows enabled by tax havens.

How to survive without Aid

Dambisa Moyo explained in her book Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa, that the main reason of aid’s failure is the time determination, aid is set in way that makes countries believe that it going to be there all the time, which makes countries rely on it. Instead aid can be set in a form of short-term (5 years) programmes.

Encouraging both local and foreign labour intensive investments, this type of investment might not have an important return on capital and might not increase the GDP as quickly as other type of investment, but it will absorb unemployment, as 60% of the African population is below the age of 24, and 1/4 of the African population remains unemployed.

Also as aid is about eradication poverty, and improve on the economic and social situation in Africa, it might be interesting to start by justice instead of charity and forgive the heavy international debt of African countries, and provide them with free development consultancy services (some African countries like Kenya spend up to 100,000 per day in the world bank consultancy services). As development is not about giving a solution, but about providing choices…

 NB: Eritrea is the only African country that is refusing to receive any kind of aid since 2006, as the country is aspiring to be self- reliable by 2020.

This article was first published here:

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Development
Nawal Allal

Passionate about economic development and Africa, she is Algerian and newly graduated from Westminster University (MA International Business) after being awarded the Chevening Scholarship. Prior to this she worked as a flow trader and accomplished both a BSc and an MSc in International Economics. She currently runs a blog that focuses on the development in Africa (africaniseme.co.uk).
One Comment
  • Poverty, Inc.: The Business of Global Aid
    14 September 2016 at 12:36 pm
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    […] Take Africa, for example. Since the 1960s, Africa has been among the top recipients of U.S. aid. In 2012 alone the U.S. dispersed over $9 billion in official development assistance (ODA) to Africa, the largest amount of ODA from any Western donor country. Despite this, the majority of African nations remain among the lowest on the Human Development Index (HDI). Considering the massive amount of aid that pours into developing nations each year, why haven’t the poor been able to climb out of poverty? […]

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