For the last five decades, giving foreign aid to developing countries, specifically to countries in sub-Saharan Africa has become a priority for many developed nations. The foreign aid in terms of economic, humanitarian, social and other forms have escalated since post-independence period in the 1960s, whereby it is estimated that over one trillion US dollars have trickled to Africa in form of aids (Alemu & Lee, 2015). While it is significantly morally imperative for humanitarian organizations to step in during crisis situations such as Ebola outbreak in West African countries, the sustainability of aid in long-term development have been questioned. The fact many sub-Saharan countries remain underdeveloped despite that trillion of US dollars in foreign aid have been directed to the region raises the question whether foreign aid is actually effective or whether it hinders development (Alemu & Lee, 2015). Omotola and Saliu (2009) posit that although there has been slight reduction in poverty levels in some sub-Saharan countries, the region has failed to show significant improvements despite the escalation of aid from NGOs and developing countries.
According to Calderisi (2006) the ever-increasing aid to sub-Saharan Africa was founded on the premise that it could bring positive outcomes in poverty reduction. However, the positive relationship between foreign aid and economic development is questionable especially with emerging evidence that poverty levels have deteriorated in some sub-Saharan countries. Therefore, as richer governments and NGOs continue to seek recognition by giving huge donations to sub-Saharan Africa, the question still remains whether foreign aid is actually effective in alleviating poverty. This essay will explore how foreign aid continue to harm sub-Saharan Africa by exposing how foreign aid increases debt burden and leads to overdependence, hence making foreign aid to be been ineffective poverty alleviation.
Overview of foreign aid
Before delving into the discussion why foreign aid might be bad for Africa, it is important to provide a brief overview of the concept and its history. Basically, foreign aid refers to all forms of assistance that one country receives from external governments, financial institutions or non-governmental organisations, intended to fill noticeable gaps in the country mostly in production and investments (Ogundipe et al. 2014). The types of foreign aids are diversified and they include loans, grants, foreign direct investment (FDI) and technical assistance (Ogundipe et al. 2014). Basically, the concept of foreign aid which as designed after World War II was intended to help stimulate economic growth in poor countries through supplementing their budgets and investments projects (Bräutigam & Knack, 2004).Literature on impact of foreign aid and economic growth posit that foreign capital inflow could stimulate economic growth in poor countries. The reasons for this assertion is that foreign aid not only supplements domestic resources/savings, but it also assists in minimising foreign exchange gap and allows easier access to foreign markets, which will subsequently lead to economic growth (Djankov et al. 2008). Besides, foreign aid was also intended to support reforms and policy formulation in Africa which would make government agencies and public institutions to be more accountable, transparent, and efficient (Djankov et al. 2008). However, while providing foreign aid to poor countries in sub-Saharan Africa might appear like a noble cause, Djankov et al. (2008) and Gillanders (2016) criticise that five decades for foreign aid have brought more harm to the region than the intended benefits.As shown in Figure below, while foreign aid to sub-Saharan African continue to increase economic growth slowed and/or decline in some countries (Gillanders, 2016).
Figure 1: Relationship between aid and GDP growth
Why foreign aid is harmful to sub-Saharan Africa
Considering that countries in Asia such as China have recorded tremendous economic growth and have been able to pull majority of its population from poverty without foreign aid, it is arguable that foreign aid is not the answer to alleviation of poverty in sub-Saharan Africa. As argued by Gillanders (2016), foreign aid has brought more negative consequences to sub-Saharan Africa leaving the recipientcountries in worse situation than before. This essay will discuss two key negative outcomes of foreign aid to sub-Saharan Africa including debt burden, and overdependence, to support the argument that foreign aid is more harmful to sub-Saharan Africa development.
Foreign aid to sub-Saharan Africa has left many countries suffering due to unbearable debt burden. Emerging statistics indicate that in the period between 1970 and 2002, a total of $540 billion loans were dispersed to Africa, and they paid back in excess of $550 billion, which is $10 billion more than the dispersed loans (Alemu & Lee, 2015). Despite having paid back the excess loans, Africa stilled owed $293 billion by end of 2002 (Alemu & Lee, 2015). Apparently, the huge debt burden have a negative impact on the affected countries, because not only do the debt repayment services depress foreign exchange earnings, they also depress the economic growth rate, and reduce investment, and subsequently escalate poverty levels (Omotola & Saliu, 2009). As at 2013, the sub-Saharan Africa’s total external debt stood at 350 billion US dollars. This has been illustrated in the figure 2 below. The question emerges why developed countries continue to issue loans to sub-Saharan countries while is evident it is doing more harm than the intended good in poverty alleviation.
Figure 2: Sub-Saharan Africa’s total external debt
Source: Gillanders (2016)
Abuzeid (2009) elaborates that most African countries attained political independence amidst very weak economic base. Therefore, owing to the heightened pressure to the post-colonial government to jump-start development programs, external funding seemed like the best option. Besides, Ekanayake and Chatrna (2010) highlight that to encourage foreign investment post-colonial governments had to start some development programs, yet they lacked surplus funds for such activities thus making foreign loans as the best option. Therefore, it is arguable that the initial foreign aids in form of loans to sub-Saharan African were a necessity to jump-start economic development in the region due to the aforementioned reasons above. In fact,Moss et al. (2005) support that borrowing have positive impact on the economy and is one of the best alternatives for steering economic development during recession. However, with continued borrowing, sub-Saharan countries had to bear the brunt of negative conditions attached to their debt and also deal with consequences of poor debt management (Moss et al., 2006). This has been illustrated in the figure 3 below, where the national debt in most countries in the sub-Saharan Africa has witnessed a significant increase.
Figure 3: Nation debt of sub-Saharan countries in 2013 and 2016
Some scholars have attempted to demonstrate how foreign aid to Africa have worsened their debt crisis and thereby increasing poverty that it was intended to alleviate in the first place. Easterly and Easterly (2006) and Enyiuche and Obiefuna (2011) collaborate that the borrowing conditions alongside the high cost of servicing debts have continued to deepen debt crisis in sub-Saharan Africa. Enyiuche and Obiefuna (2011) elaborate that the loans are not unconditional and external creditors give conditions such as political liberalisation, economy deregulation and devaluation of local currency. Such conditions have been found to have negative impact on local economies. Moreover, Easterly and Easterly (2006) note that the poor management of the borrowed funds such as wasteful expenditures further increases the negative impact of foreign loans . Such and more factors continue to sink sub-Saharan African countries into severe debt burden, which has negative impact on local development.
Statistics indicate that debt burden problem is wide spread across most countries in sub-Saharan Africa. For instance, the external debt for sub-Saharan Africa stood at $215.7 billion in 2000 up from $164.9 billion in 1988 (Ogundipe et al. 2014). This is quite a high increase within a period of two years indicating that the thirst for external funding in the sub-Saharan Africa continue to increase , while in an ideal scenario it should be going down decades after independence. The increasing debts imply that these countries will continue to suffer negatively as servicing these debts puts pressure on their budgets and continue to widen their fiscal deficits. As observed by Gillanders (2016), fiscal deficits continue to burden African countries in terms of depressed income and living standards, which further increases the level of poverty in these countries. Nigeria as one of the countries in sub-Saharan Africa continues to experience severe debt burden which constrains their economic growth. Enyiuche and Obiefuna (2011) noted that despite that Nigeria generates much foreign income from oil exports about 70% of its population live in absolute poverty on a dollar or less a day. The above outcomes have necessitated international policy makers to call for redress in African debt crisis through debt relief and forgiveness having realised that foreign loans are undoing the intended good in alleviating poverty in sub-Saharan Africa.
Furthermore, the high levels of foreign aid to sub-Saharan Africa create a problem of overdependence. Van de (2005) posit that the fact that sub-Saharan countries are used to receiving too much money from foreign donors creates overdependence and these countries lack motivation to promote local businesses since they have ready aid at their disposal. Apparently, such laxity prevents the countries from promoting local development and thus majority of their citizens remain in deplorable poverty conditions. Moyo (2009a) notes that continuous provision of foreign aid to poor countries seems not to be making significant contribution in attaining self-sufficiency as the recipients lose the capability to come up with local solutions and end up being over-reliant of aids. Brautigan and Knack(2004,p.256.) defined aid dependency as “ a situation in which the government is unable to perform many of the core functions of governments, such as the maintenance of existing infrastructures or the delivery of basic public services, without foreign aid funding and expertise”. Brautigan and Knack (2004) added that aid dependency erodes state autonomy in decision making process and thus giving the donors leeway to dictate conditions before they could issue any help. The World Bank survey in 1998 established that overreliance of food aid by the Somalia government was harmful to local development whereby Somalia ended up being the most dependent country on food aid than any other sub-Saharan Africa country. In the preceding years before Somalia started receiving food aid, Somalia had a vibrant pastoral and agricultural economy and it had self-sufficiency in grains production in the early 1970s. However, the increased food imports in form of aids to Somali between 1979 and 1984 reduced local prices drastically which reduced the motivation for local crop farmers. Once the farmers stopped producing in large numbers Somalia food deficit rose and the once rich farmers become poor as the country continued to rely of food aid from external donors (Gillanders, 2016). To demonstrate that foreign aid is not always a solution to Africa development, Djankov et al.(2008) highlights that while UNDP spent $900,000 trying unsuccessfully to teach local farmers how to cultivate onions in north-east Ivory Coast, the neighbouring farmers in Burkina Faso had learnt how to grow onions commercially under similar agricultural practices without receiving foreign aid. The above further supports that foreign aid is the not the solution to sub-Saharan poverty problems as the overdependence might discourage the government from coming up with local solutions to Africa problems.
In conclusion, it is evident that though foreign aid remains a major source of income for poor countries in sub-Saharan Africa, it is time to reconsider whether foreign aid is actually more harmful than beneficial. While concept of foreign aid may have had well-meaning intentions in stimulating economic developing in the post-colonial era, it is time to explore the negative impact of foreign aid to sub-Saharan Africa as the outcomes in the last few decades is not impressive. As long as the intended goals in poverty alleviation have not been met, then it is meaningless to continue giving aid to sub-Saharan Africa and continue overbearing them with the debt burden and overdependence ramifications. Generally, the realisation of economic development in sub-Saharan Africa may require more hard work than continuous influx of foreign aid, which creates overdependence and governments’ laxity in stimulating development projects.
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