Foreign Aid: Africa’s ‘Opium’?

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With a collective debt burden of $241 per Kenyan and a daily survival on less than $1 for the majority, there is an urgent need to rethink strategy to economic recovery. A Kenyan writer once observed: “If you find yourself in a hole, don’t dig deeper”. Every Kenyan child is born with a foreign debt estimated at $165. Is the new Kenyan government falling victim to the “opiate of the third world” by digging the hole deeper?

Sub — Sahara Africa accounted for 36 percent of the Official Development Assistance [ODA] in 1995/96, Asia 27.9 percent, North Africa and Middle East 16.9 percent, Latin America 14 percent, Oceania 3.3 percent and South Europe 1.8 percent despite receiving the highest amount of aid Sub — Sahara Africa is the poorest and demanding more aid. Its external debt stood at an estimated $200 billion in the year 2000. Corruption analysts estimate that $10 billion in capital leaves Africa every year, which is more than the foreign aid, pumped in annually.


“While foreign aid is a political success, it is an economic and social failure,” observes John Majewski an economist based in the United States of America. By increasing government power, destroying economic incentives, promoting unprofitable enterprises, and subsidizing misguided policies, foreign aid increases Third World Poverty. Mwalimu Majanga, a Kenyan high school teacher argues, “Foreign aid at best can be used to increase our salaries in total disregard to what in the actual sense our economy can support, when the donors withdraw, the government will be thrown into a salary crisis.”

Recently the former finance minister Chris Okemo complained about donor agencies hidden conditionality that will make it difficult for the new government to gain access to aid money. Ugandan legislators noted that they were also “being forced into many things they were not happy with.” The Bondo Member of Parliament Dr. Oburu Odinga said that the demands of the donors were becoming a thorn in the flesh of Africans. Why then are Africans asking for more?

With a background where the former colonial policies used to prevent African natives from developing industries it is important that Africans pursue strategies that encourage growth in local businesses, entrepreneurial spirit and a vibrant private sector to spur economic development. It is in Africa’s interest to address underdevelopment through appropriate trade, aid and investment policies.

Africans ought to rethink the belief that foreign aid is the engine of development, in most cases aid is either targeted toward humanitarian purposes or public activities that may at times be out of phase with development priorities of a given country. Little is geared toward developing the private sector and entrepreneurial skills. Capacity building will in most cases focus on repairs and less on innovation. If Africa has to develop and compete in the present world driven by market economics then it ought to invest in entrepreneurship. It is entrepreneurs who seek out profitable opportunities, organize productive units, and compete fiercely, keep innovation high and make the country wealthy as well as enriching themselves. This cannot happen when foreign aid puts the government in business instead of the private sector.

The debate on economic recovery for Kenya and by extension Africa ought to focus not on how much more aid should come in, rather on how economic growth can be achieved. Give the private sector a chance to be the engine of growth, simplify rules and regulations governing the establishment of small firms into medium to large sized business, put in place tax reforms to promote investments and savings, enticement for Foreign Direct Investment, privatization of state owned enterprises to enhance efficiency and help reduce the external obligations.

It is a year since a world recognized anti — aid proponent, a Hungarian born development economist Lord Peter Bauer passed on. Described as a lone voice in the wilderness, Lord Bauer wrote books that challenged the myths that poverty is self-perpetuating. He noted: ” All developed countries began as under developed. If the notion of the vicious circle of poverty were valid, mankind would still be at the stone age at its best.” Kenya’s Daily Nation christened him as “The anti — aid hero.” He remained firm for over half a century on his arguments about the dangers of government-to-government aid until early last year when the CATO Institute honored his work through the Milton Friedman Prize for advancing liberty.

For the developed countries, they give aid with the hope that African economies will thrive in order to provide a market for their goods. Picture a situation where a super market gives out money with the hope that the consumers will spend some of it in the same shop. It defeats logic not only for the developed nations but also for the underdeveloped to expect that a country can finance another in order to facilitate a level playing field. The super market cannot fund one to create another competing chain of stores. Addressing strategic self-interest is the key for Africa other than shying away from a liberalized economy.

It will be prudent for government policy makers to focus on promoting intra African trade and providing an environment that can make local entrepreneurs thrive. The recent expression of a sugar cane farmer from Mumias, Ezekiel Masakhwe: “Why is it that our sugar is the only one that gets bashed with others from out, why can’t we also bash other countries’ by sending our sugar out there?” could as well point at areas policy makers should focus on — policies that lower production costs.

Unlike in the private sector where profits drive discipline and efficiency, the African policy makers focus on government projects that are not subject to the laws of accounting and profit. Policy makers are keen to ask for more aid as they bring more activities under direct government management. Taking Opium to relieve pain and get lulled to sleep for over 40 years is not good economics. Africa seems hooked on “opium” of aid and is in urgent need of psychotherapy to move out of this sorry habit.

”’James S. Shikwati is the Director of the Inter Region Economic Network – Nairobi. He can be reached via email at:”’