Rethink Aid Strategy to Poor Countries

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Aid agencies with good intentions have sought to assist poor countries emerge from their sorry economic state. Sub-Sahara Africa alone received total aid of some $83 billion between 1980 and 1988. Yet all those funds failed to spur economic growth and arrest Africa’s economic atrophy. The standard of living fell by 1.2 percent a year during this period. During the 1965 – 1984 period, 18 black African countries had growth rates of less than 1 percent per annum. The worst performers were Benin, Burkina Faso, Chad, Ghana, Liberia, Somalia, Sudan, Uganda and Zaire.(1)

Based on the strategy of interrupting the vicious circle of poverty, aid agents have been pouring billions of dollars into poor countries. According to this notion, stagnation and poverty are necessarily self perpetuating: poor people generally, and poor countries or societies in particular, are trapped in their poverty and cannot generate sufficient savings to escape from this trap.(2) This idea relegates the poor to the status of animals: we all know that an eagle’s nest a century ago looks pretty much the same today. Animals do not employ the use of their minds to change the status of their life. Human beings do use their minds and that is what makes us principally different from animals.


A prominent development economist, the late Peter Bauer, argued that throughout history innumerable number of individuals, families, groups, societies and a few countries — countries both in the West and Third World — moved from poverty to prosperity without external donations. All developed countries began as underdeveloped: if the notion of vicious circle were valid, mankind would still be in the Stone Age at best.(3)

Government to government aid has damaged existing institutions of productivity making poor countries poorer. Aid encourages governments to seek foreign assistance through beggary, extortion or threats, instead of creating needed change at home. Bauer observed, “Unlike manna from heaven which descends on the whole population, these subsidies go to the government”.(4) Government to government aid facilitates statism, which is hostile to the needs of the individual. It normally supports government directed projects and feeds a system of corruption. In other words, aid has tended to erode the proper role of governments in poor societies, hence scuttling ongoing development and scuttling any reforms that may be already underway. I would like to explore briefly the chief role of government by comparing the government and individuals to a referee and soccer players.

The referee and players in soccer is suggested as an analogy that can be compared to government and individuals in wealth creation. Without the referee, football would be chaotic but, for the sake of fairness, the referee ensures a fair game that prohibits illegal scores. Competition is live in the field and the duty of the referee is to see to it that the best talent takes the show. Note that it is not the referee who chooses the talent; the spectators and the efforts of the individual players determine who is best.

The referee is not a player but we have had incidents where the referee influences the outcome of a game by unfairly awarding penalties that make a team in his favour win. We have heard of referees and their linesmen (assistant referees) ignoring offsides and even giving red cards unfairly. When this happens the best team rarely reaches t h e league finals. T h e actual t e s t comes when such a floppy team has to represent a country against other teams that won out of talent. Victory never comes home. In the world of economic soccer, individuals are the players and the government is the referee. When a government favours a few businesses at the expense of the others, the economic game is messed. When it continually awards “red cards” to those it does not favour, a poor team is presented to the international economic market and victory can never be ours. What aid has done over the years is strengthen governments in poor countries whose role has been largely to erode the capacity of individuals to generate wealth. Does Africa need aid from donor agencies?

”Aid to Governments”

Aid to governments certainly has some positive effects, which include the development of major projects such Aid has sapped the initiative, creativity and enterprise of ordinary people as dams, roads and public buildings. However, it also leads to a government receiving resources from external sources other than taxes. This makes the government less responsive to its people. People become less attached to the government system, which in most cases is normally richer than the rest of the society. This leads to patronage and rent seeking. Accumulation of wealth becomes directly linked to political patronage and links as opposed to products presented to the market. Aid has politicized the economies of many poor nations, diverting attention, energy and resources from productive activity to concern with political and administrative decisions.

Between 1981 and 1996, nearly half the countries in Africa experienced significant episodes of violent conflict between government and opposition groups. By 1998, an estimated 4 million people had lost their lives as a direct result of political violence. Another 3 million became refugees. During the 1980s, at least 92 successful or unsuccessful military takeovers were recorded, affecting 29 African countries. Seven Africans heads of state lost their lives whilst in office in the 1980s and 1990s.(5) A keen analysis of these events reveals a quest to partake of the “national cake” which in most cases is aid from the wealthy countries. In summary, aid to poor countries is counter-productive for the following reasons.

*It gives untrustworthy leaders resources they use to repress their people and legitimizes brutal tyrannies.

*Aid corrodes indigenous democratic institutions.

*It undermines the institutional capacity of governments, making most of them to be too dependent on aid that they cannot deliver public services without external funding.

*It promotes graft in poor countries. For instance, graft grew hand in hand with foreign borrowing. By 1982, Zaire (now the Democratic Republic of Congo) had accumulated a foreign debt of $5 billion and the president Mobutu Sese Seko had accumulated a personal fortune of $4 billion.(6)

*Like welfare in developed countries, it makes the poor people heavily dependent and reduces incentives to be creative.

*Lending to governments expands a country’s bureaucracy, finances and centrally planned economies.

*Governments use aid to buy arms instead of focusing on creating the legal structure and commercial code necessary for long-term investment that can spur economic growth.

*Aid to governments funds government enterprises, which compete with private sector enterprise. For instance, Ivory Coast’s Structural Adjustment Loan was used to “finance the arrears of several state agricultural enterprises.”(7)

*The citizens in developing countries have not been given an opportunity to create their own agenda for their countries.(8) In most cases their governments focus on meeting donor set benchmarks instead of focusing on the productivity of their citizenry. An exit option seems nonexistent once a country gets hooked on aid.

*Poor governments have been forced to work exclusively with bureaucracies of aid agencies (estimated 40,000 expatriates in Africa). This has made it difficult for poor countries to realize an effective human resource capability because their own experts are either ignored or no investment is prioritized to this end.

*Caufield observes that aid has facilitated the creation of monstrous projects that have devastated the environment and ruined lives.(9) For example, “in 1977, the World Bank agreed to lend Kenya $40 million for the Bura irrigation project. The idea was to irrigate the 16,000 acres along the Tana River in the semi arid eastern part of the country, and bring in 5,000 families to grow cotton and other crops for export. Within 9 years, the project’s costs had quadrupled, the irrigation works had failed, and 20 percent of the settlers had abandoned the area. Those who remained were seriously indebted, had a high incidence of malaria and malnutrition and had death rates several times greater than the rest of the country.”

*Aid has sapped the initiative, creativity and enterprise of ordinary people by making them reliant on government aided initiatives

*It has sucked potential entrepreneurs and intellectuals in the developing countries into nonproductive administrative work by seeking to produce better aid managers as opposed to producing a productive work force.

*Aid has allowed the dead grip of imposed officialdom to suppress popular choice and individual freedom.

*Wealth creation has been scuttled by promoting a dependency on handouts.

*Governments of poor countries seem to rely less on taxes and more on aid. This has made them to be less responsive to the needs of the people and inefficient in public service delivery. Economic Impact of Aid The amount of money that left the Third World during the lending boom is staggering. From 1976 – 1984, capital flight from Latin America equaled the increase in external debt of the same countries.(10) When Africa became the most aided continent, GDP per capita fell by an average of 3.4 percent per annum.(11)

Caufield states that since the early 1980s, mainly as a result of a sharp decline in new lending by private banks coupled with ongoing repayments of old loans at rising interest rates, the wealthy countries have consistently been net recipients of funds from the Third World — not net donors to it — even when Overseas Development Aid (ODA) is taken into account. Initially the gain of the North was small — just $300 million in 1983. In 1984, however, it had risen dramatically to $12.5 billion. Since 1985, the poor South’s net transfer of finance to the rich nations has exceeded $30 billion per annum. The figure for the year 1 July 1987 to 30 June 1988, for instance, was $39.1 billion.(12)

*Between 1986 – 1988, the IMF received net payments totaling $8 billion from the Third World.

*The International Bank for Reconstruction and Development in the financial year to 30 June 1988 received $1.9 billion from poor countries.

*From 1982 – 1987, British Banks took in more than