Why Foreign Aid Doesn’t Work

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Table of Contents

Economic development problems
Poor Systems of Foreign Aid
Politics of Aid Relations
Conclusion
Work Cited

In the current times, people have realized that foreign aid has not been working to the expected level. As a result, international aid conferences have been concentrating on different ways through which aid can be effective in attaining its objectives.

Third world countries have received trillions of dollars to spur economic growth, and yet it has not shown any substantial reform as a whole (Werlin 2009, 483). As a result, many have started questioning if aid is really helping poor countries in coming out of poverty or not. This research paper investigates the reasons as to why Foreign Aid doesn’t work.

Economic development problems

The first issue that is making foreign aid to fail is the big push problem. For economic development to occur, countries have to move from agrarian economies to these dominated by manufacturing. For this economic development to occur, both human and physical capital has to be attracted to economic development process. In addition, it has to ensure that subsistence farming and small scale businesses have moved to more productive activities.

There is no way a country can move from poverty without increasing its agricultural production, unless such a country has never depended on it before. As a result, foreign aid is not working because its major aim is not to increase agricultural production and manufacturing. In general, foreign aid is not targeting at transformation of agriculture an increase in manufacturing share. Instead, it targets things like city development, housing, health services and education for developing countries.

In real sense, these are the facilities used in upgrading peoples’ standards of living. However, in case people can have their own income sources, then they can afford paying for these services and products. It has been argued that, in case people can afford them, then “government could provide them itself, instead of relying on aid to subsidize the provision in a short-term, unsustainable way” (Lars 2006, par 4).

In most cases, donors have been emphasizing on increasing academia along with recognition of economic structure transformation. As a result, they have assumed that all developing countries face similar problems and have similar economic structures. However, this is a wrong assumption as countries in Africa, South America and Asia are facing different challenges.

Since most developing countries faced capital and infrastructure imbalance, the original objective of Aid was to choke both capital and infrastructure imbalances facing developing countries, and promote smooth industrialization of such countries.

However, in 1990s, Aid was used in plugging trade as well as account deficits; which were not as a result of “productive investment and accumulation but rather due to terms of trade or other external shocks” (Lindsay 2009, 11). As an effect, the reason as to why Foreign aid has failed is because its main objective has been ignored, and it is not being assessed in light of industrialization and advancement in agricultural.

Poor Systems of Foreign Aid

Another factor which has also contributed to Aid failure in developing countries is micro-relations, dealing with how aid practices have been carried out. It is true that, “There has been little public attention given to, and assessment of, how aid is actually provided and how aid agencies actually work” (Lindsay 2009, 67). Studies like Nancy Birdsall (2004, 5) have documented the shortcomings in aid activities as well as systems. Some of these problems include aid quality, which has been considerably reducing the real value of transferred aid.

That is to say, aid has been conducted in a manner that, developing countries feel undermined, as their long term projects are usually not given the required weight.

Though the main objective of Paris Declaration was to either eradicate or minimize them, but in real sense, it has done nothing pertaining to it. As a result, there still exist donors’ projects that are uncoordinated; donors are still designing aid projects in their own countries instead of doing it in recipient countries, and still setting implementation units among other manipulations.

This is particularly to do with World Bank, which is still designing and setting its projects in Washington. This has made most developing countries to reject such aids. For instance, the Ghanaian government at first rejected agriculture loan produced by the World Bank in 1999; and later accepted it based on the fact that some changes were going to be made.

However, only a few things were done, but in real sense, only a few amounts were being channeled to agriculture sector. This is because there was no coordination and donors were much uncooperative (Werlin 2009, 482).

In addition, the issue of depending on aid to sustain productive areas in recipient countries has proved very problematic. This is because;

“Donor projects have to be negotiated, so state elites driving support for particular sectors, such as horticulture export, cannot fully determine the content of projects or their implementation. How much they can determine varies with the donor agency, but beyond that, most if not all donor projects are characterized by certain features which make them not a good tool for supporting production” (Lindsay 2009, 14)

Moreover, the process of producing aid proposals, take a very long time, it can take even more than four years. However, in case there is something to change in it after donors have approved it, it is very cumbersome. So, most projects have been failing because of these reasons.

For instance, if there is a problem in the document, such a problem is not changed, hence will have negative impacts after project completion. This has been majorly affected sectors dealing with production where conditions do change within a very short period of time. This is because, after taking longer time to prepare the proposal, the problem to be solved would have changed, but aid regulation and process are not flexible to respond to it (Snowdon 2009, 250).

Politics of Aid Relations

Both recipient and donors have failed to consider the development of aid relations since independence and their political consequences. It should be considered that, in late 1970s and early 1980s, there were global economy changes imbalance of payment and lots o debts in third world countries.

These changes made donors like IMF and World Bank to manipulate policies of third world countries. As an effect, donors placed lots of conditions on policy areas, imposed macroeconomic policies, and even went ahead to transform political and administrative of such nations. These forces have lead to serious consequences in recipient countries (Amsden par 3).

It is as a result of these forces that donors have been giving conditions which emphasizes on their preferences particularly in policy making, and managing funded projects. This has led to permanent negotiations which have overburdened the recipient countries’ systems of administration.

For instance, in case of disagreement between donors and the recipient government, the government ends up choosing donor’s preferences to ensure that it gets maximum aid. This means such projects will not be coordinated or even managed well as the initiative is not from the recipient country itself, but the imposed one (Moyo 2009 par 5). This has made most developing countries to spend most of their time aligning themselves to donors’ preferences by trying to incorporate their own priorities into donors’ demands.

On the other hand, there are also other countries which will wait till the implementation of aid project has started, then try to twist it in a manner that their preferences are also considered. These are just defensive strategies which at the end leaves the country with very little time and intellectual space to make its own independent policies, apart from developing its own frameworks that are coherent.

In most cases, recipient governments have been perceived as being weak in coordinating aid. As an effect, “donors have created for ‘policy dialogue’ arenas between the government and themselves” (Moyo 2009, par 4), which have led to budgeting and policymaking processes which are fragmented. This fragmentation has lead to aid documents which are:

Compromised; this is because in most cases such documents are neither supported fully by recipient governments or even the donors. Hence there are high chances that conflicts might occur during implementation, resulting to project failure.
Lack enough confrontation; this is based on the fact that, the aid recipient government does not argue their position to the maximum as they fear donors. This is due to the fact that, since the government has to continue working in the fragmented process, intensify argument might make the process far much harder.
Lack of effective authority; this is because, neither the recipient government nor donor government has complete authority in the fragmented process of policymaking as well as implementation.

Most aid recipient governments have been using aid with the aim of remaining in power. Such governments have used aids to ensure that goods and services they promise during campaigns have been delivered. As a result, they never take their strong positions during policy making, or even come up with a developmental strategy which opposes donors’ preferences.

This is because, they fear that in case they take such positions, donors might reduce or even stop the aid, hence undermining their re-election into power. It has been argued that, “state capabilities are key to economic development, but that state capabilities are in turn determined by political configurations and the organization of power” (Easterly 2006, 45).

However, in developing countries, the governments as well as the civil servants have not understood the effects of aid dependence, along with the donor engagement intensity in shaping domestic politics and their organization power. Ion real sense, foreign aid has not been working because it has affected countries’ internal powers as well as domestic politics (Easterly 2006, 45).

Conclusion

Although there have been many failures in foreign aid, there was much success between the periods of 1950 and 1975. There have been many reforms in the implementation of foreign aid programs, however there has yet to be a program to work continuously with numerous countries. The failures outweigh the successes, thus unless a new proposal of a plan is created, it can be concluded that the support of developed countries to developing countries is not beneficial, for either side.

Work Cited

Amsden, Alice. The Rise of “The Rest”: Challenges to the West from Late-Industrializing Economies. Oxford: Oxford University Press. 2001. Print.

Birdsall, Nancy. ‘Seven Deadly Sins: Reflections on Donor Failings’, Center for Global Development Working Paper. 2004. Web.

Easterly, William. The White Man’s Burden: Why the West’s efforts to aid the rest have done so much ill and so little good. New York: Penguin Publishers. 2006. Print.

Lars, Smith. Why Foreign Aid Doesn’t Work. 2006. Web.

Lindsay, Whitfield. The Politics of Aid. African Strategies for Dealing with Donors. Oxford: Oxford University Press. 2009. Print.

Moyo, Dambisa. “Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa.”. 2009. Web.

Snowdon, Brian. “The Solow Model, Poverty Traps, and the Foreign Aid Debate.” History of Political Economy. 2009. Web.

Werlin, Herbert. “The Poverty of Nations: The Impact of Foreign Aid.” The Journal of Social, Political, and Economic Studies. 34 (2009): 480-510.

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