What Does Foreign Aid Acheive?

2 03 2010

This is the third of three articles I published earlier. I think the three raise the serious issues associated with poverty and corruption, and give evidence of the reasons why they must tackled together as one policy not as two separate issues.  I first published this article on the 9th August 2008.

According to Andrew Mwanda, a leading Ugandan commentator the answer is very little in terms of economic growth. The evidence supports his arguments.

“Over the last 40 years, Africa has received over $600 billion in foreign aid and debt relief. For most of this period, the continent sustained zero to negative growth; positive growth was only occasional and sporadic, depending on international commodity price fluctuations.” reports the Guardian newspaper.

The article continues, “Why has aid been antithetical to growth? There are many reasons, including mismanagement and miss-allocation of aid resources, slow disbursement of aid monies and corruption. But the fundamental reason is that aid creates the wrong incentives for growth.”

Despite the evidence The recent G8 Summit in Japan upheld earlier calls for doubling foreign financial aid to Africa as a solution to poverty on the continent.

Mwanda suggests that If the source of this revenue is the national economy, government would be driven by self-interest to listen to its citizens about policies and it would be necessary to increase the productivity of private enterprises. But, foreign id distorts the situation. Rather than forge a productive relationship with their own citizens, governments find it more profitable to negotiate for revenues from abroad.

Foreign aid that has saved incompetent governments from collapse. By providing them an external subsidy, governments in Africa have been able to retain power even when pursuing policies that impoverish their citizens. Cut the aid, and many of them will be forced to pursue economic growth or pay the political price of their economic folly.

Our View: Almost certainly Mwanda´argument is correct, but this should not lead to an ending of aid. Instead it is the responsibility of o private and public, to adopt policies that recognise and address these issues. That means supporting initiatives, such as those by Transparency International, to encourage the expansion of open and accountable governments, and continuing to expose those that under-perform on the Corruption Perceptions Index which ranks 180 countries by their perceived levels of corruption, as determined by expert assessments and opinion surveys. This index allows decision makers to adopt policies and make investment decisions accordingly.

War, Corruption & Poverty

22 07 2008

In the last article about “Aid, Corruption & Poverty” is sited an article talking about aid to Afghanistan. There the problems continue and the lessons have not yet been learnt. Worse still, the same mistakes are being made in Iraq.

WHAT HAPPENED TO THE BILLIONS OF DOLLARS OF IRAQI RECONSTRUCTION MONEY money entrusted to the American Coalition? In just fourteen months, the CPA burned its way through nearly $20 billion. But no-one can account for where it all went. Iraq’s infrastructure is worse than ever before. Operating theatres are flooded with sewage. New-born babies are dying for lack of basic equipment. In this shocking ‘Dispatches’ investigation, Iraqi doctor Ali Fadhil goes in search of the missing money. He uncovers a horrific story of fraud, incompetence and corruption.

Click here If you want to see the full video (47min)

Aid Corruption & Poverty

22 07 2008

It does not take long to dig up articles to confirm the link between corruption and poverty. Indeed governments and institutaions are very aware of the problem. The big question is how many are really addressing the issues?

Larry Elliot, edconomics Editor of the Guardian newspaper (UK) as recently as 24th June reported that, ” MPs fear corruption risk from poorly monitored aid.” The story said, “Parliament’s spending watchdog will warn the government today that lax monitoring of aid spending meant hundreds of millions of pounds of taxpayers’ money was at risk of corruption or being wasted.”

The committee chairman said, “Despite spending around one fifth of its bilateral aid in the form of direct payments to the governments of developing countries, DFID does not know how good an instrument this is in reducing poverty. Nor does the department know whether such support provides better value for money in reducing poverty than other forms of aid.”

And, it does not take long to find evidence of the additional problems that can be cause by badly managed aid programs. “Poorly directed aid increases Afghanistan’s woes” was the title of an editorial piece in the Observer newspaper (UK) yesterday. The article says, “Corruption and criminality, linked often to the very heart of government, is endemic. Despite $15bn in aid that has been disbursed, Afghanistan remains mired in pervasive poverty with unemployment standing at more than 40 per cent. The country’s position as one of the world’s poorest has barely shifted since 2001.”

With all the money invested it says, ” There have been some positive steps since the fall of the Taliban regime. Millions of children are in education in a country with a long history of high levels of illiteracy, particularly among women. A vibrant media, although under threat from many sides, also exist. Improvements have been made in the provision of healthcare. But this is not enough to persuade Afghans that much is getting better when they are confronted daily by criminality, violence, a predatory police force and an ill-educated and corrupted civil service.”

And the article goes on to say, “The hazard of throwing more money at the problem is that without a tighter focus to that spending, Afghans see the increased aid budget as an opportunity for a small elite of Afghans and a small army of international contractors and aid workers to enrich themselves still further. A further consequence is that, because it lacks a professional civil service to support the people, the aid community has shouldered the burden, inadvertently undermining still further the development of effective local services.”

I am not arguing that aid should stop, on the contracry it should increase. But, it is just as important to make sure that what is spent is used effectively, and certainly does not make existing problems worse. Corruption is a very complicated issue, but that is not an excuse for ignoring it. Ignoring it costs lives.

Institutions like Transparency International provide a great deal of help to aid giving and aid receiving countries. They have developed best practice guidelines for reform based on the latest research into the causes and effects of corruption. All governments would be well advised to take their adviseand adopt comprehensive anti-corruption policies. Advice is also available to private enterprise and to individuals who want to fight corruption.