ABSTRACTThis paper aims to provide an overview of African economy in terms of the current and past issues they are facing with regard to foreign assistance from developed economies. It focuses on the development it had made in Africa through policies being adopted by government through the foreign aid. The thesis for our research paper would be effects of foreign aid on the development of Africa.
Moreover, it will identify the reasons for the failures of low level of gross domestic product, increasing poverty along with high inflow of foreign aid and much more. By the end of this paper some recommendations are been suggested to uplift the downward trend of growth in African economies. This paper is further divided into six sections, starting with a brief introduction about Africa economy. Then reasons for failure of foreign aid and the crisis African economy are facing through aid dependence.
We will discuss factors that influence aid usefulness followed by the relationship between foreign aid and development. Lastly, policies are being recommended for the effectiveness of foreign aid along with a general conclusion drawn after analyzing the situation.INTRODUCTIONAfrica is the world second largest continent with second largest population after Asia. African nations are considered to have a very low level of income per captia and a recent statistics from the United Nation shows that 22 out of 24 nations has been marked as “ Low Human Development”.
Moreoverdue to high level of population growth and declining trend in income per captia there is huge influx of capital inflow in Africa in the form of foreign assistance around the global especially from the developed economies. There basic aim is to help the under developed African economies to overcome their problems and recent crisis. This paper aims to provide an explanation and relationship of foreign aid and development in Africa with help of case studies and their likely outcomes.Besides this, I will do an in depth analysis of the policies being adopted by the Africa in the past and recent years and critically examine their findings.
This paper would further highlight both the drawbacks and positive aspects of foreign aid and discus the major reason and background besides every approach. The most alarming fact is though the level of foreign aid is increasing every year in the African economies but their destinies doest change much. As in comparison to the past two decades the real per captia has decreased rather than having a positive increase. This suggests that African problems cannot only be resolved through foreign assistance but other aspects also need to be address.
It has been estimated in the Wall Street Journal that western economies has nearly spent $50 billion yearly and $60 trillion has been provided in past 60 years in Africa in the form of aid but yet it is deprived of basic infrastructure, level of income and standard of living. As some states like Somalia has been collapsed.Reasons of failure of aid in Africa:Overall, it has been generally viewed that foreign aid is short term rather than a long-term solution for the band-aid problems of Africa as this aid doesn’t particularly aim to have a structural transformation to change into an independent developed economy. It could be only made effective if the donor countries plan some long term projects such as in telecommunications, highways and power plants.
In the past and even in recent year many theorists such as Amin, Peter Bauer and Andre Frank argued that global economic structure is held responsible for under development in countries like Africa. Most recently Parh(2002) acknowledge the fact that Africa itself should be held responsible for its weak economy due to terribledictatorships and practices such as corruption hence the problem is a mixture of both internal and external affairs where as Calderisi gives a different point of view. According to him African economy has inherited problems thus it cannot blame globalization and international trade. The root problem of all the issues are the same as donor countries are in efficient in providing a proper guideline for government of Africa that how, where and in which sector it is best to allocate the aid.
As the donor countries are much aware that there is high level of corruption, cultures issues and political problems but unable to guide them where there are going wrong. Thus strict foreign aid policies should be adopted and should focus on five serious countries, namely, Uganda, Ghana, Mozambique, Tanzania and Mali. Moreover, a Zambian economist wrote in her new book, Dead Aid: Why Aid is Not Working and How There is Another Way for Africa, and suggest that foreign aid is “an unmitigated political, economic and humanitarian disaster”. Furthermore, in New York Times it has been stated that foreign investments, trade and microfinance opportunities can helps to provide a better hope for African economy.
African economy crisis of aid dependence:Apart from the failures of foreign aid, it is viewed that African economy are heavily dependent on the foreign aid as without it nearly half of the yearly budget issues cannot get resolved. For example, in 1992 foreign aid resulted to be 12.4% of gross national product (GNP) and 50% of total imports. (Ampaw, 2000).
The development assistance and foreign aid has lead to dependency in African society as they are becoming lazy, mindless and forming of various cultures across the society. Basically, the people of Africa have lost faith in them and actually the will to achieve their desirable goals. For instance an economy can only develop if they have the willingness, ability and knowledge with regard to it. But, African nation seems to be a mere puppet of Western economies to tailor their needs.
Moreover, modernization school of thought suggests that historical background of Africa is not a result of current situation. Moreover, even if there is a logical implementation of national economic policies in Africa in accordance with structural adjustments program will not drive it out of debt rapidly. It is a long process and requires patience and stability. Even though such long term loans and aid will further worsen the condition.
Ithas been observed that Official Development Assistance has been declined since the 1980s as the aid that aims to reduce poverty in Africa is now working on the global issues but donors still represent a positive trend in aid. Due to armed conflicts in the places like Congo, Sumalia, Angolo, Ruwanda, Burndi and Sudan the development is adversely affected. As the flood gates of foreign assistance will keep on increasing yearly it will not show a long term impact. The strategy of Machiavellian Prince can be adopted to address the unresolved complex problems of Africa.
We cannot say that democracy is key for the progress neither we can predict where these countries would have been without dictatorship. For example China being the third largest world economy but still it experience Human Rights violations and high level of inequality. So there is a doubtful conclusion about dictators as one individual cannot drive billion people out of poverty, corruption, inequality and low gross domestic product. Hence, it requires a separation of needs and wants to make aid influence effective and lead the economy on the road of development.
Factors that influence aid usefulness in Africa:It has been argued in IMF seminar in 1995 that even though the destiny of Africa lies in their hand but still they need international foreign assistance to overcome the macro-economic imbalances. The encouragement and desire from the donor countries can positively integrate the economy as it beacons the hope of ownership and control. Furthermore, World Bank six guiding principles could also been taken in account such as client orientation, cost benefit analysis, result analysis, partnership agreements and allocation of financial resources. Moreover, the donor countries should also consider certain things to make aid more effective such as an overview of public expenditure and investments, fiscal and monetary programs and most importantly there must be counter check for transparency.
Even after the ten years of implementation of policies being suggested by IMF it doesn’t show a positive result. But, it further makes the situation complex as whether foreign aid should be increased or decreased in Africa. Thus, policies mentioned above requires long run time frame to be useful to present an increasing trend on real growth due to aid. However, if there is efficient and effective governance, competent bureaucracies and honesty rather thancorruption then problems might get resolved in Africa.
To make a develop African economy a strict and an honest ruler is required as it has been observed in the past that many African leaders were selfish in nature and accumulate the state wealth for the sake of their own luxurious life styles and comfort. Therefore, they require foreign aid from wealthy nations. Hence there must be proper check and accountability. As there so many international organizations such as United Nations, World Trade Organizations and IMF who support Africa through foreign aid they could be more effective if they all make a collaborative decisions on how to allocate the aid in Africa such which region and department requires greater attention.
Besides this, foreign aid is not the only concern for underdevelopment but there are low of savings and investment as well along with high level of population growth. Moreover, countries like Bostwana with 1.9 million population and 1.2% annual growth rate has moved towards the strong healthy economy even though it is in worse condition then African economies thus a reliable dictatorship is needed with an eager to resolve the issues.
Huge number of African economy could easily develop if they work at fullest to provide quality results. Moreover, Africa is enriched with resources it just needs to exploit them and make effective allocation of resources. Thus, a well organized and equipped labor force can bring a remarkable change. African citizens require a driving force to wake them from awful effects of foreign aid in their economy.
Relationship between foreign aid and development in Africa:Now, the most important question is whether foreign assistance is of any help for Africa. Even, if it does then how it is measured either in terms of GDP growth rates, poverty level or basic standard of living. But, unfortunately it is difficult to answer this question as Rostow (1990) sees the foreign assistance the “the external intrusion by more advanced societies” for the sake of development. Apart from this, Hayter (1971) gives different point of view according to him foreign aid is a form of imperialism which cannot result a success of an economy.
Foreign support in form of aid can only be helpful if it is provided in sound and healthy environment. A paper by Burnside and Dollar( 1997) used a sample of 56 countries and four time frames which shows when aid is coincided with good policies it resulted apositive impact on growth rates. But every individual has different approach as some argued that there is no significant correlation among policies and development as some poor countries are unable to meet the criteria. However, Sachs (2005) thinks that rising level of aid has the possibility to end the poverty by 2025.
But it is in reality difficult to draw down the conclusion that aid is always useful for recipients as many countries like Africa are still facing huge amount of foreign aid but still lie below the poverty line. So therefore, it is important to consider the cultural values for the development of a nation as Africa is divided among various cross cultural societies. According to Rostow if Africa wants to progress then it requires modernizing their society by giving up their traditional cultural values and bring forth the euro centric ideology. As a comparison between Ghanna and South Korea in 1960s both the countries where developing but in the span of thirty years South Korea has experienced rapid growth due to the strong cultural values but Ghanna progress is a still a question despite the foreign assistance.
Policies recommendations for African economy:To lead African economy towards development it needs well organized civil services but they are mostly run by bureaucrats so it should be corruption free. In Cameroon, it takes 426 days for a potential investor to get a business license which involves 15 steps which is clearly a discouragement. In this case policy like South Korea should be adopted where it requires 17 days (10 steps) to get such a license. Moreover, due to fertile African land it should grow food in their respective countries rather than taking food aid to create employment opportunities for local farmers.
Furthermore, there is a problem of “Dutch Disease” it leads home prices to increase due to huge inflow of foreign aid which adversely effects the home country exports. Thus, employment is not generated due to high level of competition in the international market. To overcome this problem of aid-led inflation African economy should issue bonds to create surplus from the money injected in economy through foreign aid. Africa is unstable due to civil wars since 1996 thus an effective military and law and order should prevail in the economy.
Besides this, a book written by Calderisi named as The Trouble with Africa: Why Aid Isn’t Working, is a useful tool to critically assess the Africa inpast and present days. The book provides an insight that the current civil war on the religious basis should be controlled as it is due to poverty, lack of education and health services. Moreover at the end of book ten recommendations are being provided for the effectiveness of foreign aid in Africa. Basically he suggests throughout his book that new ideas, leaders, approaches, access to latest technologies are need rather than inflow of aid.
In his opinion foreign aid further slows down the process of political changes in Africa. Thus rather than foreign aid there is dire need of domestic structural transformation to gather the nation in one unit and to end inequality, war on terrorism and slavery.Conclusion:In my opinion, the foreign aid in Africa has generally hurt the economy rather than helping them to achieve their goals. The foreign assistance has made the African nation dependent and mindless.
They have lost the hope for better future with ever increasing poverty level, downward trend in real GDP per captia, lesser Purchasing Power Parity and low standard of living. Despite the fact that population is increasing every year but the large labor force is unemployed and unable to reap the fruitful result for the economy. Hence, it is safe to conclude that African economies need foreign aid but through proper channel of effective policies, transparency and counter check from the donor countries. A strong democratic government with efficient policies is required to exploit the natural resources, to eradicate basic social, cultural, ethical, development and religious issues from the grass root level.
Moreover, African economies have made progress in education and health but there are so minute to discuss. Apart from this, a freedom of expression and liberty should be granted to end the trend of slavery from under develop nations like Africa. For instance, the international organizations should plan certain short term policies in the form of aid for Africans to help achieve their macroeconomic objectives in the long run. Lastly,I have discussed certain policy recommendations in my paper and if they are implemented then there is hope of success.