Aid dependency
Aid dependency is an economic problem described as the reliance of less developed countries (LDCs) on more developed countries (MDCs) for financial aid and other resources. More specifically, aid dependency refers to the proportion of government spending that is given by foreign donors.[1] Having an aid dependency ratio of about 15%-20% or higher will have negative effects on the country.[2] What causes dependency is the inhibition of development and economic/political reform that results from trying to use aid as a long-term solution to poverty-ridden countries. Aid dependency arose from long term provisions of aid to countries in need in which the receiving country became accustomed to and developed a dependency syndrome.[3] Aid dependency is most common today in Africa. The top donors as of 2013 were the United States, the United Kingdom, and Germany while the top receivers were Afghanistan, Vietnam, and Ethiopia.
History of aid dependence
International development aid became widely popularized post World-War Two due to first-world countries trying to create a more open economy as well as cold war competition.[4] In 1970, the United Nations agreed on 0.7% of Gross National Income per country as the target for how much should be dedicated for international aid.[5] In his book “Ending Aid Dependence”, Yash Tondon describes how organizations like the International Monetary Fund (IMF) and the World Bank (WB) have driven many African countries into dependency. During the economic crisis in the 1980’s and the 1990’s, a great deal of Sub-Saharan countries in Africa saw an influx of aid money which in turn resulted in dependency over the next few decades. These countries became so dependent that the President of Tanzania, Benjamin W. Mkapa, stated that “Development aid has taken deep root to the psyche of the people, especially in the poorer countries of the South. It is similar to drug addiction.”
Motives for giving aid
While the widespread belief is that aid is motivated only by assisting poor countries, and this is true in some cases, there is substantial evidence that suggests strategic, political, and welfare interests of the donors are driving forces behind aid. Maizels and Nissanke (MN 1984), and McKinlay and Little (ML, 1977) have conducted studies to analyze donors’ motives. From these studies they found that US aid flows are influenced by military as well as strategic factors. British and French aid is given to countries that were former colonies, and also to countries in which they have significant investment interest and strong trade relations.[6]
Problems caused by aid dependence
Some effects that arise from aid dependency are stunted economic growth and political dependency.
Stunted economic growth
A main concern revolving around the issue of foreign aid is that the citizens in the country that is benefiting from aid lose motivation to work after receiving aid. In addition, some citizens will deliberately work less, resulting in a lower income, which in turn qualifies them for aid provision.[7] Aid dependent countries are associated with having a lowly motivated workforce, a result from being accustomed to constant aid, and therefore the country is less likely to make economic progress and the living-standards are less likely to be improved. A country with long-term aid dependency remains unable to be self-sufficient and is less likely to make meaningful GDP growth which would allow for them to rely less on aid from richer countries. Food aid has been criticized heavily along with other aid imports due to its damage to the domestic economy. A higher dependency on aid imports results in a decline in the domestic demand for those products. In the long-run, the agricultural industry in LDC countries grows weaker due to long-term declines in demand as a result from food aid. In the future when aid is decreased, many LDC countries's agricultural markets are under-developed and therefore it is cheaper to import agricultural products.[8] This occurred in Haiti, where 80% of their grain stocks come from the United States even after a large decrease in aid.[9] In countries where there is a primary-product dependency on an item being imported as aid, such as wheat, economic shocks can occur and push the country further into an economic crisis.
Political dependency
Political dependency occurs when donors have too much influence in the governance of the receiving country. Many donors maintain a strong say in the government due to the country’s reliance on their money, causing a decrease in the effectiveness and democratic-quality of the government.[10] This results in the receiving country’s government making policy that the donor agrees with and supports rather than what the people of the country desire. Government corruptibility increases as a result and inhibits reform of the government and political process in the country.[11] These donors can include other countries or organizations with underlying intentions that may not be in favor of the people. Political dependency is an even stronger negative effect of aid dependency in countries where many of the problems stem from already corrupt politics and a lack of civil rights.[12] For example, Zimbabwe and the Democratic Republic of the Congo both have extremely high aid dependency ratios and have experienced political turmoil. The politics of the Democratic Republic of the Congo have involved civil war and changing of regimes in the 21st century and have one of the highest aid dependency ratios in Africa.
As aid dependence can shift accountability away from the public and to being between state and donors, “presidentialism” can arise. Presidentialism is when the president and the cabinet within a political system have the power in political decision-making. In a democracy, budgets and public investment plans are to be approved by parliament. It is common for donors to fund projects outside of this budget and therefore go without parliament review. [12]This further reinforces presidentialism and establishes practices that undermine democracy. Disputes over taxation and use of revenues are important in a democracy and can lead to better lives for citizens, but this cannot happen if citizens and parliaments don’t know the complete proposed budget and spending priorities.
Aid dependency also compromises ownership which is marked by the ability of a government to implement its own ideas and policies. In aid dependent countries, the interests and ideas of aid agencies start to become priority and therefore erode ownership.
Corruption
Aid dependent countries rank worse in terms of level of corruption than in countries that are not dependent. Foreign aid is a potential source of rents, and rent seeking can manifest as increased public sector employment. As public firms displace private investment, there is less pressure on the government to remain accountable and transparent as a result of the weakened private sector. Aid assists corruption which then fosters more corruption and creates a cycle. Foreign aid provides corrupt governments with free cash flow which further facilitates the corruption. Corruption works against economic growth and development, holding these poor countries down.[13]
Efforts to end aid dependence
Since 2000, aid dependency has decreased by about ⅓.[14] This can be seen in countries like Ghana, whose aid dependency decreased from 47% to 27%, as well as in Mozambique, where the aid dependency decreased from 74% to 58%.[14] Target areas to decrease aid dependence include job creation, regional integration, and commercial engagement and trade.[15] Long-term investment in agriculture and infrastructure are key requirements to end aid dependency as it will allow the country to slowly decrease the amount of food aid received and begin to develop its own agricultural economy and solve the food insecurity problem.
Countering political corruption
Political corruption has been a strong force associated with maintaining dependency and being unable to see economic growth. During the Obama administration, congress claimed that the anti-corruption criteria The Millennium Challenge Corporation (MCC) used was not strict enough and was one of the obstacles to decreasing aid dependence.[16] Often, in countries with a high corruption perception index the aid money is taken from government officials in the public sector or taken from other corrupt individuals in the private sector. Efforts to disapprove aid to countries where corruption is very prevalent have been a common tool used by organizations and governments to ensure funding is used properly but also to encourage other countries to fix the corruption.
Other methods of aid
It has been proven that foreign aid can prove useful in the long-run when directed towards the appropriate sector and managed accordingly. Specific pairing between organizations and donors with similar goals has produced more success in decreasing dependency than the tradition form of international aid which involves government to government communication. Botswana is a successful example of this. Botswana first began receiving aid in 1966.[11] In this case, Botswana decided which areas needed aid and found donors accordingly rather than simply accepting aid from other countries whose governments had a say in where the money would be distributed towards. Recipient-led cases such as Botswana are more effective partially because it negates the donor’s desirability to report numbers on the efficiency of their programs (that often include short-term figures such as food distributed) and instead focuses more on long-term growth and development that may be directed more towards infrastructure, education, and job development.[12]
Aid dependency in Africa
Africa is far more aid dependent than other regions which makes it the most important to look at when examining the impact of aid. Over $1 trillion in aid has been given to Africa from rich countries in the past fifty years. A study by the World Bank cited that up to 85% of aid flows were used in ways other than the original intention.[17] In the most aid-dependent countries there has been a growth rate of negative 0.2%, and poverty rates in Africa increased from 11% to 66% when aid flows were at their peak. There are certainly other factors at play when assessing the corruption and poverty rampant in Africa, but with all of the information available about the damaging effects of aid dependency, Africa becomes a prime example of them. [18]
Reference
- ↑ Bräutigam, Deborah A.; Knack, Stephen (January 2004). "Foreign Aid, Institutions, and Governance in Sub‐Saharan Africa". Economic Development and Cultural Change. 52 (2): 255–285. doi:10.1086/380592. ISSN 0013-0079.
- ↑ Clemens, Michael A.; Radelet, Steven; Bhavnani, Rikhil R.; Bazzi, Samuel (2011-12-01). "Counting Chickens when they Hatch: Timing and the Effects of Aid on Growth". The Economic Journal. 122 (561): 590–617. doi:10.1111/j.1468-0297.2011.02482.x. ISSN 0013-0133.
- ↑ "Thain, Eric Malcolm, (29 Nov. 1925–7 July 2007), Director, Tropical Development and Research Institute (formerly Tropical Products Institute), Overseas Development Administration, 1981–86; Hon. Research Fellow, Chemistry Department, University College London, since 1986", Who Was Who, Oxford University Press, 2007-12-01, doi:10.1093/ww/9780199540884.013.u37301
- ↑ Williams, David; "The History of International Development Aid". Page 2.
- ↑ "The 0.7% ODA/GNI target - a history - OECD". www.oecd.org. Retrieved 2019-11-04.
- ↑ Boone, Peter (October 1995). "Politics and the Effectiveness of Foreign Aid". NBER Working Paper Series. Cambridge, MA (5308). doi:10.3386/w5308.
- ↑ Grosh, Margaret E.; Del Ninno, Carlo; Tesliuc, Emil; Ouerghi, Azedine (2008-08-25). For Protection and Promotion. The World Bank. doi:10.1596/978-0-8213-7581-5. ISBN 9780821375815. Search this book on
- ↑ Gerstein, Dean R. (2008-06-01). ""A compilation of gambling-related resources available online," and the Alberta Gaming Research Institute, http://www.abgaminginstitute.ualberta.ca/ (last accessed May 30, 2007)". Journal of Gambling Issues (21): 147–148. doi:10.4309/jgi.2008.21.12. ISSN 1910-7595.
- ↑ Ending aid dependency through tax: emerging research findings (Report). doi:10.1163/2210-7975_hrd-0153-3007.
- ↑ Knack, Stephen (October 2001). "Aid Dependence and the Quality of Governance: Cross-Country Empirical Tests". Southern Economic Journal. 68 (2): 310–329. doi:10.2307/1061596. ISSN 0038-4038. JSTOR 1061596.
- ↑ 11.0 11.1 Wijntjes, Marie-José (ed.). "Chr. Michelsen Institute (CMI)". African Studies Companion Online. doi:10.1163/1872-9037_afco_asc_1595.
- ↑ 12.0 12.1 12.2 Moss, Todd J.; Pettersson, Gunilla; van de Walle, Nicolas (2006). "An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in Sub-Saharan Africa". SSRN Working Paper Series. doi:10.2139/ssrn.860826. hdl:1813/55015. ISSN 1556-5068.
- ↑ Bräutigam, D. (2000). "Aid Dependence and Governance". Almqvist & Wiksell International.
- ↑ 14.0 14.1 Wijntjes, Marie-José (ed.). "Overseas Development Institute (ODI), Resource Libraries". African Studies Companion Online. doi:10.1163/1872-9037_afco_asc_1285.
- ↑ Kwemo, Angelle B. (2017-04-20). "Making Africa Great Again: Reducing aid dependency". Brookings. Retrieved 2019-11-04.
- ↑ Roberts, James M. [heritage.org/global-politics/commentary/foreign-aid-breaking-the-cycle-dependency "Foreign Aid: Breaking the Cycle of Dependency"] Check
|url=value (help). The Heritage Foundation. Retrieved 2019-11-04. - ↑ Dollar, David; Pritchett, Lant (1999). Assessing aid : what works, what doesn't, and why. Published for the World Bank by Oxford University Press. ISBN 0-19-521123-5. OCLC 476836142. Search this book on
- ↑ Moyo, Dambisa (2019). Dead aid why aid is not working and how there is a better way for Africa. Tantor Media. ISBN 978-1-977318-26-8. OCLC 1083691427. Search this book on
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