Funds from rich countries have trapped many African nations into corruption, slower economic growth and poverty. African countries have long relied on foreign aid to support their development, as they lack enough resources of their own. Aid has been used to finance development projects, finance technical assistance, or import critical commodities, including food. Most 'aid' to Africa has actually been in the form of loans.
Problems
Aid to Africa has generally been inadequate in relation to the continent’s development needs. Large deficits have persisted particularly in physical and human capital, which have stifled the continent’s development. Aid has also been subject to considerable uncertainty and volatility. This has curtailed African budgets, subjected the budgets to considerable uncertainties, and retarded important fiscal projects and programs.
The United Nations has set a minimum threshold of 0.7 percent of Gross National Income (GNI) for Overseas Development Assistance (ODA) providers. By 2004, only a handful of ODA providers had reached this threshold. They were: Denmark, Luxembourg, The Netherlands, Norway and Sweden. Notably, the G-7 countries, the world’s largest economies, all substantially fell short of the UN target.
Were these countries to come up to the target, Africa would have a large boost in its ODA, which would give a big push to its development. It must be recalled that the US single-handedly funded the Marshall Plan that raised Western Europe up from the destruction of the Second World War. The US also contributed substantially to Japan’s recovery after the War. It is that scale of assistance that can transform Africa.
Aid to Africa has never matched the continent’s need. Moreover, aid does not always go where development demand would naturally draw it. Aid may not even be correlated with human development the way that it is expected to. A plot of aid per capita against the Human Development Index (HDI) was found to be a random scatter rather than correlated. Aid does not appear to be correlated with income levels either.
In fact, Low Income Countries (LICs), those with GDP per head of less than US$ 735, account for three-quarters of people living in poverty, but receive only 40 per cent of total aid. Sub-Saharan Africa (SSA), with the largest number of LICs and where poverty is most widespread, reportedly receives only one-third of total aid.
Many African countries have low incomes. For the lower-income (LI) group, real GDP per capita is of the order of US$ 300.
Aid is seriously plagued by bureaucracy. It is often subject to government regulations and procedures of each supplying country. Bureaucracy not only breeds procedures and formalities but may also be costly. As aid recipients, African countries have faced innumerable requirements relating to design, approval and reporting. These requirements vary from donor to donor and can be quite disharmonious.
As we have noted above, aid is commonly routed through big development agencies, but this adds layers of bureaucracy, which undermines its effectiveness. Lack of aid effectiveness has long been a source of concern and emanates from various factors.
Conclusion
Many researchers find that foreign aid has negative impact on growth. Knack argues that high level of aid erodes institutional quality, increases rent-seeking and corruption; therefore, negatively affects growth.
Aid effectiveness is not isolated from development effectiveness. In order to achieve the goal of aid effectiveness, it is required to improve the capacity of the poorer countries and to include all stakeholders for a good deal of political interests and commitment at the highest level. The recipient countries should give proper importance not only to their policies but also the way how aid resources will be prioritized, channeled and processed.
The government should divert a larger portion of aid to investment in the desired sector of an economy. The decisions should be taken by the recipient country to ensure the priority. For instance, in an agro-based economy where the economy of recipient country absolutely depends on agriculture, the investment in agriculture sector should get the top priority.
Aid to Africa has never matched the continent’s need. Moreover, aid does not always go where development demand would naturally draw it. Aid may not even be correlated with human development the way that it is expected to. A plot of aid per capita against the Human Development Index (HDI) was found to be a random scatter rather than correlated. Aid does not appear to be correlated with income levels either.
In fact, Low Income Countries (LICs), those with GDP per head of less than US$ 735, account for three-quarters of people living in poverty, but receive only 40 per cent of total aid. Sub-Saharan Africa (SSA), with the largest number of LICs and where poverty is most widespread, reportedly receives only one-third of total aid.
Many African countries have low incomes. For the lower-income (LI) group, real GDP per capita is of the order of US$ 300.
Aid is seriously plagued by bureaucracy. It is often subject to government regulations and procedures of each supplying country. Bureaucracy not only breeds procedures and formalities but may also be costly. As aid recipients, African countries have faced innumerable requirements relating to design, approval and reporting. These requirements vary from donor to donor and can be quite disharmonious.
As we have noted above, aid is commonly routed through big development agencies, but this adds layers of bureaucracy, which undermines its effectiveness. Lack of aid effectiveness has long been a source of concern and emanates from various factors.
Conclusion
Many researchers find that foreign aid has negative impact on growth. Knack argues that high level of aid erodes institutional quality, increases rent-seeking and corruption; therefore, negatively affects growth.
Aid effectiveness is not isolated from development effectiveness. In order to achieve the goal of aid effectiveness, it is required to improve the capacity of the poorer countries and to include all stakeholders for a good deal of political interests and commitment at the highest level. The recipient countries should give proper importance not only to their policies but also the way how aid resources will be prioritized, channeled and processed.
The government should divert a larger portion of aid to investment in the desired sector of an economy. The decisions should be taken by the recipient country to ensure the priority. For instance, in an agro-based economy where the economy of recipient country absolutely depends on agriculture, the investment in agriculture sector should get the top priority.
Aid donors may provide a framework for the implementation of aid funds. Well- targeted aid may increase the ability of the poorer country to maximize the benefits of trade liberalization, improve the environment for investment and ensure that the poor have the ability to contribute towards achieving growth.
Written by - Jesvin Joseph
Edited by - Prachi Raheja
Written by - Jesvin Joseph
Edited by - Prachi Raheja
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