In Joseph Stiglitz’s iconic book, ‘Globalisation and its Discontents’, he outlines the multiple faults of the globally centralised economic institutions, however he also claims that it can be a force for good. This brief article hopes to follow a similar course with foreign aid.
There is strong literature regarding negative effects of foreign aid, indeed The New Times frequently criticises its intentions and impacts. However this is simplistic, ignoring the potential aid provides.
There exists a ‘go it alone’ attitude in Rwanda and across the developing world, one article in The New Times was entitled ‘The G8 owe Africa nothing’; however a very brief glance at the trade imbalance and its pretty evident that the G8 owe Africa a hell of a lot.
Simply, the Western economic mantra for developing states is an opening of markets; this has been met however with protectionism in the West.
The UN Conference on Trade and Development showed that WTO and IMF policies from 1980 to 2000 reduced the income of the poorest 20% by 2% a year, with Christian Aid estimating losses of $100 billion annually.
This indictment doesn’t even consider the impact of subsidised agricultural ‘dumping’ and the reverberating economic crisis originating from the New York hedge funds. The G8 owes Africa a lot.
The issues with aid are equal to those of trade conditions. First is numbers, in 1970 governments of donor states pledged 0.7% of their economies to international assistance whilst the figure is currently a mere 0.2 – 0.3%.
This is further exacerbated by ‘phantom aid’, inaccessible aid to developing states, Action Aid estimates this accounts for 47% of all aid pledges.
The aid too often works for the donor, the US has the highest gross aid figures but 70% of the commitments are attached to clauses benefiting domestic producers; reducing investment for recipient industries and resulting in an uncompetitive use of resources.
This is combined with aid to further foreign policy, two-thirds of US aid goes to Egypt and Israel, geo-political priorities.
In the context of oil contracts, states have resulted in aiding defunct and authoritarian leaders, the US with former President Obiang of Gabon and the Chinese with the ruling Angolan MPLA.
‘They should respect us for wanting to decide our own fate’ Kagame announced as he declared Rwanda’s movement away from foreign aid, following Dambida Moyo’s insightful book ‘Dead Aid’; however it is Rwanda who shows aid’s potential.
This past income has created Rwanda’s investment environment, the roads, education and security; it demonstrates the importance of balance in trade and aid and the role of the recipient, what Paul Kagame describes as ‘aid on our terms’.
Meanwhile, despite Rwanda’s unique example, William Easterly - a leading economist – offers a solution to aid issues, ‘dear rich countries, please give up your utopian fantasies of transforming the rest’.
Perhaps the path of change lies in avoiding assertive Western ‘bureaucrats’ and top-down strategists, instead providing the opportunities to local people, with local needs.
A figure of 2.3 trillion of aid has never lifted a country out of poverty; unsurprising given that money flows from the poorest to the wealthiest; however this doesn’t negate the potential importance of aid.
Accountable, intelligent aid that works for the recipient, combined to a more equitable trading environment will provide the environment for development.
The needed aid and trade reform is not generosity, its base humanitarian responsibility with a potential far beyond ‘going alone’, this form of global assistance can develop Africa, not global exploitation.