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Effectiveness of Financial and Technical Aid. Has Financial and Technical Aid Solved Africa’s Development Problems?

Valentina Okaru-Bisant
Associate Professor of Law and Director,
International Human Rights and Economic Development Clinic,
Barkley School of Law, Paducah, Kentucky.
Consultant to Bilateral Aid Agencies on Law and Institutional Development
Written in August 2008

Financial and technical aid, per se, has emasculated Africa’s economic development. Particularly, aid that is either targeted to governments or to communities that governments decide should receive funds has stifled long term sustainable development of most nations in the African continent. Proponents of financial and technical aid point to a few isolated success stories of aid to support the epidemic of aid as a solution to Africa’s economic development problems. Between 1960 and 2003, most nations in the African continent received $US600 billion dollars worth of financial and technical aid (see Andrew Mwenda, TED, September 2007). But despite the excessive aid, Africa’s economic development has not improved, but the continent is trapped in a vicious cycle of financial dependency and hopelessness . The continent also suffers from a negative perception within the global business community that it is a den of despair, helplessness corruption, conflicts and famine. Such perceptions are a reality in few nations and should not be presumed to be rampant in most African nations. The danger of generalizing such negative perceptions in the continent is that they undermine the reality on the ground and the positive image and entrepreneurial nature of the local citizenry in some recipient nations.

It is true that financial and technical aid has sometimes helped some nations to develop, including providing health and education facilities to their communities, but the numerous disadvantages of aid outweigh the few success stories. The disadvantages include the following 7 pitfalls (what I call the 7 deadly sins of aid supplier and recipient communities) in financial and technical aid processes that must be overcome for African nations to successfully develop:

1. Financial and technical aid aggravates the vicious cycle of poverty and creates a destructive cycle of dependency instead of emancipation and local entrepreneurship. . It puts a government aid recipient and its county in a perceived submissive position of helplessness with respect to the decision making process of implementing the economic development initiative that is being financed.

2. It aggravates the internal culture of aid supplier whereby compensation and promotion rewards lending regardless of developmental impact and consequences (see Alan H. Meltzer, Close it Down).

3. It stifles an aid recipient government’s ability to develop and use its country’s factors of production (For example, skilled local labor and capital). It creates a disincentive for recipient governments to develop and to mobilize self- help local initiatives and to utilize local skills (within aid recipient nations) that promote long term sustainability and success in development initiatives. Aid implementing strategies relies partly on the rhetoric of capacity building and utilization of fly-by-night technical experts as well as inexperienced, but for the most part, well meaning foreign aid experts (from the aid supplier nations). It disrupts and disregards any ongoing local economic development processes in aid recipient nations, but instead favors parallel, conflicting and superficial development aid projects that are unsustainable due to lack of local ownership that are not deeply entrenched in the local economic, social and institutional processes. It also aggravates the use of the rhetoric of capacity building initiatives without results rather than commitment to economic development through feeding into existing processes and using qualified local institutional capacity. Most financial aid documents sing the song of the need for capacity building in African nations and have been singing that song for many years.

4. It stifles the incentive of a recipient government to have a meaningful dialogue and productive arrangement with its local citizenry and local entrepreneurs about ways to mobilize home grown economic development processes, including entrepreneurial initiatives, research and development and sources of generating local revenue. Instead of addressing local needs and challenges through a dialogue and relationship with its local citizenry and civil society (e.g. communities and entrepreneurs), most governments look outward to aid agencies for a dialogue re: solution to their problems (supra- Andrew Mwenda-TED).

5. It gives an aid provider a perceived financial and economic leverage in the decision making process re: selecting, designing and implementing the economic development initiative that is to be financed.

6. It aggravates ethnic tensions, nepotism and power struggles between the various political constituencies, institutions and regions over their shares of the national cake of foreign aid.

7. It aggravates corruption and lack of accountability because the financial aid award process does not involve the participation and input of local citizenry. Further, a dysfunctional political process which is bedeviled with an undemocratic voting system and lack of transparency hinders the ability of local citizenry to make its government accountable for sound performance in implementing aid financed projects.

Despite all these pitfalls, any fight against increased financial and technical aid to developing nations will be difficult to win partly because of political economy concerns. Financial and technical aid will continue at either the same or increased rate because the popular opinion in the development community continues to favor such aid to African nations. Realistically, political and economic considerations in the global political economy militate against eliminating the tsunami of aid that is constantly pumped into the hands of governments in developing nations. The answer to two questions partly explains why it will be difficult to reduce or eliminate aid to African nations. First, why has the United States and the European nations ( for example Britain, France, Russia and Germany) continued to pump millions of dollars into developing nations either through bilateral support (USAID) or through multilateral support (World Bank) when a significant proportion of its own citizenry in some rural (e.g. Appalachian mountains and Mississippi) and inner-city (e.g. south east Washington DC near the World Bank) communities lack self help support, including employment opportunities and sound education? Second, why do governments of African nations continue to seek aid when evidence demonstrates that the aid they have received over many years has not solved most of their economic development problems? The answer to the two questions is partly because paradoxically, developed and developing nations have a codependency relationship with respect to their support for increased financial aid to Africa. On the one hand, aid providers of developed nations use financial and technical aid as instruments of maintaining economic and political domination (of developing nations) in the silent power struggle between developed nations within the global political economy. During the era of the cold war of the 1980s, the United States and the former Soviet Union provided aid to developing nations to gain support from and to leverage their powers over developing nations. Further, in the current age of terrorism, developed nations (e.g. the United States) give aid to some developing nations (for example, Pakistan) as a means to protect national security, including gaining partners in the war against terrorism. On the other hand, governments in aid recipient nations also use aid as divisive instruments of political and financial influence over their respective constituents and communities who fight for a share of the national pie (aid).

Therefore, assuming that aid will continue, the aid community (both supplier and recipient) must understand that it is in their mutual interest to change the way they conduct the aid business. Aid dependency of recipient nations will hurt the long term sustainable development of both aid suppliers and recipients. For example, increased poverty from poor performing aid financed projects results in conflict and unrest in aid recipient nations, including increased migration from such aid recipient nations to developed nations for political freedoms and economic survival. Such migration aggravates overpopulation and employment problems as well as ethic tensions within aid supplier nations (developed nations). Such migration also aggravates the brain drain problems of aid recipient African nations who have lost majority of their valuable labor and highly qualified human capital to the developed nations.

Aid recipient nations must also ameliorate and overcome the aforementioned 7 pitfalls in financial and technical aid process that stifle Africa’s economic development. The global aid community must move from financial and technical aid dependency to aid emancipation, including demand- driven self -help local initiatives that feed into existing development processes within recipient nations. Governments and local citizenry must enter into useful dialogues to promote homegrown development processes. Aid agencies must support such development processes, including private sector and research and development initiatives that provide avenues for recipient nations to enhance and utilize local capacity, including technical experts and entrepreneurs.