Foreign Can foreign aid help?
Edwin sande of UG
Although ideas, goods, investments and
people have crossed great distances for millennia in response to a host of
economic opportunities, it is only relatively recently that Governments began
to provide financial and technical assistance to foreign countries. Low
Developed Countries (LDC s) generally receive less than half of total aid
because much of the remainder is made up by flows to middle- income countries
such as Colombia and Arab Republic of Egypt – and some countries of particular
interests- Israel and most recently Afghanistan. Official Development
Assistance (ODA) covers a wide range of both financial and non financial
components. Cash transfers to developing countries can be vital but currently
they account for less than half of the aid that goes to those countries. For
instance recent scandal in the office of the prime minister in Uganda can
justify this claim. Non financial forms of assistance is desirable under such
circumstances and they include grants of machinery or equipments as well as
less tangible contributions such as providing technical analysis, advise and
capacity building. Donors should have considered much of their aid to the
people of northern Uganda in form of non financial assistance. Uganda is an
agricultural country- providing farming equipments such tractors would have
minimized on these high levels of corruption among Government officials.
Many
donors also count their own administrative costs in their aid budgets as well
as contributions to debt reduction and other financial allocations that never
reach developing countries. Just as there is considerable heterogeneity in the
types of aid disbursed, there is also a surprising amount of diversity in the
countries that receive aid. For some countries- such as those in early post-
conflict situations or where institutions are particularly weak and corruption
is prevalent- technical assistance may have a more positive impact than cash
transfers. For instance Rwanda experience a high economic growth rate after
1994 genocide which claimed more than 800,000 people- But in the majority of
countries, cash transfers in support of government of programs is most
effective in contributing to growth and reducing poverty.
If
there is a worst case of geopolitical aims undermining the effectiveness of
foreign aid, it may be Zaire (now Democratic Republic of Congo) under President
Mobutu Sese Seko who ruled from 1965 until 1997 when the late L. Kabila with
the help of Uganda and Rwandese forces invaded his country. Mobutu was primarily
motivated by amassing his own personal fortune, which peaked in the mid-1980 at
US$4 billion, even as GNP per capita fell from US$ 460 in 1975 to US$ 100 in
1996. Domestic policies were either nonexistent or bad, and private sources of
credit consequently disappeared by the mid 1980s. However with its huge size
and strategic location, Zaire was seen as a buffer against the spread of
communism in southern and central Africa. Consequently both bilateral and
multilateral aid began to fill the gap as private credit dried up. Between 1960
and 2000, donors disbursed more than US$ 10 billion in aid to Zaire, with the
bulk of this beginning in the 1980s.
Failure
to pay adequate attention to corruption and wasteful use of funds severely
undermined the effectiveness of this foreign aid- indeed total capital flight
from the country has been estimated by Ndikumana and Boyce (1998) to be US$ 12
Billion in real 1990 Dollars, and Transparency International estimates that US$
5 Billion was stolen by Mobutu himself. It would be hard to argue much was
achieved in DR.Congo either in economic or social terms as a result of the aid.
The result has been increasing skepticism in the donor countries that aid is
effective. Well over half of respondents in successive polls believe that aid
is wasted as it often was when it was not aimed at poverty reduction. For aid
to lead to poverty reduction, three things are necessary;-
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It
must aim for poverty reduction rather than geopolitical of other objectives.
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It
must go to countries where poor people live- Somalia and Ethiopia.
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It
must go to countries whose Governments are committed to the eradication of
poverty-Botswana and Rwanda.
