Foreign Aid; A Give and Take Game?
By By Kang Quintus
Financial capital flows to emerging developing countries have risen sharply in recent years. Indeed, because this growth in the flows coincides with a period of low global interest rates and a period of domestic development in recipient countries, there has been a growing debate as to the extend in which these capital inflows affect growth and development in the recipient countries. Before we ride on, it is important to note that private capital flows either take the form of Foreign Aid, Foreign Direct investment, Portfolio investment or Bank Lending. In this write up, we will focus on foreign aid, where we critically examine foreign aid from the donor-recipient perspective and attempt to develop some exciting insights of why this flow is mostly from industrialized to developing countries.
But then, before we continue fellow readers, may we please lean back and reflect a little over these questions: Why do these donor countries give aid? What are some of the strings attached to aid? Can it possibly be “A Give and Take Game”? ...
As I started brainstorming over the above questions, so many things ran through my mind and I immediately asked myself; how we can possibly make foreign aid, less of a problem and more of a solution.
I think it’s too early for us to take sides on this issue but at the same time seating on the fence is however not the best position. I say this because givers as well as receivers of foreign aid applaud aid as a good thing and they both think it should continue. This makes it even more complicated but doesn’t stop us from getting to the bottom of the issue.
Over the years, developing countries have received generous aid packages from industrialized countries with a lot of strings attached, which have rendered them dependent and unproductive. Some of these aid dependent countries have become even poorer, insecurity has prevailed and inequality worsened. Aid donors; time and again have returned to their drawing boards to develop new and improved aid strategies to engage in another fight into the future. These donors claim they give aid because they want to help improve the lives of poor people; but is this actually the case? The poor state of some of these aid dependent countries is often attributed to poor governance, lack of democratically accountable institutions and the absence of the rule of law but paradoxically, this might not be completely right.
Well, it is true that foreign aid has worked in a few cases (Botswana, Korea and Honduras); though not to a greater degree, western aid has almost been irrelevant in lifting millions out of poverty. Some yesterday’s huge aid recipient countries such as Somalia, Liberia, Haiti, Sierra Leone, Guinea Bissau etc… even witnessed a collapse and some of them are today economically picky and buoyant due to the shift from aid-dependency to more economic partnerships.
Foreign aid may just be a tool of foreign policy to project power beyond national borders and are sometimes used for matters of national prestige. Many argue that donors use foreign aid to strengthen their power and to impose policies on less powerful institutions. Aid receiving countries rulers, are forced to pay more attention to powerful outsiders which renders them less economically active.
One thing I can be very sure of; at least for the moment is that, foreign aid cannot be classified as purely “gift-giving”, it is tied with geopolitics. Giving a gift is not so different from giving someone poison. Apart from well told stories which make the aid beneficiaries feel good about their aid, there is rarely any hint that these donor countries gain something in return. The “giving” side of it camouflages its much larger and inseparable twin, “taking”.
Conclusively, I would say foreign aid perhaps makes people poorer. Foreign aid is NOT associated with balanced growth, poverty reduction, environmental protection, stability and rising standards of living as donors claim. Developing countries should therefore focus on attracting Foreign Directing Investment (FDI) because FDI does not just compose of capital flows but a package of long-term capital, technology and management skills, productive capacity, and so on, which can contribute to sustainable development and poverty reduction in a variety of ways.
Please let me have your views.
*Kang Quintus is a PhD Research Fellow at the University of Antwerp, Belgium. He may be reached at firstname.lastname@example.org