There have been several theoretical and empirical evidences from researchers, public debates from practitioners and experts, and discussions from students and activists, on whether foreign aid works or not. After more than three decades of development assistance to developing countries, there are still considerable concerns from the taxpayers in donor countries about the effectiveness of foreign aid in developing countries. The concern is whether foreign aid is really making an impact and improving the living standards of the people in sub-Saharan Africa (SSA).
Available data shows that life expectancy in Arab States increased from 62.1 years in 1990 to 67.5 in 2005; in East Asia/Pacific, from 70 in 1990 to 71 .7 in 2005; in South Asia, from 58 in 1990 to 63.8 in 2005; in Latin America/Caribbean, from 67 in 1990 to 72.8 in 2005. The SSA region recorded a disappointing negative trend, from 51.8 in 1990 to 49.6 in 2005. The infant mortality rate in the SSA region improved from 165 per 1000 lives in 1960 to 102 in 2005, but relatively it is still very high compared to 26 per 1000 lives in Latin American/Caribbean, and 25 in East Asia/ the Pacific (UNDP, 1993, pages 213-214; 2008/9, pages 232 and 264).
Apart from a poor performance in the aggregate human development record, the two underlining signals that lead to frequent questions and doubts on aid issues with respect to SSA countries are the growth problems, similar to the analysis of ‘African growth tragedy’ (Easterly and Levine, 1997; Wohlmuth, 2004) and the unmanageable conflicts in Africa or the resource curse (Wohlmuth et al, 2007). The negative trend in life expectancy in SSA is a result of poor living conditions and conflicts of different natures in the region. Better living conditions depend on access to gainful employment. Access to gainful employment is, in turn, a function of economic growth. Most of the aid budgets are spent on social sectors while the productive sectors that help to stimulate economic growth receive little attention. It is necessary to broaden the outlook of development assistance, which focuses on growth-oriented strategies. Policies focusing on market and private sector development in the region should be given considerable attention. This will not only lead to sustainable economic development in the region, but also improve living conditions through gainful employment.
The problem relating to aid issues is that the public has been flooded with many rhetorical declarations and action plans on aid efficiency with conditionality. The conditionality imposed on foreign aid sometimes changes the constitutional foundation of beneficiary countries, thereby generating resentment among the people in the beneficiary states. It is necessary to render assistance under certain conditions in order to fulfil the fundamental objects of the assistance. To avoid the resentment, there is a need for caution in prescribing conditions for development assistance. The Netherlands, with 0.81%, currently exceeds the 0.7 percent annual GNI as official development assistance recommended by UN Development Decades, together with Luxemburg (0.91%), Denmark (0.81%), Norway (0.95%) and Sweden (0.95%) (World Bank, 2009, page 372). The taxpayers in these countries therefore have a fundamental obligation to question the effectiveness of their contributions to improve living conditions in poor countries. This is not an issue of Dead Aid by Dambisa Moyo or Lords of Poverty by Graham Hancock, but an issue of how to improve aid effectiveness.
In this current wave of economic globalization, it is imperative to recognize that African countries cannot escape from globalization and the competitive pressure from emerging economies like China, India and Brazil. It is also important to recognize that global economic interdependence in trade and production has increased drastically in recent times. Foreign aid cannot make developing countries self-sufficient; rather, it should be taken as a measure aimed at fostering economic growth, which will in turn reduce aid dependency on the long run. Arguably, the high aid-dependency ratio in SSA is due to socio-economic and political problems. Foreign aid should therefore be directed towards improving the weak exports base, low productivity and reduction of ethnic conflicts in the region.
Innovative approaches are necessary in aid programmes. External interventions at the meso- and micro-governance level should be the most relevant area to focus on in aid programmes (Wohlmuth, 1999, page 27). This is because any change in political regime will not directly affect an ongoing development assistance programme. Foreign aid can be effective if there are changes in existing internal political and public administration systems that facilitate efficiency, because aid itself cannot induce or initiate social and economic change (Wohlmuth, 1999, page 49). It is imperative to redesign the structural and operational settings in aid administration. If aid administrative systems are reformed and effectively organized, aid workers in donor countries will work effectively to improve changes for the benefit of recipient countries (Opeskin, 1996, page 24).
References
Easterly, W. & Levine, R. (1997). Africa’s Growth Tragedy: Policies and Ethnic Divisions, The Quarterly Journal of Economics, 112 (4), pages 1203-1256.
Opeskin, B. R. (1996). The Moral Foundations of Foreign Aid, World Development, 24 (1), pages 21-44.
UNDP (1993). Human Development Report. The United Nations Development Programme, New York.
UNDP (2008/9). Human Development Report. The United Nations Development Programme, New York.
Wohlmuth, K. (1999). Global Competition and Asian Economic Development. Some Neo-Schumpeterian Approaches and their Relevance, in Berichte aus dem Weltwirtschaftlichen Colloquium der Universität Bremen, 63, Hrsg. Von Andreas Knorr, Alfons Lemper, Axel Sell und Karl Wohlmuth.
Wohlmuth, K. (2004). African Growth Tragedy: Comments and an Agenda for Action, in Berichte aus dem Weltwirtschaftlichen Colloquium der Universität Bremen, 91, Hrsg. Von Andreas Knorr, Alfons Lemper, Axel Sell und Karl Wohlmuth.
Wohlmuth K. et al, (2007). Africa: Commodity Dependence, Recourse Curse and Export Diversification. Karl Wohlmuth, Mareike Meyn, Tobias Knedilk, Achim Gutowiski, Afeikhena, Jerome, Chicot Eboue, Touna Mama, Alexandre Schoname (ed.), African Development Perspectives Yearbook, 12, Lit Verlag, Muester, Hamburg, Germany.
World Bank, (2009). World Bank World Development Indicators. The World Bank/IBRD, Washington D.C.