The limits of foreign aid

Development Policy05 Feb 2008Marian Tupy

The IOB report shows the limits of foreign aid. It points to a number of well known and thoroughly analyzed problems associated with aid giving, including: the lack of a relationship between budget support on the one hand and structural improvements, economic growth and poverty eradication on the other; the politicization of aid; aid dependency; the lack of focus; and the lack of multi-agency coordination.

The summary of the report seems to confirm that Dutch aid has not accomplished many of its stated goals, which included improving in governance and human rights, and private sector development – both of which are vital for Africa’s future.

That is not to say that all aid failed, of course. There was, as the report points out, some poverty alleviation and some improvements in the delivery of public services in a number of places. Indeed, it would be difficult for billions of dollars to be spent in such a way so as to have no positive impact whatsoever.

Yet even those modest improvements suffered from a number of aid-related problems. The number of students enrolled, for example, was prioritized over the quality of education they receive. Similarly, little thought seems to have been given to how additional teachers will be paid and teaching facilities kept up once the donors’ attention turns to new and more pressing problems.

Unfortunately, the best that the donor countries can hope to accomplish is to alleviate some of the symptoms of the sickness that plagues Africa – they cannot cure the sickness itself. That sickness – poor institutions and bad policies – can only be addressed by Africans themselves. For that to happen, political elites in many African countries have to abandon or be forced to abandon their predatory habits.

It is with good reason that the IOB report singles out Rwanda as a country that has made some impressive gains in recent years. Rwanda has a government that, although far from ideal, has a long-term vision for the country. To achieve higher economic growth, the government has embraced market-friendly policies shunned by much of the African continent. Those policies include liberalization of trade and the business environment, and sound money.

Have those policies been implemented because of Dutch aid? I doubt it. Many other recipients of Dutch aid, after all, shunned reform. Moreover, as Paul Kagame’s public pronouncements show, 1 the president truly believes that domestic reform and economic liberalization, rather than aid, are what is needed to bring Africa out of poverty. I agree with him.


  1. Paul Kagame, ‘Time for Africa to insist on defining its own future’, Business Day, 3 October 2007.