Over $50 billion worth of aid is poured into Africa every year. Most of it is targeted towards poverty reduction, hunger, and achieving sustainable development goals. Yet Africa remains among the poorest of the poor. The level of disease still continues to stay high and mortality rates remain high. Unemployment levels are soaring and the standard of living remains very poor.
Lack of access to electricity and clean drinking water coupled with lack of food in some areas is very much a reality. 85% of Africans are surviving on an income less than $5.50 per day. In trying to take stock of the situation an assessment of the efficacy of aid is a necessity.
Given the amounts of aid that have flowed in, there are questions as to why the state of the continent continues to be pitiful. Does aid stifle economic growth? Does aid have the transformative power to adequately meet continental challenges?
The debt situation
Sub-Saharan Africa (SSA) is severely underdeveloped. By most development metrics, it compares unfavorably to most developed and even other developing nations. In terms of life expectancy, literacy, and GDP per capita SSA still ranks extremely low. While some steps have been taken to improve these ratings, they remain very poor. Standards of living are deplorable with an estimated third of the population living below the global poverty datum line.
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The vast majority of Africans living in poverty live in underserved rural areas whose mainstay for sustenance is agriculture. Given the fact that land fertility has been reducing over time due to poor farming methods, their livelihoods have also been threatened. In addition, climate change has caused unprecedented changes in weather patterns which have resulted in erratic rainfall patterns effectively reducing the chances of good harvest. Moreover, rural families are heavily exposed to risk factors such as natural disasters owing to a lack of risk mitigation services such as insurance.
Along with a myriad of other factors, these sectors of the population are the most vulnerable. Donors have come in to attempt to balance the situation allowing for households to be able to eat and have access to lifesaving amenities such as healthcare. Several organizations and countries have partnered with Africa to fund development. Sub-Saharan Africa currently receives aid from many foreign countries under the banner of different development finance institutions and donor agencies.
Even with the mass deployment of aid, there has not been a significant change in poverty levels. The World Bank’s Accelerating Poverty Reduction in Africa report indicates that poverty levels reduced by 13% but with the population doubling within the same time frame effectively reduces the gains on poverty reduction. The report projects that poverty on the continent will increase to 90% by 2030 on the back of continued population growth.
This has given rise to the question of the sustainability of donor funding on communities. As the old adage goes, give a man a fish and you feed him for a day, but teach a man to fish and you feed him for a lifetime. There are questions as to whether donor funding is a helpful tool or an enabler of poverty.
Image Source: IMF
The case for aid to Africa
Post-colonial African governments struggled with building economies as the culture of enterprise and trade was still budding among its people. As a result, a huge appetite for aid grew.
Aid to Africa has resulted in progression on several fronts. For example, tackling diseases and rising life expectancy, as well as a reduction in infant mortality rates, came about due to focused efforts by external donors.
Foreign aid has been instrumental in providing medicine, developing agriculture, improving water and sanitation among many other services that donors are carrying out in Africa. The enormous funding gap created by a limited fiscus has been largely filled by donor agencies.
It is undeniable that aid funding has achieved notable success in several key areas.
Is aid an enabler of economic stagnancy?
There is no clear answer to this question. To some extent, aid has a grip on economic growth for a few reasons.
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Government lethargy
Continued aid creates a flow of income which in most cases is almost guaranteed. This gives space to fiscal authorities to focus on state infrastructure with the knowledge that social services are ‘covered’. This has been said to promote lethargy on the part of key stakeholders in engineering solutions to fiscal space challenges.
The vast majority of African budgets have shifted the social service burden, especially in the areas of health and education to donor funding. While this differs by country, in the majority of SSA countries between 30% and 60% of social services such as healthcare and education have shifted from state hands into the hands of donors, NGOs, and private funding.
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Mismanagement
Corruption and mismanagement may be directly attributable to the existence of donor funding. Donors are seen as being the ‘haves’ and therefore some quarters have taken that to mean a never-ending flow of finances available for personal enrichment.
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Poverty incentive
It has been argued by some that in some cases the lack of motivation by certain governments to address macroeconomic fundamentals is a result of the availability and use of donor funding. Given the propensity to corruption across the board, if officials were directly responsible for policies that incubated resource mobilization, they would have more incentive to drive economic growth to create a bank of available funds.
Since these funds are in effect available through donor aid, there is no urge to innovate. Further, there is a possibility of deliberately cultivating poverty in order to continue to have access to these donor funds.
Aid is a necessity
On the other hand, the argument still holds that without donor funding African governments are incapacitated to deliver the social and economic services that their countries require to achieve growth. For example, pandemics such as ebola, cholera, and more recently the corona virus exposed the lack of capacity in fiscal space on the continent. There have been calls in some quarters to increase aid rather than decrease it.
The argument can be raised that the problem is not with the aid itself but rather that it sometimes fails to reach the intended recipients owing to challenges such as bureaucracy, corruption, and mismanagement. This may be argued as the main reason for the lack of substantial growth given the huge donor outlays that have been spilled into Africa.
In conclusion
The answer to the question of whether aid stifles economic development is both complex and two-fold. Aid is very helpful but it also has negative consequences. What can be said for sure is that continued dependency on aid does not promote long-term economic development. While aid is useful, the continent needs to wean itself from aid to develop structural means for growth.
There is an urgent need for a reduction in bureaucracy and red tape, effective taxation policies, and balanced government regulation to promote trade and ease of doing business. Africa’s economic prospects lie in its ability to stimulate a viable free-market economy that is dependent on trade rather than aid.
