Letters & Opinion

The Drying Up of Development Aid

Clement Wulf-Soulage
By Clement Wulf-Soulage

IT’S not that big a stretch to argue that the use of development aid as a political and diplomatic tool has in many cases exacerbated the hardships of impoverished and unstable nations around the world. Even in the donor countries, there is growing cynicism about development aid itself which has, more often than not, helped corrupt governments and encouraged inefficiency, and has even nurtured inequality. Rwanda’s Foreign Minister, Louise Mushikiwabo was not dabbling in frivolous rhetoric when she quipped: “As long as countries have cheque books over our heads, we can never be equal.”

Not that I’m denying that development aid has been a good thing. In many respects, the micro successes of aid in areas such as health, education and the environment are quite visible. In an article for Foreign Policy, titled “The Case for Aid,” Jeffrey Sachs argues that “the aid successes of the past decade have saved millions of lives, a worthy use of money (which has totalled just a tiny fraction of rich world income) on its own.”

Yet, foreign aid has been found to be correlated with lower levels of democracy and rule of law, as well as reduced incentives to reform (money cannot buy reform). Seemingly, after several decades of economic compassion from rich countries in exchange for reforms, foreign aid has not altogether lived up to its billing as an investment, even as less developed countries have become more aid dependent and the poverty focus of aid is decreasing.

That the era of cheap aid is over is supported by both official data and the economic circumstances of recipient countries. According to the OECD Development Assistance Committee (DAC), aid to the poorest countries continues to fall as the economic crisis and recessions have pinched national budgets in OECD countries.

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In 1970, the world’s richest nations agreed to give 0.7% of their gross national income as official international development aid. Unfortunately, that reasonable pledge has not been honoured and in 2013, only five countries – Sweden, Norway, Luxembourg, Denmark and the United Arab Emirates – had met or exceeded the 0.7% overseas aid spending target.

As U.S. foreign aid is increasingly associated with national security policy, the share of U.S. resources devoted to development and economic aid for other countries (less than 1% of the federal budget) has generally fallen since the mid-1960s. In terms of the Caribbean region (foreign aid to Haiti has largely failed), aid levels have fallen in each of the past two fiscal years as Congress has sought to prune the overseas aid budget.

The European Union’s commitment to allocate 0.56% of gross national income (GNI) to development aid by 2010 fell far short of its objective – amounting to just 0.42% of national income and well below the 0.7% of GNI to be met by 2015. (Brexit and the embrace of new Asian friends may contribute to even lower levels of aid in the future, as the EU has been Saint Lucia’s largest grant aid partner for development.)

According to an annual report from Concord, an alliance of Europe’s main development NGOs and charities: “Together this amounts to an €11 billion shortfall, with some of the bloc’s major economies responsible for much of the drop: Italy (€4.5bn), Germany (€2.6bn) and France (€800m).”

Of particular concern is the quality of aid which continues to fall – triggering calls from international bodies to make aid more effective through “stronger partnerships between developed and developing countries”. Amid concerns for the fulfilment of the UN’s Sustainable Development Goals, the ODC Chairman Erick Solheim made the following appeal: “ODA remains crucial for the poorest countries and we must reverse the trend of declining aid to the least-developed countries. OECD ministers recently committed to provide more development assistance to the countries most in need. Now we must make sure we deliver on that commitment.”

Nowadays, the promotion of vested national and geopolitical interests, as well as the quest for economic opportunities appear to be at the heart of any decision to either provide or increase aid to developing countries. (China has introduced a new model to aid through its policy of ‘resources for infrastructure’).

Often the provision of foreign aid is tied to bespoke trade and investment arrangements. In some instances aid is used as channels for public cash for domestic companies rather than poverty reduction. Hussaini Abdo, Country Director for Action Aid in Nigeria (a UK-based development group) complains that “the EU is becoming very opportunistic in terms of aid.” He says the “definition” of aid is changing and that “there is even talk of counting remittances – the money sent home by immigrants; taking the fruits of the labour of migrants and calling that aid.”

Meanwhile, most aid recipients are drowning in foreign indebtedness, with the money often owed to the very same governments, bilateral creditors and multilateral agencies providing the financial assistance. It is common knowledge that foreign aid is often linked to immediate and narrow commercial interests of donor countries even as considerable chunks of it go down foreign rat holes.

But not only are donor countries changing what they mean by “development aid”, they are regularly counting debt cancellation, spending on student exchanges and refugee costs (so-called ‘inflated aid’) as traditional aid spending.

And now there is this disturbing development where many developing nations have now been given the label “middle income countries” – effectively limiting their access to concessionary funding and reducing the flow of aid to those countries for reconstruction, rehabilitation and humanitarian purposes. Anushka Wijesinha, Research Economist at the National Research Agency Institute of Policy Studies of Sri Lanka laments: “Increasingly it will become tougher and tougher for the Government (of Sri Lanka) to look for development aid at concessionary rates.”

Despite the sometimes political and economic machinations of development aid, the debate as to whether overseas development assistance itself fosters growth is still raging. It would seem reasonable to argue that aid can stimulate growth provided the right policies and institutions are in place. Further, if that foreign aid goes to infrastructural development programmes and long-term investments in education, then it would have served its conceptual purpose as a means to an end.

For comments, write to [email protected] – Clement Wulf-Soulage is a Management Economist, Published Author and Former University Lecturer.

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