Development aid or Official Development Assistance (ODA) is aid designed to promote the economic development and welfare of developing countries. But, has development aid been utilized properly? Did it fulfill its purpose or create more problems?
It may seem that the countries giving billions of dollars in development aid believe that aid is the best way to promote economic development in recipient countries, but this is not always the case. Some donor countries state that they give aid to promote their countries’ interests, like Theresa May said, “I am unashamed about the need to ensure that our aid program works for the UK.” Similarly the U. S. Congress passed laws in 2018 to ensure that its foreign- assistance serves its interests. These governments are not intrinsically opposed to the concept of aid, they simply do not care about aid effectiveness in the recipient country, as long as it serves their interests. However, countries like Germany that are increasing their development aid to control migration, consider aid as an effective solution to the problems in developing countries that will help control migration. While donor countries either consider aid beneficial or are indifferent to its effectiveness, some people in these donor countries strongly oppose the idea of aid. The British-American economist and Nobel laureate, Angus Deaton, blames aid for causing dependence and weakening democracy in recipient countries,“…most governments depend on their people for taxes to run themselves…Governments that get all their money from aid don’t have that…”. A survey (2013) indicated that while roughly half of Americans believed that America was giving too much aid, 82% still supported the idea of giving some aid, which reflects mixed views of the general public.
China is a big supporter of development aid, increasing aid in recent times to Africa despite some resentment from the locals who consider that Chinese aid has created several white elephants, and has increased the risk of the debt crisis in Africa. Chinese President, Xi Jinping said, “China doesn’t seek political self-interest through its investments in Africa,” while pledging $60 billion towards Africa’s development. Mr. Xi stated that he would forgive certain interest-free loans while nodding to the concerns over the debt crisis in Africa. However, historically China has used debt forgiveness packages to seize assets like Hambantota Port of Sri Lanka. There is also concern over the seizure of Mombasa Port in Kenya, thus debt-trap diplomacy of China remains a concern for African nations, though China denies any political self-interest or allegations of debt-trap diplomacy. Most governments in Africa support Chinese development aid, President Geingob of Namibia said’ “The loan agreements were reached through equal consultations with no political strings attached”, which was backed by President Nyusi of Mozambique, and President Guelleh of Djibouti. However, the Democratic Movement of Namibia’s leader McHenry Venaani said that the loan agreements secured with China were badly structured and should be renegotiated. The Swapo Party Youth League (SPYL) demanded that the state contracts and tenders must not be given to Chinese or other foreign-owned companies at the expense of Namibians, demonstrations were also held by the Metal and Allied Namibian Workers Union. Although Kenya’s new railway connecting Nairobi and Mombasa, which was constructed using $3.2 billion in aid from China, has been very popular among people, it has been criticized by Kenyan economists like David Ndii who said, “There is nothing to demonstrate that the economic benefit of this project, exceeds the cost”.
Aid is not always given bilaterally, 55% of aid is given multilaterally, through organizations such as the UN, World Bank, etc. Voting power in these organizations is proportional to the capital contributed by the country to their funds, thus most decision-making power lies with the donor countries, and like bilateral aid, this form of aid may also promote the national interests of contributing countries, though indirectly. These organizations strongly support development aid as a solution to most problems in developing countries. They have devised certain measures to ensure aid effectiveness like Structural Adjustment Programs (SAPs), which are conditions to qualify for new loans. While these organizations believe that they help ensure that countries pay back loans, some people argue that SAPs create even more problems by reducing the decision-making power of the recipient countries.
If we look at Pakistan’s case, after gaining independence in 1947, Pakistan faced countless economic challenges including the refugee crisis with seven million refugees, and these problems led to our dependence on aid from the very beginning. Since then, political turmoil and inconsistent policies of every new government-created obstacles for Pakistan to effectively utilize aid and to end its reliance on it. Sources suggest that overall there has been an increasing trend in the foreign aid received. Most leaders in the past have strongly supported aid, however, the current Prime Minister Imran Khan has slightly different views; he said on his visit to the USA in 2019, “…Aid has been one of the biggest curses for my country…” Still, large amounts of development aid flow into the country under China–Pakistan Economic Corridor (CPEC). The previous government of Pakistan Muslim League-N supported CPEC along with other development projects conducted using aid, former Prime Minister Nawaz Sharif said, “China has proven to be a real friend of the people, State and the government of Pakistan”. Pakistan Tehreek-e-Insaf (PTI)’s government on the other hand was doubtful about CPEC in the beginning, PTI Senator Shibli Faraz said, “After the formation of the government we will review the projects’ agreement and decide about those which are not in the country’s interest.” However, later this view changed, Federal Minister for Planning and Development Khusro Bakhtiar said in 2019, “CPEC is an important pillar of Pakistan’s economic structure”, while Foreign Minister Shah Mehmood Qureshi declared CPEC—the country’s “top priority.” Mubarak Ali, a local administration official says that the arrival of CPEC has opened many opportunities for the locals, however Muhammad Shareef, a local social activist argues, “their design and how they are operated provide little benefit to the residents”.[31] Thus we conclude that like most other countries, people in Pakistan have mixed views regarding development aid and aid projects like CPEC.
Moving on towards the causes of aid ineffectiveness, a major cause of the failure of aid-financed projects is a lack of consideration of local needs. The American economist, William Easterly said, “without feedback from the poor, it is not possible to understand what exactly needs to be fixed”. An example of this is the £300,000 project to grow maize, instead of matoke, in Ruhiira, Uganda which resulted in wasting large sums of aid money. In some cases, there are unintended consequences, for example, the spread of diseases due to rats as a result of excess maize in Ruhiira. Moreover, corruption increases the cost of projects in the form of kickbacks by corrupt government and bureaucracy, which not only wastes aid money but when aid is in the form of loans, it makes it difficult to repay debt thus leading to more loans. This creates an aid dependency cycle and debt crisis which may result in a country losing its assets, higher inflation-rate, currency devaluation, and higher taxes on people.
This corruption escalates when aid effectiveness is not a priority for donor countries and recipient governments are not held accountable for corruption or mismanagement. In some cases, based on political or economic interests, they even support oppressive and dictatorial regimes by providing aid, consequently making them stronger, thus doing more harm than good. Likewise, tied aid is an example of how a donor country’s interests can undermine the real purpose of aid. When donor countries give tied aid to promote their exports, aid effectiveness is reduced as transaction costs increase, it also damages local industries because their demands decrease due to imports. Sometimes aid reported as untied, remains tied in practice, for example, Canada.
Another important cause of reduced aid effectiveness is the growing fragmentation of aid, which makes it harder for the partner countries to manage aid thus decreasing its effectiveness. However, the most important cause is a lack of accountability and transparency in aid management, which facilitates corruption and opaque aid programs, some of which are not in the interest of the recipient countries. By increasing accountability and transparency, corruption can be curtailed, which can prevent the aid dependency cycle as well as the debt crisis. It would also fix the issue of lack of input from locals in aid-financed projects because when there would be no corruption, there would be more local autonomy. Since almost all other causes of aid ineffectiveness and counterproductivity are directly linked to a lack of accountability and transparency, therefore solving it will have the greatest impact.
Considering the causes of aid ineffectiveness, I believe that building an efficient global mechanism of aid accountability and transparency is the best solution. Such a mechanism can be created by cooperation among all member countries of the UN. Information Technology (IT) can be utilized to create an online platform that would record all transactions, with the exact amount, intended purpose, date of transfer, and to whom it was transferred. To manage and regulate these undertakings, a new body could be formed under the UN, named “Online Aid Transactions Committee”, consisting of representatives of the UN member countries and administered by the United Nations Development Program (UNDP). All member countries of this regulatory body would be bound to ensure data integrity and data would be made public which means the citizens of the recipient and donor countries would have access to data and information about aid transfers thus holding their governments accountable which would block both corruption and opaque aid programs. However, this is only possible if there is a consensus among the recipient and donor countries on adopting such a mechanism.
In conclusion, Development Aid is often more damaging than beneficial to the recipient country due to several reasons such as most donors giving aid based on their political or economic interests, corrupt and dictatorial regimes in recipient countries approving opaque aid programs causing long-term damage to their countries, aid based on personal benefits causing aid dependency cycles and debt crisis like the one in Africa. However, if an effective mechanism for aid accountability and transparency is created and implemented globally, these problems can be resolved, thereby making aid beneficial for the recipient countries.
