Foreign Aid: East Africa Should Read In Between The Lines

Published on 15th August 2016

There is broad scholarship on the purpose and effectiveness of foreign aid. Worth noting is the lack of consensus on its impact on economic growth. Early studies by Papanek (1973), Dowling and Hiemenz (1982) indicate a positive effect on growth, affirmed by later studies like Arndt et al (2009, 2010). Other studies like McGillivray et al (2005, 2006) and Ogundipe et al (2014) showed aid to positively affect growth when it interacted with the right policy environments like economic and trade policies. On the other hand, studies by Easterly et al (2004), Williamson (2008) and Mbah et al (2014) among others disfavour aid in regard to its impact on growth.

The picture in East Africa over a ten year period up to 2014 indicates a general upward trend in official development assistance and official aid. However prima facie, the same is not desirably transmitted into growth figures albeit other factors affecting GDP growth. For example, with an ODA surge in 2012/13 by USD 1.5 trillion, GDP fell by 1.4% whereas with ODA dropping by USD 1.6 trillion the following year 2014, GDP grew by 3.3%. 

The over $13 billion marshal aid plan injected into the reconstruction of Europe after World War II was a finite intervention that has long passed and evidently served its purpose as a stimulus to get economies up and running notably Germany. The emergence of economic growth as function of savings and investment would go on to lend credence to the importance of aid as a substitute for savings in nations gaining independence that had little in the form of savings. In essence, the stimulus needed to begin to build savings.

Do African economies equally view aid as a stimulus? Is this evident in the priorities and actions of African governments? Helmer (2009) argues that aid creates a dependency perpetuated by African leaders, aid agencies, NGOs and western governments that seem to benefit from presenting Africa as poverty stricken with the aim of keeping the aid taps open. A more recent conversation championed by renowned economist Dambisa Moyo and reflected in the word and spirit of her works ‘Dead Aid’ has solicited an array of mixed emotions with Bills Gates alluding to some of her views as evil in an interview.

While debate on purpose and efficacy has existed, what shouts out clearly in this renewed conversation in my view is the issue of aid being time bound. There is no doubt about the value of aid interventions particularly addressing health, humanitarian and emergency efforts after all, the context is often such that their occurrence and magnitude is largely unknown particularly on a national scale hence the justification for  assistance.  Moyo’s bold, candid and unapologetic take on aid and the way forward isn’t meant to depict the continent as an ungrateful child but rather should be likened to a child who after being years under the wings of parents, respectfully leaves home to begin an independent life, a reality in life. The implication of this analogy being that growth and development within the confines of a parent’s home is inevitably curtailed. As such, African economies can and will not realise their growth potential on an aid meal.

Aid in its nature and spirit is not designed to be an engine of economic growth. The idea of Government aid weaning should transmit into an inward looking drive to ramp up internal economic output. Here, there is vested interest in a productive economy because taxes must be raised domestically to provide public goods and for leadership this is critical for political support. The aid model creates a disconnect between the state and the citizenry as free or cheap money doesn’t demand the accountability that domestic tax revenue would (Young and Sheehan, 2014) and citizens are likely to demand such accountability if the bulk of government revenue is coming from the taxes they pay with the resultant pressure on the state to provide public goods, social services and infrastructure, which in turn would foster tax compliance.

A government really engaging with this issue then sets the ball in motion with the right policy environment which means sound and practical economic, trade, labour and other policies that court the private sector. Prioritisation of research and development, technology incubation, clear support for SMEs not just to thrive but partnerships that allow them to grow and emerge into large corporates. Interwoven in a sound financial system that facilitates the raising of affordable capital through capital markets and credit, is the desired mix for success. More than half a century of post-independence, weaning off aid must be decisively addressed.

Reflecting on Africa’s journey and looking forward, East African leadership and citizenry should not miss the real message from aid critics like Moyo and that is, take charge. A key driver for industry in many Asian countries including China has been questionable labour laws that created loopholes for the exploitation of labour, driving down its cost and subsequently the cost of production. While terrible for workers, these economies riding on this, attracted industries and capital flows plus other associated benefits including transfer of technology from which local industry was able to benefit, emerge and now thrives, China being a case in point.

East Africa has for long not been any different in that regard and yet that in itself was not been fully harnessed. His Excellency President Yoweri Museveni once said that Uganda does not need aid but trade with development partners. Notwithstanding the challenges around what countries like Uganda bring to the trade table along with the hurdles in negotiating trade agreements, the statement stands for itself. The way forward lies in prioritising and facing these challenges head on and not increased foreign missions to seek funds.

Asserting the vital role of the state, Rodrik (2005) argues that one of the clear lessons of the last five decades is that economic development is in the hands of nations and that countries that have done well, have done so through their own efforts with very little input from aid or markets. With solid fundamentals like great climate and mineral filled earth, great human capital potential coupled with regional integration, the region ought to put a timeline on aid.

While we are already behind on industrialisation, the quest should be for increased manufactures. To take pride in store shelves filled with foreign products while the same is not reciprocated is to fight against ourselves. While we are proud of the small numbers of foreign tourists to our countries, we are oblivious of the thousands that holiday in their own countries supporting their local economies whilst we jump at every opportunity to transit through our own airports. Local tourism ought to be a song and public private partnerships ought to explore all avenues to infuse ubuntu in the citizenry. Planned and deliberate action driven efforts in all sectors are bound to have a ripple effect of increased production, income, government revenue right down to improved public goods and the cycle goes on as a healthier, better educated population translates into a more productive workforce. It is time to put a halt on interventionist thinking and deliberately execute well thought out national and regional plans. Moyo asserts that there’s no country anywhere in the world that has achieved significant economic growth and reduced poverty on the back of aid, Africa and East Africa in particular cannot be the exception.

It is time for an African pursuit of happiness!

By Edgar. A. Rutaagi

Graduate Commonwealth Scholar, Leeds Beckett University.

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