Evidence of the ineffectiveness of foreign aid is easily observed in the African Countries. The deliberation and research on the effectiveness of this foreign assistance is still and ongoing debate and perhaps it may still go on for a long period of time. Going back to the post second war period that the US initiated initiatives to help re-build Europe, the doctrine expanded beyond Europe to assisting others fight hunger and poverty. Having emerged as a dominating economic and military power, the U.S sought to assist in rebuilding initiative around the world while still maintaining its own interests (Layne, 2006, p. 45). Around the same period the Word Bank was also created as an International Bank for Reconstruction and Development (Williams, 2013, p. 4).
In 1961, the United States Agency for International Development (USAID) was established under the guidance of the then President Kennedy. The organization was established as an economic obligation to assist the poor underdeveloped counties in the world especially in the improving the welfare of the poor people. These efforts lead to a worldwide ideology that saw the new emerging global leaders come in as donors. These efforts were put in place as an ambitious instrument for global relations and monitoring of the performance of the world economy.
The concept of Foreign Assistance came into Africa as a result of colonization where the mother countries financed their efforts in their territories. The amount of aid granted into the sub-Saharan Africa, however, drastically increased in the 1960s and the 1970s both in terms of absolute amounts and as a proportion of GNP. In Africa, the rationale behind these foreign assistance was mostly due to political and development purposes. Any foreign financier wanted to have an ally and partner and this was easily attained through provision of aid. Most developed countries developed their bilateral aid programs in the same period as a way of attaining key international objectives, some genuine others insincere. Most of these bilateral aid programs went to the former colonies. The Britain for instance intensified its donor financing to the commonwealth countries. Other Aid efforts such as Japan, however, were quite unique and were majorly directed to countries where they stood to benefit from the natural resources (Williams, 2013, p. 10). It therefore majored in given sectors such as Mining and Energy. This would later be seen as exploitation as the economy of Japan continued to grow with that of the recipient countries stagnating and thus criticism was rive from the western powers.
In the 1990s, after the launch of Millennium Development Goals, the foreign aid mechanism was highly institutionalized with emergence of Non-Governmental and civil organization that intensified their activities in the African Countries. The aid provided shifted from being only financial needs but also aimed at improving knowledge transfer and empowerment of the poor people, women and the marginalized regions.
Post-Colonial and Development Theory
In the wake of colonialism, President Truman delivered a Four Point address that opened the era of development age (Peacock & Lundgren, n.d., p. 7). There was emergence of development and underdevelopment terms. The development theory presented the various stages of development process which included traditional society, pre-condition for take-off, take off and drive to maturity (Peacock & Lundgren, n.d., p. 7). Maturity was followed by the age of mass consumption. The dependency school of thought argued that the existing international systems promoted dominion effect on colonized countries and pushed them into a dependent relationship. As a responsive measure to over dependency, self-reliance was promoted where the developed countries would assist the poor countries through promoting production of food and economic development via using locally available resources and innovation in production.
The Post-colonial theory likewise strived to explain that colonialism still shaped current world relations and processes. Social hierarchy created by binary relations are still present and despite the modern world having different social, economic and political ideologies they are still greatly influenced by the colonialism. The link between colonialism and development exists but it is mostly viewed as negative, however, it has greatly influenced most modern development policies in the former colonies.
The Effect of Foreign Aid on Economic Performance of EAC.
Correlation between ODA and Economic Performance
Does evidence that aid is a factor for growth really exist? A countries Economic Performance is measurable by its GDP and by the poverty levels and the living standards of its citizens. While the issue of the effectiveness of foreign aid is one that have received a lot of scholarly studies, there isn’t any literature agreement that it is the way and possibility of ending extreme poverty in Africa. Whereas, there is correlation between aid and growth, it is only in the countries where good policies exist that its impact is realized. A paper by Collier and Dollar (2001) indicates that the effectiveness of Foreign Aid is as a condition of the recipient country’s policy, governance, levels of corruption and generally the economic environment. (David & Collier, 2001, p. 5). The fact that most of the poor countries are in that state due to their poor policies and bad governance, it’s thus clear that eradicating poverty in African Countries will take quite a long period of time.
Taking the case scenario of the EAC that have received Foreign Aid since after their independence in the 1960s, majority are still struggling despite the fact that their economy at the time of independence leveled that of some very developed countries today. For instance, at the departure of the white rule, Kenyan Economy was at the same level with a country like Singapore, but instead of sustaining a growth like the latter, it took a nose dive. The Figure 2 below gives a view of the performance of GDP in EAC from the 1970s to year 2015.
Looking at the case of Rwanda, for instance, it’s a true indication that aid will never achieve sustainable results without a conducive environment to do so.
Figure 2: GDP per Capita Growth for EAC. Source, International Journal of Economics, Commerce and Management, Vol III, Issue 11
The above graph shows that Rwanda reached the lowest level of growth standing at -47.3142% following the genocide and instability that hit the country in the year 1994. The year that followed, however, it hit the highest growth among the EAC with an optimum of 36.76702%. This sudden rise can be attributed to the reconstruction and rehabilitation efforts that the international community diverted to Rwanda at the period of its healing. The U.S Agency for International Development (1996) indicated that a total of US $ 245 million had been pledged and disbursed in the country by year 1995 to 1996. The upward rise in economic growth however, was never sustained. Most of the finance assistance was directed to saving lives through provision of food, shelters and medical services. By the end of 1996 towards 1997 the total pledges had risen to over $ 1 billion but the GDP had started a consistent downward trend towards the year 2000. The inconsistency in the growth rate is very visible. Despite, the foreign aid being in huge amounts it was focused more on humanitarian needs that existed in the country which were initially caused by poor leadership and inter-tribal war that had dominated the country for a more than a decade before initially erupting in 1995 leading to deaths of 800,000 people. Absorptive capacity, legitimacy, accountability are still some critical challenges that faced this rehabilitation and reconstruction efforts (U.S Agency for International Development, July 1996). Perhaps one can say that indeed this society is its own enemy. Despite there being a lot of resources directed their way, there were still political, social and economic issues that affected and slowed down the process. Similarly, one can still question, what is more important, feeding a generation or capacitating them to feed themselves?
Kenya also features as a perfect example of how good policies and better governance and not aid can help bring positive change. The Kenyan Economy has been poor with slightly high growth rate observed in the 1960s before starting a downward in the 1970s (Ndung'u, et al., n.d.). According to the Kenya Demographic survey, Kenya’s per capita income achieved an average of 4% annual growth in the 1970s but by the year 1990 it had gone to as low as 0.8% growth. The reversal trend was also evidenced by the reduction in the Gross Domestic product over the years and increasing overdependence on donor funding in the 1990s. The industrial sector, which was growing at an average of 10.6 percent in the 1970s, grew by an average of only 3.95 percent per annum in the 1980s and the trend worsened to an average annual growth of 1.77 percent in the 1990s (Ndung'u, et al., n.d.). Important to note is that, it is in the 1990s that the Millennium Development Goals were developed that saw an influx in International Organization supporting their implementation. In Kenya, Nominal aid stood at US$ 393.4 million in 1980 increasing to an all-time peak of US$ 1120.5 million in 1989-90, before declining to US$ 308.85 million in year 1999 (Mwega, 2009, p. 16).
The deteriorating Kenyan Economy reflected in the peoples’ poor quality of life, with Kenya’s poverty[1]
ratio being 45.9 % in 2005 (World Bank, 2017). Among the key contributing factors to the high growth rate of the poverty level in the Country was poor implementation of economic policies, mismanagement of public goods and weak institutional governance (Anon., 2003-2007). The KANU government serving from 1978 to 2002 did little to counteract the situation with low tolerance to government criticism and prevalence of single party government system.
When the Narc government under the leadership of the then President, H.E. Mwai Kibaki, came into power in the year 2002, initial economic recovery frameworks were developed. The Ministry of Planning and National Development was developed to formulate policies and set a pathway towards national development. The (Anon., 2003-2007) set out a paradigm shift from state controlled economy to a more market oriented economy. Macro-Economy reforms took shape with the anticipated for a better governance system, reduced corruption and reduced overdependence to foreign nations. The initial process of development of a national development blue print were began and on 10 June 2008, the Kenya’s Vision 2030 was launched.
Kenya is the perfect illustration that indeed Africa is outgrowing dependency on Foreign aid. With a budget of more that KSh. 2.6 Trillion (KPMG, 2017), which is about 30% of its economy only, around US $ 1.5 billion which the aid to Kenya and approximately 10% of total expenditure is reflected in that budget (Fengler, 2013, p. 3). Donor only represent a small percentage of key economic drivers. Figure 3, below is an indication that indeed with good governance, better policies and accountability mechanism in place, a county’s development efforts will fetch bigger impacts and sustained GDP growth.
Figure 3: Kenya's GDP after Economic Recovery Program. Source: World Bank
The above two scenarios evidence the fact that aid is not necessarily the solution but it can be beneficial. To draw benefits, the recipient country need to ensure that the systems are in place to facilitate attainment of optimum results. Harrison (2002) is one of the scholar that is adamant that colonialism created dependency and even after the exit of the colonial government, the African lacked capacity to govern themselves. South Korea has grown to be an industrial center while Ghana is till dependent on donor funding despite having comparable level of economic growth in the 1960s. So among the existing factors inhibiting growth, even the culture of dependency is a big player.
Mismanagement and corruption also clearly seen in the respective business confidence index for EAC and the performance of the currencies against the dollar. Unless African lead the initiative to change the dependency and present themselves as perfect hubs for business and investments then it will forever lag behind as high risk area for business. Monitoring is continous while evaluation is periodic collection and analysing of critical project data to guide in the decision making and measure results. While both are crucial, many are times that they just ignored or done for fulfillment of the request by donor or financing organisations.
Conclusion
In conclusion, Foreign Aid has for long been equated with the amount of money being pumped in these African Countries. As long as this continues, the aid input in this countries will still remain impotent and people will still be needy tomorrow. To change the narrative, there is need for knowledge transfer as a way of empowerment and establishment of inter-country integration and competitiveness. Otherwise and as it is now, foreign aid has just stagnated economic development in these countries and only after policy and leadership restructuring has development been observed. With a sustained GDP growth of 6.1%, East Africa is quite ready for trade and investment (USAID, 2016, p. 1)
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[1] In 1995 the United Nations defined absolute poverty as: a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information.
