Foreign Aid and its impact in Africa.pptx

The impact of foreign aid to the African continent

1. FOREIGN AID AND IT’S IMPACT IN AFRICA WEEK 6. RIARA UNIVERSITY

2. INTRODUCTION Foreign aid in Africa is a complex and controversial topic that has received both praise and criticism. While it can offer much-needed support for development and poverty reduction, it also has its challenges and limitations . On the one hand, foreign aid can provide crucial resources such as financing for infrastructure projects, healthcare programs, and education initiatives, It can also contribute to capacity building and technology transfer. Additionally, aid is viewed as a lifeline during emergencies, such as humanitarian crises or natural disasters, and provides immediate relief . However, there are concerns about the effectiveness and sustainability of foreign aid in Africa. According to (Westcott, 2022), Africa has received billions of dollars in aid since 1960. One estimate places aid to the continent in the last 30 years alone at $1.2 trillion, despite being disbursed relatively unevenly across the continent. It was argued that it could create dependency and hinder local economic growth.

3. Intro.. Several countries in the world today participate in the process of foreign aid either as donors , recipients or as both donors and recipients. The impact of foreign aid in donor and recipient countries is largely unsettled in theory and data analysis and this is because of the various arguments for and against the benefits of foreign aid. Many economists believe that foreign aid is synonymous to economic growth because it complements and supplements national resources as well as provides additional financial resources which assist in ameliorating a country’s economy and political environment On the contrary, others argue that foreign aid can replace national savings and also promote aid dependency, which can, in turn , hinder economic and investment growth .

4. Scholars assert that foreign aid promotes aid-dependency while serving as a side source of income to political elites in recipient countries determined to ensure their dominance of the political and economic scene to avoid losing the side source of income . This is so, particularly in Africa, where foreign aid has been used to foster the interests of the influential elites instead of being used to develop the economy and promote the rule of law and democratic governance. Therefore , it is perceived that foreign aid in Africa encourages corruption, highly inefficient, ineffective governments, hinders economic and investment growth, stalls democracy, and the respect for rule of law as well as unstable economic policies

5. Necessary evil Despite existing arguments for and against the impact of foreign aid in most countries, it is undeniable that foreign aid is a crucial source of financial resources and holds the potential to play an important role in the promotion of rule of law, democratic governance and in turn economic development. Foreign aid driven with clear development agendas have a high potential to improve rule of law, create strong democratic institutions, strengthen policies and assist governments with low revenues that are committed to development. In addition, rule of law initiatives sustained by foreign aid can put an end to violent conflicts, alleviate the woes of post-conflict societies, advance economic development, promote and protect human rights.

6. Foreign aid dependency in Africa Foreign aid started in 1947 with the institution of the Marshall Plan, after the Second World War (1939 – 1945). What began as an initiative with economic and political interests by the United States of America to provide economic assistance in rebuilding Europe after the Second World War turned into economic and political development interests as well as a humanitarian cause. However, some analysts contend that the idea of foreign aid was formed on the notion that it is arduous for low-income countries to develop economically without help from the developed countries. This is likely the reason why Easterly, an economist specializing in development, called foreign aid the “white man’s burden ”. According to Easterly, “the White Man’s Burden” was derived “from the West’s self-pleasing fantasy that ‘we’ were the chosen ones to save the rest, where the White Man offered himself the starring role in an ancient regime version of Harry Porter

7. More ham than good.. Easterly argues that aid has done more harm than good as there is substantial evidence that showed that foreign aid programs hold back countries and make them dependent. Several African countries are unable to carry out any of its fundamental functions such as the institution of newly established structures , the maintenance of basic systems and services or the provision of necessary public services and infrastructures, without foreign aid, administered in the form of projects or technical assistance. Half of these countries’ annual budgetary commitments go unfulfilled because donor countries have enabled a “cozy accommodation with dependency ”. Even though all aid-dependent countries in Africa are low-income countries, some low-income countries are not as dependent on aid as others, indicating that aid dependence is not a result of poverty as many believe .

8. TYPES OF AID 1.Economic Foreign Aid . Foreign aid can involve a transfer of financial resources or commodities (e.g., food or military equipment) or technical advice and training. The resources can take the form of grants or concessional credits (e.g., export credits). The most common type of foreign aid is official development assistance, which is assistance given to promote development and to combat poverty. The primary source of ODA—which for some countries represents only a small portion of their assistance—is bilateral grants from one country to another, though some of the aid is directed to NGO’s. For example, the IMF, the World Bank, and UNICEF have provided significant amounts of aid to countries and to NGOs involved in assistance activities.

9. TYPES OF AID 2 . Military Aid Countries often provide foreign aid to enhance their own security. This is today deployed by the EU block, where aid is provided to Tunisia, Morocco and Algeria to procure their help in curbing migrant crossings to the EU. 3 . Humanitarian Aid Countries also provide aid to help in relieving suffering caused by natural or man-made disasters such as famine, disease, and war, to promote economic development, to help establish or strengthen political institutions, and to address a variety of transnational problems including disease, terrorism, and other crimes, as well as destruction of the environment.

10. Effects of foreign aid (Positive effects) Foreign aid is essential in promoting health and education. When utilized appropriately, aid can be used to build and equip hospitals and other medical facilities as well as training of medical staff for the benefit of the recipients. The funds can also be directed to the building, equipping and staffing of schools, as well as training the school staff. Whenever this happens, it results in increased literacy rates, improved healthcare and a stronger, healthier workforce that boosts the human capital of the country. Through foreign aid, recipient countries are able to gain access to advanced technology. Access to advanced technology allows for innovation, improved mechanization and industrialization which enables the recipient country to better compete with rival countries in relevant fields.

11. Positive effects cont.. When disasters or natural calamities strike a country, foreign aid is crucial in the rebuilding of the state . This aid enables countries to resettle their citizens in temporary shelters, provide food and hygiene essentials for the displaced citizens and repair most or all the damaged infrastructure. Foreign aid is also helpful in the economic development of a state. Funds received can be used in essential projects such as roads, schools and hospitals. These projects are essential in improving the living conditions of the people, which in turn boosts the economy F oreign aid frees governments from binding revenue obligations such as paying salaries of civil servants. This way, the government is able to invest the saved amounts in other projects beneficial to the citizens

12. Negative effects Foreign aid increases the dependency of recipient states , sometimes taking the place of national savings. When recipient countries are fed with aid, without being empowered to sustain themselves they become unable to wean themselves off the aid. This disrupts domestic economic structures and as a result, the country's economy becomes unsustainable . Foreign aid, especially economic, often comes with strings attached . The recipient countries are forced to accept certain conditions or promote agendas that may be misaligned with their national values. As a condition for receiving aid, recipient countries are also compelled to change their law and policies to suit donor countries. These conditions, although not outrightly , are often aimed at maintaining the oppressed position of these recipients, for instance, abolishment of free education as a condition to be fulfilled before receiving aid. This amounts to interference with the recipient country’s sovereignty and is often detrimental to the state in the long term.

13. Negative effects cont.. Donor interests are prioritized . Countries receiving foreign aid may be compelled to prioritize projects that are aligned to the donor interests, even when they are not beneficial to the state. For instance, if a donor country is a major consumer of flowers, the recipient country is likely to end up building processing plants, and roads to flower farms to boost the flower industry, instead of focusing on the tea industry which may be a larger potential income earner for them. This greatly disrupts the recipient country’s economic policies . Foreign aid also leads to increased levels of corruption in government and terribly affects the quality of governance. More often than not, the leaders in power find ways to misappropriate the funds for their own benefit. As a result, the funds never reach the intended recipients who are the citizens. This widens the gap between the wealthy and poor, and worsens the living conditions of a majority of the citizens.

14. Negative effects cont.. Foreign aid also often leads to political instability . Leaders who have gotten used to misappropriating aid resources are often reluctant to leave power, as this would disconnect them from the source. To retain their supply, they either find ways to remain in office, or install other puppet leaders who will serve their personal interests, not those of the people who have elected them. In addition, higher levels of foreign aid destroy the quality of governance, as calculated by rule of law indicators and corruption because foreign aid is viewed by corrupt leaders as a tool for power . Therefore , individuals, lacking sincere intent to use the funds for reform or development , will aim to remain in power to gain control of the funds

15. Case studies: ethiopia Ethiopia has benefited greatly from foreign aid, especially following the 1984 hunger crisis which gained worldwide attention. At that time, the country received relief food, medicine, and funds to cater to displaced persons and rehabilitate those affected by the drought and internal conflicts. In 2023 alone, she has received upwards of 330 million U.S. Dollars in aid from just the United States, to provide key services including food, sanitation, and safe drinking water for persons displaced by conflict and drought in the nation. However, she still ranks high in poverty levels. Recent studies have placed her at 25th in the world’s poverty ranking

16. ethiopia Ethiopia has become increasingly dependent on foreign aid, to the extent that its budgets have been majorly funded by aid. In 2019 for instance, the state received aid worth 4.81 Billion U.S. Dollars, which made up about half of the national budget The country has suffered from Dutch disease as a result of aid. The influx of foreign currency in Ethiopia has reduced the competitiveness of the export industry since tradeable sectors of industry and agriculture are neglected since the money is often invested in non-tradeable sectors such as security. This, therefore, weakens the tradeable sector, by giving the non-tradeable one an unfair competing advantage and causing the Dutch disease.

17. ETHIOPIA The presence of aid has also been linked with political oppression, mismanagement/ misappropriation of resources, corruption, and state capture. Access to food aid, fertilizers, and seeds for planting has been used as a repressive tactic by the governments in power. Economic aid has also been siphoned into the funding of TPLF (Tigray People’s Liberation Front) instead of serving the purposes it has been appropriated for

18. CASE STUDY: RWANDA Rwanda too has been a big beneficiary of foreign aid, both before and after the 1994 genocide. In the aftermath of the genocide, aid was essential in reconstructing the nation through the rebuilding of damaged infrastructure, resettlement of displaced people, and providing essential food, health, and hygiene essentials. The presence of aid has also been crucial in the development of sectors such as agriculture, health, and the private sector. This has resulted in the creation of employment opportunities for Rwandans, the reduction of poverty, and the domino effect of economic growth . This aid has been received in strategic phases, including; A transitional phase that lasted from 1994 to 1999, and the post-conflict reconstruction phase starting in the early 2000s that aimed at strengthening the capacity of Rwanda’s institutions. This aid has all been in support of the achievement of local and international goals such as the Millenium Development Goals.

19. RWANDA Health and education have been greatly boosted by foreign aid. Improvements in the education sector have improved access to education for Rwandans, which has in turn led to higher literacy levels. The boosts in the health sector have also led to a reduction in child mortality rates, and improved maternal health. The importance of Rwanda in this study is to serve as an example of how recipient countries should act in order to maintain sustainability in their economic growth. While the aid is beneficial in Rwanda’s growth, to avoid dire dependency situations such as those experienced by other recipient countries, it is necessary that Rwanda takes conscious action to stand on its own feet.

20. RWANDA To avoid dependency, Rwanda has created the Rwanda Development Board to create a conducive environment that attract foreign direct investment. This should be a long-term alternative to the foreign aid they have been receiving which is now on the decline. It is a necessary step towards Rwanda’s long-term sustainability, which should be coupled with other steps to reduce barriers to foreign direct investment, such as equal application of the law and competence building for their citizens as well as implementing institutional reform policies

21. Effects of Foreign Aid on Donor Countries While foreign aid is generally perceived as a philanthropic gesture, it also comes with implications and effects on the donor nations, which need to be critically examined section will delve into the effects of foreign aid on donor countries, considering Economic , Political , and Social dimensions.

22. Economic impact Budgetary Allocations and Opportunity Costs: Foreign aid requires financial resources from the donor country's budget. Allocating funds to foreign aid can lead to reduced spending in other vital areas like healthcare, education, infrastructure, and social welfare. This may have implications for the overall economic development and well-being of the donor nation . Trade and Economic Dependency: Foreign aid can influence trade dynamics between donor and recipient countries. The aid can create dependencies, leading to the recipient country becoming reliant on the donor's goods and services. In turn, this might hinder the development of the recipient country's domestic industries, as cheaper or free foreign goods flood the local markets

23. Economic impacts cont.. Impact on Currency Exchange Rates: Large inflows of foreign aid can affect the exchange rates of the donor country's currency. The appreciation of the currency can make the donor's exports less competitive on the international market, leading to potential setbacks for export-oriented industries

24. Political Impact Political Motives and Geopolitical Influence: Foreign aid is sometimes employed as a tool to serve the donor country's political interests. This might involve bolstering alliances, securing access to natural resources, or gaining strategic advantages in certain regions. Public Perception and Domestic Politics: The allocation of foreign aid can be a subject of debate and controversy within the donor country. Public perception plays a significant role in shaping the donor government's foreign aid policies, often reflecting domestic political considerations

25. social impact Altruism and International Reputation Foreign aid can positively impact a donor country's reputation on the global stage. Providing aid to less fortunate nations can enhance the donor's image as a compassionate and responsible global citizen Cultural and Social Exchange: Through foreign aid programs, donor countries often engage in cultural and social exchanges with recipient nations. These interactions can lead to increased awareness and appreciation of different cultures within the donor country.

26. references Boone, P. (1996). Politics and the effectiveness of foreign aid. European Economic Review, 40(2), 289-329 . Burnside, C., & Dollar, D. (2000). Aid, policies, and growth. American Economic Review, 90(4), 847-868 . Feyzioglu , T., Swaroop , V., & Zhu, M. (2008). A Panel Data Analysis of the Fungibility of Foreign Aid. World Bank Economic Review, 22(1), 1-31 . Johnson, L. K. (2019). The Political Motives Behind Foreign Aid: Case Studies from Major Donor Countries. International Relations Review, 42(3), 301-319 . Martinez, S. M. (2018). Foreign Aid and Cultural Exchange: Assessing the Impact on Donor Countries. Global Studies Quarterly, 28(4), 511-527.

27. references Njoroge , P. N. (2020). The Impact Of Foreign Aid On Development In Africa: A Comparative Study Of Ghana And Angola. UoN Digital Repository. Retrieved July, 2023, from http://erepository.uonbi.ac.ke/handle/11295/154427 Office of Press Relations. (2022, December 15). United States to Provide $2 Billion in Humanitarian Assistance for the People of Africa | Press Release . U.S. Agency for International Development. Retrieved July, 2023, from https://www.usaid.gov/news-information/press-releases/dec-15-2022-united-states-provide-2-billion-humanitarian-assistance-people-africa Shleifer, A. (2009). Peter Bauer and the Failure of Foreign Aid. Cato Journal , 29 (3), 379-390. https://dash.harvard.edu/bitstream/handle/1/8705862/bauer.2009.pdf?sequence=1&isAllowed=y 10 Shocking Facts about Poverty in Africa . (2017, November 7). The Borgen Project. Retrieved 2023, from https://borgenproject.org/10-quick-facts-about-poverty-in-africa/

28. References Westcott, N. (2022, August 19). How useful is aid to Africa? African Arguments. Retrieved July, 2023, from https://africanarguments.org/2022/08/how-useful-is-aid-to-africa/ The World Bank. (2019, October 9). Accelerating Poverty Reduction in Africa: In Five Charts . World Bank. https://www.worldbank.org/ en /region/ afr /publication/accelerating-poverty-reduction-in- africa -in-five-charts#:%7E:text=%20Accelerating%20Poverty%20Reduction%20in%20Africa%3A%20In%20Five,much%20better%20leveraged%20to%20accelerate%20poverty...%20More%20 Smith, J. A. (2020). The Economic Implications of Foreign Aid Allocation: A Comparative Study of Donor Nations. Journal of Development Economics, 35(2), 201-218.