Aid and Africa

Orthodox approaches treat international aid as a critical factor for redressing capital deficiencies in poor nations, boosting local demand and supply and, through positive multiplier effects, establishing conditions for sustainable long-term growth. However, the reasons for providing aid are varied and complex. And the impacts and consequences are often unpredictable and unwanted.
Donors expect aid to induce governments to adopt policies and programmes that lead to improved economic performance as well as facilitate the implementation of such programmes. The reality, however, is that aid is driven by other motivations. International aid is integral to donor countries’ development cooperation policies which in turn are defined by their foreign and security policies. Donors use aid to create and foster the impression among recipient countries that it can help them; it has rather promoted the interests of donors.
African countries, since their independence in the 1960s, were and still are compelled to accept aid because of their continued weakness and economic vulnerability, and their urgent short-term needs. The economic justification for aid is based on a perceived inherent lack of capacity of the African continent to rescue itself from the quagmire of poverty and crisis. It is indeed an undeniable fact that for the last 50 years almost all African countries due to a number of reasons, not only are compelled to accept aid, but also vocally demand international aid to even just survive.
But in Africa much of the story is totally different. There is an acceleration of economic development. While the West is in crisis, and while China and India are showing signs of economic fatigue, the economies of most African countries continue to grow at an average rate of between 6-7% per annum.
The prevailing progress of Africa is not only on GDP growth, but also on the reduction of foreign aid. As the domestic private sector becomes the engine of growth across much of Africa, an increasing number of African countries are beginning to step away from aid dependency. Currently, at least a third of African countries receive aid that is equivalent to less than 10 percent of their tax revenue.
According to a comprehensive look at African resource mobilization by the African Economic Outlook 2011 report, on average, Africa has managed to raise an estimated USD 441 in taxes per person per year while receiving USD 41 per person per year in aid.
In the discourse of aid and Africa, groups which advocate the continuity of aid to Africa argue that international aid indeed stirs economic growth in Africa. Their calls for more aid to Africa are growing louder, with their pushing for doubling the roughly USD 50 billion of international assistance that already goes to Africa each year.
They argued with empirical evidence that Kenya’s development for instance, is donor-driven, but aid has been useful in building sustainable infrastructure. In similar fashion, Ethiopia’s infrastructure development is donor assisted. Many road and infrastructural development projects were financed by the country’s major development partners such as the World Bank, the European Union, the African Development bank and the likes. The construction of these roads greatly accelerated the country’s product movement and domestic trade. 
By the same token, this has attracted private investors and had a positive direct and indirect impact on taxes, as people establish and expand already existing businesses. According to the African Economic Outlook 2011 report, from Africa’s 54 countries, aid exceeds taxes in only 12 extremely poor countries.
Yet evidence overwhelmingly demonstrates that aid to Africa has made the poor poorer, and the growth slower. The insidious aid culture has left African countries more debt-laden, more inflation-prone, more vulnerable to the vagaries of the currency markets and more unattractive to higher-quality investment. The most obvious criticism of aid is its links to rampant corruption. Aid flows destined to help the average African end up supporting bloated bureaucracies in the form of poor-country governments and donor-funded non-governmental organizations.
A constant stream of “free” money is a perfect way to keep an inefficient or simply bad government in power. As aid flows in, there is nothing more for the government to do. It doesn’t need to raise taxes, and as long as it pays the army, it doesn’t have to take into account its disgruntled citizens. No matter that its citizens are disenfranchised, as with no taxation, there can be no representation. All the government really needs to do is to court and cater to its foreign donors to stay in power.
What aid does is to make the incipient danger of self-serving cronyism and the desire to bind citizens in endless, time-consuming red tape a grim reality. This helps to explain why doing business across much of Africa is a nightmare. Then there is the issue of “Dutch disease,” a term that describes how large inflows of money can kill off a country’s export sector, by driving up home prices and thus making their goods too expensive for export. Aid has the same effect.
Africa can have a brighter future, and has the potential to become the next emerging market by the end of this decade if political, social protection, quality education, private sector and regional integration are implemented. Investment in infrastructure will promote regional integration and trade, creating an environment that is more conducive to economic growth, the development of markets and paving the way for acceleration in human development.
No country has ever achieved economic success by depending on aid to the degree that many African countries do. Rather than calling for more aid, African governments need to attract more foreign direct investment by creating attractive tax structures and reducing the red tape and complex regulations for businesses. African nations should also focus on increasing trade; China is one promising partner.
Different analyses show that the likelihood of exiting from heavy reliance on aid increases with the rate of investment. Strengthening policies and institutions that promote public and private investment seems to be a reliable path towards exiting from aid-dependence. Increasing the flow of aid alone does not in itself lead countries out of aid-dependence if it is not accompanied by aggressive capital accumulation.
In an era when economic volatility seems to have become the norm, achieving inclusive growth is a big challenge. What Africa currently needs is that greater and sustained transformational leadership and targeted actions to generate policy solutions that can drive economic growth in Africa. Inclusive growth is both possible and indeed a good investment for Africa and its leaders should believe in the future of the Continent. For real development to occur, Africa must chart its course.
Much empirical evidence shows that a complete and sudden break from foreign aid is neither possible in the foreseeable future nor likely to be accepted by some countries at any time. A functional and well-developed financial system that could support high levels of investment is one of the best ways of reducing aid-dependency. Local manufacturing is also another path that can lead African countries out of aid-dependency. Even a small increase in the share of manufacturing in GDP has a potential to facilitate an exit from aid-dependence.
If the rising tide is capable of lifting every boat, African leaders should put in place bold economic reforms, aimed at sustaining growth and boosting human development. They should also create diversified economies capable of generating employment, implementing better social policies and inclusive growth. Good governance and fair competition will help Africa meet its sustainable development agenda. Carefully calibrated government support can help fulfill Africa’s economic potential, reducing political risks and bolstering financial accountability to open new markets. Deliberate policy measures and targeted investments are needed to make growth, not just fast, but also inclusive and sustainable.