Failure of Foreign Aid in Developing Countries: A Quest for Alternatives | OMICS International
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In Africa, foreign aid comes in diverse forms: Support of projects of investment, budget support, technical assistance of various projects, debt relief etc. It may be given in forms of grants which may not have to be paid, loans payable at lower interest rate over a longer period, contributions or aid from UN institutions, IMF, WB or regional banks.
For instance, the USA gives its aid to countries to support: State capacity building to strengthen security and in conflict management and resolution. Or else, build up business partnership by supporting the generation of demand of US goods. Nature of foreign aid: The aid is classified in key thematic areas: Investment in people social welfare provisionenvironmental protection and climate change, support to non-state organizations involved in human development, food security and migration issues, EC No [ 1 ].
It may come to aid to local population in health sectors, education, housing and so forth as it is currently the case of European Union to the people of Burundi. They support civil society organizations to promote the atmosphere of good governance and protection of human rights, protection of natural resources, state building in post-conflict cases; it is also given to support national budget. It can include humanitarian aid meant to offer quick relief intervention to alleviate suffering infringed by man-made disasters and conflicts.
Evolution and views on foreign aid Historically, foreign aid has received bitter criticisms in the developing countries most especially in Africa. Only the elites become beneficiaries of nationally designed projected. On the site of the donors, neoliberals saw in Aid an extortion of resources, a long earned asset being dashed to impoverished nations incapable of making a best use of it to effectively come out of poverty.
This Conditionality was later viewed as rather hampering with sovereignty and dignity of countries because of their coercive nature. Jane and Toye [ 2 ] saw foreign aid as not only inefficiency to reduce poverty, but as means to foster dependency. The political orientation of the country could determine how much aid it could receive. Aid could therefore be given to countries going aboard the way of electoral reforms, multiparty system and any other political act advocating democratic atmosphere.
These aids were also given to nations coming out of long times of conflicts to strengthen peace building in the country, supporting electoral processes or to empower new political formation and civil society organizations.
Countries can be easily supported to deal with criminal activities such as human trafficking, cross boarder organized crimes, environmental threats, mainstreaming of gender which are normally connected to poverty [ 3 ]. The United Nations general assembly came to realize that some parts of the world were still in abject poverty and the assembly adopted the Millennium Development Goals MDGs that could be summed up in 8 specific objectives: The focus on primary universal basic education, eradication of poverty and hunger, reduction of children mortality and maternal health, combating communicative diseases HIV-AIDS, Malaria ensuring environmental sustainability and strengthening of partnership among nations.
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These goals were to be endorsed and adopted by all nations and approved by the donor community. Besides these well-structured donor agencies, we have private contributors giving loans in forms of bilateral cooperation. The selection of recipients are mostly based on set indicatorspoverty status, political situation, level of respect of human right [ 4 ]. Failure of foreign aid in alleviating poverty in developing countries In most cases, the aid in forms of economic bail out has been seen as a form of economic exploitation and defective as it tends to rather deteriorate existing economy as in the IMF-related fiscal target always compel the recipient to adopt measures with harmful effects at a long run.
Workers are only contracted on part-time basis without being on payroll. As the aid does not come all at once, there is always lacuna in its efficacy. Carlos and Nicholas, assert that as it pass through a lengthy bureaucratic process where corruption, mismanagement and misuses make the given aid quite useless. This raises the antistate sentiment when new political formations are dictated by a new economic order. Foreign aid seen as exploitation Abundant theories and literature list numerous sources of failure of Foreign Aid but most of them converge on the fact that, Foreign Aid are short term interventions lacking lasting sustainable impact.
Some of these blame the world economic structure where LDC are put in perpetual dependency. African political economy is a product of western imposed models and ideologies. Foreign Aid has always been the last resort of most African nations as its acquisition has not demonstrated much laudable and commendable outcome and here goes the saying that, between two evils, the lesser is preferred.
As Morrison [ 5 ] noticed, Foreign Aid can only be beneficial if it can positively affect the investment, makes it possible for countries to import capital goods or technology and does not directly affect the savings rate. Many scholars converged on some factors making Foreign Aid not to work in developing nations especially in Africa: Foreign Aid is normally contracted for specific reasons: G [ 7 ] Foreign Aid remains unfavorable and ineffective as it remains volatile: The mode of disbursement is too lengthy and cumbersome and hence, the country fails to meet the time constraints projects have to take before completion.
In Ghana as in many African countries, the history of Foreign Aid showed a relative fiscal stability at the expense of employment at the era of Structural Adjustment Programs. Its recourse to IMF loans where mostly in times of fiscal deficit, high exchange rate and inflation, increased debt and borrowing making the government unable to stabilize the economy.
Elsewhere, though Foreign Aid could increase the access to social amenities and services, such as a relative rise in school enrollment for the basic education and health, this could not follow the increase of facilities and quality of services in those facilities. In some studies made, [ 10 ] saw that it can only stabilize deteriorating poverty but not improve the situation, simply because it can take a longer time before the impact can be felt.
Experiences however differ in many nations as Aid is meant to solve diverse problems but in most cases, its volatility and unpredictability makes it difficult for countries to factor it into long term spending plans and include it in budgets and therefore, its efficiency is questionable.
Funds meant to help governments achieve its mandate to combat poverty and alike may be directed by foreign policies of hidden economic or political agenda whereas, they must be subjected to adhere to conditions hard to meet, meant to enable its best utilization.
Good signals of good governance, liberty and freedom of the citizens, security and human rights, constitutionally laid down governing system allowing participation and democratic institutions to operate; are those dependant variables if trespassed can result into freezing, withholding or withdrawal of aid.
Conditionality and its real impact on aid Along history, Foreign Aid has been viewed in different angles by both recipients and donors: In 70s it was criticized to be a form of domination and exploitation as it always fall in the hands of unprepared grounds, in the hands of leaders with no real vision, weak institutions and corrupt officials. This also led to the formation of political parties and allowed competition on the political scenes to gain power [ 12 ]. This was meant to deny over tenure on power and a possible dictatorship which could hinder development and do away with western interest.
It was toward the end of this period that we had nascent issues of security, like terrorism that drew attention of donors on matters concerning migration, etc. After this era, the world economic crises made poorest countries to be highly indebted and the London Club had to persuade creditors to be conscious on aid and impose Conditionality to countries receiving Foreign Aid so that they may put in place measures that could make it possible for them to pay back [ 13 ].
This Conditionality was seen as substitute of collateral assets as donors ensure that there is a clear and sound economic policy which will enable aid yield fruits. Other analysts saw them as safeguard to moral hazards.
This could be more frustrating when donor countries send their own experts to monitor the usage and usefulness of the aid to persuade and encourage the implementers to adhere to pre-established agreement. Though this can be a way of ensuring being paid back, it has been also a way of imposing economic policy to countries as many name it imperialist way of keeping a hand on the management of affairs of other nations for their own gain [ 14 ]. Despite this bitter criticism, Foreign Aid, if well utilized, Rodrik [ 15 ] saw that it can improve domestic economic policies by inducing consistent flow of income over time.
Here is the justification. Justification for conditionality Aid is always given under Conditionality whose acclaimed aim is to ensure effectiveness in resolving problems for which they were to resolve. This aid can be withheld, removed or cancelled in times of trespasses or failure to adhere to Conditionality which are seen as sine qua none factors making aid yield results.
Among many of these, good governance and the rule of law have been identified as fertile grounds where aid could produce good fruits. Simply because the conducive political environment can foster accountability, formulate good policies which enable transparency and practice of human rights, respect of legal foundation of the stateconstitutions and other political governing precepts.
It is a view that such an institution can offer a good environment for business and facilitates investment and protects interest of the people and their properties. The Foreign Aid which is a disputed form of domination by some people was seen as ineffective when, it falls into wrong and poor programs and policies, where there is poor or lack of monitoring mechanisms from donors to avoid principal agent dilemma.
The other non-negligible factor is the ownership of policies.
If suggested policies are from political leaders who are the same implementers, there is likelihood that the aid yield fruits. But, if the policies are a form of imposed programs, it may not match with the realities and the needs on the ground, which will eventually result into failure of aid.
This often happens in rural development projects where programs are drafted in high offices with less or no real a priori research to determine what is really needed by beneficiaries as they are not involved in policy elaboration.
Other factors may come from global current economic and political situations where new measures health, security and environment may need to be imposed to nations for the general good. One of the other factors occasioning failure of the aid is that they resolve existing problems and fail to dig deep and tackle the grassroots issues. On the other hand, the non-adherence to conditionality may hinder the performance of aid especially when it is aimed at reducing poverty.
The question here is easy to answer. Part of the answer is, the aid always falls into unprepared grounds, and donors do not care about pre-donation situation but care much about post-donation periods.
Burnside and Dollar [ 16 ] assert that it can only spur growth if it is channeled through well-established economic systems allowing its best use. They add that aid can only have positive impact on growth in developing countries which have adopted good fiscal, monetary, and trade policies, otherwise, the acquisition of aid will compel those systems to install first sanity in fiscal and monetary policy.
In the presence of poor policies, aid has no positive effect on growth whatsoever. As any other pro neoliberal theorists, the government whose concern remains on social welfare provision Education, health, housing… may not meet the target as these services remain unproductive, but mere government expenditures.
Most scholars do not commend Foreign Aid as they qualify it as impediment and intrusive in as much as their positive impacts remain unmeasured. How foreign aid can be beneficial In relation to growth, aid is not always to be seen as useless though we still need to investigate where it has ever shown good outcome.
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Lipton, Toye and Cassen [ 17 ] made it clear that, though it may not bring about growth, it may help in poverty reduction. It may also increase the cash flow without benefiting directly the needy ones.
Where Foreign Aid seemed to create much impact was where it was linked to projects aiming at attaining the Millennium Development Goals or supporting national budgets or used for public investment. Hassan [ 18 ] argued that, foreign aid is not evil in itself to our African economies. It must only support existing started projects, increase import, technology transfer and strengthens national currency, lower inflation and minimize devaluation of the economy. Unlike other scholars, he thinks these aids should rather be meant to improve social services as an investment in people will be more beneficial to our nations rather than investment in areas where benefits are shared among a few elite.
The aid that is not meant to improve infrastructural constraints, to improve the leaving standards of the poor rural zones still living on rudimental agriculture of substance, the foreign aid which is not addressing the issues agriculture today, aid which is not meant to reduce poverty by implementing people-centered projects, empowering the lives of the marginalized citizens, aid which will not lead to macroeconomic development…would eventually lead to a failure because the cause of our lagging behind would not have been touched.
Conclusively, Foreign Aid can only yield results when it is consecrated to improve lives of the poor ones through variety of empowerment programs both for woman, unemployable youth and vulnerable.
It should help the government generate employment which will increase their living standards and the level of consumption. It can have positive impact when it facilitates technology transfer, invest in research and high education, build strong competitive market and freedom of all sorts to create enabling environment for investors.
To some extent, the foreign aid should not attract any conditionality that will make the poor poorer and rich, richer. It should be given and foremost, be contracted when it is most needed and not be taxable and impose external conditions which are likely to make it fruitless. Overview IMF loans are financial assistance contracted by a country experiencing economic hardship beyond its ability to manage.
They come in forms of short-term loans aimed at doing away with financial deficits. The contracting parties agree on some conditionality upon reception of the funds, whose main purpose is the guarantee its usefulness and the ability of the contracting country to pay back. They are measures imposed to the countries laying down economic policies meant to readdress the situation that led to the need of borrowing.
Fiscal policies are imposed compelling the government to reduce public spending and borrowing: It is in most cases cutting down number of subsidies, privatizing the social services delivering institutions, etc. African governments have been contracting these loans seen as harmful to the overall economy by most researched made, though it has been the necessary evil in some cases. Each country had to pay to the fund according to a quota. This fund constitutes the basic source for loans to country members in order to correct balance of payment issues.
The sum the country can take away from the fund is determined by its quota. The IMF loans are seen as funding programs that comes in times of serious imbalance in the economy, when there is a huge account deficit, high inflation caused by malfunction of the economic system or when experiencing deficit in the domestic budget. The IMF loans are contracted to correct these imbalances and three types of policies are imposed to come out successful: The outcome could be gravely be felt by all sectors of the economy and could worsen cases because conditionality imposed could not work well in all cases.
It was shown that, where the little success could be marked was where funds were injected in long term investment projects that strengthened job creation and employment in the informal sectors. The WB bail out have been characterized by constraining fiscal and monitoring policies namely: In their quest to arrive to sustainable economic growth, they tend to engage the government to implement measure that can lower the inflation, rebuilding the foreign exchange reserves. We have earlier noted that the government calls upon the WB bail out for multiple and varied reasons: The recent recourse to IMF was dictated by unfavorable economic conditions that the country faced.
In and some few years earlier agreements were signed between IMF and the government once again or a three year Extended Credit facility which was a programmed stabilization program after the country had continuously experienced significant domestic and external vulnerability on the back of a large fiscal deficit slowing down the economy by raising the inflation. Sydney and Godfred [ 20 ] showed how all these were caused by weak revenue performance, large wage bill, rising cost of debt service, decline of import due to the depreciation of the cedi, the economy incapable of providing import substitute due to weakened manufacturing industries as the energy crisis strongly hit the sector.
It came to install sanity in the financial management where expenditure were to be monitored, wastage cut down, corruption minimized and mismanagement checked.
It was in a form of austerity measures whose emphasis was to restrict mass employment, job cuts, freezing on public sector recruitment etc. Besides other conditionalities, the so called benchmarks were attached to the loan: Readjustment of petroleum tariffs was an order of the day, tax policy and administration was to be checked while public sector management consisted of cleaning up the payroll.
Revising most revenue collections methods and all these measures were to be implemented in 5 different areas according to IMF [ 21 ]. First, the macroeconomic framework where adjusting and restoring the debt sustainability, elimination of fiscal dominance of monitory policy and working on fiscal consolidation policies by for instance making sure that the energy crisis was minimized. The second area was the fiscal policy that embraced a whole range of activities.
The third area was the structural reforms to strengthen public finances and fiscal discipline. Larry Summers, former President of Harvard, suggested once that women are inherently less capable than men of succeeding in math and science.
And once was all it took; shortly thereafter, he lost his job! But do they simply not want to get all the way to the top?
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Could there be anything to this argument? Is there any reason to believe it might be somewhat true? Women on their way to top leadership positions often emphasize different approaches to leadership, as the McKinsey Women Matter reports make clear. This study, along with the related research, does not conclude that women lack the ambition to get to the top.
There are only 3 reasons women don’t make it to the top | Curt Rice
Time to fix it? The third possible explanation for having few women at the top is that there are structural barriers; in short, that there is discrimination.
And, alas, the body of research on hiring and promotion makes it increasingly clear that there are in fact structural impediments for women. Men and women are judged by different criteriathey are expected to perform differently, and they are rewarded differently for the same accomplishments.
The challenges here are many, but the first step is to see the problem. You owe it to yourself and your organization to ask these questions: Are there disproportionately fewer women at the highest level of our institution? Is that because women are less capable of doing the job? Or is there something else that gets in the way? The questions here should not be answered with anecdotes.