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Introduction

Foreign aid, also known as development assistance is a tool used by governments in eradicating poverty across the globe. Alleviating poverty has been a major priority by many governments and beside such commitment, research shows that every one in four people in developing nations lives in poverty (Chen and Ravallion, 2010). In the recent past, due to the rising concern about the levels of poverty in the developing nations, at a United Nations Millennium summit, world leaders pledged at least 0.7% – from developed nations – towards eradicating extreme poverty and hunger (Garces-Ozanne, 2011). A matter of concern though, is whether there is a link between the aid provided and growth and development with approaching deadline for millennium goals in consideration.

The aim of this essay is to ascertain the effectiveness – or lack of it – of foreign aids in achieving the intended development objectives. To this end the essay will discuss the effectiveness of aid in view of development policies, the most effective among the policies and the issues and opinions surrounding the implementation of the aids policies. The essay also suggests on possible improvements on the issues that can be barring effective development attributing to aid.

Various forms of aid

Foreign aid streams into developing nations in different forms and for different development projects. The common kinds of aid include grants (transfers that do not necessitate repayment), cash transfers, loans, training, technical assistance, emergency relief in disasters, research programs, budget and balance of payment support et cetera. Excluded in the list of foreign aid are grants, loans and credits intended for military purposes. Some of the projects covered include social protection, technical assistance, physical and social infrastructure (Bealinger, 2006). A fundamental fact about these projects is that they are essential for development of an economy.

Does aid achieve development?

The question that triggers a debate on foreign aid in developing nations is the correlation between economic development and foreign aid. Unfortunately despite previous researches pointing at long term growth in developing nations attributed to aids, recent research on this provides no link between aid and development (Mosley, 2014). There are theories have been put up to explain this for example the “Dutch disease” which is basically the buoying up of exchange rates in developing nations that is caused by aids. It cancels out the intended development effect. Another theory centers on long-term and short-term impacts in which the long-term impacts are detrimental and therefore cancel out the positive short term impacts. Mosley (2014) continues to note that corruption is a grave issue that curbs the developmental effects of aids.

Besides this perspective on the ineffectiveness of aid, Addison and Tarp (2014) discuss a different approach in explaining the problem. According to them, aid does help but what the previous researches have failed to establish is the link between aid and the progress made in developing nations. Hudson (2014) who explores the impact of aids volatility notes that aid windfalls do indeed boost government consumption levels and consequently have a direct influence of the level of investments especially in nations that are entirely aid dependent. Additionally there is an emergent view on aids as a way of globally redistributing funds. Nations that are developed choose an optimal path through which they can perform international transfers while the developing countries absorb as much of the transfers as they can on consumption and investment – aids to development – and also account for the transfers (Carter, Postel-Vinay and Temple, 2014). It is thus imperative to note that aids are essential and have an impact on development.

Grants versus loans as aids for development?

On the most appropriate choice of the type of aid for fostering development, loans and grants have been on the forefront of the discussions. The International Bank for Reconstruction (IBRD) and the International Development Bank (IDB) have their lending policies based on income levels and creditworthiness. Based on the data available on the poorest nations, they do not qualify for loans and are better off with grants. Essentially the two have a positive impact when invested wisely but according to Radelet (2005), there is no need to lend out money without any sure prospects of return and again it is important to let the returns generated by the loans be reinvested. Cohen, Reisen and Jacquet (2007) support grants as a way of fueling development in the poverty stricken nations. However, they suggest that debt, debt cancellations and grants should not be taken in isolation and that for a balanced development, there is need for a balance between the three for poor nations and middle-income nations.

Issues in the implementation of aid that impact on development

A critical issue that has been facing the disbursement and the implementation of aids – especially loans and grants – is the previous amorphous structures that were there and their inability to define which regions to allocate loans or grants. Initially, the World Bank had a definite structure for loans to countries with per capita income of more than $ 1,000 but the rest of the countries had an indefinite determinant for loans and grants. Currently the structure puts distinguishes clearly who which regions get loans or grants (Radelet, 2005). Development can now be easily achieved attributing to clearer policies that give a better structure on disbursement and accountability. A stringent issue on the ability of foreign aid to foster development has been the lack of evidence linking the growth and development being experienced to the aid that is being received (Arlene L. Garces-Ozanne, 2011). A close examination of the South Sudan as a beneficiary of foreign aid using the Johansen Co-integration technique reveals that in the long run there is a positive correlation between growth, export and remittance but still identifies no relationship between growth and aid (Marwan et al., 2013). One explanation to this is that aid is mostly extended for non-economic reasons and cannot therefore be measured using economic tools. For example, emergency reliefs that are given out do not impact on the economy of a country in any way.

The outlook on aid helping in wholesome development in poor nations especially in Africa is critiqued because according to Moyo (2009), it does more harm than good. In her argument she says that official aid – from well-off governments and international organizations – disrupts development in the developing nations. The intention of aid is to liberate the poor and not to influence their democratic practices. However, donors have become a bigger influential force that determines who ends up in government position than the actual citizens of those countries (Moyo, 2009). In this sense, these donors become the same hindrances for development that they are fighting and the failure of reliable academic sources to link development to aid should not come as a shock.

On implementation again, foreign aid is criticised of promoting corruption and reducing democracy. Recent data available on disbursement of aid to poor countries indicates that more than two-thirds is directed towards corrupt and autocratic countries (Easterly and Pfutze, 2008). Whilst the pattern of distributing aid in autocratic countries in understandable, the gravity of the issue lies in the constant disbursement of aid to corrupt nations while each time expecting different results (Moyo, 2009). For example, a nation such as Ethiopia is a constant destination for aid despite having a corrupt and autocratic government (Martin, 2014). In Tanzania, policymakers point out at a policy vacuum which results in aid being misappropriated through corrupt means. The impact of aid on development has also been largely undermined by the lack of accountability on the recipients. In most of the cases, the governments tend to outsmart the donors and in the end use the aid for their own benefits. A good example in this is the budget of Ghana which policymakers describe as a “deceptive mirage” that lead the government to rely more on donors than taxpayers (Glennie, 2008).

The effectiveness of aid in achieving development

The effectiveness of aid in fostering development cannot be overlooked because well designed aid policies or projects can be instrumental in achieving development objectives. The Paris declaration on aid effectiveness brings out the best ways to shape policies that concern the distribution of aid. Firstly, the member states need to exercise ownership on policies. This can be achieved by taking the lead in development policies and strategies and coordinating development actions (OECD, 2005). Notably the aid industry is coupled with a lot of market imperfections where every donor, driven by their own agendas and objectives, push projects in favor of their success. In the end the recipient country becomes less than effective in development because of pressure from many sides (Edgren, 2002). Another critical way of using aid to create development is managing for results. The recipient nations need to create avenues that rightly absorb foreign aid and translate it to desired results. This way budgets that translate to a “deceptive mirage” such as the one experienced in Ghana will not be a cause of alarm (Glennie, 2008).

Additionally, for development to be effected there is need for harmonisation. Donors have had the involuntary negative impact on developing nations because of their irreconcilable demands and conditions. Edgren (2002) notes that when each donor comes up with their own project that is not consistent with the rest and then measure their success on that single project, they miss out on the detrimental effect of the same project on all the others. The suggestion by the Paris declaration on aid effectiveness is to create a harmony between the donor policies and the recipient policies and for the donors to fit into the existent structures of recipients (OECD, 2005). The practicality in the development brought about by coordinated efforts can be exemplified by the success in reduction of malaria related deaths in Africa and specifically Kenya. In 2000, Africa was struggling with HIV/AIDS, malaria and tuberculosis (Sachs, 2012).

In other areas women were dying at childbirth due to lack of access to health services. A joint and coordinated effort by the United Nations and the World Health Organisation mobilised aid towards eradicating these problems. African countries adopted structures and policies that effectively channeled the aid towards the intended places such as the Global Fund for Fighting Aids led by Koffi Annan. Developed nations also reduced owed debts and the reduction figures were spent on healthcare. All these efforts created a surge in donor funding. The resultant success in the public health sector was evident in many fronts. Child deaths reduced from 12 million to 7.6 million by 2010 with malaria related deaths reducing to 700,000 from 1 million by 2010 (Sachs, 2012).

Conclusion

Aid is an effective tool in fostering development in both poor and middle-income countries. However, there are issues that arise on the side of donors and recipients that render development impossible. As Moyo (2009), Notes in her book, it is not surprising that currently there is no relationship between aid and development or economic growth because recipients are held back by corruption while donor are hinder effectiveness by interfering with the same processes they want to succeed. They also are majorly after power which makes them undermine each other’s efforts (Huang, 2014). Issues of policies and structure are solvable and until this happens aid cannot achieve the intended developments purposes. There is proof that with good policies and harmonised efforts aid can achieve development results. This is the case example on the reduction in child deaths, malaria related deaths and pregnancy related deaths in Africa between 2000 and 2010.

References

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