Foreign Aid, Blessing or Bane: A Case Study of Foreign Aid’s Impact on Sub-Saharan Africa

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In August of 2018, the Trump administration introduced new conditions on billions of dollars in foreign aid spent through the UN and other multinational agencies. This decision revitalized the discussion of foreign aid, a hotly contested issue. According to Oxford Public International Law, foreign aid refers to the transfer of resources from a donor to a developing country. It comes either in the form of loans, which require repayment in the future, or in the form of grants. While foreign aid is often intended to help developing countries, some groups within donor governments use foreign aid as a tool to harm the economic independence of developing countries by creating dependency and other unfavorable political conditions in recipient countries.

Countries in Sub-Saharan Africa typically receive large amounts of foreign aid. According to New World Encyclopedia, Sub-Saharan Africa is the term used to describe the region of the African continent that lies south of the Sahara Desert. Although countries in this region posses vast amounts of natural resources, the region remains impoverished, and the continent of Africa as a whole has been identified as the world’s poorest inhabited continent. In recent years, however, countries in Africa have experienced significant improvements in infrastructure, education, and healthcare, and in 2017, the African Development Bank reported Africa to be the world’s second-fastest growing economic region. In some instances, this success can be attributed to foreign aid. While foreign aid has been playing an important role in this continent’s development, its real impact, true intention, and future effect, however, still remain controversial. This article will examine both the short-term and long-term impact of foreign aid in Sub-Saharan Africa.

One of the many types of foreign aid is emergency aid, which is rapid assistance given to countries suffering from immediate distresses, such as natural disasters. In Sub-Saharan African countries, where health-care related infrastructure remains underdeveloped, short-term emergency aid can be beneficial during a time of crisis such as natural disaster.

According to USAID, more than 13.1 million people in Sub-Saharan Africa face emergencies due to disasters such as drought and cyclones during the Lean Season. Among them, about 7.1 million people experience food shortages and 3 million experience water shortages. In such instances, foreign aid has proved remarkably effective: foreign aid assistance for cyclone-affected populations in Madagascar restored access to safe drinking water for 32,000 people in 2017.

While foreign aid does provide short-term relief in face of natural disasters, the long-term impact of this politically tied aid is detrimental. Foreign aid, especially food aid, often results in massive influx of cheap goods. Though intending to help consumers in recipient nations, donor countries often floods recipient markets with cheap or even free goods. In the case of Sub-Saharan Africa, countries’ local businesses are subject to being squeezed out of the market, thereby undermining local industries. This is what happened in Costa Rica in 1980s after cheap imported grain flooded into local market. From 1984 to 1989, the number of farmers growing corn, beans, and rice fell from 70,000 to 27,000, amounting to loss of approximately 42,300 livelihoods. The same also happened in Kenya. In 1993, European Union (EU) wheat was sold in Kenya at a price level that was 50 percent cheaper the domestic level with the hope of relieving the damage in agriculture after severe drought in 1992. As a result, in 1995, Kenyan wheat prices collapsed through oversupply, damaging local agricultural and food production, and creating severe poverty for this country in which 80 percent of its exports are accounted for by agriculture. While the motives behind foreign aid are ostensibly benevolent, these instances show how easily the intention can be twisted and turned against recipient countries.

The essence of neo-colonialism is that the state which is subject to it is, in theory, independent and has all the outward trappings of international sovereignty. In reality, its economic system and thus its political policy is directed from outside.

The loss of sovereignty by neo-colonialism occurs through a variety of mechanisms. First, foreign aid, when misused, can cause substantial harm  in recipient countries. While the initial purpose of development aid is to help boost overall social stability and economic performance in developing countries, recipient countries often divert a large percentage of development aid into military development that is directly used to repress domestic dissent. For example, in the Arab Spring of 2011, governments across Africa used their armed forces to hinder the democratic process. Reports showed that around 40% of African military spending is financed by OECD aid due to aid fungibility, which refers to the possibility that aid is used in ways not intended by donors. The vague restrictions on foreign aid enabled donors to  use aid, especially bilateral aid, for their own purposes. Take the Economic Support Funds (ESF) in US bilateral economic assistance as an example. Although it is officially listed as economic aid, ESF is considered as a form of military assistance since it is used to financially support countries that are deemed politically and strategically important to US. In more extreme cases, donor countries even directly aid local regimes to suppress dissent. For instance, Britain provided the government of Sierra Leone with tanks, which were then used to attack dissidents during a civil war in 1990s. For decades, African countries’ failure to independently operate their own governments gives colonialism a chance to return in a more subtle form and harms the already established social and economic orders.

Recognizing the dilemma brought by foreign aid, Sub-Saharan African countries must reconsider the types of aid that are permitted to flow into their countries. While the short-term benefits brought by foreign aid to Sub-Saharan African countries are necessary and significant especially during times of emergency, the recipient countries must be aware of the potential harm, long-term reliance, and other political implications that come with it. At the end of the day, achieving economic advancement is necessary to fulfill greater political and economic independence, a major goal for Sub-Saharan African countries that relies on their own ability to develop skilled and educated labors, reduce corruption in political institutions, and reinforce capitals of production through technology development and infrastructure improvement.

Small change, huge impact: How remittances assist development in impoverished regions of the world

 

remittancesIn 2016, Mexicans living abroad sent home $27 billion in remittances home to Mexico, the largest remittance influx that Mexico has ever received. Remittance inflows now surpass crude oil and tourism as major sources of income for Mexico, and much of these inflows go to Mexico’s most rural, impoverished areas, where they are a lifeline. Most of the remittances sent to Mexico came from the United States due to a strong U.S. labor market, a weakening Mexican peso, and fears that the Trump administration may tax remittances in order to pay for a border wall.

Often, due to poor economic prospects and a lack of opportunity at home, migrants will seek work abroad and send back a portion of their earnings to help friends and family. These funds that are sent back are called remittances. Between 1960 and 2010, the number of migrants increased from 90 million to 215 million worldwide, and migration to western Europe and the United States accounts for around two thirds of this growth. In 2015, more than $431 billion in remittances were sent to developing countries, with each remittance (also referred to as a transaction) averaging around $200. In many developing countries, remittances constitute a huge source of cash inflow; in 2013, remittance inflows globally were three times larger than inflows from official foreign aid, and remittances regularly exceed foreign direct investment in developing countries. When considering a nation’s development, it is common for policymakers and others to only consider foreign aid and largely disregard remittances as a source for development funds. It is important to remember, however, that the remittances that migrants send home have powerful impacts on encouraging development and reducing poverty in the developing world.

In developing regions around the world, remittances are a lifeline, bringing much needed funds to people who are barely scraping by. India was the biggest destination for remittances in 2015, followed by China, the Philippines, and then Mexico. Some countries could not function without substantial funds from abroad–remittances make up 29 percent of Nepal’s GDP, and in Tajikistan, that number is 42 percent. For countries that were formerly part of the Soviet Union, such as Tajikistan, remittances are especially vital.

In impoverished parts of Mexico, remittances constitute around 19.5 percent of income, which is an even higher percentage than the contributions to income from government welfare programs. The remittances that families receive are put to use covering basic needs first, with the rest going towards investments and paying back debts, allowing those who receive enough in remittances to begin to focus on getting out of poverty. A report published by the Inter-American Development Bank found that in rural Mexico, 74 percent of remittance monies are used to cover basic costs of living, with 16 percent used to pay debts and 5 percent used towards investing in the home. Furthermore, remittances have a tendency to act like insurance for recipients. Remittances tend to be  countercyclical–during an economic downturn or after a natural disaster in migrants’ home countries, remittance flows actually increase, allowing some of the poorest members of the global population to better weather financial crises.

In many cases, recipients of remittances use those funds to enroll their children in school, which allows them to achieve higher levels of education that can lead to higher-paying jobs. Data from the World Bank show that in many countries in Latin America, children in families that receive remittances are more likely to stay in school and have higher educational attainment. Thus, remittances provide a means for families to invest in the skills of their children, giving them tools that can help them break the cycle of poverty in later life.

There is also evidence that increases in remittance flows received by people in Mexico correspond directly to a decrease in crime. A study by the Inter-American Development Bank found that for every percentage point increase in remittances, street robberies in Mexico declined by 0.19 percent and homicides decreased by 0.4 percent. This decline can be attributed to several factors. First, as mentioned above, remittance flows give families the opportunity to send their children to school, reducing the incentive for these children to commit crimes. Not only does being in school prevent children from engaging in criminal activity, but the extra years of education allow students to eventually get higher-paying jobs that allow them to make ends meet without having to resort to crime. Second, remittances increase income and therefore decrease the benefits derived from committing crimes, and studies conducted in Brazil and in Colombia confirm this. Finally, 5 percent of remittance funds in Mexico are used towards home expenses, which stimulates the construction sector leading to the creation of construction jobs. These jobs offer people, particularly those with little education, the chance to earn a living without having to turn to crime.

In January of 2017, Mexican immigrants in the United States sent $2 billion back to Mexico, up 6.3 percent from this time last year. While a weaker peso did play a role in this jump, much of the increase stems from fears about a potential tax on remittances being sent from America. It is true that large sums of money flow from the United States into Mexico each year. However, this money is put to good use in impoverished regions where it is needed most. It allows children to stay in school longer and makes them less likely to commit crimes. It enables families to make ends meet and lays the groundwork for recipients to lift themselves out of poverty. Given the important role that remittances play in assisting in the development of impoverished regions of Mexico, such a tax would significantly hurt the people who rely heavily on those remittances to make ends meet.