The chronic case of aid addiction
President Jakaya Kikwete was recently quoted as saying ‘Western donors were setting degrading conditions for aid’ and that his government could be forced to tell them to ‘keep their aid’.
This comes following delays in donor payments over concerns from Western donors about ‘corruption, poor governance, slow pace of reforms’ and a host of other conditions often reserved for African governments. The worrying thing is that the withheld US$500 million in budget support for Tanzania has a knock on effect on government budget and government capacity to provide public goods for the people of Tanzania. Malawi has had her aid suspended on several occasions ‘for failure to address concerns over economic management, governance and allegations of corruption’. The suspension of aid to a country like Malawi where nearly 40% of its budget comes from donors has damaging effects on public services.
This is the same story on the African continent with nearly all governments heavily reliant on international donor funding to provide services such as healthcare provision, education, sanitation, education, infrastructure and so on. President Kikwete is right in saying that his government would start working on ‘weaning itself from this dependence on aid’ to fund services for the people. The reality is that anywhere else in the world it is a function of government to provide these services through taxation and other public funding mechanisms. Public services and goods should not be funded by charity for it is governments that pay for such. It is said that African governments receive roughly over US$50 billion of international aid assistance annually. This is not free money by the way because yearly the same recipient African governments have to pay back in the region of US$20 billion in debt repayments per year. It is a vicious cycle in that paying back US$20 billion will inevitably mean they will have to borrow again to be able to pay for these public goods. When President Kikwete says his government will ‘wean itself from this dependence in the 2016 budget’ what he is basically stating is that his government will in future not abandon the basic mandated function of government to provide public services. What President Kikwete is bringing to the fore is courageous and commendable but then it comes with a heavy price tag. This will mean people will have to go through a dark period to eventually emerge at the light end of the shaft. In the case of Tanzania if US$500 million is going towards government budget, if then this amount is removed, how else is the government going to fund such essential services to the public? The key is for African governments to take the ultimate responsibility for funding public services or public goods and this can be achieved through self-sustaining growth models.
The lectures continue to come thick and fast on how African governments should grow their economies. It is now nearly over 50 years since most African countries gained their independence but their economic growth remains mostly stagnant if not negative and poverty remains rife. The question to pose is, how do you expect positive economic growth when you do not own the means of production? The reality is that Aid is not a catalyst for economic development but rather fosters dependence. There is enough available literature, evidence and case studies to that effect. As President Kikwete lamented, the aid freeze has now led to the domestic currency weakening significantly. Aid in most African countries and other developing countries is often associated with rising exchange rates which undermines export competitiveness and thus a negative effect on economic growth. It is expecting too much for economies that dependent on aid and imports to post any real growth. Aid greatly contributes to low productivity in this sense because it inevitably depresses exports. According to a 2005 IMF Report ‘Aid will not lift growth in Africa’, it highlighted a fundamental point that productivity growth is the most important determinant of living standards.
There are many types of aid namely food aid, technical assistance, project aid, programme aid, budgetary support aid, aid that is given in the form of loans or grants. There is aid that is given to promote growth and there is humanitarian aid. Those around the world who provide humanitarian assistance should be commended for there are cases when it is urgent and required for example in disaster zones, war torn regions of this world, natural disasters such as the recent Nepal earthquake, flood victims, the tsunami in Asia, famine in drought prone regions and many other humanitarian requirements which local governments are not able to cope on their own. As human beings we are compassionate beings, we have a conscience and empathy and many who give selflessly to those in need.
There are of course arguments to the discourse that food aid can have a negative impact on farming in the recipient country in that farmers may become over reliant on food aid, food aid can drastically reduce the price of locally produced products to that point that it becomes less viable to farm. Some have even argued that food aid is a way of some governments in the developed world to dispose of their excess agricultural produce. The counter argument is should the developed world governments let famine persist and allow people perish? That would be inhuman and the world is made up of many good people with noble motives. The other counter argument is that by continuing to aid the same governments, this means that they may never take responsibility. They will just continue to be happy to have the electorate fed and people who are not hungry often do not take their governments to account. How then do you create balance? That of course is the $50 billion question. With aid being used to fund government budgets then why would any government seriously work towards a self-sustaining economy? There is nothing as easy and free as free money. The problem comes when you are entangled in the web of ‘degrading’ conditions and the vicious cycle of having to repay the money. There is also the other argument that with free money the propensity for corruption is high and there could some truth to that.
It is not rocket, the reality is that by its very subtle nature, the aid culture especially in Africa has not brought about economic growth but rather further sunk most governments into a vicious cycle of debt and unsustainable debt repayment terms. As President Kikwete highlighted that without that $500 million, Tanzania would be more vulnerable to rising exchange rates, inflation, reduced export capacity and low productivity. Foreign direct investment remains scarce as African governments are accused of poor governance, corruption and slow progress in reforms. These accusations against African governments makes investors especially those from the west view the countries as risky investment destinations. The key is for African governments to get their priorities in order and start looking at empowering citizens to own the means of production, to own their God-given abundant natural resources and prioritise productivity. Indigenisation and economic empowerment are home grown initiatives that have the best hope of lifting the continent out of this mire and mud. It is economically empowered citizens who will eventually create jobs and jobs will eventually lead to a bigger middle class that pays taxes to fund public services.
It is the government-to-government aid and aid from large institutions like the World Bank and IMF which continue to sink African countries into economic abyss. The case of Tanzania as highlighted by President Kikwete is clear evidence that the free flow of aid money fosters dependence rather than aid growth. That is the reason why President Kikwete is talking about weaning his country off aid dependency. If governments continue to receive billions in aid year in, year out it basically makes them complacent and there is no need whatsoever to work toward home grown initiatives to grow the economy. Dambisa Moyo in her book ‘Dead Aid’ makes a very compelling argument that ‘Aid allows African governments to abdicate their responsibility to provide public goods’ and contributes to the dysfunctionality of Africa. The ‘degrading’ conditions that President Kikwete was lamenting will persist for he who blows the piper dictates the tune. At the end of the day it is their money and it is important to play by the rules of the game or just do not accept it.