“The net result of aid-dependency is that instead of having a functioning Africa, managed by Africans, for Africans, what is left is one where outsiders attempt to map its destiny and call the shots.” Dambisa Moyo
This is explains why the African discourse on the global agenda has been usurped by pop stars (Bono, Bob Gerdof) and western politicians. The world ignores the real players and rarely are Africans elected by their own people heard on a global stage. This is despite the claims of equal treatment of sovereign nation states.
This is yet another anti-aid discourse that demands that these limitations to dominate dialogues in classrooms rather than the obvious monotonous arguments. I will draw from literature to the public, the economic limitations of aid.
Any large influx of money into an economy, however robust, can cause problems. An approximate amount of over US$ 1 trillion of aid has been disbursed to Africa in the past 60 years. This has been relentless and various agendas have been sought for by donors including, development, then money to the poor and lastly to further strengthen democracy. There is nothing to show for it. The economies are still poorly managed, are weak and are susceptible to outside influence and domestic policy makers have little control. The answer through the years has been more aid. This I am yet to prove that is the wrong antidote.
Aid into poor economies has resulted in to four economic challenges: reduction of domestic savings and investments to favour consumption; inflation; diminishing exports; and difficulty in absorbing such large cash influxes.
As foreign aid comes domestic savings decline, that is investments falls. The relatively few select hands who handle it spend it on consumer goods rather than saving the cash. As savings decline, local banks have less money to lend for domestic investment. This diminishes any future growth and results in degrading of existing infrastructure.
Aid money favours consumption of locally produced as well as imported goods and services. This can be positive. If a corrupt official gets US$ 10,000 and then he uses some of this money to buy a car. The car seller can now afford new clothes, and the trading goes on and on down the line. This is an example of positive corruption. The point, however, is that in a poor environment where there aren’t any more cars, clothes and so on, this will cause prices to shoot up due to this increased demand. Inflation will have eroded the economy and the poor will have to pay for this.
Aid money is now on inflationary terms. In a domestic economy with a fixed exchange rate system, the export sector will suffer. An increased cost will increase the cost of production and this includes raw materials and skilled labour. As a result the prices of the goods and services for export will be less competitive due to their high price. This will result in massive unemployment in order that the export firms can still operate at a profit (Zero economic profit). This will hurt the aid recipient economy.
All the same in a country with a floating exchange rate the same effect will be felt. In order for the US$ 10,000 to be used in Kenya, it has to be converted to the legal tender, Kenyan shilling. This demand for the Kenyan shilling will increase the value of the shilling thereby making the exports more costly. This makes them uncompetitive and thus choking Kenya’s exports (the Dutch disease).
At the early stages of development, there is not enough skilled man power, not enough sizable investment opportunities to out the vast amounts of aid into work. This will force the governments to spend this money (leading to inflation, the Dutch disease). To avert this sharp shock to the economy, African policy makers have to mop up this excess cash; but this costs money. In addition to paying the interest on aid, they have to pay for sterilizing the aid flows. This is even more painful.
In all these painful circumstances, African policy makers have resulted in asking for more aid to clean up these problems. How one can use problems to avert problems is yet a school of thought that is unexplored and thus the failure. There we are, caught in a cycle of harmful aid and the addiction doesn’t end till there is a willingness for rehabilitation from aid.
- See more at: http://awakeafrica.org/archives/1692#sthash.N4frpnzn.dpuf
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