Curse in Disguise: How Aid is Holding Africa Back

By Lamija Grbic Images of a poverty-stricken Africa have long permeated the Western mindset. Africa is often thought of as a monolithic whole devoid of economic potential and constantly plagued by social and political turmoil. The instinctive reaction to this conception of the continent is to regard it as inherently helpless. As a result of this notion, the foreign policy of many Western nations has been to inundate African nations with aid monies. These funds have taken the form of concessional loans and grants.[1] Yet as economist Dambisa Moyo argues, the inflow of foreign aid has only served to perpetuate Africa’s economic and political struggles. The problematic “solution” of foreign aid is not only associated with negative economic and political outcomes for African nations, but also reveals the flawed thinking of developed nations when it comes to the African continent.

Africa has received $1 trillion USD in aid over the past fifty years.[2] The rationale behind this trend has been to jumpstart underdeveloped economies and contribute to their infrastructure. While aid in the form of grants and concessional loans has reached sizable amounts, it has resulted in little benefits to recipient nations. In many ways, foreign aid seems to have fortified the barriers to economic and political stability for African countries. Inability to repay loans creates debt and often encourages governments to take out additional loans.[3] This cyclical pattern of debt is not the only pitfall associated with mass foreign aid inflows.

Another challenge involves ensuring that funds are allocated properly. As Moyo indicates, poor governmental accountability due to corruption and weak political institutions often results in funds flowing into private pockets. This trend is detrimental to the integrity of public office, as the ease with which foreign funds are diverted to corrupt leaders only encourages self-serving individuals to seek positions in government. [4] A recent United Kingdom study reports that $192 billion USD is taken from African nations by multinational companies for every $134 billion USD which is received by these nations in the form of aid.[5]

Foreign aid has proven to be a poor solution to supporting long-term development in Africa. In order for alternative solutions to produce positive outcomes, it is imperative that Western nations rid themselves of their paternalistic attitudes and validate African nations as important players in the global, economic arena. One such alternative solution involves taking advantage of the international capital markets.[6] By issuing bonds, a nation’s government is able to demonstrate initiative while still procuring the funds necessary to conduct its affairs. More importantly, attracting lenders requires sound credibility ratings. A country which chooses to deny foreign aid and pursue international bonds can gain such credibility and open new opportunities for itself in the capital markets.[7]

One of the key goals for African nations in the next fifteen years is job creation. This typically involves a shift from agricultural to industrial or manufacturing-based work.[8] On a microeconomic level, stimulating the labor force implies establishing a secure relationship between individuals and banks. The Grameen Bank accommodates the needs of low-income individuals wishing to take out loans. For instance, rather than using an individual’s home or land as collateral, lender accountability is maintained through small groups. Because receiving loans is contingent upon other lenders in the group having successfully repaid their own loans, the Grameen Bank is able to reconcile the high-risk nature of lending to individuals with little wealth.[9]

The fundamental flaw of aid is the tacit assumption that the destinies of African nations are not and cannot be in their own hands. By pursuing funds through international capital markets, these nations can demonstrate the desire for investors rather than “saviors” who are too far removed from the issues to be able to fully understand their role in their continuation. In addition, innovative banking practices which are sensitive to the clientele they serve are critical in forging economic confidence. Ultimately, it is up to African nations to take a more active role in their own development. If foreign countries truly wish to help in this endeavor, they must recognize that the business of development should be conducted on Africa’s terms.

[1] Moyo, Dambisa. Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa. New York: Farrar, Straus and Giroux. 2009.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Sharples, Natalie, Tim Jones, and Catherine Martin. "Honest Accounts? The True Story of Africa's Billion Dollar Losses." July 2014. Accessed December 2014.

[6] Moyo, Dead Aid.

[7] Ibid

[8] Kharas, Homi, and Julie Biau. "Africa Looks Forward to the Post-2015 Development Agenda." The Brookings Institution. December 2015. Accessed January 2015.

[9] Moyo, Dead Aid.

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