Foreign aid dependency – the risk in receiving

John Baimba Sesay: Sierra Leone Telegraph: 12 November 2018:

Africa continues to be a huge recipient of foreign aid. The continent is said to account for around 20 percent of U.S. aid.

After decades of looking overseas for financial assistance, foreign aid has become an ‘acceptable norm’, tied to Africa’s development process, thus exposing the continent to the challenging dangers of always being on the receiving end.

The general belief is that foreign aid can remedy poverty. Such thinking, according to Daron Acemoglu and James A. Robinson “has dominated the theory of economic development — and the thinking in many international aid agencies and governments.”

They argued, in ‘Why foreign aid fails – and how to really help Africa’, that foreign aid has little to do with moving people out of abject poverty, rather, “it is due to economic growth in countries in Asia which received little aid.”

Sound economic growth is what nations need in their effort towards tackling poverty. Asian nations did this and today, they serve as lead examples.

China, for instance, continues to enjoy remarkable economic growth, with the World Bank saying, that the country’s GDP growth “has averaged nearly 10 percent a year”, the fastest sustained expansion by a major economy in history.

It has lifted more than 800 million people out of poverty, and continues to do so, all thanks to the prudent economic steps they continue to take.

Africa, no doubt, enjoys rich natural resources and market potential. However, it needs infrastructure and development finance to stimulate economic growth.

The continent has six of the world’s 12 fastest-growing economies – Ethiopia, DR Congo, Côte d’Ivoire, Mozambique, Tanzania, and Rwanda.

Despite all these beautiful stories, it continues to be donor driven. Take Africa’s engagement with China; aid has been a critical instrument used by the Chinese in engaging the continent. According to reports, by 2011, Chinese investment in Africa grew from USD 210 million in 2000 to USD 3.17 billion.

The 2018 FOCAC meeting in Beijing saw China pledge $60 billion to the continent in loans, grants, and development financing: $20 billion as credit lines, $15 billion as aid and interest-free loans, development financing taking $10billion, $10b for investment and the remaining $5b to finance imports.

But at what price should Africa continue receiving aid for development?

The continent has not done much in fully utilising its potential for economic growth. This has been one major challenge affecting development efforts, to the point of over relying on external intervention, risking any chance of acting or speaking as an ‘independent’ continent.

Africa’s unexploited deposits of minerals alone can be a source for growth, when properly utilized, plus huge potential in agriculture, tourism and fishing.

The continent’s commitment to utilizing revenues coming from taxation alone could be a good starting point, assuming there is an encouraging culture towards paying taxes.

Africa is home to many of the world’s largest and unexploited deposits of minerals, accounting “for three-quarters of the world’s platinum supply, and half of its diamonds and chromium. It has up to one-fifth of gold and uranium supplies and it is increasingly home to oil and gas production with over thirty countries now in this category,” writes Carlos Lopes. (Read: Africa must benefit from its mineral resources.)

These large deposits of natural resources, writes Ayodele Odusola, Chief Economist, UNDP Regional Bureau for Africa, “promise a bright future for developing value chains”.

Building on existing positive trends in a bid to maximize foreign investments is what Africa needs. Macroeconomic environment should be strengthened, with investment in quality education given priority, added to skills development in technology.

Working on strong regional economic integrations could be vital. This will help in removing barriers to free trade, which is detrimental to the growth processes of countries.

Furthermore, the need for cohesive regional and sub-regional approach to development should be pursued, more so at policy levels. Economic free zones have formed the basis for growth among East Asian nations. Africans should learn from this.

Not being able to properly identify priorities of growth and pursuing them, forms the crux of the challenge.

Lack of Job creation and low levels of investment could explain Africa’s slow growth. However, “it is the slower productivity growth that more sharply distinguishes African growth performance from that of the rest of the world,” says a study by the International Bank for Reconstruction and Development / The World Bank on Challenges of African Growth Opportunities, Constraints and Strategic Directions.

Africa today is going through what could be referred to as development inertia. Reasons abound for this. Recovering from this growth inertia involves drastic and radical actions. (Photo: John Baimba Sesay).

In ‘The case for mineral resources management and development in Sub-Saharan Africa,’ Lloyd A. K. Quashie calls for a development agenda that places “more emphasis on the exploration, development, exploitation, and rational management of its mineral and energy resources for sustainable economic growth.”

Here are examples; Zambia had to raise taxes on mining companies from 25 to 30% and introduced a windfall tax for exceptional profits, earning the country an extra $415 million in supplementary revenues.

Early this year, the DRC, Africa’s largest copper producer and world’s biggest producer of cobalt, signed into law a new mining code that increased royalties and taxes that mining companies pay.

Reforms in the mineral sector, when undertaken, are bound to defeat the challenges of Africa’s donor dependency.

Economic diversification is also critical. Agriculture can be a strong source of growth. Statistically, the continent hosts 60% of the world’s uncultivated arable land, said to have produced, in 2015, 13% of global oil, up from 9% in 1998. Investments in this sector, therefore, need to be increased.

It remains highly risky, to be too reliant on external funding for growth. The effects, tend to be noxious; In terms of policy making, we do not enjoy autonomy, thus undermining our independence.

Fact is, Africa’s voice on global issues tend to be weak. For instance, her call for a reform of the UNSC has not achieved much, much to the humiliation of our collective sense of pride. Donors determine what to do when shaping our development path, as against what should be determined by elected officials.

There is a risk in always receiving but there is a lot we could do to address this. Time to get things right!

1 Comment

  1. John Baimba Sesay’s article is well-taken. But the truth is that, analytically and empirically, we know what African countries should do for economic diversification and growth, without aid dependency.

    See, for example, the book “Economic Diversification and Growth in Africa: Critical Policy Making Issues”, by Omotunde E. G. Johnson, published by Palgrave Macmillan in 2016. The challenge we face now is how we get the African countries to do what they need to do to implement sound policies.

    If we look at European history, for example, high quality and highly focused social movements were important. If we look at East Asia, high quality political leadership and cooperation of social groups were important.

    Hence, for example, how do we inspire, organize and sustain high quality social movements, high quality political leadership and serious and determined cooperation among powerful social groups focused on good governance?

    These are the challenges a country like Sierra Leone faces, while absorbing the analytical and empirical policy-making approaches that make sense.

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