By: Bikal Dhungel
It is not necessary to define Development Aid again, it has been
defined in previous articles but before I graduate to the topic, I
think it is useful to define some other terms. Aid has different
forms. For example, when a donor country says, its giving a grant to
a poor country, it can be either in the form of cash or any goods and
the receiving country dont require to repay it. Loans however are
different. In international development cooperation, we often hear
about concessional loans. That means, loans with concession or
discount. There will be a very low interest rate or no interest rate
at all. Then there is a big term called ODA, Official Development
Assistance which is also called 'Foreign Aid' in general. When you
read about 'Foreign Aid' or 'Official Development Assistance', both
mean the same. ODA can also be either bilateral or multilateral.
Bilateral Aid means the cooperation between two countries. Like when
the US gives aid to India, its bilateral. Multilateral Aid means the
aid given by multi-lateral institution which belongs to many
countries. For example the World Health Organisation, the United
Nations, International Monetary Fund and the World Bank are
multilateral institutions. When these institutions give aid, it is
not given by one particular country but by the institution as a
whole.
The story of Aid is big and the volume of aid is big too. In 2013,
total ODA reached 135 billion US$. The biggest donors were the United
States, United Kingdom, Germany, Japan and France. These five
countries gave about 85 billion in total. In terms of percentage of
GDP, Norway, Sweden, Luxembourg, Denmark and the United Kingdom top
the list. Only these countries have fulfilled the MDG where they
promised to give at least 0.7% of their GDP as aid. On the receivers
list, the top 10 receivers are Agfhanistan, Democratic Republic of
Congo, Vietnam, Ethiopia, Pakistan, Tanzania, India, Turkey,
Palestine and Kenya. One can easily notice from this list that top
aid receivers are not really the poorest. Turkey is not poor, it has
a per capita income of $20,000 based on Purchasing Power Parity.
India is poor but it has launched a satellite to space recently worth
7 billion dollars.
Aid is given for many reason, it can be political, economical,
strategical or cultural. Evidence shows that, political reasons are
the strongest. Countries give aid to maintain political influence
which might be necessary for themselves. It can be for economical,
for example to support certain firms or sectors. China is a famous
example of economic aid. When it gives aid to neighbouring countries
to build highways, the contractor should be a Chinese firm, even
Chinese workers go there and work and even the raw materials will be
exported from China. By this way, it also helped the donor. Sometimes
it is also to extract resources from a particular sector. Congo is
rich in resources but there are no good infrastructure to extract the
resources. So, China builds a road to a rural area so that resources
can be taken from there to elsewhere. Finally, the aim of Aid is to
reduce poverty. Of course not all countries are interested in
reducing poverty. There are many motivations behind, which is often
not easy to know. As a consequence, aid has failed to impact
positively in most countries. This means, aid did not reduce poverty
or contributed to economic development. In some cases, it fueled more
corruption. Therefore, there are two groups of experts who are
outspoken critics of aid, and a big supports. Both groups have
published large number of scholarly journals and books.
When we come to the original meaning of Development Aid, to
contribute to the economic development of under developed countries.
Diplomatically, they are called developing countries today, even
though they are not actually developing. Aid has worked in some
places and in others, it has been a catastrophe. It has worked in
countries that followed good economic policy and where there is an
accountable government. Where there is political instability, armed
conflict, vulnerable economic situation, and bad governance
indicators, aid effectiveness is lower. Let us consider that aid will
be implemented well. But then, will it generate growth ? Is it enough
to change a country economically ? The answer is short, No. Aid will
not bring big changes even there is 100% effectiveness. Aid consist
of less than 1% of receivers GDP in most cases. This will barely
bring any change. A country that is lagging behind in health,
education, infrastructure etc, pouring aid in small projects or in
one sector alone will fail to bring big change. The aid will simply
disappear, it will be a drop in an ocean. If we want to bring change,
aid is required in all sectors, especially in health, education and
infrastructure. This should be at least for two decades because the
ones who get support will be pushed back to poverty once the funding
ends. To put them in a situation to generate income, they need
support until they are able to use their human capital to generate
income. The major problem of developing countries today are: 1) the
healthcare system is underfunded, so, the health of nation is poor.
With poor health and sickness, people cannot use their labour and
talents in full potential. 2) The education system is underfunded or
inefficient, both in terms of quality teaching and the lack of proper
infrastructure. 3) the infra-structure is too poor. Situation in
rural areas are more worse. As the largest portion of people live in
rural areas, lack of infrastructure hit them hard. Hence, support is needed in all three sectors and not in a single one.
We often see that a certain aid organisation is building one
school in a rural setting. This sounds good but again the
sustainability is the question. Is it enough ? With school building alone, without qualified teacher , will it be able to reduce poverty
? The answer is no. There are other stories we hear about a donor
giving money to poor people in a poor place but in reality, such
things help very little. If the goal is to bring people out of
poverty trap and help them to live a quality life for longer term,
such aid should be there for a long time. Aid should not only build
one school but first provide people enough calory, then help them get
education until the intermediate level, then there should be
healthcare facilities and infrastructure which should help them to be entrepreneurs. Only then it will be sustainable. If the funding comes from aid, this aid should
be there for a long time. Superstars like the U2 singer Bono,
Angelina Jolie and prominent economists like Jeffrey Sachs are
all right in their argument. Small amount of aid will not help much.
Small aid is there since four decades but it has failed to generate any
results in poorest countries. So, even experiments are being done by
Jeffrey Sachs in his so called Millennium Villages where they give
aid to people in every aspects. Either it will work or not, time will
show but it makes sense. Even if it fails to bring change in a macro
scale, a limited number of people will be helped efficiently. This
argument is made from the side of receiving countries. But the donor
is not a single country or organisation. They are wide range of
countries, with different motives of aid, with different political
and economical views and to coordinate aid is everything but simple.
However, if there is a better coordination, they can concentrate on
particular countries or regions in a year and first finish the job
there before moving to other regions. This might not be easy in
practice but if aid is failing to bring any change anyway, why cant
it be a good thing to try ? Before they pour other hundreds of
billions in poor countries, there should be a Plan B to make aid
really work. So, A big push of aid can be a viable option.
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