Canadian International Development Agency

Thinking outside the foreign aid box

Brady Yauch
Probe International
December 18, 2009

Foreign aid is facing more criticism—this time from an official at the United Nations Millennium Campaign. According to a recent report [PDF] in the Guardian UK, Sylvia Mwichuli, the UN millennium campaign communications coordinator, told an audience attending a media workshop that governments in Africa must look for different ways to finance their national budgets, rather than relying on foreign aid.

“African governments must find ways of financing development; we are calling for a paradigm shift in financing of development, not depending on donors,” she said.

According to Mwichuli, government across the African continent would be better able to allocate resources for local projects if they learned how to finance their budgets without relying on funds from foreign donors—which usually come with strings attached. In doing so, government leaders would make more headway in meeting Millennium Development Goals.

But first, she warned, they need to learn how to manage their money better and stop wasting funds.

She used Kenya as an example of a country that has weaned itself off a foreign aid—with only 6% of its budget coming from foreign funds. Uganda, on the other hand, is an example of a government that relies far too much on foreign aid—where 32.6% of the country’s financial resources come from foreign donors.

For Mwichuli, eliminating the need to tap foreign aid to finance local projects should be a source of pride for African government officials. “I get disgusted with countries that entirely depend on donor budgets,” she said. “What then do we pride in as African countries, if we have no control over our own national budgets and affairs?”

She pointed to a recent example in Tanzania, where the government was told that one of the conditions for receiving foreign aid would be the government’s promise to fight corruption.

“Why should we discuss corruption just because some donor is saying so? Can’t we discuss corruption because we feel it is necessary?” she asked.

The report in the Guardian UK went on to detail examples of government waste of foreign funds. According to the story, a large chunk of Uganda’s budget is spent on the defence ministry, the purchase of luxury vehicles for ministers and “meeting the salaries of resident district commissioners, who represent the interests of the president in every district, monitoring government programmes and chairing meetings.” The article points out that, “some people see them (resident district commissioners) as merely a burden on public expenditure.

“The Ugandan government also spent billions of shillings on hosting the Commonwealth Heads of Government meeting in Kampala in 2007,” the article points out.

But Mwichuli’s remarks are just one example in a growing chorus of criticism against foreign aid and its detrimental effects on economic growth, governance and environmental protection in the developing world. Most notable of these critics is Dambisa Moyo, the Zambian-born, former Goldman Sachs employee and author of the best-selling “Dead Aid: Why aid is not working and how there is a better way for Africa.”

Moyo argues that foreign aid is a hindrance to the development of countries in the Third World, not a catalyst. According to Moyo, no country has meaningfully reduced poverty and stimulated economic growth by relying on aid. “If anything, history has shown us that by encouraging corruption, creating dependency, fuelling inflation, creating debt burdens and disenfranchising Africans, an aid-based strategy hurts more than it helps.”

“The aid system has allowed African governments to abdicate their responsibilities,” Moyo said in an interview. “Until African governments live or die based on job creation and providing goods to Africans and not rely just on getting aid money, we will continue to see a situation where the private sector has not developed and Africans do not have job opportunities.”

She’s not alone. Pakistan’s Federal Minister for Finance and Revenues, Shaukat Tareen recently pointed out that the country would not be forced to accept foreign aid if it fixed its broken tax system. He said that by increasing revenues from tax collection, contentious foreign aid packages, such as the recently passed Kerry-Lugar bill by the US Congress, could be avoided. Recent figures put the country in the bottom 15% of global rankings for tax-to-GDP ratio—widely used as a measure of the state’s ability to raise funds internally, from its own constituents, for government expenditures. The overall tax-to-GDP ratio in OECD countries was 35.8%. In Pakistan it’s 8.8%.

The aid departments themselves have not escaped unscathed. Most recently, Canada’s foreign aid agency, the Canadian International Development Agency (CIDA), was criticized for being effectively dysfunctional, lacking the ability to effectively and strategically deliver its $3-billion foreign aid budget, in a recent report by Canada’s auditor general, Sheila Fraser.

Canadian foreign aid watchdog Probe International Executive Director, Patricia Adams, agrees with Dr. Moyo that state-to-state aid has failed to deliver development, and has instead promoted corrupt regimes and government officials. If the foreign aid taps were shut off, government leaders in the developing would be held accountable by their taxpayers.

“There can be no representation without taxation,” she says. “When government leaders are required to raise funds from their own citizens, the power balance shifts in favour of those taxpayers. It raises the bar for accountability.”

Further Reading:

Aid’s corrupting influence in Afghanistan should be considered

Foreign aid on the ropes

World Bank projects in Kenya suspected of fraud

More odious debts for the Democratic Republic of Congo if the World Bank gets its way

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