Question: Several studies including Dambisa Moyo's 'Dead Aid' illuminate that

foreign aid programmes directed at poor countries have created what can be called a
'vicious circle' of aid dependency. Discuss.

Over the past century, world governments and organisations have used foreign aid in an attempt to
combat the mass poverty of our global society. Foreign aid from bilateral and multilateral donors in
the form of loans and grants has been implemented into development programs to boost economic
well-fare and functionality particularly in the least developed countries (LDCs). Sahoo says that
“The point of aid is to accelerate the process of economic development up to a satisfactory rate of
growth that can be self-sustained” (Sahoo, 2013) which raises the question; has this been achieved?
Milestones have been accomplished and many countries have benefited from aid programs in areas
such as sustainable economic development, health, poverty alleviation, international trade,
agriculture, governance and policy making. However, many countries, especially in Sub-Saharan
Africa (SSA), are still in shocking states of poverty, with little or no improvement in the areas
mentioned above. Certain researchers, for example, Dambisa Moyo, even argue that foreign aid has
caused dire, negative effects on some countries and trapped them in what has been called a 'vicious
circle' of aid dependency. There are many different factors from both a donor and a recipient that
influence the effectiveness of foreign aid. These factors include political agenda, development
programs, implementation, policy, corruption, governance, aid conditionality, donor objectives and
aid type. These all need to be addressed if the circle of aid dependency is to be broken and
sustainable development is to be achieved.

Sahoo points out one of the biggest problems in foreign aid, “Variation between the authorisation
and utilisation of external assistance is one of the major obstacles in achieving the welfare goals of
foreign aid” (Sahoo, 2013). The first and foremost factor that affects the outcomes of aid and
whether or not it fulfils its desired intention is corruption. People or parties that take advantage of
the system for personal benefit. Corruption isn't a flawed part of a development strategy or a failure
in implementing the kind of programs for a specific country, Corruption is just a purely bad person
or organisation that alone ruins a development opportunity. Many of the SSA countries are
considered very corrupt and this is a major contribution to why they remain the poorest and most
poverty ridden region of the world. Aid has been a strong part of development programs in Africa
since the beginning of the second half of the twentieth century with “corrosive effects to
development of state” (Mohamed, 2013). Mohamed points out that in some cases, two thirds of
foreign aid was used for government consumption (Mohamed, 2013). This figure is quite alarming
as the governments use these funds for “public services”, and what results have been recorded; no
increase in economic development and many broken aid conditions. Although this can be seen as a
problem due corrupt governance in Africa, the issue also extends to the donor countries. Goldsmith
highlights that broken aid conditions can allow donor countries and institutions to apply the their
conditions which result in donor benefits and can be seen as encouraging the bad governance and
corruption of recipient states (Goldsmith, 2011). This is a roundabout cycle that emphasises Moyo's
ideas on foreign aid dependency. The solution to this problem can be seen in aid targeted at directly
at stopping corruption and bad governance rather than a focus on economic development. Donors
need to implement effective development projects and control negative economic growth factors
such as governments spending of aid on luxurious commodities, home loans, repayment of past
loans and interest rates (Sahoo, 2013).

The problem with corruption and aid dependency is seen predominantly in Africa, as countries like
India have shown exceptional economic growth that is sustainable due to foreign aid programs.
India was in the same economic condition as Africa when they first started receiving aid and where
also in an extreme state of poverty. Poverty is still prevalent in India although they have succeeded
in achieving a self-sustained and entirely independent economic growth. Economic development is
seen as the foundation for developing a country and bringing out of the low-income and poverty
ridden category. India was able to not only gain independence from foreign aid, but also pay back
all of its debts by 2000 (Sahoo, 2013). This shows that foreign aid can produce intended results and
not just trap LDCs in the viscous circle of aid dependency. The allocation of aid funds and where
they are coming from can greatly influence the effect it has. India's foreign aid was directed
towards programmes for: infrastructure development; transport; communication; industrial projects;
technology; managerial skills; organisations capability and research ideas (Sahoo, 2013). The
importance of allocating aid to the right programmes, depending on the recipient's needs, is
essential. India's foreign aid allocation was centred around the right development programmes for
economic growth. The LDCs and donor countries of other regions can learn from foreign aid in
India and some other regions in Asia to break the cycle of aid dependency.

A major problem in Africa is that there is such a large amount of foreign aid funding and such
disappointing political and administrative advances. Good governance, infrastructure, policy
implementation, political stability and well developed financial markets are seen as the key factors
for foreign aid to boost development and create sustainable economic growth (Wamboye, 2014).
There are a number of programmes that direct foreign aid at these key areas in Africa, however, the
reason they have not succeeded in creating an independent and developed African region is because
they need a 'big push' of even more aid (Wamboye, 2014). Wamboye points out that even though
Africa has received a large amount of foreign aid it is still in need of a larger amount to get it past
the poverty threshold. Although, this is then problematic for the issue of corruption, as it is stated
by Mohamed that the amount of aid is not the problem and it is in fact the governments
consumption of that aid. Untied aid to Africa and especially SSA, has resulted in the non-
developmental consumption of aid. Mohamed argues that untied aid is allowing the corrupt leaders
of states in SSA to use foreign aid for personal indulgence, in some cases untied aid being used for
government bureaucrat wages. This allows corrupt governing bodies to have a 'prolonged life' due
to a sense of security from the untied aid (Mohamed, 2013). On the other hand Tied aid is seen to
have a significant increase of fifteen to forty percent in resources and there transport to the
developing countries which is argued to be much worse for economic development than untied aid
(Goldsmith, 2011). Having a local business providing the resources promotes the countries own
markets and independence and boosts the economy and economic development from a internal
source. This is completely opposed through tied aid as it has a significant difference in cost and is
from an outside source, meaning the local market is rendered useless and is not getting the growth /
experience needed to develop economically and sustainably. The cases for both untied aid and tied
aid point out influential factors on the economic development in the African region and both show
results for aid dependency.

Without the right conditions implemented in the right projects that suit the needs of the recipient
and governing bodies in countries in SSA, they have lost the ability to perform even basic
governing functions without foreign Aid (Moyo, 2010). In 1975 to 1979, seventeen countries in
Africa had a official development aid (ODA) as more than ten percent of gross domestic product
(GDP) which according to Sahoo puts the country in a state of questionable sovereignty (puts the
country in the category of aid dependent when sustained for a considerable amount of time) (Sahoo,
2013). From 1980 to 1989 this number had grown to twenty-five countries falling into the heavily
dependent of aid category (Sahoo, 2013). From 1990 to 1997 thirty-one countries had become
heavily dependent on aid and these thirty-one countries held two thirds of the African population
(Sahoo, 2013). These results hold the significant amount of importance to the topic of aid
dependency and the circle it can create as more and more of the African countries became part of
the aid receiving problem and non of them seemed to coming out of it.

The issue with foreign aid not being used for the right purposes is one of the biggest reasons SSA
countries are stuck in the aid dependency loop. While there are a great number of advancements
that have been made a very few number have been self-sustainable and allowed the SSA countries
to follow India into a state of independence from foreign aid. One of the problems Moyo
illuminates as a factor in SSAs under-achievements is colonialism . Moyo states that “colonial
powers delineated nations, established political structures and fashioned bureaucracies” and that
indigenous cultures primitive and traditional course of life was “fundamentally incompatible” with
that of colonialism (Moyo,2010). Trying to develop a whole nation of development incompatible
people and tribes through the use of foreign aid is fertile grounds for dependency on that developing
income. The idea that 'traditionally rival and warring ethnic groups' all had to come together to live
in a completely different kind of society than what was known to them is quite absurd when looked
at from that point of view. With over 1000 distinct and different tribes most of which have there
own language and customs, ethnic rivalry and possible civil war are major threats for the attempted
colonialism (Moyo, 2010). The cultural diversity and disparity in societies can be linked to Africa's
under-achievements and continual need for support of foreign aid.

Goldsmith shows how there are donor related problems with the cycle of aid dependency with the
example of the USA. The USA has contributed a massive portion of the US one trillion dollars
(Moyo, 2010) in aid that has been sent to Africa. Through the continual dependence on foreign aid
without economic development and desired results of aid projects, USA has had to keep its foreign
aid investments flowing. Due to this foreign aid investment over such a long period , USA have had
to borrow money from China (Goldsmith, 2011). This shows a complete other side to the circle of
aid as it even pulls donor countries in.

In conclusion, the effects of foreign aid have differed in different regions of the world with the
example of Africa (in particular SSA) and India. The differences starting at a Donor level through
the type of aid given (tied or untied) and whether or not that aid is properly implemented with the
right policies depending on the recipients needs and situation. Corruption is a main cause in the
under-development of SSA and is directly tied to the consumption of aid funds without intended
results. Aid funds need to be directed at combating against corruption and bad governance in order
to lay the fundamental ground work for a development. Conditions on aid play a key role in its
allocation and are shown to influence reactions when broken depending on the donors motivations.
Sustainable economic development is an essential part in developing a country and needs to be at
the heart of aid programmes. The unique cultures of the world are very different and diverse and
must be carefully considered when trying to develop. In many cases foreign aid has created a
viscous circle of aid dependency and in others aid has created significant advancements without
dependency. Aid programmes need to be re-evaluated and re-implemented with recipient needs at
the centre of the projects if any successful and sustainable development is to be achieved.
References:

Goldsmith, A. A. 2001, 'Foreign aid and statehood in Africa', International Organisation, vol. 55,
no. 1, pp. 123-148.

Mohamed, M. R., Kaliappan, S. R., Ismail, M. W., Azman-saini, W. N. W. 2015 'Effect of foreign
aid on corruption: evidence from Sub-Saharan African countries', International Journal of Social
Economics, vol. 42, no. 1, pp.47-63.

Moyo, D. 2010, 'Dead aid : why aid is not working and how there is a better way for Africa', 1st ed.
New York: Farrar, Straus and Giroux.

Sahoo, K., Sethi , N. 2013, 'Effect of foreign aid on economic growth and development in India: an
empirical analysis', South Asian Journal of Management, vol. 20, no. 1, pp. 114-138.

Wamboye, E., Adekola, A., Sergi, B. S. 2014, 'Foreign aid, legal origin, economic growth and
Africa's least developed countries', Progress in development studies, vol. 14, no. 4, pp. 335-357.