We live in a world where different individuals are gifted different and also the same applies to regions. We have certain regions of the world endowed with enormous resources while others are merely deserts of resources.While natures play its role, knowledge skills and technical know-how has also contributed immensely into this disparity and inequality.
We live in a world where a group of people in certain worlds wallow in abject poverty lacking basic amenities and crucial simple survival resources to make both ends. While this is happening we also have other places in the world where people enjoy a great variety of freedom and choices on their way of life and what to eat. We can say in simple terms they are comfortable.
The world is changing fast and in that sense, many are keeping up with these fast changes but there remain groups that are being left behind and it cause a lot of discomfort to everyone in this journey (Dreher, Axel, 2006)
A world of people living in poverty, torment, and misery causes a lot of discomfort to those who live next to such and it is unbearable and the truth is that their grief and pain trickles to those near them and it becomes a necessary human endeavor to lend a helping hand to help fix the emerging issues in this neighboring countries. The rationale behind foreign aid is built on the need to help these countries out of their misery but also at the same try to prevent the issues arising from such places from finding their way into the other side of the borders.The motive of these aids is not only designed to help but also to penetrate these place and utilize the untapped resource for the gain of the native dwellers and the foreigners.
There serious emerging issues in the developing countries and the rate at which these countries are addressing these issues it might take millennium sand there is where the need to help rejuvenate these economies comes in. Foreign aid is not only the best option for these illnesses but might be the only hope. Though it faces its challenges it has been proved to work in most places especially in Asia. The question that lingers around my mind is, what are the underlying issues that have hindered its success in other countries especially in Africa.
UNDERSTANDING THE CONCEPT OF AID
What is aid?The basic understanding of aid in this context of the study is crucial to facilitate grasp of the entire concept of foreign aid and its implication to the economic growth of certain countries and also its political significance. The simplest understanding of the word aid can be summarized as support in terms of resources given by one state to another for the purpose of economic growth. This aid from other countries is what has grown to be known as foreign Aid. So many countries around the globe are involved in the allocation of the resource to other countries and it has become a common name in developing countries.
Foreign aid can be categorized into two major channels through which are flows to reach the intended
1. Multilateral foreign Aid
Multilateral institutions are big institutions in terms of capacity and its reach and they are often used to provide foreign aid to developing countries. The concept of multilateral foreign aid can be summarized as the process through which developing countries; cooperation, individuals and foundation pool their resources to fund certain projects through multilateral institutions good example of this institutions is the World Bank which is funded by most of the developed countries with the main goal of eradicating poverty in the least developed countries.
2. Bilateral Aid
This is the kind of support offered by one country to another directly with aim of funding specific projects and also strengthening political bonds good example of a donor country is the United States of America (U.S.A) which provides aid through its Aid agencies called USAID. The Agencies focus and fund specifically asked government projects on health, food, education and disaster mitigation procedures.
PURPOSE OF AID
As much as the intentions for aid might vary from different entities who provide them, the underlying common interest is serving humanity and welfare. The main reason for foreign aid is to enhance foreign policies agendas.
Many countries around the country engage in foreign aid activities which has long been used as tools of enhancing foreign policies and also as tools of bargaining for favors and certain rights (Dreher, Axel; Jan-Egbert Sturm and James Vreeland ,2009) Foreign aid can be used a tools of political manipulation, where the Aid upon which a certain a country depends upon can be withdrawn with intentions of creating economics blackouts and creating chaos to a country seen not be friendly or following unpopular practices. On the other hand, foreign aid can be used to foster good relations of involved parties and can also be used as a means of rewarding countries which have adhered to certain policies of the donor country.
Foreign aid can also be used to bargain for certain freedoms or rights to certain projects in the recipient country by the donor state.
Foreign aid can also be used to solve emerging issues or disaster to receipt country. Natural calamities like storms can cause devastating aftermaths to countries which without donor support it would close to impossible for these countries to recover. Aid is designed to cushion and help certain progress or move on when disaster strike. The case of Haiti is a clear show of the role of foreign and its impact on the purpose of helping mitigate issues
How foreign aid works
The donor country is the sole decision maker when it comes to how the aid should be allocated when it should be allocated to what extent it should be processed and to what end does it pursue.The donor country through it establishes agencies decide on the amount to allocate to certain recipient country and they also set the chronological framework through which the aid will be delivered and also the consider the means of delivery of the aid
The donors underlying principles are crucial in determining whether a certain country should receive the grant and also of importance the recipient countrys government policies can be a great influencer.If the receiving countrys policies intertwine or correspond then there is always a likelihood of the donor country being comfortable to offer support where it is needed.
The donor countries can choose to use either the bilateral way or the multilateral approach to dispense its policies duty of providing aid to other countries with clear intentions of driving their interest home.
Bilateral aid approach offers the donor country the full autonomy to disburse funds and manage. In this approach, the donor country has the sole responsibility of designing means of delivery of such funds to the targeted country and also they have the burden of providing avenues on how to utilize the Aid to achieve intended goals. Many donor countries even send their own officers to monitor and manage the projects so that the fit right into the donor’s desire and objective. Despite the autonomy that comes with this approach, many donor countries prefer the use of multinational institutions to deliver on their agenda. Multinational offer a wide range of professionals who work and provide better accountability practices which are admirable and make it easy to leave things on their hands. The multilateral approach offers cheaper modalities of dispensing aid which saves the donor country of the hustle of drafting the delivery means and management channels. This approach also helps the donor country to avoid getting itself mixed up in the politics that involves such procedures and the approach is greatly viewed to be purely economic sense other donation seem political in all their outlook and often appear biased
There is always the need of recipients country to align its policies to the policies of the donating country I order for the donation to be delivered. There have been incidences where donation have been withheld due to lack of cooperation from the recipients country to conform to this demands. In other more forthcoming scenarios, the government makes an adjustment to fit into the donors preference and such money received and support are allocated to fund projects.
On other scenarios, the recipient country can only wait for the confirmation of the donors commitment in order to draft their budget with greater considerations drawn to the aid and its benefits in supplementing the existing revenues.
Challenges and benefits of foreign aid
Some of the basic benefits
The country that receives this aid is able to redirect this support to projects that help strengthen the infrastructure of the country with the aim of opening up the country to the investor. Such investors help increase economic activities and hence enable such countries progress and grow.
The aid helps bail countries from the effect of natural calamities like storms among many others
The aid helps government strengthen their security apparatus and be able to defend their country and the same time protecting the citizens of these donor countries who visit as a tourist.
Countries spend the money allocated to them anyhow without the consideration of the consequences of such acts. Mismanagement of these funds and embezzlement has been a key challenge facing most developing countries
Many countries use these funds in projects that yield no returns and cant be accounted for. This evident in Nigeria which receives the highest amount of Aid to a tune of $280 billion and have nothing to show for it
Money allocated for a certain project being reassigned to other projects this is evident in the case of Chad where money intended to help eradicate poverty was re-tasked to finance the army
The World Bank
The World Bank is an international well recognized financial institution that offers grants and loans to the least developed countries with the intention of helping them strengthen their economic standard for the main purpose of reducing poverty.
What are the objectives of the World Bank?
Development of health services and education
Development of better governance practices and management of public resources
Reduction of global pollution
Development of infrastructure like the road network
Development of agricultural practices
How the World Bank works
Every member state is required to make a contribution that amounts to 2% percent of their total annual subscription in US dollar or an equivalent of gold.The member state also makes another contribution of 18% of their local currency.
The bank offers a great interest rate of 0.5% above its underlying borrowing on the international markets.
The interest rates on the loans offered by the World Bank are always adjusted every 6 months
The money gained from this interest are used to help pay for the operational cost of running the bank and also to increase on the set reserves of the bank
Who is eligible to get the loans?
There are no established criteria upon who is eligible for the loans offered by World Bank but have legal tenders and a board which conducts an election on the eligibility to get a loan. The US who seem to have a say in the Voting procedure has 20% voting right and also there other executive directors from represented 47 sub-Saharan Africa states that get 7 % voting right/power.
The World Bank loans are attached to certain conditions to its loans with caveat clause which requires the borrowing state to be able to restructure its economy to attaining the recovery period of 12-15 years
Criticism of the World Bank
Countries like the US already have huge voting rights than other combined states hence it influences policies that have a direct impact on the process of loan allocation and intervention. So in simple terms, any request not supported by the U.S has a high chance of failing
The World Bank offers loans for projects that fit within the policies of key shareholder like the US which sometimes most states fail to meet due to its policies and economic plans. Most projects fit within the standard or the criteria of meeting and handling environmental sensitive issues like water, food, and extraction of natural resources.The issue here comes when a country wants to borrow but its agenda is fixed on other projects that not conform to the standards, so the Banks ability is limited.
The conditional set for one to receive the loans which include includes structural adjustments in order to be able to service the fee most times leave the country vulnerable or sometimes the country cannot match up to these desired improvements.
The servicing of the loans affects major sector like health and education by holding social project spending hence limit the countries balanced growth. This means that that spending on such projects like the sport is restrained as the focus shift to the development and structural improvements.
Impact of the World Bank
The World Bank has been playing a key role in assisting the developing country to build projects that help sustain life and meet economic growth requirements (Boockmann, Bernhard and Axel Dreher, 2003) and these have been done through:
Offering financial assistance to the promotion of economic growth and development
Offering loans at a lower interest rate for developing countries which in turn help them invest in major projects like dams that help mitigate issue to do with water and sanitation
Providing technical assistance to a major project which helps the recipient country build better and long lasting projects
Organizing conference of developed countries for helping developing countries solicit funds like the much known Aid India club
Establishment of a subsidiary financial institution like the International Development Association (IDA) for offering help to developing countries
World Bank has played a key role in helping attain universal peace by assisting in solving disputes in developing countries
Failures of the World Bank
Inadequate voting right for developing countries
The share of the developing country is insignificant compared to other developed countries like the US. The share is still lower than expected even after the real location where the 50% share is still helping by the developed countries like United State America, the United Kingdom, The Republic of Japan, Germany, Canada, and Italy
Inadequate resource capacity
The banks ability to fund the growing demand has been termed as inadequate where members state have to source other institution for assistance
There is a prevailing insight of the bank’s biased allocation of funds for project towards Africa states and Asia with many saying that the Bank is inclined to help west Europe.Least Developed Countries are having a hard time accessing loans from the bank and it has caused some discomfort from members state.
Repayment in foreign currencies
The bank has a policy where the country receiving the loan shall pay it foreign currency or gold measure standards which sometimes the Least Developed countries find it tough to meet.
No help for general welfare projects
The most developing country requires a lot of funds to standardize its allocation on welfare projects like education but the bank has policies that limit the country to projects that aimed at solving environmental impacts like dams
The overall view of the role of the foreign aid shows that it has raised growth and facilitated many countries achieve their economic goals and plans. Over a period of time, the amount of aid that has been poured into these developing countries has worked for others and the opposite for other countries. Such disparities call for an overall change in policies and tactics it issuing these aids to those sections of the world where they have failed and a good example is Africa.
Most of the finances directed to most Africa states have ended up being underutilized and a big percentage of it embezzled by government officials for their own gain. Hence there is a need to stop the funding and new approaches implemented and tougher rules set to monitor these funds and its management
The accounting procedure of donor countries need to be revisited and new approaches established to monitor these funds and also a keen audit of all projects with a clear investigation conducted.
Government policies and the kind of leadership available has affected greatly the flow, the kind and the success of projects with most official interfere in the affairs of the project and embezzle funds leaving little left for effective delivery of the project
So it is evident that aid is effective and successful where better governance is offered and where there are well planned and implemented government policies. Then with such in mind, the kind of leadership chosen by the people should influence the flow of aid. Where certain leaders dont offer credible and better policies. Donors should desist to offer aid to the people make the right adjustments. It can be used as political leverage on the people to choose better leaders with good development agendas.
So the role of foreign aid is much needed only the approach need changing and mot institution restructured to accommodate the emerging issues in our society