Does Foreign Aid Impede or Help Development Prospects of The Global South?

Does foreign aid impede or help development prospects of the Global South?
Analyse
the cases of two of the following countries: Senegal, Zambia, Chad, Bangladesh,
Guatemala, Bolivia
Since the Second World War, Foreign aid has long been touted by many as being the key way
to help the development prospects of the Global South. Amstutz highlights this when he says it
is estimated that during the Cold War era, the developed democratic countries gave $1.1 trillion
($2.21 trillion when adjusted for inflation in 2014) to Third World countries in ODA (Official
Development Assistance). (Amstutz, Page 228, 2013). However, many critics such as Lord
Peter Bauer and William Easterly find that Foreign Aid, rather than helping the development
prospects of the Global South, foreign aid has impeded the progress of development in the
Global South.
This essay shall be arguing that while there have been some cases where foreign aid has
helped development prospects, Foreign aid largely impedes the development prospects of the
Global South .This essay shall argue this by firstly discussing the prevalence of preconditions
on the foreign aid money given to the aid recipients and its consequences. This essay shall also
argue that Foreign aid impedes the development prospects of the Global South as there is a lot
of evidence showing that foreign aid (especially ODAs) leads to a dependence on money from
developed countries just to help keep your development prospects alive. Finally, this essay will
argue that foreign aid impedes the development prospects of the Global South because foreign
aid politicises economies.
Does foreign aid impede or help development prospects of the Global South? Analyse
Guatemala, Bolivia
As a consequence, it has meant that corruption has been inextricably linked with foreign aid in
many countries. As Bauer comments, Foreign aid was nothing more than an excellent method
for transferring money from poor people in rich countries to rich people in poor countries
(Cox, Page 286, 2006). This essay shall do this while looking at the cases of Bangladesh and
Senegal to provide evidence of where foreign aid has impeded the development prospects of
both these nation states economies.
The first reason why this essay would argue that foreign aid impedes rather than helps the
development prospects of the Global South is because of the prevalence of conditions on
foreign aid money and the consequences of these conditions on the development prospects of
the Global South. Foreign Aid money, especially from Official Development Assistance, often
comes with stringent conditions. These conditions can vary from forcing the aid recipients
spending a portion of the aid on domestically produced goods (Lancaster, Page 18, 2008) to the
forced liberalisation of trade markets in an accelerated timescale. If one or more of the
conditions set out by the foreign aid givers are not meant, it can lead to temporary or even
permanent halting of development aid to the countries who receive it.
There are two consequences to the adding of conditions with foreign aid that this essay would
argue means that the development prospects of the Global South are impeded. The first
consequence is that development aid becomes hijacked by commercial companies within the
developed, aid-giving countries. As Lancaster comments, it is business in the aid giving
Guatemala, Bolivia
countries who pressure their governments into placing the condition of a portion of foreign aid
having to be spent reciprocally on domestic products (Lancaster, Page 18, 2008). Furthermore,
these domestic products often have their prices marked up making them overpriced and
unnecessarily expensive (Shah, 2014). This creates a vicious cycle between the domestic
corporations, aid givers and the aid receivers. While this cycle continues, it is clear to see that
this does nothing to help the development prospects of the Global South.
The second consequence of conditions on foreign aid is that it limits the countries to develop
only in a way congruent with the Foreign Aid givers and their policy directives. This is important
as these policy directives are usually quite consistent and unchanging in a scenario which is
lucid and unpredictable, especially with events such as the oil crisis of the 1980s or the global
economic crash in the last portion of the 2000s. Furthermore, these policy directives tend to be
of an economic nature which as Handelman articulates, is not the only form of
underdevelopment in Third World countries. (Handelman, Page 1, 2008). Therefore, to place
foreign aid in economic terms only serves to limit the definitions of development. This just has
the consequence of further impeding the development prospects of the Global South.
Bangladesh serves as an example of where conditions placed on foreign aid money has
impeded the nations development prospects. Having only been in existence since 1971,
Bangladesh is a low-income economy country and is constantly said to be one of the poorest
economies in the world. The evidence for this can be seen with their nominal GDP per Capita of
Guatemala, Bolivia
US$829 leaving them 164th out of 189th in the world (World Bank, 2014). Therefore, their
dependence on foreign aid, although not as severe as in the 1980s when they were a new,
fledgling economy, is still quite pronounced with a reliance on foreign aid money which totalled
$2,152 billion dollars in 2012. (World Bank, 2014). One example where conditions placed on
foreign aid has affected development projects in Bangladesh is the Padma Bridge project.
The Padma Bridge project is an ongoing multilaterally funded project to build a bridge across
the Padma River connecting the south-western regions of Bangladesh to the North and Eastern
regions (Wikipedia, 2014). After successfully getting funding from various sources including the
World Bank and the Islamic Development Bank, work was meant to begin in 2011. However,
this was not to materialise. This is because in 2012, the World Bank, published a statement
where they assert that they had obtained credible evidence [...] which pointed to a high-level
corruption conspiracy among Bangladeshi government officials, SNC Lavalin [A non-state actor
from Canada] executives and private individuals in connection with the Padma Multipurpose
Bridge Project. (World Bank, 2014). This led to more stringent conditions being placed on
Bangladesh such as the resignation of Bangladeshs Communications Minister, Syed Abdul
Hossain, who had been accused by the World Bank of being corrupt. (Wikipedia, 2014)
All this ultimately led to the Government of Bangladesh informing the World Bank in January
2013 that it was withdrawing its request for World Bank financing for the Padma Bridge project
(World Bank, 2013). As of today, the Padma Bridge project has not begun construction and is
Guatemala, Bolivia
currently awaiting the go-ahead from the Bangladeshi government. This essay would argue that
The Padma Bridge project is clear evidence where conditions placed on Official Development
Money has led to the development prospects of Bangladesh being impeded.
The other country which this essay has chosen to analyse to provide evidence, Senegal, also
provides empirical evidence to the negative effect of conditions on foreign aid money on
development prospects. Senegal is a Lower Middle Income country with a GDP per capita of
US$1,072, (World Bank, 2014). Senegals dependence on Foreign aid has been noted for a
long time. As the Federation of Indian Chambers of Commerce and Industry (hereon referred to
as FICCI) highlight, Senegal is highly dependent on foreign aid [from various multilateral
sources such as] France, the International Monetary Fund (IMF), the World Bank, and the
United States. (FICCI, 2013)
In 2005, Christian Aid published a report where they looked into the forced liberalisation of SubSaharan African trade markets. In that report, they found that Tomato production fell from
73,000 tonnes in 1990 to 20,000 tonnes in 1997 (Melamed, 2005). Christian Aid said it was
because after liberalisation [of trade markets by the IMF and World Bank], the prices farmers
received for their tomatoes halved. (Melamed, 2005). This meant that they couldn't make a
good living out of their crops. Although the fact that Tomato production is not macroeconomically significant, it still shows how forced liberalisation of trade markets, a condition
placed on Senegal by the Aid donors, has impeded the development prospects of Senegal.
Guatemala, Bolivia
Another argument to support the hypothesis that foreign aid impedes rather than help the
development prospects of the Global South can be found within the doctrine of Dependency
theory. Dependency theory is a theory which argues that the western powers are employing
neo-colonial, imperial tactics on the Global South and creating dependencies in order to keep
the Global North-South Divide paradigm as it is. Advocates of dependency theory argue that
Foreign Aid is one of the major and most used tactics in order to achieve their aim of creating
dependencies between countries in the Global South and the Global North.
Critical scholars of foreign aid such as Bauer even go so far as to argue that it is foreign aid
that has brought into existence the Third World (also called the South). (Bauer, Page 38, 1984).
Bauer also asserts that foreign aid is the source of North-South [divide] and not its solution
(Bauer, Page 38, 1984). Senegal can be seen as an example where dependency theory has
validity. Ouattara conducted a study to find out the effects of Aid flows on fiscal aggregates in
Senegal between the years 1970 and 2000. His study found that the impact of aid flows on
domestic expenditure is statistically insignificant (Ouattara, Page 1, 2006). The study also
found that debt servicing (of which a significant portion of foreign aid goes on) has a significant
negative effect on domestic expenditure (Ouattara, Page 1, 2006).
Guatemala, Bolivia
Extrapolating from that, we can see that Aid is creating a cycle of dependency whereby aid
money goes on debt servicing to the developed economies, creating a need for more aid money
to pay off more debts. This negative cycle in Senegal is just one of many negative dependency
cycles in the Global South, impeding the development prospects of the Global South. The
consequences of creating these dependencies through foreign aid between the Global North
and Global South on the latters development prospects are twofold. Firstly, it means that the
development prospects of the Global South are inextricably linked to the development prospects
of the Global North. There are two facets to this consequence.
The first facet is that economically, already developed countries do not have much room for
more development. This is probably due to the developed economies of the Global North
turning from mainly manufacturing economies to mainly consumerist economies. Therefore, it
can reasonably be argued that the development prospects of the Global South are also limited.
Furthermore, as Handelman points out, When Britain became the World's first industrialised
power, it faced no significant competition from other economic powers (Handelman, Page 17,
2008) However, countries of the Global South are having to compete against well-established
industrial giants such as the United States, Japan and Germany (Handelman, Page 17, 2008).
This further impedes the development prospects of the Global South as they are having to start
from scratch against economies who have already established themselves. This seems to
almost inevitably lead to the Global South requiring the help of the Global North, creating
Guatemala, Bolivia
dependencies. That is especially true in an increasingly globalised world, where Global trade is
becoming more and more necessary for economies to prosper.
The second consequence of foreign aid creating dependencies between the Global South and
the Global North is that it allows for the Global South to be exploited by the Global North and in
particular, Non-State actors within these economies. One way they do this, as I mentioned
earlier when talking about conditions placed on Aid money, is through businesses in the aid
giving countries pressuring their governments into placing the condition of a portion of foreign
aid having to be spent reciprocally on their domestic products (Lancaster, Page 18, 2008). As I
mentioned earlier, these prices are often marked up and are overpriced. As Shah highlights,
according to the UN Conference on Trade and Development (UNCTAD), economic conditions
imposed by the IMF and the World Bank were the dominant influence on economic policy in
[Africa from] the two decades to 2000 (Shah, 2014).
The final and strongest argument this essay would present to support the hypothesis that
foreign aid impedes development rather than helping development is that foreign aid politicises
the development of the Global South. As Cox comments, Foreign Aid politicises development by
directing money into the hands of governments rather than profitable businesses (Cox, Page
286, 2006). This has several consequences on the development prospects of the Global South.
One major consequence of the politicisation of foreign aid is that it can lead to corruption of
governments which had obtained the foreign aid money. As Cox articulates, Aid increased the
Guatemala, Bolivia
patronage and power of the recipient governments (Cox, Page 286, 2006). With this increased
power, officials were susceptible to being bribed and coerced into giving particular contractors
lucrative contracts.
Revisiting the case of Bangladesh, there is a history of corruption ever since foreign aid money
started coming in during the 1980s. As Melik highlights, Bangladesh is a country where some
government officials can be swayed to favour firms which offer them personal payments (Melik,
2009). In Bangladesh, money for projects is channelled through the government and [...] left to
civil servants to decide which local companies get the work (Melik, 2009). As referenced
earlier, the Padma Bridge project ultimately lost $1.2 billion from its $3 billion budget because
the World Bank laid accusations of corruption at the door of the Bangladeshi Government and in
particular, at the door of the Communications Minister.
It is a similar story in Senegal where a 2007 USAID report into Corruption in Senegal found
chronic corruption plaguing Senegal today (USAID, 2007). USAID asserted that these
phenomena can be seen both in everyday dealings with governmental official and in major
national government contracts (USAID, 2007). As in Bangladesh, foreign aid money is given in
government channels and it is up to the government officials and civil servants to decide where
that money goes. The consequence is an increase in chronic poverty and the gap between
citizens and their state (USAID, 2007). This clearly shows how government corruption in
Guatemala, Bolivia
countries such as Senegal and Bangladesh impedes on the development prospects of the
Global South.
In conclusion, this essay supports the hypothesis that foreign aid impedes the development
prospects of the Global South. This essay argues support of this hypothesis firstly because of
the negative effects of the conditions placed on foreign aid money. In the case of Bangladesh, it
was the removal of suspected corrupt officials and in Senegal, it was the forced liberalisation of
trade markets. Secondly, this essay agrees that foreign aid impedes development because of
the dependencies created between the Global North and the Global South by foreign aid. In
Senegal, this is evidenced by the Global Norths reluctance to reduce debt and preference to
provide foreign aid for the purposes of debt servicing. Lastly, this essay agrees that foreign aid
impedes development because foreign aid politicises development. This has the consequence
of giving the power to the government, who often do not use that power as they should. In both
Senegal and Bangladesh, government corruption has meant the impeding of development
prospects through the delaying of projects.
10
Guatemala, Bolivia
Bibliography
Amstutz, M. (2013). International Ethics: Concepts; Theories, and Cases in Global Politics. United States:
Rowman & Littlefield Publishers, Inc.
Bauer, P. (1984). Reality & Rhetoric - Studies in the Economics of Development. Cambridge, MA:
Harvard University Press.
Federation of Indian Chambers of Commerce and Industry. (2013). Senegal. Retrieved
from http://www.ficci.com/international/75116/project_docs/senegal.pdf
Handelman, H. (2008). The Challenge of Third World Development (Fifth Edition.). Upper Saddle River,
NJ: Prentice Hall.
Lancaster, C. (2008). Foreign aid: Diplomacy, Development, Domestic Politics. Chicago, IL: University of
Chicago Press.
Melamed, C. (2005). The Economics of Failure: The real cost of free trade for poor countries. Christian
Aid. Retrieved fromhttp://www.christianaid.org.uk/images/economics_of_failure.pdf
Melik, J. (2009, June 14). Does Bangladesh use foreign aid wisely? BBC Business. BBC News. Retrieved
from http://news.bbc.co.uk/1/hi/business/8092901.stm
Ouattara, B. (2006). Aid, debt and fiscal policies in Senegal. Journal of International Development, 18(8).
Shah, A. (2014, September 28). Foreign Aid for Development Assistance. Retrieved 12 November 2014,
from http://www.globalissues.org/article/35/foreign-aid-development-assistance
The Economist. (2006). A Voice for the Poor. In S. Cox (Ed.), Economics: Making Sense of the Modern
Economy. London, UK: Profile Books LTD.
USAID and Management Systems International. (2007). Corruption Assessment: Senegal.
Wikipedia. (n.d.). Padma Bridge. Retrieved from http://en.wikipedia.org/wiki/padma_bridge
World Bank. (2012, June 29). World Bank Statement on Padma Bridge. Retrieved 12 November 2014,
from http://www.worldbank.org/en/news/pressrelease/2012/06/29/world-bank-statement-padma-bridge
World Bank. (n.d.). Senegal. Retrieved 12 November 2014,
from http://data.worldbank.org/country/senegal
World Bank. (n.d.). Bangladesh. Retrieved 12 November 2014,
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Guatemala, Bolivia
from http://data.worldbank.org/country/bangladesh
World Bank. (2013, February 1). Statement on Padma Multipurpose Bridge Project. Retrieved 12
November 2014, fromhttp://www.worldbank.org/en/news/press-release/2013/02/01/statement-on-padmamultipurpose-bridge-project
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Does Foreign Aid Impede or Help Development Prospects of The Global South?

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