Foreign aid refers to the international transfer of capital, goods or services in the form of grants or loans; sometimes it is referred to as voluntary transfer either from one government to another (bilateral assistance) or through a multilateral assistance agency like the World Bank for the benefit of the recipient country or its population. Aid can be in the form of economic, military or emergency humanitarian aid, especially during natural disasters. (Todaro and Smith 2010:229) Foreign aid was conceived as a product of the Post World War II era.
Its roots are in the Marshall Plan, under which the United States gave funds to help rebuild Europe after the war. Two decades after World War II, emergence of independent nations from Europe’s colonies was experienced, especially in Asia and Africa. Encouraged by its role in rebuilding Europe, the United States took the lead in trying to help the newly emerging nations by providing capital in the form of foreign aid, especially to countries that had development plans for investing the aid they received. Accordingly, these developing countries lacked certain kinds of skills and expertise such as planners, engineers and constructors which were considered part of the aid. Hence the United States was the initial fore-father of foreign aid.
Currently the number of Foreign Aid givers has increased mainly drawn from the United States, Europe and some countries in Asia such as Japan and China. The aim of all these donors has nevertheless remained the same in terms of security, economic maintenance, political interests and humanitarianism. In 1970, some of the world’s richest countries agreed to give 0. 7% of their gross national income as official international development aid on an, annual basis.
Besides, it can be argued that most of these countries do not fulfil their promises and if they do, they gain a lot from the developing countries more than what they give in form of aid. This, therefore, brings in a major debate – is foreign aid working for or against the recipients? (Roger C, Riddell; Oxford University Press 2007) According to Radelent (2013), there are four main types’ aid programs Military Aid: this is the traditionalist technique for buttressing alliances. Military aid is where donors supply money and material, while the recipients provide most of the manpower.
During the cold world war, United States of America and Soviet Union spent more resources on military aid than on their foreign economic program, and the objective has been the traditional one of safeguarding their own security by strengthening the military capabilities of allies. Military aid is used to create local power balance to reduce the likelihood that the donor will have to station troops abroad. Most forms of military aid have the advantages of build – in – controls.
The 1 recipients do not just depend upon the donors for creating a modern military force, but they cannot operate effectively unless the donor is willing to provide the necessary training support, replacement of parts and maintenance. The controls provide a partial guarantee that the recipient will use its military force in a manner compatible with the interest of the donors unless the recipient can obtain communication, spare parts and training from alternative sources (Barret 2007) Technical Assistance Aid: this is designed to disseminate knowledge and skills rather than good or funds.
Personnel with special skills from industrialized countries go abroad to advise on awide variety of pro jects such as disease control, agricultural mechanization, public administration, development of fisheries, teaching programs, land reclamation, road construction and development or medical and sanitary facilities (White 1998). Development Loan Aid: foreign aid can also be given in form of loans. Loans present a short term transfer of funds, but since recipients pay back principle and interest, the transfer is only temporary. This kind of a loan is distinguished from humanitarian because it is meant to alleviate poverty in the long term.
Only to the extent that bilateral and multilateral loans are made to recipients with very poor credit ratings and at interest rates lower than what is prevailing on the financial market (Barret 2007). Material Aid: this is the type of aid where food, wheelchairs, hospitals, surgical equipment and medical supplies, school desks and school supplies are given to people in immediate distress by donors of governments to relieve suffering during and after disaster. Material or logistical assistance are provided for humanitarian purposes, typically in response to humanitarian crises including natural disaster and man-made disaster.
The primary objective of material aid is to save lives, alleviate suffering and maintain human dignity. It is a provision of vital services for example food to prevent starvation by aid agencies, and the provision of funding or a kind of services like logistics or transport (Bauer, 1972). Advantages of Foreign aid 2 Foreign aid is useful for a number of reasons in developing countries as it is assumed to facilitate and accelerate the process of development in a number of ways; importantly on economic development.
Foreign aid’s main role in stimulating economic growth has been to supplement domestic sources of finance such as saving, thus increasing the amount of investment and capital stock. This is facilitated by an increase in investments both physically and human capital as well. It also increases the capacity to import capital goods and technology. It is also associated with technology transfer that increases technology knowledge and new skills in a country. This can be in the form of funding of training institutions for example the computerization and e-marketing skills, which in turn increases the productivity of capital.
For example e-commerce, computerization and recently the fibre optic cable which attracted many foreign investors. In many developing countries foreign aid is most of the time in terms of humanitarian aid especially during emergencies or natural calamities such as droughts, famines and earthquakes. This was clearly witnessed when Haiti was hit by a bad earthquake that left the country totally destroyed. The Aid enables countries facing such catastrophes to spend limited foreign exchange on other essential imports.
It also enables countries to invest the little they have to solve other emergency needs. In line with this, developmental projects funded through foreign aid have been of great benefit to the people, such as construction of roads, hospitals, schools, boreholes, which could have taken many years for a country to achieve especially if the income per capita is below level or the revenue collected from tax is insufficient. If used well the funds directed to developmental projects is a major boost to African struggles to achieving development and improving quality of life.
Structural transformation of many developing countries has been sped up by foreign aid as a result of a demand to do so from the donor countries. This has entailed implementation of certain policy reforms aimed at improving standards, especially in government offices, adopting policies that are more economically friendly, policies that promote efficiency, transparency and accountability. Above all donors’ emphasis is good governance and ensures countries benefiting from the aid meet these standards.
Issues on democracy and democratization always draw many potential Foreign Aid givers as it is part of there emphasis. In a number of developing countries withdrawal by the foreign aid givers has been experienced in countries that are corrupt and/or not democratic and they fail to adhere to the rules and regulations set by the donor countries or agencies. This can serve as an advantage and a disadvantage. On a positive note countries are 3 somehow forced to put order in all sectors, and if done well, efficiency and progress can be experienced.
On a negative note, countries that receive a lot of aid to be democratic end up being controlled by the country that contributed more, for example Liberia, which is totally dominated by the United States. Disadvantages of Foreign aid As much as foreign aid is termed to be beneficial to many developing countries, many times it comes with negative strings attached which many beneficiaries hardly notice until it is too late. A number of the donor countries concentrate so much with the government and other major agencies based in these developing countries that they fail to address the real needs of the people.
This means that most aid does not actually go to the poorest, instead massive and grand strategies fail to help the vulnerable and in return the money/ grants finds it’s way to the famous and powerful politicians who instead use it to benefit their interests. On the other hand, more aid has meant poorer economic performance mainly in Africa and Asia, although it is not directly realized. A country that has been stagnant economically and/ or is doing bad economically is attributed to foreign aid that is looking at the cause and effect between the raise in aid and the decline in development.
This in turn, is attributed to the drain of resources from these developingcountri s by the donors who sometimes come in the form of former colonies. In return to the resources they drain from the developing countries, importation costs for developing countries are exaggerated. Accordingly, the conditionality often associated with foreign aid may adversely affect certain sectors of the economy. For example, economic reform programmes often advocate increased trade liberalization that could in the short run harm domestic producers.
Aid amounts are dwarfed by rich country protectionism that denies market access for poor country products, while rich nations use aid as a lever to open poor country markets to their products. Aid is often wasted on conditions that the recipient must use overpriced goods and services from donor countries, in return the aid given fails to sustain the needs of the developing countries; rather it finds its way back to the donors in one way or another. Many aid givers dictate the projects they would like to support and encourage needy countries to take them up. This may led to the implementation of projects that are not priority projects, especially if the recipient government has little to say in their choice.
This too makes the recipient countries too dependent on the aid givers as everything is literally done by the donors. The talk of constructions of schools, road, hospitals and even political independence is solely 4 addressed by the Aid givers. This creates a state dependency among most African countries. As a result accountability between developing countries, states and their citizens is almost non-existent. Instead more accountability is seen on receiving states and their donors.
Hence the revenue received through taxes is hardly accounted for by the governments which in turn resultsin c orruption and lack of transparency becoming a norm in most governments. Conclusion Judging from the number of positive and negative effects of foreign aid based on this paper, the negatives seem to outweigh the positives. Unfortunately for many developing countries foreign aid is seen as a step forward to development but in the real sense development is totally dependent on the countries in the North. This dependency has caused us to worship Foreign Aid. It is at this that one can conclude that Foreign Aid is a necessary Evil to developing countries.
The reason we cannot do without foreign aid yet is because it is a very expensive venture for the developing countries, and it is unfortunate because many countries that owe huge amounts of money are still languishing in poverty and underdevelopment. What then do these developing countries have to avoid? Firstly, ownership of development policies need to be demand driven, and this should be well understood by the leaders in the developing countries and not the aid givers.
By this, developing countries need to come up with their own projects without being coerced to adapt and implement certain policies that are irrelevant to the needs of the people. As a result Aid will be directed to the most important projects that are expected to boost development;
Secondly, prioritization among developing countries should be essential, putting the interest of the country first rather than personal interest. By this corruption and misuse of the Aid will be minimal. In conclusion, therefore, as much as developing countries cannot do without foreign aid, they have to find a way to make the Aid work for them by investing rather than misusing the aid and also by coming up with strategies that will assist them use less Aid, that way they can be independent.
REFERENCES Todaro, M & Smith (2010) Economic Development; Pearson Education Limited, Ends Bury, American Journal of Agricultural Economics. Roger C. Riddell, (Oxford: Oxford University Press 2007) Barret , C. B. (1972); Food Aid; Is Development Assistant, Trade Promotion, Both or Neither? 5 Bauer, P. T. (1972); Dissent on Development; Cambridge, Mass, Harvard University Press. Online – http://wiki. answers. com/society/government 11th February, 2014.