Advantages and Disadvantages of foreign AID to Developing Countries

Advantages and Disadvantages of foreign AID to Developing Countries Essay Sample

Foreign AID and Development

Foreign AID has widely spread in most of world countries with sub-Saharan countries seen to heavily depend on foreign aid. Many developing countries have relied on the AID from United States and other donor countries from European nations for development issues, but they have seen the aid not to be enough to fulfill their development agendas. The United States government of recent has advocated the increment of aids to the African countries. It distributes the aids to the recipient countries on the basis of political or economic environment (Stapanek, 1999, p.23). In this paper I will discuss benefits and costs of foreign aid and the possible measures which should be adapted to minimize the challenges which the developing nations face from the use of these aids.

Advantages of foreign aids

Foreign aids in developing countries have been seen to be very vital in supporting the capacity development of the developing countries. In our case here the term capacity development means the ability of a country, people, and organizations create, unleash, strengthen, maintain and adapt capacity over time.  Capacity development is vital to any country due to its relationship with performance of the systems of the country and mostly in its delivery of the basic services and the goods. The donor promotes capacity development through the provision of technical assistance to the developing countries. The donor countries have also promoted the capacity development by giving financial assistance to the developing countries (Cline, 2002, p.15). They have played further a key role in the capacity development by: facilitating knowledge access, brokering the agreements of the multi-stakeholder that eliminates the blockage to capacity development. They also get involved in the advocacy of relevant policies towards development. The donors offer to the developing countries incremental resources that assist during the process of change to overcome the bottlenecks. They also provide the opportunities for the developing countries to learn by doing or practicing.

The capacity development has been a key focus by the developing countries where they need a lot of assistance from the donor countries because of the following reasons. One, the capacity of a country a country is vital in the development performance and thus it is through it where the economic growth is accelerated. The achievement of the millennium development goals where the poverty in the developing countries will be eliminated is by maintaining the capacity development in these countries. Lack of enough capacity the public institutions is the great barrier among several factor as it impede the capacity development by the private sector and the private enterprises. Secondly, the modern cornerstone of thinking about development and aid effectiveness is the ownership of the country (Brown, 1994, p. 42).

The aid the donor countries have been advancing to the developing countries haves served a significant purpose in helping the recipient countries to improve their health facilities. Donor countries have advanced aids inform of money to the least developed countries to expand their heath structure and buy facilities which are of high quality to mange the persistence of some chronic diseases in sub-Saharan region. Some the donor agencies have been providing direct services to the citizens of the recipient countries (Manning, 2008, 242).  Doctors of high skills and knowledge have been sent to most of the African countries to assist in giving medical services to the African countries to help in curbing the chronic diseases. Some chronic diseases such as the tuberculosis and small pox have gone down in sub-Saharan nations due to the assistance they get from the donor nations. Such improvement s has been of great help in that the mortality rates have declined in sub-Saharan countries where as the fertility rates have gone up.

The foreign aid to the developing countries has played a great role to their education systems. A good and live example is that of Kenya where the Kenyan government has introduced free and compulsory education to all Kenyans since the year 2002. Kenya has been receiving aids to enable its system of free and compulsory education from donor from European countries and United States of America. The education for this case has an economic impact in that; it has increased the human capital in the country which can be harnessed for the development issues (Narlikar, 2003, 46).

Being it that most parts of the developing countries have poor climatic conditions especially the sub-Saharan, the foreign aid plays a significant role in providing the relief food. Hunger in many developing countries has been a big drawback towards their agenda for development. Where there is no food people only concentrate on searching avenues to stabilize the food sources and forget the other development agendas. This has actually resulted to a viscous cycle of poverty in the sub-Saharan countries (Muzinich, Werker, 2008, p.23). The donor countries have been in the first line to provide food to the developing countries under the humanitarian law where such kind of provision has been to some extend strengthened the developing countries towards the achievement of the development goals.

The provision of foreign aids has been of great help to those countries where the donor countries have intervened due to poor governance by the current sitting leaders. The donor nations in this case act like new colonialists in these countries since they dictate most of the activities which should be done in those countries. The new colonialist play a key part in by implementing the initiatives of environment, improving the public health, providing finance to the  small and micro enterprises, and training  the military. They also play a key in the promotion of democracy in these countries. A good example of such case is witnessed in Afghanistan where the government has the only power to control the territory. The leader in this country has failed to combat corruption and the trafficking of drugs (Jha, 2003, p.65). The resulting end to this has been a formation government that has no ability to provide the basic services to its citizens. For this reason, 80 per cent of all the basic services in Afghanistan are provided by the local and international non government organization. Out of the total aid that Afghanistan receives each year, it only administers a third of it, where the rest goes to be under management of private development agencies, contractors and the humanitarian aid groups.

United States which has extended its interest in giving aids to the African states, its motive has been highly fueled by its growing demand for energy. The other factor that has made the United States to get engaged with African countries is the war on terror by the Washington. The government of United States has been in the fore line to assist the African countries to achieve their development goals. To support these goals the American government has given a lot of aids to the African countries.

The African countries are now benefiting from the millennium challenge account which was launched in the year 2004 to provide funds to the Africans developing countries (Kiggondu, 2002, p.29). The funds have led to good governance in most of the African countries as they are conditioned to be given to those states which practice good governance. The United States have also come up with the African Growth and Opportunity Act (AGOA). This act helps the African countries by providing trade benefits to those countries which are eligible. As with the initiatives of most aids, it is not easy to determine the impact of the efforts of the millennium challenge account and aids expect by identifying the worthy countries to get the aid to allocate the money. The extend to which the aids and the millennium challenge account can have on the recipient countries can be determined by the commitment of the African  government towards maintaining good governance it has in the first place as it was considered for the aid (Sacks, Santos, 2001, p.122).

Since the year 2000 the AGOA inception has assisted in increasing the trade between the Sub-Saharan Africa and United States by value greater that 140 per cent. The AGOA impact on the sub-Saharan African countries can not be measured only by the number of dollars and cents that has moved to these countries. In a small country like Lesotho the impact has been felt in terms of the employment opportunities it has created in that country. The AGOA has created about 50, 000 job opportunities for the Lesotho citizens. United States as a donor country to most of the African countries has played a key role in trying to instill good policies of governance.

There are five issues in which the government of United States has extended its hand to those countries which it gives aids to ensure the justice has been practiced in the countries (Babarinde, Faber, 2005, p.34). First issue is the sectarianism and tribalism. This has been witnessed in several African countries such as Kenya, Congo, and Nigeria among others. Through the United States intervention some of the wars which have been arising due to tribalism like the one of Kenya early 2008 have come to an end. Secondly, the management of incompetence and corruption in most African countries remain to be pervasive. United States and other international donor agencies have used aid to curb the incompetence and corruption.

Thirdly, is the unemployment which is major destabilizer to economic development. United States in trying to prevent those habits which brings corruption and tribalism in the job market it ensures that there is equality in the distribution of national resources. Fourth is imperative economic growth. United States in trying to urge the recipient countries to stabilize some of macro-economic issues such as price instabilities helps the developing countries to have a stable economy. Lasts and not the least is the lack of democracy in the developing countries in Africa. United States always advocates for fair and free election to its donor recipient countries (Mills, 2008, p.226). They have even volunteered to come and supervise elections contacted in the African countries to witness if they were fair and free elections. From this exercise democracy is installed to these countries.

Aids through the tax credit to the developing counties have been of great advantages to the developing countries. In this case the investment to which the aid must be channeled to should an investment will create jobs for the locals in the foreign country.

Disadvantages of foreign aids

Despite the fact that the donor countries have been of great help to the developing countries, it seems that the aid from these countries is the great enemy to their development and growth. The over reliance on the foreign aid has been a limiting factor to the developing nations in developing the necessary skills that which have to help the country run effectively. Some other countries which are developing have fallen back to the global safety net in which they can not be accountable of their own. It is like most of the developing nations have left their development responsibilities to new colonialists

The organizations which offer aids to the developing countries if asked could say that their final goal is when the dependency country will say that; it does not needs their services any more. However, this is not the case as the most of the humanitarian groups and organizations require dysfunction so that they can maintain their relevancy in the host country. When the donor countries establish themselves firmly in the developing nations, they tend to bleed the country of the local talents (Rothgeb, 1996, p.69). The new colonialists in the host counties usually utilize these talents to offer employment opportunities to their expertise. The colonialist government offering the aid may even further weaken the ability of the hosting government  to attract their own brightness and  best, by ensuring that the government and its citizen relies on the colonialist for technology and results.

It appears as if the dependency of aids on the new colonialist will never end. For this reason the dependency on them will give more time and the ability of the corrupt government to keep on avoiding the obligations and responsibilities. It has been observed that, if the new colonialists do not exist, the weak states, that is, the developing countries would be in a better position tomorrow in terms of the economic growth and development.

The donor countries to the developing countries have only recognized the countries important critical leadership and ownership in capacity development. For the past many years the donors have overestimated the development ability of cooperation to establish capacity without the commitment of the real country. This has been of great effect to the developing countries ay they could not cope up with the introduced capacity management level by the donors (Bird, 1995, p.102).

Recommendations

To react to the arising problem as a result of the aids extended by the new colonialist, the international community must intervene to minimize the influence of the new colonialists on the developing countries. It has been observed that the markets should be in the forefront to tackle the development challenges that the developing nations are facing. Unfortunately, investor with the developing countries seems to fear failing the country in their new investment, it is from this angle that the new colonialists argue that they are establishing projects in the feared segments of investment. To handle such kind of challenge there is need to establish a system that will ensure accountability, where the new colonialist will not only keep their promises to their benefactors and the donors but also to the citizens who belong to the failing state (Bullow, 2002, p.52). Competition has been found to be good in maintaining the accountability among the groups which are offering the aid. The colonialists have been finding new ways to build genuine constituency for the whole world which can lead either for worse or better. The global constituency by the new colonialist could be the first and the last defense line towards the failure for the weak states.

Although the U.S. government currently is using the government to government direct channel of redistributing the aids, the tax credit means have been found to have some benefits over it. First and the most benefit of this can be witnessed in Mali where it receives $10 million instead of $3.9 million funds for development. The increment in this has arisen from the cost that has been cut from the taxpayers. The other benefit to this is that the money which the United States advances to the developing countries will be used prudently. It has been found that most of the money which the donor countries give to the sub-Saharan countries the government officials of the recipient country, only 44 per cent  goes to the economic development issues,  where the  rest is used to service their debts and further be reduced through the mismanagement and corruption (Naon, 1996, p.94). The American markets have been rewarding those companies which utilize their capital appropriately. Due to the fact that such companies in their development agenda focus the on the bottom line, the aids from the donor countries end up reaching the indented destination. Therefore the tax credit way of channeling money to the developing countries proves to be save means as compared to the use of the government officials of the recipient countries. For this reason when a lot of aid combined and used efficient more dollar is deployed for the economic development in the developing countries.

The third advantage as to why the private sector should be use to as way of giving aids to developing countries is that, it helps in building institutions. Institutions such as enforceable and fair system, functional market economy, and basic infrastructure prove to be very important for economic development. If the funds are channeled through the government official and have to focus on establishment of institutions, it will be from top down way instead of down top way. The use of tax credit system will stimulate countries to establish those institutions which are economic growth friendly (Kappagoda, 1978, p.23). The companies from the donor country such as from the united sates invest in developing countries; they will encourage institution-building spirit in these countries in a host of ways. As these companies interact with the government and the local businessmen they tend to transfer knowledge which can be used in the home contrary for development.

To ensure that aids from United States are effective toward achieving development agenda for developing countries, the government of United States should have its interests focused on the African countries under three key issues: the significance of good economic development and peace building. It should lay much emphasis on the situations of post conflicts which has occurred in most of the African nations; United States should create opportunities where the African countries will be integrated to the global market in a manner that encourages good governance and openness; and lastly United States should defuse some of the conflicting political African views.

United states have clear set administration priorities that show the intersection of the interests of the African and American as it tries to advance the aids to the African countries (Stapanek, 1999, p.37).

The aid is distributed though the government to government channel which by most observers have regarded it as unfair means of distributing the aid. Suggestions are that, the country giving the aid to the foreign countries should advance the aid depending on the wish of the recipient. United States has been requested to advance aids to the developing countries by giving incentives that would encourage development of corporations and enable the individuals to distribute dollars for development. Instead of the channeling aids through the government to government path, the government can come up with policies that will direct the dynamic flows of private development capital that the donor countries give. There are several ways in which the donor countries from U.S. can come up with ways to give incentives for the private development funds (Jha, 2003, p.70). One simple way in which the donor countries can do this is by giving tax credit to their companies that have done their investment in the developing countries.

By doing this it results to a reduction of cost in the distribution of the aid to the taxpayer. It also ensures that the money is managed well and no corruption that can be done on the aid. Giving tax credit to these companies also ensures that the money is channel to the right and the necessary project that is suitable for the economic development. Giving the aid in this way to the developing countries by donors has been of great benefit to the economies of these developing countries as the donors first identifies which type of investment is eligible for the aid (Bird, 1995, p.134). The second way in which the donors should use to channel money to the private development finance is through tax break to those individuals who work in their states and sent money home. Being that the channeling of money in this way is through the family, it has been seen that the families will help in reduction of poverty in most of the developing countries through the redistribution of these money to other families. Through the tax break, the United States government policymakers has lobbied in positive political change to the home countries of the recipient by imposing of restriction on the remittance of the tax break.

Therefore, the private development finance should be encouraged more than the government to government channeling of aids to developing countries as it assures long term development. This can be evidenced by the fact that, most of the African nations are utilizing their own finds on tax break so as to encourage foreign investment. They are also doing he same to attract those programs which can grand their citizens to get opportunities where they can work overseas. In a general perspective application of the tax system for development is a mechanism of using the incentives by the government to channel and encourage private transfers that in the developing countries has great impact in the reduction of poverty (Cline, 2002, 22)

To correct the problem that the donor countries cause to the developing countries by imposing the capacity development that the developing countries can not tolerated, the capacity development should be left as the responsibility of the partner countries where the donor only plays as a supportive agents toward the maintained of the capacity development.

Reference

Babarinde, O & Faber, G. (2005). The European Union and the Developing Countries: The Cotonou Agreement. London: Martinus Nijhoff; pp.34

Bird, G. (1995). IMF Lending to Developing Countries. Issues and Evidence. London: Routledge; pp.102, 134

Brown, M. (1994). Developing Countries and Regional Economic Corporation. Mahwah, NJ: Praeger Publishers; pp.42

Bullow, J. (2002). First World Governments and Third World Debt. Brookings Papers on Economic Activity; pp.52

Cline, G. (2002). Competitive Strategy in Developing: A Manual for Policy Analysis. London: Routledge; pp.15, 22

Jha, R. (2003). Macroeconomics for Developing Countries. London: Routledge; pp.65, 70

Kappagoda, N. (1978). The cost of Foreign Aid to Developing Countries. New York: International Development Research Centre; pp.23

Kiggundu, M. (2002). Managing Globalization in Developing Countries and Transition Economiess: Building Capacities for a Changing World. Mahwah, NJ: Praeger; pp.29

Manning, R. (2008). The Challenge of Policy Development: Working Towards Good Practice. OECED Journal on Development, Vol.8, No.3; pp. 233-276

Mills, G. (2008). The US and Africa: Prisoners of a Paradigm? Current History, May 2008; 107, 709, pp. 225-230

Muzinich, J. & Werker, E. (2008). A Better Approach To Foreign Aid. Policy, Review, Jun/July; 149; ABI/INFORM Global; pp.19-28

Naon, H. (1996). Sovereignty and Regionalism. Law and Policy in International Business, Vol.27; pp.94

Narlikar, A. (2003). International Trade and Developing Countries: Bargaining Coalitions in the GATT & WTO. London: Routledge; pp.46

Rothgeb, J. (1996). Foreign Investment and Political Conflict in Developing Countries. Mahwah, NJ: Praeger Publishers, pp.69

Sacks, C. & Santos, C. (2001). Europe, Diplomacy, and Development: New Issues in EU Relations with Developing Countries. London: Palgrave; pp.122

Stepanek, J. (1999). Wringing Success from Failure in Late-Developing Countries: Lessons from the Field. Mahwah, NJ: Praeger; pp.23, 37

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