EMERGENCY RISK REDUCTION

You may recall that I’ve worked in a dozen developing countries. During that time, I witnessed the complex world of foreign aid. In fact, my very presence in Africa or Asia was a form of ‘foreign aid.’ Now that’s a bit scary! On one level, we applaud aid as an attempt to relief suffering and help others. On the other hand, aid involves tens of millions of dollars and may be wisely spent, deceptively inefficient, or grossly wasteful.  Let’s unpack it a bit.     

Aid comes in many forms – cash grants, loans, preferential trade agreements, or shipments “in kind”, such as grain, technological hardware or military supplies. Cash may be direct, through an NGO to perform services (i.e. MSF, Red Cross, World Vision, university, etc.) or an international organization like the UN, i.e. UNICEF, WHO, WFP (World Food Program), etc. A loan may qualify as “aid” if it carries a below-market interest rate (or none). For example, South Korea is a successful example that has benefited from foreign aid in the form of technology transfers, military hardware and an open U.S. market.  

Aid is attempts to assist countries in creating permanent solutions to problems linked to poverty. However, many countries do not have the infrastructure for an advanced economy, such as in sub-Saharan Africa. Countries throughout the world are in debt and simply cannot meet payments.  In certain cases, aid is meant to relieve a short-term problem, such as poverty brought on by war, or a long-term problem, such as reinforcing weak local banking and financial sector.

On the downside, aid can breed a culture of dependency. Countries often live on aid, and assistance becomes an excuse to avoid serious structural reforms. For the donor country, aid can be problematic if the donor country cannot pay its own debts. Many United States and Canadian citizens wonder, “Why give foreign aid when we can’t pay our own bills?”

In many cases, the aid is inappropriate, coming from the donor country’s perception of a problem rather than the actual problem. Leaders in Washington, London, or Geneva may not know the core poverty issues. Aid can actually prop up a government that might be the cause of the problems to begin with. Is there any wonder why the track record of foreign aid isn’t exactly stellar!

Foreign aid is too often about the donor country. Aid may be “tied”, with riders such as the requirement that the money be used to buy products from the host country, or be shipped by vessels registered in the country. This means that aid can become a large subsidy to domestic producers. Competition is reduced.  Also, many countries linger in poverty, but those of strategic importance seem to receive a disproportionate amount of aid, i.e., Egypt and Israel.

Fortunately, new approaches are entering the foreign aid policy debate, albeit slowly. Policymakers and academics are endorsing targeted programs that tie aid with structural reforms in specific sectors, such as banking or agriculture. Aid should no longer be solely about money, but about change and even attitudinal reforms. Bringing governments into the global marketplace should be a priority of foreign aid. Lining the pockets of world leaders should not be, and be confronted. Meaningful aid requires both accountability by the donor and responsibility by the recipient. Money injected into the economy of an underdeveloped country is meant to facilitate a positive transition and a sustainable future for its citizens. The goal of aid must be a hand up, not a handout.

Thanks for reading.