Pulling Strings: The Fine Print Behind Development Aid

While development aid can provide countries and their citizens with the resources necessary to complete crucial infrastructure and relief projects, it often comes with an unintended price. Adam Grech examines the conditions that often come attached to aid, and the ways in which they can hinder, rather than promote, national development.

Across the world, numerous countries, companies, and NGOs contribute significant amounts of aid to nations in need. While the intentions of the majority of these groups are positive, in certain instances, the provision of aid has created significant burdens for the recipient states through the process of conditionality.

Largely beginning in the 1920’s, wealthy European nations began to provide aid to colonies under their administration for purposes of economic development. Following the Second World War and the implementation of the Marshall Plan, the United States became a large international donor, and entered into an arms race for global alliances with the Soviet Union. Both sides immediately began to use development aid in order to increase their respective spheres of influence.

While aid in exchange for political conditions has long been in place, during the 1990’s, there was a push towards specific obligations by nations providing development aid. The view was that elected regimes would provide more national stability and help to limit the ability of dictatorships to form in at risk areas of the world. Therefore, donors began to place a move towards a democratic government and liberal economic systems as requirements for developing nations in order for them to continue to receive aid payments.

The G8 give something back to Mother Africa | Jeff Weichel

Organisations that impose significant conditions on development aid such as the World Bank and International Monetary Fund, have been criticised for their imposition of structural adjustment conditions, for example, privatisation programs, liberal trade policies, as well as public sector reforms. As stated by the IMF, the intention behind elements of conditionality for development aid is to put into place measures that better ensure the repayment of the donation itself. This, however, is not always the case, and often, governments find themselves unable to financially cope with new economic systems or trade practices that are put into place.

Politically, countries such as China have also been able to use development aid and conditionality as a way to gain access to trade relationships and valuable resources. In Africa for example, China has been a significant donor, with over 60 billion USD in aid pledged to the continent. In many countries in which China has heavily invested in development projects, natural resources are abundant, and low interest loans are often provided in order to capitalise on their availability. In the Democratic Republic of Congo, China has exchanged development aid in the form of infrastructure projects for access to the country’s vast copper and cobalt stores as payment, and will extract over 7 million tons of minerals over the next 25 years.

This issue of ‘tied aid’ remains prevalent today, as the cost of the provisions purchased often significantly reduce the real value of aid received by recipient states. In some cases, the export of critical, and costly, aid imports by donor states has the potential to reduce the true amount of assistance received by 25 to 40 percent. Over the long term, and in combination with limited control over spending options of received aid, recipient countries are often left with limited sources of aid for development projects, hampering much of the progress assistance programs could make.

Of countries that have felt the impact of aid conditionality and debt repayment, those in Sub-Saharan Africa have come to bear the economic difficulties of these conditions placed on development aid severely. Despite numerous instances of aid forgiveness, nations such as Ghana have continued to struggle to repay outstanding aid loans. Although Ghana experienced success with investment in oil reserves in 2010, the Ghanaian government required an additional 1 billion USD bailout from the IMF, and its probability of defaulting on its payments have increased substantially since 2011. With little economic progress to show for, many developing nations now find themselves in a continuous and vicious cycle of substantial debt, making future repayment increasingly difficult.

IMF Deputy Managing Director, Nemat Shafik signs deal recognising the Africa Regional Technical Assistance Center with the Finance Minister of Ghana, Seth Terkper | IMF/Ghana MOU

These mixed outcomes hold significant consequences for the acceptance and delivery of development aid. For many receiving development aid, the perceived ‘strings’ that come with aid payments may seem daunting, and could discourage countries from accepting much needed assistance in the future. For donor nations and organisations, it will be important to ensure that more equitable aid payment and distribution protocols are established in order to provide more security for those countries receiving them, and in turn the citizens who are the ultimate beneficiaries of global development programs.

Feature Image: Fairphone | Flickr

The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.


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