Tag: Foreign Policy

“Where does our aid spending go?”

Posted on by NP11

By Piriev, Nizami 

Clarification on the topic is required. Aid spending, also referred to as foreign development spending, is when money is spent by the government or government agencies and directed towards low and middle income countries, or institutions such as the World Bank. It must also be defined as a grant, or a loan, that allows the receiver a deal more favourable than a loan at market rate.  

The UK assigns 14 billion pounds annually to the cause. Based on the Office for Budget Responsibility’s projections, the sum will continue to rise steadily.  

The aim has been to accredit 0.7% of UK Gross National Income to Overseas Development Spending. Furthermore, legislation passed in 2015 requires the government to do so. Great Britain has been proud to be one of the select few countries to reach this aim and to assist in lifting masses from poverty. Yet have we reason to celebrate the mentioned accomplishment? 

Liberal politicians would respond to this enquiry in their preferred Stentorian fashion – something along the lines of “why, of course, Aid is sent those who need it most; it is our attempt to scale down on poverty and illustrate our attentiveness”. Yet the reality is paradoxical. 

Desired positive effects of foreign aid spending will not be discussed in this blog post. Achieved positive effects of aid spending will also be evaded, although in practice, there is only a negligible amount of them. 

The possibility of a time lag that limits immediate positive effects of Aid has been declared by experts. In addition to that, the difficulties of measuring the actual direct effects of Foreign Development Spending have been discovered. However, there is sufficient evidence to suggest that more perplexed and arduous factors have been halting expected data on Aid effects (and will continue to do so unless a change of strategy is pursued). 

Real Aid Index states that only 5% of the £765m spent by BEIS and 16% of the £106m spent by FCO went to countries that needed it most (The Guardian, 2016), suggesting an inefficient allocation of Aid. Multiple reasons for such findings could exist, yet all of them hint at the need for urgent re-evaluation of Aid Spending practices. Spending is driven by input targets (IFS, 2018), rather than by output targets, thus “quantity over quality”, if I may be so blunt. Such a strategy entices none other than inefficiency and invites spending that is directed incorrectly. As a consequence, the actual aid allocation is radically dissimilar to the poverty efficient allocation of aid. The only remedy would be to improve aid allocation by targeting the poverty-stricken – a goal that would be perfectly achievable if the funds were directly transferred to local causes in recipient states, rather than passed down through multinational organizations and government structures. Such a pursuit would guarantee lower transaction costs, less administrative time wastage, a lower time lag and more effective poverty reduction as the money would assist the specific citizens that are unable to afford necessities. 

Aid spending mainly finances corruption by ruling political elites and grants them ever more power, instead of reducing poverty. Inequality and poverty can even increase following generous contributions from abroad. Niger, Liberia and Malawi have continued to have very low HDI ratings despite receiving large sums of Aid, due to corruption and poor democracy (The Economist, 2016). Aid economists, Herzer and Morrissey, theorize that “aid has, on average, a negative long-run effect on output”, implying an inwards shift of the long-run aggregate supply and a lowering of the country’s productive potential. They even hint that corruption is the primary reason why output suffers. Moyo also proposes that aid may fail to boost economic performance of the recipients due to repeating corruption, market distortion and increasing aid dependency. Corruption by the ruling elites is a common trait of African and Asian (mostly Middle-Eastern) countries – a harsh reality given that Aid spending is virtually exclusive to the two geographic segments that were just discussed. The presence of corruption only reinforces my proposition of direct Aid transfers not to governments, but to dedicated regional establishments. 

Success of UK’s aid spending will rely on the quality of past and present governance in the recipient state, which is often inadequate in low and middle income countries. As such, many economic fundamentals remain unachieved and it is most likely for this reason that Boone (1996), using data from 96 countries between 1971 and 1990, found that “aid programs have not… Engendered or correlated with the basic ingredients that cause… growth’. Various economic findings, such as those by Burnside and Dollar in 2010, indicate that aid only has positive effects when combined with suitable economic policies such as good information and opened borders; Without such essentials, the ramshackled economies of developing countries will not be assisted by Aid in any productive way. Therefore, it is my assumption that unless policy advice is provided to recipient states, no multiplier effect or visible economic correction will take place.  

Overseas development spending, for example in the form of food aid in emergencies, may even lead to a distortion of market forces, resulting in lower competitiveness of firms which hinders economic gains from food supply. Aid can hinder the emergence of an essential entrepreneurial class in developing economies, possibly crowding out the private sector, without which developing nations will never become internationally competitive. Dambisa Moyo, in her infamous book titled “Dead Aid”, vouches for a sharp focus on developing a private sector as a means to establish fundamental economic conditions that would allow for positive effects of Aid. Perhaps, given that FDI formed 43.5% of capital flows into developing countries in 2010 compared to the 10% accounted for by aid, reforms to attract FDI must be prioritized. Lack of private interest in Ghana has led to the collapse of UK-sponsored factories, so why should aid spending endure? 

Incontestably, there is sound evidence that the donors deviated from initial promises. Self-interest and egomania remain the basics of capitalist principles, thus the UK government must have transgressed too. A brilliant illustration would be the UK’s continued enthusiasm in aiding Nigeria – a country that receives £320 million in bilateral Aid Spending annually just from the Albion. There is no doubt that decision-makers who chose this Aid destination were instructed to support our country’s sovereign interests and to pledge a possible future partner in energy trade that would assign a favourable deal to the UK. It is no coincidence that Nigeria has the second-largest economy in Africa and possesses one of the largest oil and gas reserves in the world, much to Britain’s convenience amid Brexit perplexity, worldwide trade tensions, rising energy prices and worries over economic prospects. Existing evidence has even conjectured that the UK neglected more urgent and vital Aid requests to sponsor Nigeria’s needs. Such cases aren’t uncommon – three of the five largest programmes within the Newton Fund, which aims to develop science and innovation partnerships that promote economic development and social welfare, were positioned in China, instead of focusing on global poverty reduction. And then we wonder why the amassed spending has not delivered. 

Certain spending arrangements have not even ameliorated a single partaker. In Nigeria, a UNICEF-administered education project was found to have made “no major improvement” in learning. Yet despite this clear failure, UNICEF was again awarded funding worth over £120 million to continue the project for a further seven years. In both these cases, British taxpayers’ money has been outsourced to international organisations which have failed to produce the results the government expects. Re-assessment and re-evaluation of the need for multilateral Aid is thus encouraged. European dominions have even supported an Ethiopian women’s music band with restrained coverage – https://www.dailymail.co.uk/news/article-2508063/UK-pay-4m-fund-Ethiopian-Spice-Girls-New-aid-project-Yegna-ridiculed.html 

At the moment, £1.5 billion is spent with no transparency. The exact impact of UK Aid spending remains unknown, while hundreds of millions of pounds are assigned every year on aid consultants and administration time is wasted in negotiations/planning. 

Assisting the underprivileged has been a priority for the world elites in recent times. My argument is not to say that the action of assistance must be neglected – I believe it to be intrinsically courteous and even necessary. However, how the aid budget is spent must be re-assessed and re-evaluated, given that the achieved effects are rather unsatisfactory. The Aid budget is very much “our” money, given that it is contributed by the taxpayer and may have otherwise been spent on improving living standards in the UK. We must sincerely hope that a solution will be found soon, while possible relevant policy actions will be proposed by myself in a separate blog post. 

  • Boone, P. (1995). Politics and the Effectiveness of Foreign Aid. European Economic Review. 40. 289-329. 10.1016/0014-2921(95)00127-1. 
  • Burnside, C. and Dollar, D. (1999) – Aid, Policies and Growth – Policy Research Working Papers. The World Bank. doi:10.1596/1813-9450-1777 
  • Collier, P. (2007). The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It. Book. Oxford University Press.