Trade or Aid

 

 

Debunking the aid rhetoric!  

Over the last 50 years, an estimate of $500 billion has been spent on aid in Africa.Yet, despite these huge inflows, the continent has remained mired in poverty and disease. The British Government’s foreign aid donations is worthy of note. In 2012, the Spectator reports that the British Government spent ‘8.7 billion pounds on foreign aid – which is 0.56 per cent of national income. This is to rise to 11.7 billion pounds or 0.7 per cent of national income by next year.’ If aid alone was the antidote to ameliorating lives of poor people, poverty would probably have been extinct or near extinction. Despite the billions pumped into the HIV/AIDS scheme, the menace has only declined at snail-speed. Using aid as a vehicle for development is purely unworkable. On the contrary, it is a method to further impoverish the already impoverished continent because the transfer of aid affects the recipient country’s exchange rate and undermines the international competitiveness of existing exports while killing local creativity.

 

The pervading notion that has dominated Africa’s theory of economic development is that large donations can remedy the myriad of challenges Africa is faced with. The blunt truth is that aid has failed in Africa and will continue to fail. This is because giving money may feed the hungry and helps the sick- but it provides no guarantee to the freedom from the institutions that make them poor in the first place.

In the literature of development, nowhere is it recorded that ‘aid’ has facilitated the economic growth of any economy. Perhaps, the only blessing aid has done is to encourage Africa’s dependency and breed laziness. The urgent action necessary to save the impending loom in many African economies is a structural adjustment. A structural adjustment proffered not in air conditioned offices in New York but one drafted and birthed by Africans and her leaders. Consciously, Africa must shed her philosophy of limits and take fate into her own hand.

The question is how can trade boost development? If we take coffee as an example, (I have chosen coffee because it is the second most traded commodity after oil) we can understand how Africa can benefit from trade. Out of the world’s total coffee business valued in 2008 at a yearly estimate of US$ 144 billion, all coffee growing countries receive only US$ 15 billion for their green unprocessed bean. The rest remains in importing countries that add value to the coffee they have not grown. A less complex index is an example of 1bn of green-coffee that earns a Ugandan farmer approximately US$1 whilst roasters in developed countries will be able to sell the same coffee for US$8. This means that Uganda is losing US$7 because of inability to ‘roast and package’ coffee.  This coffee example is replete and same with all African countries. Nigeria contributes one of the largest quotas of oil to the international market, yet, it has no functioning refinery.

President of Rwanda, Paul Kagame

By laying emphasis on trade rather than on aid redirects attention from what developed states could or should be doing for the African states to what Africa can and should do for herself. Trade presents a rare opportunity to develop. In gearing up to be successful trading partners, Africa must undergo a number of key changes. These changes include; developing the economy, manufacturing and service sector and build infrastructure. In fact, increased favourable trade would even enhance good governance because the choice is either to ‘trade or die’. Antagonists to trade may profess; Africa’s exports cannot compete internationally. Initially, there may be difficulties nevertheless, it should be emphasized that successful exporters learn in the process of exporting and improve their ability to export in the future as a result. This dynamic gain of learning by doing is often shared with other local firms who become able to break into the export market.

The conclusion here is simple; aid is not joystick by which donors can manipulate macroeconomic or political outcomes. Rather, the onus is largely dependent more on African private sector entrepreneurs, African civic activists and African political reformers than African governments. After all, history has taught us all that the best cures for poverty comes from within.

 

 

 

 

 

4 thoughts on “Trade or Aid

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