Before World War II, the primary objective of foreign aid was for political and military support. After the war, foreign aid was dispersed to help Western European countries to rebuild their economies which were devastated by war. During the late 1990s, according to David Sogge (2002) most countries changed their primary objectives of giving aid to improvement of the lives of the poor. World Bank and OECD countries identified three basic objectives in giving aid namely: reducing material poverty; promoting good governance and reversing the negative environmental trends.
Malawi has experienced a series of donor aid freeze under different regimes. In 1992 the MCP led government was the first casualty of donor aid suspension. Sequentially, the donor community withheld foreign aid during Mutharika, Muluzi and recently Banda administration for different reasons including poor governance, poor human rights record and corruption. Many studies have been undertaken to try to assess if aid actually fulfils its main objective of promoting macroeconomic development in developing countries. Generally speaking, economists and researchers who contribute to the anti aid literature advocate that aid has no affect on growth and that it may actually undermine it. Causality tests by Dhakal et al (1996) involving four Asian countries (India, Nepal, Pakistan and Thailand) and four African countries (Botswana, Kenya, Malawi and Tanzania), using data from 1960 to 1990, failed to find any causal relationship between foreign aid and economic growth in any of these countries.
Economists like Friedman (1958) and Bauer (1972) called for an end in aid, arguing that it is not a necessary requirement for the economic growth of a country. They argue that foreign aid to governments is dangerous because it increases the power of the elite in the recipient governments, leads to corruption and hinders economic growth. In particular, Bauer noted that aid discourages the growth of private sector investment, encourages public sector-led growth (since aid is in fact money added to government coffers) thereby limiting growth and inhibiting development.
Sogge (2002) argues that where aid has dominated, pride and ambition have given way to dependence and where it has been targeted, public management and services have either decayed or collapsed, poverty and inequality have worsened, and insecurity has prevailed. Foreign aid has thus financed governments, both authoritarian and democratic, whose policies have been the principal cause of their countries’ impoverishment.
There are several reasons why massive transfers from the developed to the developing world have failed to end poverty. Aid has traditionally been lent to governments, has supported central planning, and has been based on a fundamentally flawed vision of development. With a few exceptions, (Korea, Botswana and Honduras) where aid has had a significant impact on poverty reduction, improved social services and competent public institutions, western aid has played minor role in building efficient public sector and in lifting millions out of poverty. In some cases, states that were major recipients of aid are today collapsed states such as DRC, Sierra Leone, and Somalia.
The inadequacy of government-to-government aid programs has prompted an increased reliance on non-governmental organizations (NGOs). NGOs are said to be more effective at delivering aid and accomplishing development objectives because they are less bureaucratic and more in touch with the on-the ground realities of their clients. In the 1990s a Clinton administration task force conceded that ‘despite decades of foreign assistance, most of Africa and parts of Latin America, Asia and the Middle East are economically worse off today than they were 20 years ago’.
So, does Malawi need foreign aid to develop? Studies show that foreign aid has positive effects on growth in the good policy environment, while it does not work in a distorted environment. Good policy environments, according to Burnside and Dollar (2012), are those that are open to trade, have low inflation rates, good share of the budget surplus in relation to GDP and balanced government consumption in GDP. A country’s progress depends almost entirely on its domestic policies and institutions, not on outside factors such as foreign aid.
As long as the conditions for economic growth do not exist in Malawi, no amount of foreign aid will be able to produce economic growth. Moreover, economic growth in poor countries does not depend on official transfers from outside sources.
The author is a health services administrator based at Kasungu District Hospital. He likes to comment on social and economic issues and is writing in his own capacity.