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EDRINE BENESA:The Case Against Foreign Aid , Picking Lessons From Specific Asian Countries

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The recent Constitutional court decision to uphold the Anti Homosexuality Act has immensely heightened fears over possible aid cuts to Uganda, igniting further concerns over the country’s growth in the years to come. There have already been earlier calls for doubling foreign financial aid to Africa as a solution to poverty on the continent, giving birth to a never ending debate on the role of Aid in the development of a country. These efforts, however, have seemingly been grossly flawed.

Countries that have succeeded in getting the vast majority of their citizens out of poverty have done so by sustaining economic growth over many decades. The challenge for Africa, therefore, is how to generate sustained economic growth over generations. There is little evidence to show that foreign aid provides impetus for economic growth.

Over the last 60 years, Africa has received over $800 billion in foreign aid and debt relief. For most of this period, the continent sustained zero to negative growth; positive growth was only occasional and sporadic, depending on international commodity price fluctuations. Why has aid been antithetical to growth?

There are many reasons, including mismanagement and misallocation of aid resources, slow disbursement of aid monies and corruption. But the fundamental reason is that aid creates the wrong incentives for growth.

Governments matter for growth. They decide fiscal and monetary policies such as taxation and interest rates. They invest in public infrastructure that facilitates trade and commerce. They also build political institutions that mediate the relationship between public policies and private economic agents.

If the source of this revenue is the national economy, government would be driven by self-interest to listen to its citizens about policies and it would be necessary to increase the productivity of private enterprises. If this happened, government would be granting a voice in policy-making and policy orientation to those whose wealth it desires to tax – government would be democratic.

Good governance is therefore not a product of altruism but of enlightened self-interest. Foreign aid distorts the evolution of such a relationship. Rather than forge a productive relationship with their own citizens, governments find it more profitable to negotiate for revenues from abroad. This way, aid ‘disarticulates’ the state from the citizen.

For many years, governments in Africa sustained policies and institutional practices that hindered market exchange and private entrepreneurial initiative. This stifled growth, but it also undermined their ability to generate resources to pay for their political survival. Unable to raise money to pay the army and police to keep law and order and to buy off influential elites, many governments in Africa would have stared the spectre of regime collapse in the eye.

For Uganda to continue its development in the face of potential AID cuts, it can focus on several strategies:

Diversifying Partnerships: Engaging with a variety of international partners can help mitigate the impact of aid reductions from any single source. For instance, China has assured Uganda of its support, emphasizing non-interference and respect for sovereignty.

Strengthening Domestic Policies: Implementing robust domestic policies that promote self-reliance and sustainable development is crucial. This includes focusing on health security, resilient growth, and strengthened accountability as outlined in USAID’s Country Development Cooperation Strategy.

Investing in Human Capital: Developing human capital through education, healthcare, and skill development can drive economic growth and reduce dependency on external aid.

Promoting Private Sector Development: Encouraging private sector growth, especially in key areas like agro-industrialization, can create jobs and generate income.

Enhancing Governance and Accountability: Strengthening democratic institutions and tackling corruption can improve governance, which is essential for attracting investments and aid.

Fostering Innovation and Technology: Investing in technology and innovation can lead to homegrown solutions to development challenges.

Building Resilience: Developing strategies to cope with economic shocks, such as diversifying exports and improving infrastructure, can enhance resilience. By focusing on these areas, Uganda can work towards a more self-sufficient and resilient future.

Several Asian countries have achieved significant development without heavy reliance on foreign aid. Here are a few examples:

South Korea: After the Korean War, South Korea focused on rapid industrialization and export-oriented economic policies, which led to the “Miracle on the Han River,” transforming it into a high-income country.

Singapore: With a strategic location and investment in human capital, Singapore developed a competitive economy based on trade and finance.

China: China’s economic reforms starting in the late 1970s opened its economy to foreign investment and trade, leading to unprecedented growth rates and lifting millions out of poverty.

Malaysia: Malaysia’s focus on education, health, and infrastructure, along with a diversified economy, has contributed to its development.

The development of Asian countries without significant reliance on foreign aid can be attributed to a variety of factors.

Here are some key elements that have contributed to their growth:

Economic Reforms: Many Asian countries implemented economic reforms that opened up their markets to foreign investment and trade, which spurred growth.

Investment in Human Capital: There was a strong focus on education and skill development, leading to a more educated workforce capable of driving innovation and productivity.

Infrastructure Development: Investments in infrastructure such as roads, ports, and telecommunications improved connectivity and efficiency.

Domestic Savings and Investment: High rates of domestic savings and investment fueled economic expansion and development projects.

Diversification of Economies: Diversifying from agriculture into manufacturing and services helped create jobs and reduce vulnerability to economic shocks.

Strong Institutions: The establishment of strong institutions and governance structures provided stability and encouraged both domestic and foreign investment.

Regional Cooperation: Regional cooperation through organizations like ASEAN facilitated trade and economic integration.

Cultural Factors: A strong work ethic and community-oriented values also played a role in the rapid development of these countries.

It’s important to note that while foreign aid can help, it’s not always a prerequisite for development. Asian countries have shown that with the right policies and investments, development can be achieved through their own means.

The Writer is the Deputy RCC for Soroti East Division in Soroti City