Is Non-Financial Aid Undermining Local Economies in Africa?

Over the past few decades, states and other development actors have become increasingly involved in a worldwide effort to promote development, notably in African countries. It is safe to say, however, that despite some successes, the results have largely been underwhelming. Nearly $1 trillion in development aid was transferred to Africa in the past 60 years but despite that, per-capita income today is lower than it was in the 70s. Additionally, over the course of the past 20 years, the proportion of the African population living on under $2 a day nearly doubled, with over half of the population in this situation today (Moyo, 2009). These statistics are epitomised by the fact that more than a quarter of the countries in sub-Saharan Africa are poorer now than they were in 1960 (Acemoglu and Robinson, 2014).

Development in Africa – Not looking too good

There are several factors which I believe have contributed to these figures, notably faulty economic policies promoted by international institutions such as the IMF and World Bank, conflicts within states and environmental disasters such as famines. But could ‘well-intentioned and admirable’ aid have played a part in the current discouraging development situation of African countries? My answer is yes, and in numerous ways. Aid, especially financial has played a starring role in fuelling the corruption of African government officials and its abundance has increased African reliance on foreign assistance. However, in this article, I aim to focus on the impact of non-financial aid on local economies in Africa, as I believe that it’s undermining of these economies has played a large part in stalling development in the region.

As economist Carl Schramm interestingly states, “with the best of intentions, we’ve often inflicted the worst of outcomes on unwitting people.” (Schramm, 2011) I agree that foreign aid is largely well meaning and it comes in many different forms from NGOs, IGOs, people and states who are for the most part hoping to help reduce poverty, increase development, and essentially improve the quality of life of people in developing countries.

However as Schramm states, these good intentions can often lead to unwanted results. A prime example of this is what I believe to be aid’s detrimental effect on African local economies.Non-financial aid, which I define as non-monetary based assistance such as food aid and clothes aid, is a massive contributor to the undermining of these economies. Using the case of food aid, western governments tend to purchase food products from commercial farmers within the country, ship these products to Africa, and then donate them to aid groups, as the U.S.A does. These aid groups then sell these products for cheap prices, which in turn, helps fund their programs. A win-win situation? Not in the slightest.

Food Aid – Not the right policy?

As a result, the economies of these African countries end up getting flooded with cheap goods exhibiting prices which local farmers are unable to compete with. The income of farmers in turn decrease, and they become unable to provide for their families and contribute to the growth of the local economy. Farmers may ultimately give up farming and look for other sources of income, consequently leading to increases in unemployment rates. 

The same chain of events occurs with clothes, with cheap second-hand clothes continuously getting shipped to Africa as a form of charitable aid, and being sold cheaply by charities. Sure, these goods are more affordable to the population than domestically produced goods. However, they inhibit the development of the local textile industries and in turn the local economy. A report in 2006 provided figures which revealed that in Ghana, textile and clothing employment fell by a staggering 80% from 1975 to 2000 and that in Zambia, the number of workers declined by at least 15,000 from the 1980s to 2002, falling from 25,000 to under 10,000 (Traub-Merz, 2006).

Largely as a result of cloth donations, textile industries are failing in Africa

You know how your local buying local activist always nags you about buying local when you cross him in the streets on the way home from work or school in your local town (emphasis on local)? Well, you probably don’t have one of those, and neither do I, but if by some miracle you do, the point they’re trying to get across is that buying local does not only benefit the local workers who’s jobs are threatened by the presence of a Whole Foods or Toys “R” in their town, it also benefits the community as a whole. Studies have shown that buying locally promotes economic growth as more money stays within the community. One study, for example, has found that for every $100 spent at local businesses, 68$ remains in the Chicago economy, in contrast to only $43 remaining in the economy from the same amount being spent at a chain. The study also showed that for every square foot occupied by a local firm, the local economic impact is $179, while that figure drops to $105 for chain firms. (Andersonville Development Corporation, 2004)

When looking at Africa, when I say locally, I mean on the national scale or even the continental scale, as developmental circumstances are different. Additionally local businesses and workers aren’t nearly as protected in Africa as they are in Chicago, so they suffer much more if their clientele decreases—and so does the local economy. Non-financial aid is promoting the purchasing of goods produced outside of African countries because of their competitive prices, leading to local African consumers preferring these products to more expensive domestically manufactured product. This severely damages the local economy, as it leads to loss of jobs and bankruptcy of local business. Non-financial aid is essentially doing the opposite of what it was intended to do —develop.

Interesting Reads:

Robyn Curnow and Teo Kermeliotis, CNN – Is your old t-shirt hurting African economies?

Dambisa Moyo, The Wall Street Journal – Why Foreign Aid Is Hurting Africa 

Celia W. Dugger, The New York Times – Charity finds that U.S food aid for Africa hurts instead of helps

Bibliography

  1. Acemoglu, D. and Robinson, J. (2014), Why foreign aid fails – and how to really help Africa, Available: http://www.spectator.co.uk/features/9121361/why-aid-fails/, last accessed 14 January 2015
  2. Andersonville Development Coorporation (2004), The ANDERSONVILLE STUDY of Retail Economics, Chicago: Civic Economics. 1
  3. Curnow, R .and Kermeliotis, T. (2013), Is your old t-shirt hurting African economies?, Available: http://edition.cnn.com/2013/04/12/business/second-hand-clothes-africa/, last accessed 15th January 2015
  4. Dambisa, M. (2009), Why Foreign Aid Is Hurting Africa. Available: http://www.wsj.com/articles/SB123758895999200083, last accessed 14th January 2015
  5. Dugger, C. (2007), Charity finds that U.S. food aid for Africa hurts instead of helps, Available: http://www.nytimes.com/2007/08/14/world/americas/14iht-food.4.7116855.html?pagewanted=all, last accessed 14th January 2015
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