Foreign Aid

Despite all its advantages, there are many reasons as to why foreign aid has sometimes been ineffective in enabling development. First of all, the problems that exist in these under-developed nations are far too great to be tackled by the amount of aid that is provided to them. Only a very small number of countries have actually managed to achieve the standard set by the United Nations when it comes to development, which is problematic since the goal is only to achieve 1% of the GDP of a modern industrialized state.

It needs to be understood that the relationship between amounts of aid paid and growth is not directly proportional. Countries in Africa are seen to receive the highest amount of foreign aid, compared with countries in other regions, and these African nations still perform poorly at all levels. The reasons behind this are numerous. Mismanagement of this aid internally can attribute to less growth taking place. Aid can be provided, but if it is not being utilized through proper economic policies, problems with performance will definitely arise.

Over the past 50 years, $1 trillion worth of foreign aid has been provided to the Sub Saharan region in Africa. Despite such a large amount of aid, the GDP per capita of this region actually declined radically, and was negative (with a few exceptions). Due to the constant aid this region received, it became highly dependent on it and eventually started to show retarding growth patterns. This further had a negative impact on the governance structures and institutional quality of the region.

History has shown that in nations where the domestic population has no intention of favouring the reforms brought about by the inflow of foreign assistance, this aid is usually utilized inefficiently. However, aid is still provided on the basis of conditionality. This means that the countries borrowing must follow a set of conditions in order to be eligible for this aid, and then must continue to keep in line with these conditions throughout the period that aid is provided. However, despite an increase in the amount of conditional loans being provided in the past few years, co-operation on behalf of the borrowing country cannot be guaranteed. The conditions actually backfire and thus begins a vicious cycle of non-compliance on behalf of the borrower.