RASNA WARAH: Financial crisis may make Africa less aid-dependent - Daily Nation

Financial crisis may make Africa less aid-dependent

Sunday November 9 2008

MANY DONOR-dependent countries are worried that the global financial meltdown and impending recession will lead to reduced foreign aid.

African countries, in particular, are worried that domestic financial problems will force rich countries to cut down the amount of resources allocated to international development assistance.

Rich countries, on the other hand, are being urged to continue supporting developing nations to prevent the latter from sinking further into poverty.

At a White House summit on international development held last month, US Secretary of State Condoleezza Rice stated: “Some will ask the inevitable question in these troubled times: ‘How can we afford it?’ I would ask instead, ‘How can we not afford it?’ ”

Ms Rice inadvertently admitted what many critics of development assistance have been saying for years – that foreign aid helps donor countries more than it does recipient countries, and that countries that give maintain an upper hand over countries that receive.

Foreign aid is, in many ways, an “investment” for rich countries as it allows them to gain tremendous political and economic advantage over poor nations for a very small fee.

Think about it. Official overseas development assistance (ODA) accounts for less than 1 per cent of donor countries’ GDP.

The $700 billion bailout plan that the US Congress approved for ailing financial institutions is more than the total amount of ODA received by African countries in the last 40 years, and is almost the amount the US has so far spent on the wars in Iraq and Afghanistan.

Autonomous economies can change the balance of power. An economy that relies on its own resources and is less dependent on foreign capital, including aid, is harder to control.

The global financial crisis has shown that economies that are “decoupled” from global markets may survive the crisis better than those that are not. This had led many developing nations to question the economic models imposed on them by donor countries.

This could topple the current world order where the West decides what is best for developing nations and expects eternal gratitude in return. It could lead to a backlash against donor countries.

The prospect of rebellion among the masses is a scary prospect for Western donor countries, which until now, have been pushing the mantra of liberalisation and privatisation on poor countries, a mantra that now rings hollow in the face of the global financial meltdown.

Since the 1980s, Western nations have been telling African countries that the only way they can grow is by opening up their economies, privatising public assets, reducing subsidies – or eradicating them altogether – and allowing the free market to determine the cost of food, health and education.

AFRICAN COUNTRIES ACCEPTED this doctrine without question. As a result, poverty levels soared as the cost of health, education and other basic services became unaffordable for many.

As the Tanzanian scholar Issa G. Shivji noted, “even the modest achievements of the nationalist or developmentalist period (that followed independence from colonial rule) were lost or undermined.”

Now, Western nations are wondering whether their prescriptions were essentially flawed. Many, including the United States and Britain, are nationalising financial assets, including banks, to prevent them collapsing. Some are wondering whether “government-guided capitalism” of the kind adopted by China is the way to go.

Columnist Joshua Kurlantzick of Time magazine recently noted that China works because state capitalism encourages private enterprise and foreign investment while retaining control of key industries, which benefit from state support.

This healthy balance between the forces of the free market and state intervention and protectionism has been the key to the success of the Chinese economy, which has grown phenomenally in the last three decades, and which has succeeded in reducing poverty levels at an unprecedented rate. What’s more, the Chinese government is now offering to bail out the US economy!

Of course, there is downside to state-controlled capitalism. In corrupt countries, it can lead to cronyism among the political elite, who can use it to enrich itself rather than to spread prosperity.

It also reduces incentives for individual enterprise, which encourages innovation, creativity and excellence. Visionary and accountable leadership is therefore a prerequisite if this model is to work.

African countries can learn a lot from the Chinese model. They must rethink the concept of development assistance and develop home-grown solutions.

The Chinese government already knows this and it has started to run several training programmes for government officials from around the world which highlight how China got rich. How the tables have turned.

No country in the world has developed through foreign aid. African countries must see the financial crisis as an opportunity to cut off the ties that have condemned them to poverty, debt, loss of sovereignty and economic models that only benefit a few.

Ms Warah is an editor with the UN. The views expressed here are her own and do not necessarily reflect those of the United Nations.