Is donor aid retrogressing Africa?

We thine own palace, or the world’s thy jail,” wrote John Donne, a 14th century English poet.

That metaphor resonates well with Malawi’s economic situation today.

Malawi’s persistent failure to build its own palace—its own economic shelter—is today eroding the nation’s dignity. We have ended up encaged in the jails of international aid.

So encaged we are that things only work when we are kept within its four walls. A slight attempt to escape unlocks untold disasters on the land.

The late president Bingu wa Mutharika dared once. The consequences were instant and tragic. Fuel pump stations and forex coffers went dry, drugs disappeared in public hospitals, strange taxes emerged and commodity prices soared.

Today, things have begun working because President Joyce Banda is bringing the nation back to the jails of aid it belongs.

She had two options: Either to listen to the demands of the jail-owners and get readmission, or remain a leader of a fugitive nation, battered and suffering outside their jails. 

She chose to listen. That meant, among others, devaluing the kwacha, banning Sudan’s warlord Omar al-Bashir, selling the private jet and investigating the July 20 shootings. 

In doing that, Banda has been condemned by some as a weak African leader, ready to compromise African values for the sake of aid. In fact, some have even mocked that she has turned Malawi from a ‘God-fearing nation, to a donor-fearing nation’.

But she came out resolute in response to these critics. 

 “We have listened to the IMF, yes; and we are receiving aid because we have listened to them. Do we want fuel queues again?” wondered the President last week in Blantyre at a press briefing while returning from her trip to the United States of America (US) and United Kingdom (UK).

She added: “We should be asking why we are listening to them; we are listening because we are very dependent on them.”

That was not a lie—40 percent of the country’s budget used to be donor-dependent decades ago. Mutharika found the figure, and he left it intact, untampered. In fact, President Banda talked about the figure just last week.

However, the President shouldn’t have asked ‘why are we listening to them?’ and answered ‘we are listening because we are dependent on them’. That was obvious.

The question she could have asked was: Why, after almost half a decade of being aided by rich nations, should an independent Malawi, or say Africa, still be dependent on aid, to the point of failing to effectively progress without it?

The paradox of it all lies in the motive for which donor nations and international institutions give aid.

“To the beneficiary country, international aid is supposed to promote growth and development in developing countries and, in the process, improve the well-being of the people,” says Michael Jana, a Chancellor College political scientist currently pursuing doctoral studies in South Africa.

But history shows that the aid regime has, in most cases, failed to achieve that in many developing nations, especially Africa.

“Evidence actually shows that between 1980 and 1998, when developing countries got aid from the West with neoliberal policy conditionalities, the economy of sub-Saharan Africa shrunk by 15 percent. This is in contrast to 36 percent growth between 1960 and 1980 when a lot of aid had less conditionalities,” continues Jana.

Such figures of Africa’s backwards flights have, over the years, generated intense calls of rethinking aid in the continent.

Thinkers like Zambian economist Dambisa Moyo and Chinese Ha Joon Chang have criticised the continued outpour of aid to developing nations.

They argue limitless aid and its policy conditionalities have actually resulted in dependency, corruption and ultimately poor governance and poverty in many developing countries. To them, aid is a factor of Africa’s continued retrogression. And it is not just the two. There are a number of Malawians, as well, who share the view with conviction.

Despite that, history, too, records classic examples where aid, constructively, helped to promote growth and spur development elsewhere.

South Korea—once a poor nation which, for 50 years, heavily depended on financial aid from the US and Japan to survive—is one such country. 

“A close analysis of South Korea’s success shows that government harnessed the power of local and international market to trigger growth. It was a case of the state governing the market, through such measures as active industrial policy. Most resources including foreign aid were used in such investment policies.

“In the context of minimal donor conditionalities and strong government commitment to channel resources towards developmental projects, South Korea managed to break through,” says Jana.

Today, South Korea has not just emerged the world’s 13th largest economy. It is also a major donor country, mostly to African countries.

Such stories, though isolated in history, present a case that foreign aid, if used effectively, can spur economic development.  And it is not just in South Korea. 

You can, among others, add Mauritius, India and Indonesia to the list. In fact, even Malawi. The economic growth Malawi registered during Bingu’s first term, according to Chancellor College economic professor Ben Kalua, was externally driven.

So, if it is possible with aid, why is Malawi failing to come out of the jail of international aid like South Korea? 

Developing nations’ prime cause of continued retrogress lies in their inability to produce capital, writes Peruvian economist Hernando de Soto in that influential book, Mystery of Capitalism: Why Capitalism Triumphs in the West and Fails Everywhere Else. 

“Capital is the force that raises the productivity of labour and creates the wealth of nations. It is the lifeblood of the capitalist system, the foundation of modern progress,” he writes.

With the fall of communism, capitalism has remained the only means to development. For developing countries, production of capital, therefore, is prime and paramount. As such, aid must be invested there. Unfortunately, this is not what is happening in Malawi.

“Apart from rampant embezzlement and corruption that has seen most foreign aid to public and NGO sectors ending up in unproductive corrupt individuals, I have not seen much aid invested in productive sectors such as the private sector that is key to long-term sustainable growth and development necessary for breaking the chains of poverty and dependency,” says Jana.

He notes most aid is limited to social safety net, recurrent government expenditure and, of course, some infrastructure.

Of course, these limitations are, to an extent, a product of donor’s conditionalities. But to explain every limitation to donor’s conditionalities is, in other way, to ascertain that Malawi’s problems are in the stars. Yet, that is not always the case.

“The recipient countries mess up aid a big time,” says Jana, “most donor money has been misused due to corruption and sheer mediocre policies.

He adds: “The recipient countries have also failed to negotiate or contest some donor unsound conditionalities so that they conform to relevant local policies and conditions.

“Out of desperation, many recipients have rushed to receive the resources and then either negate on the conditionalities leading to abrupt and disruptive freeze of the aid, or implement the unsound conditionalities blindly leading to retrogression.

“Ultimately, recipient countries have failed to design and implement meaningful long term development strategies for sustainable development, but have opted to be donor-dependent and be subjected to donor economic shocks and conditions.”

Already donors have committed $496 million (about K124 billion) to the current budgetary support. Isn’t this the same old story?

The question is: Is it the donor’s insistence to channel the money to budgetary support and social safety nets or it is Malawi’s failure to carefully use the aid and also reason with the donors to channel their aid in the production of capital?

If these questions remain unanswered or answered wrongly, Malawi will never come out of the jail of international aid. But John Donne shall not tire to remind Malawians that: ‘Be thine own palace, or the world’s thy jail’.