By Cheng Cheng and Zheng Zhai Source:Global Times Published: 2018-4-11
Official Development Assistance (ODA) was designed to provide development resources including capital and technology to less-developed areas. Since World War II, Western donor countries have provided considerable amounts of aid for Sub-Saharan Africa. But we have not seen many examples, if any, of escaping the trap of poverty with these flows of ODA.
By and large, Western ODA has been a failure, if not a curse for African economies. ODA did not help with poverty reduction, economic and industrial growth. Quite the opposite: African countries have developed an institutional dependence on ODA, which limits local governance ability.
ODA has developed a set of values, norms and institutions that are used as leverage to deal with North-South relations.
In many situations, developing countries have served as testing grounds for research hypotheses of international development studies. Many researchers have weighed in on specific ODA projects. But if the theories are wrong, there are consequences for African countries` development policies. Sometimes, the consequences are disastrous.
ODA theories, for decades, have generated inconsistent policies. The deviation of the policies from reality has caused huge losses.
ODA has left dilapidated infrastructure in African countries. ODA used to emphasize infrastructure projects, but those projects usually cost more than the donors could afford. Most African countries chose to finance the ODA loans with sovereign guarantees, which drove up their debt levels. Fiscal distress, even debt crises in return eroded donors` will to invest.
After the mid-1970s, the traditional donor countries left infrastructure projects to private capital. However, private capital was reluctant to be involved because of the huge costs and long return periods. Especially in areas with frequent coups and unrest, it is impossible to count on private capital to build infrastructure.
ODA has not facilitated the industrialization of Africa and that is the stage where other regions have achieved poverty reduction.
ODA has shifted from industrial support to social and institutional reform assistance since the early 1980s, taking the neoliberal view that requires open markets and less government protection for domestic industries.
As globalization proceeded, however, local industries in Africa that only provided raw materials and primary products couldn`t compete internationally. So the industrialization of African countries ended.
High dependence on ODA and the loss of development ability are two sides of one coin. On the one hand, high ODA ratios have deprived the recipient countries` ability to expand their tax bases and raise their tax revenue.
On the other hand, development aid agencies eroded the administrative abilities of local governments. In some countries, the agencies became "parallel governments" providing public goods ranging from public education to public health. Local governments not only lost the motive to improve public services - they also forfeited the ability to do so.
Low efficiency is very hard to avoid, since ODA flows through too many intermediaries. The first is the principal-agent problem. Due to moral hazard and adverse selection, multiple agents in the middle may tamper with the funds for their own interests. ODA projects may fail to meet their goals rather than the public.
The second problem is a waste of resources. After moving from agency to agency, most of the funds are peeled away, layer by layer. Only small amounts actually go to the recipients.
Third, there are regulatory gaps between the taxpayers of the donor countries and residents in recipient countries. Neither the donors nor the recipient governments can carry out effective monitoring or supervision, because neither has enough information.
Last, the aid delivery system has far-reaching effects. Self-interested third-party aid assessment agencies cannot act completely objectively and fairly. Due to their internal incentive structure, such agencies usually run at low rates of efficiency.
Instead of a self-sufficient continent, ODA from Western countries since World War II has created an Africa with a dilapidated infrastructure, a failure to industrialize, a high dependence on aid and no self-development ability.
Students of international development may have overestimated their theories when it comes to finding "the correct way" for Africa. They also underestimated the ambitions of donor countries trying to control the recipient countries using ODA.
Africa`s path of development has to be chosen by African people. Other countries must be their genuine, modest companions, not condescending arrogant lecturers.
Cheng Cheng is associate research fellow with the Chongyang Institute for Financial Studies at Renmin University of China.