Foreign Aid is an amount of money borrowed by a country from another at an interest rate and conditions negotiable between the two counties involved in the transaction. Foreign Aid is normally used to finance budget deficits of governments.
It has been used by both developed and developing nations with different levels of impact. The impact of Aid has been traced to the efficiency with which Aid recipients have used the borrowed funds and the ability to meet the conditions attached to the Aid. Generally, Aid helps to finance gaps in government investments that could not be financed from domestic revenue mobilisation and private savings. Again, Aid attracts interest payments to the lending nation. Also, Aid sometimes is accompanied by transferred technology which may be alien, but beneficial to the recipient country – which when properly harnessed, can lead to the development of the domestic economy. Furthermore, national projects supported by foreign aid create more jobs, improve infrastructure and overall development of the local country.
Unfortunately, foreign Aid has also had a lot of negative effects on developing nations that may be due to inefficient use of the Aid and the harsh conditions that may also be attached to it. These situations make them more of a curse than a blessing to recipient countries which are normally developing nations. China is accused of leveraging massive loans it holds over small states worldwide to snatch assets and increase its military footprint. In 2017, with more than $1 billion in debt to China, Sri Lanka handed over a port to companies owned by the Chinese government on a 99-year lease (Fernholz, 2018). There have been instances where developing nations have been asked to reduce the number of public sector workers, and increase tariffs on public utilities causing lots of economic hardships such as jobs and incomes losses with their associated social vices. It has also made many governments unpopular to their citizenry. Sometimes, the lending countries, as part of the conditions attached to the Aid, give the projects that the Aid is meant to finance to their own technocrats or nationals to execute them which end up depriving the locals the job opportunities they provide.
The genesis of foreign Aid to developing nations is traced to the development economists view that every country needs to save a reasonable percentage of its national income to promote economic growth. Where this is insufficient, countries must rely on foreign Aid and grants from international agencies and governments of developed nations to fill the financial gap (Todaro & Smith, 2006). The obsession for foreign Aid was also catalysed by the successes that America chalked in reconstructing Western Europe and Japan with funds and surplus foods at relatively cheaper interest rates after the Second World War (Clunies-Ross, Forsyth, & Huq, 2009; Peterson, 1984). Since then developing nations have continued to borrow without looking back. Each government that assumes office has borrowed any amount it could, because, usually, it is not the government that borrows that necessarily pays back the loans.
Amazingly, the New Patriotic Party (NPP) government led by President Nana Akufo-Addo on assumption of office in 2017, declared Ghana beyond Aid as one of its development agenda. Many a Ghanaian still struggle to understand what Ghana beyond Aid really means. Another disturbing component of the agenda is that, there has not been any specific time line drawn for it to be achieved. What also compounds the problem is that since governments are transient, there are doubts about its continuity by successive governments. In addition, there is no national development plan to provide the roadmap to force each successive government to commit to this agenda.
The question that may dominate the minds of economists will be, Is Ghana beyond Aid based on “sound economics” or “good politics”? Sound economics suggests that the marginal benefit (both private benefit and social benefit) of a decision or an activity must at least equate the marginal cost (both private cost and social cost) of the decision or activity to ensure optimal production, allocation or consumption in a society. In light of this, we say that what will make Ghana beyond Aid agenda become sound economics is when at the end of a given period the marginal benefits of our economic activities or decisions (whether financed through borrowed funds or domestically generated funds) have either equated their respective marginal costs of the activities or are greater.
This will mean that we will use our scarce resources judiciously to develop to the extent that we will be self-reliant and possibly lend to countries that will be in need of financial and material supports. Many people believe that what has actually punctuated our efforts to develop and our overdependence on foreign Aid and grants has been our inefficient management of the country’s financial, economic, and human resources. This has been the result of political upheavals, corruption, exports of primary products, overdependence on imports, and class struggles (where the rich, superior, and elite chronically suppress the poor, inferior, and down trodden to maintain their superiority over them). We have abundant supply of gold, bauxite, manganese, farm lands, animals, timber, rivers, sea, rainfall, sunshine, oil, cocoa, intelligent human beings who will rub shoulders with any other human race when placed in the right environment, yet after many years of our birth as a nation, we continue to beg for foreign assistance. Given the right leadership, efficient allocation of our scarce resources, self-sacrifice and God’s blessings we can walk chest out into the future as an independent group of nationals who produce what they eat or use, store and process the excess produce for future use and export for foreign exchange to buy what we lack comparative advantage in. What baffles me is our inability to confidently mention that we have reserved foods or goods that can last about three and half months as a nation in a period of economic decline, but we are able to mention in our economic documents that we have foreign reserves that can cover three and half months of import.
Critics are apprehensive about the Ghana beyond Aid agenda and conclude that it is only a statement of “good politics”. That is, it is a political talk meant to help the government to satisfy the expectations of a segment of the electorate. They say that as long as there exist mismanagement, corruption, political, economic and technological ineptitude among us, and our inability to compete effectively with the developed world in international trade leading to deteriorating terms of trade against our nation Ghana beyond Aid is unrealistic.
Are we in a hurry to develop as a nation? Being in a hurry by inference means there must be urgency with which our development aspirations must be pursued. Being in a hurry must not be misconstrued with rushing to do things. If we rush with our development aspirations we will likely make unnecessary mistakes and copy blindly which may be detrimental to our quest to develop. Before China rose from a backward agrarian society to industrial powerhouse in 35 years, it failed in three previous attempts. The current success story of China is the fourth over 120 years.
It is said that instead of following the advice of Western economists, China used a gradual approach for reforms in which China sought to: maintain political stability at all costs; start with reforms in the agricultural sector, rather than the financial sector; promote rural industries; exchange manufactured goods (rather than natural resources) for machinery; build up infrastructure through government support; have both government and private ownership, rather than privatization alone; move up the industrial ladder: from light to heavy industries, labor- to capital-intensive production, manufacturing to financial capitalism and a high-saving state to a consumeristic welfare state (Wen, 2016). These were mimicked from the historical sequence of Britain’s development path outlined as follows (many advanced nation have also gone the same way):
- The proto-industrialization stage, which developed rural industries for long distance trade (1600-1760).
- The first industrial revolution, which featured labour-intensive mass production for the mass market (1760-1830).
- The industrial trinity boom, which involved the mass supply of energy, locomotive power and infrastructure to facilitate mass distribution (1830-1850).
- The second industrial revolution, featuring the mass production of the means of mass production, such as steel and machine tools (including agricultural machinery), as well as the creation of a large credit system (1850-1900); and
- The welfare state stage, which incorporates economic welfare (such as the modern service economy, unemployment insurance, equal access to health care and education, and a full-fledged social safety net) and political welfare (such as democracy, human rights, the end of the death penalty, legalization of gay marriage) – after 1900.
- The way forward
What can we do as a nation to make the agenda of Ghana beyond Aid become a reality should include the following:
We must not lose sight of the beautiful economic development template presented by Britain. Ghana beyond Aid must transcend party development agenda to national development aspiration with inputs sought from all major stakeholders in national development. We must use current financial inflows judiciously to increase national output, and provide the foundation for industrialisation. Let us also do our utmost to complete projects we award on contracts.
On the foreign front, we must also seek audience with our development partners to give us special dispensation in guiding us to develop. In this case, we can ask them to give us a larger market for our exports and bargain for favourable prices for them as well as favourable exchange rates. According to Peterson (1984) the United States (US) approach to trade liberalisation since 1934 received full ascent in 1947 following the World War II. Many U.S leaders argued that the domestic stability and continuing loyalty of U.S allies would depend on economic recovery of its allies. U.S aid was important to this recovery, but these nations needed export markets – particularly the huge U.S market – in order to regain economic independence and achieve economic growth. Secretary of State Cordell Hull wrote in support of the Trade Agreement Act of 1934, which provided the basic legislative support to cut U.S tariffs. In this he wrote that “Nations cannot produce on a level to sustain their people and well beings unless they have reasonable opportunities to trade with one another”. Again, between 1980 and 1985, the value of the U.S. dollar rose some 40% in relation to the currencies of major U.S trading partners. This made it difficult for the U. S to export substantially to trading partners (It was as if a tax had been placed on U.S exports, while a subsidy had been given to foreign imports where the trade partners could import more with their undervalued currencies). As part of the solutions to the problem, in 1985, the U.S Secretary of the Treasury met with the finance ministers of France, Germany, Japan and the United Kingdom and with the Central Bank’s intervention in the foreign exchange markets, the dollar gradually fell, losing almost half its value between September 1985 and January, 1988 (Peterson, 1984).
Above all, we must pray for God’s favour and guidance, because unless He builds our nation, we will labour, but in vain.
The writer is a Senior Lecturer, Dean, Faculty of Humanities and Social Sciences of Wisconsin International University College, Ghana.