Why Development Aid Fails

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02 March 2011

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Why Development Aid Fails

Despite billions of dollars spent in the

developing world to raise living standards

poverty still refuses to loosen its grip

According to the website globalissues.org “Almost half the world - over three billion people - live on less than $2.50 a day.”

The World Bank’s May 2008 report, Dollar a Day Revisited, notes that 95 percent of the developing world’s population exists on less than $10 a day. This represents almost 80 percent of the world’s total population.

And, says the 2007 Human Development Report from the UN’s Development Program, more than 80 percent of the world’s population lives in countries where income differentials are widening.

Why the Rich Stay Rich and the Poor Stay Poor

William Easterly is a Senior Advisor in the Development Research Group of the World Bank. In 2002, his book The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics was published. In it he asks why do rich countries stay rich, and poor countries stay poor despite the trillions of dollars in foreign aid going to the latter?

Mr. Easterly says disparities within rich countries might provide a clue. He says that highly skilled people prefer to live and work with one another in what he calls “Matches.” Each skilled person will be more productive for being around other similar people.

This explains, for example, why areas such as California’s Silicon Valley, once established, continue to grow. It also explains why low-income, inner city, and rural areas remain depressed – what Mr. Easterly calls “Traps.” Enterprise and creative activity feed each other, while poverty and destructive behaviour also feed each other.

Foreign Aid Programs that Fail

William Easterly details a list of foreign aid tactics that have failed: capital investment (machines, factories, roads), education, birth control, loans, and loan forgiveness. He points out that none of these tactics are bad; they just have little effect in a country that lacks key social, political, and economic infrastructure.

Basic infrastructure is in such poor shape in Africa that it causes many projects to fail. In December 2007, Associated Press reported on a major road in East Africa that starts in the port city of Mombassa.

The road is in such bad condition that bone-jarring journeys along it take weeks, “And the cost makes it cheaper to have a container of corn shipped from Iowa than to truck it 500 miles to western Kenya.”

Aid Money often Diverted by Corrupt Officials

The biggest development project in Africa was an oil pipeline from land-locked Chad to Cameroon on the Atlantic Ocean. It was completed in 2003 at a cost of $4.2 billion and the plan was that the income from the oil would be spent in Chad on development projects under international supervision.

But, Chadian President Idriss Deby (right) went back on the deal and the oil income flowed into general government expenditures such as the buying of weapons. As Associated Press pointed out, “Deby spends the oil money on regime survival and rigged elections.”

Development Agencies

sometimes don’t Measure up

And, while aid dollars mysteriously get whisked away to bank accounts in places such as Switzerland, the Cayman Islands, and Liechtenstein, the lives of the people for whom the money is intended don’t get any better.

The World Bank’s Independent Evaluation Group looked at how well its health department had performed. Not very well, according to Larry Elliott, writing in The Guardian (May 2009). The review of the Bank’s health department from 1997 to 2008, found that “despite increasing spending from $6.7 billion in 1997 to $16 billion in 2006, progress had been poor.”

The report criticized the health department saying that a lack of proper monitoring and evaluation had led to “irrelevant objectives, inappropriate project designs, unrealistic targets, and an inability to measure the effectiveness of interventions.”

The report said the performance in Africa was “particularly weak.” As The Guardian states, “Of every 1,000 children in sub-Saharan Africa, 146 die before their fifth birthday, while life expectancy at birth is just 51.”

Image credit

Julien Harneis

Sources

“Poverty Stats and Facts.” Global Issues, September 20, 2010.

“Dollar a Day Revisited.” World Bank, May 2008.

“2007 Human Development Report.” United Nations.

“The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics.” William Easterly, MIT Press, August 2002.

“$568 billion in African Aid and Little to Show for it.” Associated Press, December 23, 2007.

“Examples of Failed Aid-Funded Projects in Africa.” Associated Press, December 23, 2007.

”World Bank Admits most Health Aid Fails.” Larry Elliott, The Guardian, May 1, 2009.

Millennium Development Goals

“...only half of HNP (Health, Nutrition, and Population department of the World Bank) support was focused on the poorest people, and that much of the World Bank's spending ended up helping the richest 20% of people.”

Larry Elliott

The Guardian

2009

According to Transparency International Chad is the 171st most corrupt country in the world out of 178. It is sandwiched between Burundi (170) and Sudan (172).

The Lesotho Highlands Water Project was designed to divert fresh water to South Africa. The total cost was $3.5 billion with at least $100 million coming from Canada.

Writing for Odious Debts, Patricia Adams notes that the “project’s chief executive, Masupha Sole, [has been found] guilty of 13 counts of fraud and taking bribes from international consultants and contractors.” Three of the world’s biggest construction companies have also been found guilty of corruption in connection with the project.

And, writes the Associated Press in 2007 “…the diversion of so much water caused environmental and economic havoc downstream…Tens of thousands of people whose lives were ruined by the diversion are still waiting for compensation.”