New Internationalist

Should foreign investment replace aid for Africa?

September 2011

As Africa’s economies boom, the virtue of overseas aid is back in the spotlight. Donu Kogbara and Dereje Alemayehu go head to head.

Every month we invite two experts to debate, and then invite you to join the conversation online.

Every month we invite two experts to debate, and then invite you to join the conversation online. The best comments will be printed in the next magazine.

Donu

I’ve had quite a lot of contact with foreign aid agencies over the years. I have also visited Ethiopia and other African countries that are major aid recipients. And since I moved to Nigeria a decade ago, I’ve been an occasional consultant to donors who come bearing gifts from distant lands.

All of the above experiences – apologies, by the way, for ungratefully biting hands that feed me from time to time – have convinced me that donors are inadvertently encouraging developing countries to be dependent.

African nations are riddled with corruption, and incompetence. They are, therefore, the architects of most of their misfortunes. They must grow up, clean up their acts, get off their backsides and learn how to become more self-reliant, dynamic and dignified.

We Africans must think big, believe in ourselves, demand high standards, take full responsibility for our own destinies and aggressively embrace the ‘trade not aid’ mantra. Its followers should put more pressure on leaders to deliver progress and transparency; wealth creation should be a priority, indigenous entrepreneurs should be empowered and foreign investment pursued.

Being spoon-fed handouts by well-meaning white liberals, who have a penchant for not telling us tough home truths, is the last thing we need!

Dereje

I share your contempt and outrage with regard to our rulers. But, reading your words, I asked myself, ‘what’s this got to do with aid?’ Aid shouldn’t be made responsible for what it is not meant to do. Aid cannot buy democracy; aid is not the primary support that props up corrupt regimes.

If your primary motive to attain political power is self-enrichment, you will be a thief, with or without aid. Getting rid of tyrants and thieves is a job for African citizens.

The solution to aid abuse is the fight for accountability and transparency to make it serve its purpose, not to cut off aid. And when aid is perverted by donor countries to promote business interests or to buy the loyalty of corrupt regimes for geopolitical ends, this is not aid: it is economic and political corruption.

Aid should have only one purpose – the eradication of poverty. That is why I support aid and am engaged in fighting its misuse.

Can we realistically rely on foreign investors to deliver development? The amount they steal through aggressive tax evasion is at least fourfold what comes in as aid. I can’t see how ending aid would make them change their behaviour. I have nothing against Foreign Direct Investment (FDI), but let us make a distinction between scavengers and investors. And in Africa, we have more of the former.

Donu

I’m convinced that foreign donors are de-motivating Africans with kindness. They infantilize us with their soothing ‘there, there’ approach and make us feel that it’s fine to whip out begging bowls

You seem to have misunderstood me. I am as concerned as you are about the fact that aid can be abused by corrupt regimes. But I didn’t have the aid abuse problem in mind when I expressed the view that foreign donors are unintentionally making developing nations weak.

This viewpoint is based on my suspicion of welfare dependency and belief that most economically challenged individuals and countries will, as a general rule, perform more impressively if they are urged to stand on their own feet.

I’m convinced that foreign donors are de-motivating Africans with kindness. They infantilize us with their soothing ‘there, there’ approach and make us feel that it’s fine to whip out begging bowls. And yet we are capable of solving our poverty problems without leaning on Western philanthropists.

Even though Nigeria has a substantial oil/gas industry, it is awash with aid agencies. And I’ve long felt that the foreign do-gooders who staff these organizations would do more good if they could forget about attempting to nanny us and miraculously transform themselves into ethical foreign investors!

As for the scavengers about whom you quite rightly complain: they wouldn’t get away with ripping off Africans if they didn’t have unpatriotic local partners.

Dereje

Thomas Mukoya / Reuters
A Somali man carries food from the World Food Programme distribution centre at a refugee camp near the Kenya-Somalia border, August 2011. Thomas Mukoya / Reuters

You seem to suggest that a causal link exists between aid and poor political leadership. But I believe aid dependency syndrome only comes about if you have a self-seeking leadership.

For me, development is not only about money. It’s a political process propelled by nationalism. By this I mean a national project that makes ending poverty a priority; an outrage at the preponderance of abject poverty in your country; and a decision to tackle it with the utmost urgency it deserves.

A leadership committed to this kind of nationalism, instead of using political power for self-enrichment, would necessarily use aid as a complementary resource to national efforts.

By blaming aid for poor leadership you seem to suggest removing this ‘life support’ will end bad governance; and that if foreign investors replace aid, they will make our economies more dynamic. I strongly doubt this.

The driving motive for foreign investment is short-term profit maximization to pay fat dividends to ever-greedy shareholders. Putting profits first will not serve long-term equitable and sustainable development. It will promote ‘shareholder value’ by making the rich richer, but it will not end poverty.

Donu

I am not, it has to be said, totally heartless! And I certainly don’t object to generous amounts of emergency aid being provided by the international community whenever countries or regions – Somalia being the most current example – are crippled by natural disasters or famines.

However, foreign investment will always, in my eyes, be superior to foreign aid within the context of non-emergency scenarios.

Last April, the Court of Auditors criticized the European Union for various errors of judgment, including the fact that it had given $14 million worth of aid funds to a Malian employment advisory centre that had only assisted six people successfully in three years.

I am pretty sure that the local population would have gained more concrete benefits if foreign entrepreneurs had invested the same sum in setting up a business venture in Mali.

Properly managed foreign investment stimulates economies and empowers individuals. Omoku, a town in Nigeria’s Niger Delta region, was once a semi-comatose backwater but is now a thriving hive of commercial activity, thanks to the presence of AGIP, an Italian oil company.

Foreign aid could never have provided Omoku with this miraculous transformation. What Africa needs is as many Omokus as possible.

Dereje

Can we rely on foreign investors to deliver development? The amount they steal through aggressive tax evasion is fourfold what comes in as aid. I can’t see how ending aid would make them change their behaviour

Attracting FDI with generous tax holidays and freedom to repatriate profits is already a top priority in all African countries. But the dynamism you allude to is not there. Foreign companies tend to extract wealth in enclaves without helping the development of host countries’ productive capabilities.

The Tanzanian leader Julius Nyerere once said: ‘Colonialists made us produce what we don’t consume and consume what we don’t produce.’ Colonial policy was all about ‘nipping productive capacity in the bud’ and multinational-dominated globalization is carrying on in the same vein. That is why diamonds cause death and poverty in Lubumbashi but riches and glory in Antwerp.

FDI has not disturbed the ‘peaceful coexistence’ between lucrative foreign business and perennial stagnation; has not lifted African commodity producers out of subsistence-income levels. Its advances towards promoting value chain activities, creating decent jobs, transferring knowledge and technology or reinvesting in research and development are negligible. You cannot expect miracles in this department.

Besides, profits go to companies’ countries of origin, and rampant tax evasion drains resources from Africa’s social infrastructure provision.

Aid is not useful only when directed at providing help during emergencies. It also builds resilience for the next emergency; and helps plug the vital infrastructure gap that FDI will never address.

Donu Kogbara is a Nigerian print and broadcast journalist. She has a weekly column in the Vanguard newspaper, and acts as a Director on the Greater Port Harcourt City Development Authority Board. She is part of the African Arguments debates forum.

Dereje Alemayehu is a development worker of Ethiopian origin, Christian Aid’s Country Manager for East Africa and Chair of the Tax Justice Network Africa. The views expressed in this debate are entirely his own.

Visit our full list of past Arguments.

Front cover of New Internationalist magazine, issue 445 This feature was published in the September 2011 issue of New Internationalist. To read more, buy this issue or subscribe.

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  1. #1 Chitra Ramaswami 17 Aug 11

    Foreign aid is an important source of financing for public goods such as childhood immunisations, clean water and disease control – areas where profit-seeking foreign investors are hardly likely to venture. Cutting off aid might teach aid dependent governments, especially the corrupt ones, a lesson. But it also means that millions more would die of AIDS, TB, and preventable childhood diseases – an unconscionable price to pay.

  2. #2 brightstar 30 Aug 11

    Donu makes her point well. But how can you expect a country to 'stand on its own two feet' when the rules of world trade are so weighted against poor countries? There are problems with aid, ofcourse. Like how US dumps its food surplus on the developing world to boost Cargill's profits. But how can you fault development projects that help communities resist climate change, for example? There are certain things that private enterprise will never do.

  3. #3 Oiseau 30 Aug 11

    An interesting debate - but what kind of aid are we talking about here? Is it government-to-government-aid and 'budget- support'? In which case, I agree with Duno - it feeds corruption. But I don't believe that foreign direct investment is any better, if the track record of the corporates in Africa is anything to go by. Or are we talking about development charity aid for specific projects? In which case, it depends on the project - and I'm naturally suspicious of the slef-serving, aid-empire-building tendencies of the big NGOs. Or are we talking about solidarity with grassroots organizations in Africa, which are trying to foster democracy in a continent dominated by corrupt governments, extractive corporates and an economic culture of aid dependency? If so, let's call it 'solidarity' and view it as an equal partership of those concerned with freedom and justice. That one gets my vote. And emergency aid, delivered coherently and non-competitively.

  4. #4 Deb 31 Aug 11

    Both aid and trade can - and are - abused by corrupt regimes (not just in Africa). So as important as making sure that trade is fair and not exploitative and that aid is appropriate and timely is to somehow get rid of the people at the top who only have their own interests at heart. Not an easy ask, but working in solidarity with grassroots organizations to promote true democracy is a good start.

  5. #5 onedaywonder 01 Sep 11

    The bottom line on foreign investment is that no matter how 'benign', it is based on an extractive model. That is to say that the investment is made on the expectation that greater benefit will be derived by investors than originally invested - the 'recipient' country is expected to yield a greater amount of resources for the financial input than the worth of the input. In this loss-making scenario, the argument is that local people get jobs and local partners get a chance to make huge profits. So the best one can expect are a small section of the population gaining employment and the further entrenchment of local elites. All the arguments about corruption that are levelled against aid apply equally to investment, too.
    Of course aid in its various forms has its flaws - but it cannot be an either/or choice between aid and investment. We need aid that stands up to proper scrutiny and investment that doesn't just follow the 'make a fast buck' model.

  6. #6 Rob 01 Sep 11

    In the long run, something needs to replace aid for Africa - I think we'd all agree that it's not in Africa's interests to be permanently dependent on a financial source that is at the mercy of the political climate of foreign powers. However, it's too simplistic to suggest we should replace it with FDI. There may be a place for FDI, but more often than not it has a detrimental or insignificant affect on labour rights and wages and it too can be an unstable source of finance. A far more stable source of poverty reduction in recent years has been the money sourced from remittances. To enhance income from remittances we should be reassessing our migration laws.

  7. #7 Brad 01 Sep 11

    An interesting debate and one that should always be discussed, as though I think the answer to the basic question is no, foreign investment should not replace aid, there is a place for both - trade and aid. But the more crucial question is what kind of trade and what kind of aid? Aid often comes with strings attached and investment can be just as exploitative, the current trend of land grabs being just one example.

    So both are required but need to be judiciously applied - to do so will require assertive and accountable African governments supported unconditionally by the international community.

    There's a long way to go.

  8. #8 Hans 14 Sep 11

    Should foreign investment replace aid for Africa?....I believe both Donu and Dereje have some points to make...but i also believe that the people of Africa should make own decisions and pressure their own governements/dictators to urgently adress the corruption,tax invasions etc.etc.No aid or direct investment can replace the major problems Africa as a whole faces!!
    Aid organisations are a good thing..if only the NGO,s and other foreign staff would keep a minimum of direct contact with local Governements and high officials.My experience is that many of the Heads of Aid programmes working in countries are famously arrogant and behave if they are personally handing out tax payers money..their close connections with high offcials incl.frequent parties at embassies etc.etc. makes them part of an currupt system and overshadows the main reason they are there!!
    Again,Africa and many other underdeveloped nations should be changed from within..see the uprisings in the Middle east.The west can go on for many decades to provide Aid and really nothing is changing...ofcourse people get help and don,t starf,but it brings no solution.
    Direct Investment is nice but can not replace Aid in itself.The reason being that most foreign companies do NOT invest most of their money back into the communities ,but repatriate most of the profits.They are there mainly for cheap labour,cheap land,lax tax laws and higher profits at home for them, and the share holders.They also pay ofcourse money under the table to Governement officials and local officials meaning a small group of locals make money out of this system,while the labourers hardly survive!
    I beleive Africa is on the treshold of surviving as people.Not starving but colonizid... the land is slowly being taken away by foreign companies eg.growers of food for export,mining and many other projects which again only benefit the ruling class/elite of these countries.Billions change hand and is not coming back to the people.
    China is the main investor and although it looks if they are nice to the locals and build even roads,schools etc. peopel in Africa should realize that China,like so many countries are looking for oil,gas,food etc.etc to develop/enrich their own countries while most africans are still living in desparate situations.The blame of all these probems lay squarly with the local Governements of each country!

  9. #9 J Brand 16 Sep 11

    I couldnt agree more with Dereje, though his point of view is hardly objective since he works for an aid charity, and a religious one no less

  10. #10 Michele Smith 21 Sep 11

    Economic independence should be the primary objective of both aid and trade.

    I cannot fathom why you would want to sell productive assets to foreigners, as you would lose the profits and may not be unable to buy them back. Foreign ownership has long term implications for economic independence and food security, as well as cultural and psychological values.

  11. #11 Karen Treasure 13 Dec 11

    The arguments presented here on both sides are objecting to aid and trade on the basis that they are carried out unethically. It seems that the focus of this debate is therefore misplaced. Neither aid nor trade are problematic in and of themselves, they only become so when either their motivation or implementation are unethical. The solution then is to focus on making the structure of aid and trade more ethical. But this highlights a wider problem - that is, not one that affects Africa alone: poverty here is only more extreme due to historical context, of which poor leadership is the prominent result. The rampant exercise of neo-liberalism accross the globe is increasing inequality through the ruthless pursuit of individualist profit-seeking competition, over and above concern for broad-based development. Such values increasingly frame social relations at all scales, and thereby we are often complicit in the motivation of unethical aid and trade. As mass consumers of global produce, in the West we have super-power to overturn the problems currently preventing either aid or trade from ending poverty in Africa - or elsewhere, including increasingly in our own communities! By demanding ethical standards in the processes of aid and trade in which we participate, there is plenty of opportunity to change these systems. What will not create change is increased regulation of systems which are unethically implemented because those with the power to regulate are generally those who benefit most from the outcome of corrupt or unethical systems. The solution to African problems is not to prioritise either aid or trade, but for individuals to work on increasing the ethics of all exchanges in the interests of greater equity through development.

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This article was originally published in issue 445

New Internationalist Magazine issue 445
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