A Liberal Economy Not Stifled by Aid Means a Way Forward for Africa

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Source: unesco.org

Bound Together By Aid.

Developing nations appear to us as bound together by means of aid. Financial commitments made at the Monterrey Consensus in Mexico, 2002, and subsequent to this at the Doha Declaration in Qatar, 2009, place an emphasis on the mutual accountability of donors and developing nations to each other. At the heart of the matter of the global development agenda, the Millennium Development Goals found agreement by the international community in September 2000. The Millennium Development Goals provide a focus for the outcomes that the developed world wishes to achieve by aid. As of 2015, it was forecast that poverty and hunger should have halved itself so that primary education could then take on a universal shape.

But the core problem of poverty in Africa lies within the poorest countries falling behind the countries of the developed world or even falling apart. The focus of the Millennium Development Goals misleads us if 80 per cent of the world’s poor live in countries making progress. The present global economy does not favour what economist Paul Collier of Oxford University calls “the bottom billion” people in the poorest countries of which they live. A state gets weaker and more nondemocratic and incompetent if it exhibits economic decline, dependent on primary commodity exports and exhibits a low per capita income unequal to its distribution.

Why Should We Value Aid?

Aid proves an unambiguous alternative preferable to trade in developing nations. The UK formed a committee to provide “Aid for Trade.” Back in September 2006 Gordon Brown announced that the UK would increase aid for trade to £409 million by the end of 2009. Zambian economist, Dambia Moyo, argues that this makes for “dead aid since Western assistance creates a dependency culture.”

Growth requires more than aid in developing nations. According to Andrew Masters, the Economic Advisor for the Department for International Development, a country’s level of development sustains its growth. “Many developing countries experience spurts of growth in the short-run, through net exports, but it also impacts on longer term productivity, through importing machinery and increased competition,” he says.

Sustaining Growth.

The Commission on Growth and Development produced a report which found that 13 African economies exhibited sustained growth in the post-war period. They fully integrate into the global trading system as economies that benefit from importing ideas, technology and know-how from the rest of the world and exploit global demand, which provided a deep, elastic market for their goods.

Export competitiveness reduces aid in African countries. Large sums of money can reduce a developing nation’s competitiveness if it leads to inflation. Known as ‘Dutch Disease’ inflation raises the costs of production that makes a country uncompetitive in relation to others. This problem can manage to find a solution if the right policies apply. The UK does not make aid conditional on any countries adopting specific economic policies. In some cases African countries may adopt poor policies in a place that hurts the value of exports.

According to leading economists, Christopher Adam and Stephen O’Connell, a dollar of donor resources transferred to an aid-recipient country via a donor’s own import liberalization serves as a better medium.

Protectionist tendencies since the world financial crisis.

As the world financial crisis increases protectionist tendencies among rich countries it worsens Africa’s access to markets. By the removal of quotas from the imports to Africa, developing nations would not require any restrictions on the quantity they may sell, therefore increasing supply and demand. By the same token, if we exempt developing nations from export tariffs it means they can trade at no extra cost.

The principle objective of trade liberalisation equates to resource reallocation. When the Kenyan government attempted to institute trade liberalisations the resulting aid policy interfered with the exchange rate and compromised free trade. Exchange rate depreciation in the third world shunts up the price of importables. An economic model with no domestic consumption of exportables, no aid interference and the removal of import quotas lowers the price of the importables. In a Kenya-type economy exports capital proves sufficient to finance the demand for imported capital without quotas whereas a pre-reform Ghana-type economy does not possess sufficient funds for any category of import.

Trade Not Aid.

Africa desperately needs trade liberalisation to provide the developing world with sustained growth. To assess whether free trade supported by a programme of aid financing can work we must addressed the question: should we arrive at the negotiation of aid levels on purely economic grounds instead of the political and humanitarian grounds by which aid gets administered? The charity of the progressive governments, the targets of the Millennium Development Goals, and the myriad organisations set up to lift Africa out of its abject poverty, cannot provide the sustained growth that Africa requires. Only with a strong economy and state reform can we see the bottom billion begin to sustain themselves.