On November 22 2019, in keeping with its status as a limited company registered at Companies House, the Brexit Party announced a 21-page ‘Contract With The People’, in place of the usual party manifesto, as part of its offering of election promises to the British public. Contained within this document was a “trade not aid plan” that recommended redirection of half of the foreign aid budget back into investment within the UK.
The combination of economic austerity and under- investment in national infrastructure and services has, in recent years, led to widespread consternation among many segments of the population in the Western developed world. A view has thus emerged that international aid is a wasteful misuse of national resources at a time of increasing economic need within the source nations.
The Trump administration has been particularly vociferous in its demands for a substantial reduction of the American foreign aid bill. However, on August 22 2019, a proposal to reduce spending on congressionally approved foreign aid programmes was ultimately rejected following objections from US Secretary of State Mike Pompeo and bipartisan lawmakers within Congress. This action confirmed a wider recognition by the political elite of the many potential benefits of American foreign aid disbursements.
These events warrant a re-examination of the purposes of foreign aid and its relevance to today’s global community. In broad terms, foreign aid refers to the international transfer of capital (money), physical goods, services or skills from a developed, or OECD, donor nation (government or non-governmental organisations) or an international organisation (UN agencies, charities) to another country (recipient nation). Recent years, however, have seen the emergence of many non-traditional donors, such as China and India. Foreign aid can take the form of a grant (a gift), a loan (to be repaid, often at concessional rates), or a concessional credit. In the past, many loans from donor nations, or from the World Bank or IMF, came with high interest rates, which crippled recipient national economies and had to be eventually written off as bad debts. Structural adjustment loans made by the World Bank and IMF under the Washington Consensus imposed free market economies on several nations as part of an agenda of macroeconomic reform, with predictably disastrous results.
The commonest form of foreign aid is official development assistance, which is given to enable economic development and to combat poverty. This assistance aims to promote democracy and to ensure political stability in the recipient nation. Foreign aid may be targeted at such areas of need as food insecurity (hunger), water supply and sanitation, health (eradication and treatment of communicable and nutritional deficiency diseases), family planning, education (both primary and secondary), environmental protection, and infrastructure development. In addition, humanitarian emergencies (famines, earthquakes, floods, political conflict) may develop from time to time, requiring a special concentration of resources into major relief and reconstruction projects.
The concept of modern international development assistance dates back to the Marshall Plan, whereby the US provided more than $13 billion in aid to seventeen European nations between 1948 and 1952, to help rebuild post-war Europe. The United Nations eventually set a foreign aid target for all developed countries, amounting to 0.7 per cent of Gross National Income, as recommended by the 1969 Pearson Report (Partners in Development). The UK government signed up to the target in 1974, achieved it for the first time in 2013, and passed it into law in 2015 as part of the Official Development Assistance Act. The responsibility for ensuring that official development assistance (ODA) provides value for money rests with the Independent Commission on Aid Impact, and with the Department for International Development, which oversees ODA. Most British aid takes the form of grants, although there have been recent calls for increasing the proportion of loans, and is taken from a ring-fenced budget. In 2016, the UK spent £13.4 billion on overseas aid, and as of 2017, it was the the only G7 nation to meet the 0.7 per cent target.
The thing to remember is that foreign aid is by no means an altruistic and charitable affair. Foreign aid is an important tool of foreign policy, with a hidden motive of furthering the donor nation’s trade and political interests. “Trade not aid” should probably read “trade follows aid” instead. Aid can be tied to arrangements whereby the donor nation becomes a favoured provider of goods, services and technical assistance- in a carrot and stick fashion. Foreign aid is not automatically directed to those most in need. Most British aid is provided to countries that are potential trade partners by virtue of their large markets or those that feature prominently in British geopolitical interests, rather than to the poorest nations of the world.
To add to the confusion, developmental economists appear to disagree whether foreign aid is beneficial or even detrimental as far as recipient developing nations are concerned. Much aid has been absorbed up to now in debt relief, emergency disaster aid, and other special purpose grants, rather than contributing directly to a nation’s development. Many welfare economists believe that foreign aid should focus on the basic human needs of recipient populations, thereby directly reducing poverty, rather than on economic growth.
Whatever the pros and cons, foreign aid is an important part of a donor government’s wider foreign policy armamentarium, bolstering trade links through a process of mutual self-interest. The precise aims and goals of foreign aid do, however, need to be defined more clearly. A focus on value for money in terms of efficiency and effectiveness is essential to avoid waste of valuable resources. This can be ensured by the careful selection of recipient projects, the rigorous monitoring of outcomes, and by ensuring that corrupt governments do not misuse donated funds for personal and political gain. There is much more to foreign aid than just a simple matter of arithmetic.
Ashis Banerjee