Foreign Aid and Growth in Africa: a case study of Uganda

Introduction

Foreign aid can be defined as “any action by a government or citizen of one country, which helps to promote economic development in another country” (Kazimbazi and Alexander, 2011, p.28). Many countries situated in Africa do receive substantial amount of foreign aids from other countries, international organisations and private philanthropists. Foreign aid is mainly provided in the forms of financial aid, technical support and food aid.

According to Wall Street Journal (2009), over the past 60 years the amount of foreign aid provided to Africa has exceeded USD 1 trillion and foreign aid has been provided to deal with a wide range of serious problems such as extreme poverty, fighting with HIV/AIDS, malaria and other diseases, internal conflicts and abuse of human rights, child labour and human trafficking etc.

This essay critically analyses the topic of foreign aid and growth in Africa in general and in Uganda in particular. The essay starts with discussions of means and methods of delivery of foreign aid to Uganda. This is followed by analysing the benefits of foreign aids and level of dependency of Uganda on foreign aid.

Moreover, the opposite viewpoint addressing the disadvantages of foreign aid to Uganda and an overview of popular arguments of sceptics of foreign aid have been included in this essay. The essay is concluded by discussing a range of alternatives to foreign aid in order to achieve economic development in Uganda.

Republic of Uganda has more than 34,5 million population with the life expectancy of 54 years for men and 55 years for women (BBC Uganda Profile, 2013). Comprising 241,038 square kilometres, Uganda is bordered with Kenya in the east, Tanzania and Rwanda in the south, and the Democratic Republic of the Congo in the west (Barlas and Yong, 2010).

Today Uganda is faced with a range of major complex issues such as short life expectancy, high level of corruption, poor infrastructure for business, deforestation, primitive agricultural methods, and low levels of human capacity due to educational issues.

Foreign Aid and Growth in Africa

Reasons and motives for foreign aid

Generally, reasons for providing foreign aid can relate to humanitarian, political and economic motives (Lancaster, 2007). Humanitarian motive is closely associated with moral or ethical responsibilities of rich individuals and countries to help poor individuals and countries.

Humanitarian motive for providing foreign aid is also associated with the notion of altruism, which stresses the moral obligation of each individual to help other individuals (Moyo, 2009). Moreover, ulitarilism, as an extreme version of altruism dictates that the moral standards of actions are determined by the levels of their capacity to provide benefits to all parties (Lundsgaarde, 2012)

Political motive, on the other hand, can be guided by strategic interests of developed countries in a way that foreign aid is provided in exchange for a support of a particular stand or initiatives. The Marshall Plan initiative can be mentioned to illustrate the case of foreign aid guided by political motive, because this initiative has been developed in order to safeguard European countries from the influence of Communist USSR.

The relevance of political motive to the provision of foreign aid to Uganda in particular can be specified as minimal because this point is barely addressed by media and individual writers and researchers.

The provision of foreign aid as economic self-interests can be facilitated mainly in two forms. Firstly, foreign aid can be provided in order to develop new markets to sell the products of developed countries. The case study of Nestle Cerelac baby food can be mentioned to explain this point.  Specifically, Nestle has been accused of inappropriate marketing practices in Uganda in a way that its Cerelac baby food products have been advertised as being more beneficial to babies compared to breastfeeding (Baby Milk Action, 1997).

Secondly, provision of foreign aid can be used as a means of disposing of surpluses. Developed countries, as well as, many developing countries maintain certain amount of food surpluses to be consumed in times of natural catastrophes, environmental disasters etc. It is a common practice to send these surpluses as foreign aid to poor countries such as Uganda upon the approach of their expiry dates.

 

The benefits of foreign aids and level of dependency of Uganda on foreign aid

European Recovery Program, also known as The Marshall Plan is considered to be a major force behind the evolution of foreign aid towards its present form. The Marshall Plan involved the donation of up to 3 percent of national income in the USA to restore Europe following The Second World War.

Due to the major positive impact associated with the implementation of The Marshall Plan officials in highly developed countries became convinced that the same strategy could be used to solve extreme poverty and other issues faced by countries in African continent.

The publication of ‘Assessing Aid’ by the World Bank in 1998 also marks an important event in the development of foreign aid practices. These practices mainly consist of providing food or cash or reducing the levels of debts of countries involved.

Supporters of foreign aid to Africa in general, and Uganda in particular point to the developments associated with a range of specific programs and initiatives such as UN Millennium Project, Poverty Eradication Action Plan, Live 8 concerts and others.

Moreover, World Economic Forum (2005), African Development Bank, World Food Programme and International Fund for Agriculture and Development are often credited for assisting in the development of overall infrastructure in Uganda, and promoting economic growth through various aid programmes and a series of debt relief initiatives.

Nevertheless, still Uganda is highly dependent on foreign aid “since the mid-1990s, Uganda has enjoyed an influx of foreign aid amounting to 80 percent of its development expenditures and has been the beneficiary of a number of generous donor initiatives” (Branch, 2011, p.84)

Supporters of providing foreign aid to Uganda argue that  “ever increasing injections of foreign aid have been essential for the long-term rehabilitation of infrastructure, for funding new projects, and for balance of payment support” (Leggett, 2001, p.60)

The UN Millennium Project, introduced by the UN in 2000 is especially praised by various parties for its considerable progress in terms of achieving its declared goals. Specifically, the official eight goals of the UN Millennium Project consist of eradicating extreme hunger and poverty, achieving universal primary education, promoting gender equality and empowering woman, reducing child mortality, improving maternal health, combating HIV/AIDS and other diseases, ensuring environmental sustainability, and developing a global partnership for development (Sumner and Mallett, 2013).

The positive impact of the UN Millennium Project to promote growth in Uganda in particular has been linked with tens of thousands of families using combinations of fertiliser trees, phosphorus, and biomass, construction of emergency obstetric care facilities for women, achieving the coordination of Uganda AIDS Commission with 1000 partner agencies, and addressing the issue of female genital mutilation (UN Millennium Project Report, 2005).

Moreover, UN Millennium Project is credited for the development of financial instruments in order to protect farmers against price fluctuations and natural disasters.

The launch of Commission for Africa in 2005 by then Prime Minister Tony Blair in the UK has been perceived by some as indication of focused approach being adopted by highly developed countries in terms of assisting Africa with its severe problems. Comprising seventeen members in total and nine members from Africa, the Commission for Africa has aimed to propose a coherent package of initiatives to making Africa stronger and more prosperous. Importantly, recommendations proposed by Commission for Africa have been discussed and taken into account in G8 meetings in Glenagles on July 2005.

Global initiatives such as Live 8 charity concert organised by Irish pop star Sir Bob Geldof has involved more than 1000 musicians performing with the broadcasts on 182 television networks and more than 2000 radio networks worldwide. Communicating the message of making poverty a history, the concerts took place on July 2, 2005 in 10 venues in the UK, France, Germany, Italy, USA, Canada, Japan and Russian Federation.

The success of Live 8 is linked to the fact that rather than asking individuals, organisations and countries for financial contribution in a direct manner, the initiative has aimed to increase the level of awareness of people towards the issues of poverty in general.

Provision of food aid to Uganda and its advantages

Provision of food aid to Uganda is associated with a set of conflicting objectives such as the willingness of developed countries to dispose of expiring food surplus at the same time when implementing their foreign policy (Branch, 2011).

The benefits of food aid to Uganda as well as any other poor country in African continent is obvious and they are related to providing resources free of charge, saving many human lives from famine, and a potential for achieving stabilisation of food supply and price.

At the same time, disadvantages of providing food as a foreign aid include formation or increasing level of dependency of receiver to this type of foreign aid and high costs associated with supply of food for donors.

 

Disadvantages of foreign aid to Uganda: popular sceptical arguments

As it has been discussed above UN Millennium Project is often praised by UN member governments for making substantial contribution in terms of promoting growth in Africa. At the same time, critics of the UN Millennium Project point to the absence of specific and measurable criteria against which the success of the project could be evaluated.

Critics argue that due to the foreign aid Uganda is more indebted today than ever before. It has been assessed that “approximately USD 3,100 million is owed to the multilateral creditors with World Bank, IMF, and African Development Bank being the main creditors” (Kazimbazi and Alexander, 2011, p.29).

In other words, it can be observed that instead of promoting economic growth and providing funds for the government to deal with a range of severe issues the country is faced with, the intervention of World Bank, IMF, African Development Bank and other external organisations with the economy of Uganda have resulted in more debts being accrued.

Aid absorption, defined as “the widening of the current account deficit due to incremental aid” (Schabbel, 2007, p.277) can be mentioned as a stark example of ineffectiveness of foreign aids in Uganda in terms of contributing to economic development.

The negative impact of corruption in Uganda in distribution and utilisation of foreign aid is significant. There are convincing evidences (Barkan, 2011) that in all sectors in general, and in educational sector in particular only a small fraction of foreign aid reaches its intended destination, the major part being unlawfully consumed by corrupt officials.

This problem has escalated to an extent where the World Bank’s county director Kundavi Kadiresan has warned Ugandan President Yoweri Museveni with stopping the aids altogether unless decisive measures are taken to fight with corruption (Ford, 2010)

Interestingly, at the same time, the practice of donors channelling money to non-government organisations in a direct manner via commercial banks is often criticised by various parties, because Central Bank cannot control this money and accordingly, the real amount of aid coming to the country remains unclear.

Moreover, economists argue that substantial amount of cash entering Uganda as aids are increasing the level of demand for products and services, at the same time when the level of output of products and services are not increasing, and this situation is blamed for a very high level of inflation in Uganda (Bilur et al., 2011).

Foreign aid to Uganda has been also blamed for sustaining unfair and corrupt regime of President Yoweri Museveni from a political collapse (Ernst, 2011). In other words, there is an argument that if not for foreign aid the current corrupt regime of Yoweri Museveni would have collapsed due to public discontent in the face of major challenges facing the country and it could be replaced with more competent government.

Alternatively, at least the necessity of economic and political reforms would have been appreciated by the current government of President Yoweri Museveni if it was not subsidised by regular foreign aid.

Some critics remain pessimistic to Tony Blair’s Commission for Africa because of the choice of traditional tools to help Africa selected by the Commission. Specifically, it has been argued that Commission for Africa relies on traditional strategies of endorsing increased foreign aid and writing off debts of African countries, and these strategies have proved to be ineffective and even counter-productive in the past.

Moreover, an institutional practice of debt relief implemented towards Uganda and other countries in African continent in a regular manner can decrease the level of motivation of government officials to make the most effective use of the loans provided. In other words, government officials in Uganda may develop the habit of relying on assumptions that loans being provided are going to be written off  after a certain period of time, and thus they are not going to assume due level of responsibility towards the funds being given.

Interestingly, critics argue that the majority of present day debt of Uganda was not incurred under the violent rule of Idi Amin, however disastrous his regime might have been. On the contrary,  more than 90 per cent of Ugandan debts have been incurred as a result of reforms initiated by IMF and the World Bank starting from 1981 (Mwenda, 2006).

Debt relief as foreign aid at its consequences

Uganda has been presented with debt relief on seven occasions during the period of 1982 – 2006. As a result of series of debt relief initiatives by IMF, the World Bank and MDRI “Uganda’s total debt outstanding declined form its 1992 peak of 102 per cent of GDP to about 12 per cent of GDP in 2007” (Bulir et al., 2011, p.7)

High level of ineffectiveness of the strategy involving debt relief for Uganda is best illustrated by the fact that in one particular occasion “immediately after Uganda’s debts were forgiven, the government bought a private jet for the president at a cost of USD 35 million” (Mwenda, 2006).

Unfortunately, the occasions of debt relief are generally not perceived by government officials in Uganda as opportunities to increase the standard of life through channelling the newly available funds for development purposes. On the contrary, each occasion of debt relief has been traditionally utilised by the government as an opportunity to borrow more funds only to be misused as a result of corruption.

Poverty Eradication Action Plan and its impact on Uganda’s economy

Poverty Eradication Action Plan for Uganda first initiated during the presidential elections by Meseveni and implemented by the Ministry of Finance, Planning, and Economic Development is considered to be an important event that has increased the amount of foreign aid received by the country.

Aiming to reduce the poverty to 10 percent by 2017, the Poverty Eradication Action Plan comprises five major building blocks: a) economic management; b) production, competitiveness, and incomes; c) security, conflict resolution and disaster-management; d) good governance, and e) human development (Ernst, 2011).

The initiative has been highly appraised by a range of developed countries and international organisations.  For example, the World Bank and IMF have referred to the Poverty Eradication Action Plan as a sample document to be devised by other countries as well that aim to attract foreign aid in order to deal with internal challenges.

Alternatives to foreign aid for Uganda

Taking into account negative impacts in various levels foreign aid have had on the economy of Uganda and other countries in Africa, this essay points to a set of alternatives to foreign aid that need to be looked at in order to improve the situation.

Public expenditure reforms in Uganda represent a realistic opportunity of achieving economic development and increasing the standards of life. The practices of recruiting ‘ghost soldiers’ have been revealed in Uganda the salaries of whom are taken by high level army officers (Mwenda, 2006).

There is also a realistic potential for Uganda to increase the level of government revenues through taxes though reforming the country’s taxation system. Under the current system, the corporate tax in Uganda amounts to 42,9 per cent of gross profit which is very high compared to many other countries globally, and this situation can be blamed for encouraging tax evasion practices (Ernst, 2011).

Moreover, top individual income tax totals to 30 per cent which is also high by international standards. The taxation system in Uganda needs to be reformed in a way that the level of taxes need to be reduced at the same time when relevant government agencies need to ensure collection of taxes from all private and organisational entities according to the jurisdiction. In this way there would be more incentives for businesses to pay taxes with positive implications on national economy.

Increasing the level of domestic investment is considered to be one of the most obvious and most effective strategies to decrease the levels of dependency of Uganda on foreign aid. At present “agriculture accounts for about 60% of the GDP, with major export crops including coffee, tea and tobacco. Over 90% of Ugandans are either subsistence farmers or work in agriculture-related fields” (Briggs, 2010, p.27).

Taking into account the high level of popularity of coffee, tea and cotton in global markets and the possibility of harvesting the same products of a high quality in Uganda it can be stated that the standard of life in Uganda can be significantly increased through achieving better deals for its agricultural products in an international market.

The discovery of oil in the Lake Alberta can be interpreted as a signal for potential reserve of natural resources in Uganda that yet to be found and utilised. It has been found that in Lake Alberta alone “the estimated reserves are 2.3 billion barriers, with the potential production estimated to be as high as 200,000 barrels per day” (Barkan, 2011, p.14).

This is a justified reason to believe that further explorations can result in finding additional reserves of oil, gas, coal or other natural resources and this could have highly positive implications on the standard of life in Uganda.

The levels of fiscal responsibility, instead of fiscal dependency of the government of Uganda need to be increased. This can be achieved through imposing fixed conditions associated with the provision of aid. However, it has to be acknowledged that the implementation of this scenario in practice is associated with a set of specific issues. For example, it is difficult to ensure that the fixed conditions mentioned above would not serve foreign politics of developed countries at the same time.

Extremely high levels of inflation in Uganda can be specified as one of the roots of its major economic issues. Accordingly, Central Bank of Uganda and Ministry of Finance, Planning, and Economic Development should work on devising effective fiscal policies at the same time when encouraging the levels of outputs of products and services within the country.

It is important to note that the state of national economy in Uganda has been directly related to the world price for coffee for the last several decades. Specifically, the rise of coffee prices to USD 2,58 per kg in 1995 from USD 0,87 in 1992 has had positive implications on the standard of life of Ugandan people. Similarly, when international price for coffee fell to USD 0.89 in 2005, the negative implications of this change to the standard of life of Ugandan people was stark (Mwenda, 2006).

Accordingly, taking into account the fact that the government of Uganda possesses no instruments to impact the international price for coffee in a direct manner, it needs to decrease the levels of dependency of the national economy on agriculture through supporting other sectors of economy such as manufacturing and services.

It has to be noted that the amounts of foreign aid to Uganda and other countries in Africa have decreased during the last several years as a result of budget constraints in the USA and Europe due to macroeconomic issues being faced by developed countries (Lundsgaarde, 2012). This situation increases the importance of exploring alternatives to foreign aid discussed above in practical levels.

To put it simply, unless internal issues in Uganda are addressed as specified above, the economic situation within the country is most likely to deteriorate due to reductions on the volume of foreign aid the county receives.

Education as solution of problems in Uganda

Major issues today Uganda is faced with are mainly related to lack of competency of government officials and a high level of corruption in all levels of government. Therefore, instead of providing foreign aid in the forms of food, money and debt relief, donors can aim at increasing the level of professional competency of government officials so that greater positive impact can be made.

Various educational grants and work experience opportunities can be provided to Ugandan government officials at various ranks so that the knowledge and experience gained in a developed country can be applied in Uganda in order to achieve economic growth. Upon the implementation of this strategy in practice enhanced focus need to be directed to young professionals in Uganda, because investments in their training and development can provide substantial benefits in long-term perspectives.

 

Conclusions

International aid to Uganda and other poor countries in Africa can be both, part of the problem or part of the solution for the issues of poverty reduction and achieving economic growth. So far due to a set of specific factors international aid has proved to be part of the problem towards the issues of poverty reduction and achieving economic growth in Uganda.

Specifically, these factors include but not limited to the lack of incentives for government officials to promote economic growth and extremely high levels of corruption within various government ranks

It is evident that despite the massive part of foreign aid being stolen by local authorities, foreign aid can assist Ugandan people to a certain extent. This is because food can be provided to poor people, as well as, schools can be built from a small fraction of foreign aid that eventually reaches the people it was intended for in the first place.

However, the provision of foreign aid in the forms of food, cash and debt relief is only short-sighted approach to the issue, and the solution of problems for long-term perspectives require deep institutional changes.

Today foreign aid in Uganda is found to be subsidising a high level of corruption and incompetence of government officials and thus the provision of foreign aid in its present form needs to be subjected to immediate and comprehensive critical evaluation.

This essay has outlined a set of available opportunities that the government of Uganda can explore in order to decrease the level of dependency to foreign aid. These opportunities have been found to include reforming public expenditures, reforming the country’s taxation system, increasing the levels of domestic investment, and achieving better deals for its agricultural products in an international market. Moreover, the government of Uganda needs to engage in explorations and search for natural resources within its borders, as the discovery of large oil reserve in the Lake Alberta can be interpreted as an indication of the presence of other similar reserves.

Problems in Uganda and many other countries in African continent need to be solved internally, rather than externally. Internal solutions are directly related to modernisation of policies and a wide range of important domestic institutions. The sources of revenues for Ugandan government need to be changed from foreign aid to revenues generated from the private sector. However, in order to achieve this appropriate policy changes need to be introduced and adequate infrastructure needs to be developed for the private sector.

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