Does Africa Need FDIs

Topics: Africa, Poverty, Development Assistance Committee Pages: 15 (3499 words) Published: February 15, 2015

There is no denying that for the poorest countries in the world, aid (Oversees Development Assistance – ODA) is one of the best tools for economic growth. It is my opinion however that aid in developing countries often comes with too many strings attached. Case and point the issue of aid and homosexuality in Uganda. When Yoweri Museveni officially made homosexuality illegally in Uganda, the developed countries threatened to withhold aid from the country. The unfortunate thing is that in most of the cases, such a reaction negatively impacts the poorest who have not even contributed to the President’s decision. And such is the nature of foreign aid to Africa, it is the poor who so desperately need it, yet they are powerless in influencing policy around how aid should be administered. This essay aims to evaluate the debate surrounding the effectiveness of aid in developing countries. I will briefly to compare Foreign Aid to Africa to the Marshall Plan (MP) that was provided to Western Europe after World War. I will also examine some of the exiting literature both for and against foreign aid as a catalyst for economic growth in Sub-Saharan Africa (SSA). Donors have provided aid for the same programmes in Africa repeatedly. In his article, Sebutsoe (2012) points out that African Governments expenditure is dominated by recurrent expenditure and research has shown that recurrent expenditure does not contribute to economic growth.

What is this foreign Aid and where does it come from? Foreign aid comes in many guises, but the most prominent is development assistance, which developed economies disburse to poorer economies to promote economic and social development and is measured by the Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD). The general long-run objective of development aid is the alleviation of poverty and promotion of welfare in low- and middle-income countries through budgetary assistance, “…though there is no clear evidence yet to support a relationship between aid and economic performance.” (Burside and Dollar, 2000)

To be able to evaluate the effectiveness of aid in recipient countries; it is important to first classify the different types of aid. The three main kinds of aid are: 1. Bilateral aid is assistance given by a government directly to the government of another country. This is usually the largest share of a country’s aid. It is often directed according to strategic political considerations as well as humanitarian ones. For example, Australia gives 50.8% of its bilateral aid to its Pacific neighbours and only 3% to relieve the poverty in Africa. In 2006-7, Australia committed $3 billion in bilateral aid to developing countries. (World Vision Australia, 2007)

2. Multi-lateral is assistance given by a donor government by working together with a non-governmental organisations. For example; in 2005 – 2006, AusAid worked with UNICEF to provide training for 40,000 primary teachers in Bangladesh. In 2006-7, the Australian Government committed $15 million to the Global Fund to Fight Aids, Tuberculosis and Malaria.

3. Non-government aid is assistance provided by non-government organizations (NGOs) like World Vision, the Red Cross and Oxfam. The money for this aid is mainly provided by public donations from individuals and businesses.. However, NGOs also receive some funding from government. In 2006-7, the Australian Government committed $100 million in joint projects with non-government organisations.

For decades now, the United States of America (USA) and other donor countries in the developed world have tried to bolster economic growth in poor countries through bilateral and multilateral development assistance.

Does Africa need Aid for Economic Development? Africa remains the poorest region in the world; poverty, disease, natural as well as man-made disasters, high levels of malnutrition, high mortality as well...

References: 1. Abor, J and Quartey, (May 2010); Issues in SME Development in Ghana and South Africa, International Research Journal of Finance & Economics;2010, Issue 39, p218
3. Burnside, C and Easterly, W (1999); The Search for the Key: Aid, Investment, and Policies in Africa”, Journal of African Economies, Vol 8- No. 4, pp 546 - 577
5. Hopwood, I (2009). Donor Policies in Practice: The challenges of Poverty Reduction and Aid Effectiveness. In Richard Joseph and Alexandra Gillies. Smart Aid for African Development. Lynne Rienner Publishers. USA. p.103
7. Kosack, S. (2003). Effective Aid: How Democracy allows Development Aid to Improve the Quality of Life. Word Development.31 (1):1-22
9. Ocran,M (April, 2014),Issues in Development Finance, M. Comm Development Finance Notes, UCT Graduate School of Business
11. Sebutsoe, N (2012); Overseas Development Assistance to Africa: Flogging A Dead Horse? Africa Growth Institute: Africagrowth Agenda 2012
13. World Bank (2000). Can Africa Claim the 21st Century? Overview. Washington DC (Accessed September 8,2014)
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