Economic growth refers to
sustained increase in gross domestic product of a country with a view to
reducing poverty, inequality and unemployment (Todaro, 1982). The challenges of
economic growth in a country are better appreciated if we ask the question
about what has been happening to poverty, inequality and unemployment? In Seers’
view (Seers, 1969) if all the three have been reducing, some real development has
taken place. If otherwise, no development has taken place even if per capita
income doubles.
According to One world a United Kingdom
based agency saddled with the responsibilities of monitoring sustainable development
and human rights issues, as at June 2008 about 10million hunger related deaths
were recorded every year, with half of them being children. The implication
from this is that the world has might be
failing to achieve food security. Also about 850million people remain entrapped in the spiral of hardship that hunger imposes. The level of worry about the above figures is better appreciated if considered against the backdrop that they are recorded amidst the riches of the 21st century. In fact, the recent doubling of world food prices has transformed food insecurity from a difficult developmental challenge into an emergency.
failing to achieve food security. Also about 850million people remain entrapped in the spiral of hardship that hunger imposes. The level of worry about the above figures is better appreciated if considered against the backdrop that they are recorded amidst the riches of the 21st century. In fact, the recent doubling of world food prices has transformed food insecurity from a difficult developmental challenge into an emergency.
READ MORE ON FOREIGN AID
· PRESENTATION OF REGRESSION RESULTS AND ANALYSIS GOTTEN FROM THE IMPACT OF FOREIGN AID ON POVERTY IN NIGERIA
· RESEARCH METHODOLOGY OF THE IMPACT OF FOREIGN AID ON POVERTY IN NIGERIA - AFRICA
· RESEARCH METHODOLOGY OF THE IMPACT OF FOREIGN AID ON POVERTY IN NIGERIA - AFRICA
· EMPIRICAL LITERATURE OF IMPACT OF FOREIGN AID ON POVERTY IN NIGERIA
· THEORETICAL LITERATURE REVIEW OF THE IMPACT OF FOREIGN AID ON POVERTY IN NIGERIA
· IMPACT OF FOREIGN AID ON POVERTY IN NIGERIA
Heller and Gupta (2002) express worry
about the call by international community that to enable developing countries
to achieve the MDGs by 2015, there should be increase in foreign aid to 0.7
percent of industrialized countries’ GNP from 0.24 percent of GNP at present.
Nevertheless, they argue that a large increase in aid flows could pose a number
of challenges for the poorest countries. For example, if the industrial world
is to be successful in meeting its ODA targets, financial aid will increase to
about $175 billion, slightly more than three times current levels. To ensure
that enhanced ODA is used efficiently in the fight against global poverty, they
argue that donors need to examine closely the different possible approaches it
could take in deciding how to allocate aid, both among countries and among complementary global poverty
reduction programmes.
Tchané, (2005) argue that
making significant progress toward achieving the MDGs remains a major focus of
the international community, and larger and more effective aid flows will be a
critical component in reaching the MDGs. This suggests that controversy exists
on the objectives of aid, most notably the urgency of reducing poverty.
However, for both donors and macroeconomic policymakers in the aid-receiving
countries these objectives raise a number of critical questions on the
macroeconomic management of aid.
The impact of foreign aid on poverty
in Nigeria
seems to be a litmus test to determine whether after so many years of self-rule
with inflow aid, the various social unrest, hunger, diseases and sickness
prevalent in the country are indicators of ineffective foreign aid. Abiola and
Olofin (2008) noted that the major characteristic of foreign aid to Nigeria is that
it is not paid into the federal account. This is unlike other countries notably
Ghana,
where all foreign aid is paid into a consolidated fund and disbursed centrally.
They argue that this makes aid not to be part of government revenue, with no
direct impact on government expenditure and thus not used to address national
need. Furthermore, they noted that all three levels of government in Nigeria are
allowed to receive foreign aid and donors determine the areas where they like
to intervene without recognition of the national need. Thus the maximization of
benefit from foreign aid suffers.
Howell and Pearce (2000) pointed out
that apart from the question of neutrality, which services to mask the
distribution of power, there is also the large question of the morality of
interventionism. Is donor support to civil society another manifestation of
neo-colonialism in the Post-Cold War era aimed at controlling the nature of
political regimes and extending global markets? Do donors have the right, let
alone the capacity, to shape other civil societies? By projecting their own
visions and understanding of civil society, do they not undermine the ability
of local organizations to set their own priorities and agendas, to vocalize
their own imaginations of social and political change?
Benjamin (1997) stated that aid
appears to have established as a property the importance of influencing
domestic policy in the recipient countries. This was reaffirmed by Shah (2010)
that one of the root causes of poverty lies in the powerful nations that have
formulated most of the trade and aid policies today, which are more to do with
maintaining dependency on industrialized nations, providing sources of cheap
labour and cheaper goods for populations back home and increasing personal
wealth, and maintaining power over others in various ways such as the so-called
lending and development schemes called structural adjustment, which has done
little to help poorer nations progress.
Njehu (2008) also pointed out that
money being doled out to Africa to fight
HIV/AIDS is also a form of tied aid. She said Washington is insisting that the continent’s
governments purchase anti-AIDS drugs from the United States instead of buying
cheaper generic products from South
Africa, India or Brazil. As a result, she said, US
brand name drugs are costing up to 15,000 dollars a year compared with 350
dollars annually for generics. Deen (2004), further noted that almost half of
all foreign aid can be considered “phantom aid” which does not help fight
poverty, and is based on a broader definition of foreign aid that allows double
counting and other problems to occur. Furthermore, some 50% of all technical
assistance is said to be wasted because of inappropriate usage on expensive
consultants, their living expenses and training.
In determining the synergy between
official development assistance (ODA) and investment in Africa,
the OECD distinguishes between “meso” level interventions – those dealing with
the regulatory framework, infrastructure and government – and “micro” level
interventions – such as investment promotion and facilitation and the
development of local businesses. While improvements to the “meso” enabling
environment help, in themselves they are not enough to maximise the investment
potential in developing countries. Strategies are consequently also required to
promote appropriate “micro” or supply-side responses to increase the capacity
of local firms to take up the opportunities that arise from an improved investment
climate and greater international linkages (OECD, 2004b).
Sewel (2005) emphasized that the power
imbalance between providers and users of ODA remain great, and users remain in
a weak bargaining position over conditions and uses. Furthermore, the burden
for weak governments of managing multiple donors remains high. Just as the
multiplicity of donors means there is no way to determine when a country is
getting too little ODA, and when it is getting too much. When is a reforming
country committed to ending poverty getting to little aid to support reforms?
And when is too much ODA diluting incentives to reform? He went further to note
that a number of studies of aid and growth show that there can be diminishing
returns from increase aid.
With the record of corruption within
impoverished countries people will question giving them money. That can be
handled by giving them the industry directly, not the money. To build a
balanced economy, provide consumer buying power, and develop arteries of
commerce that will absorb the production of these industries, contractors and
labour in those countries should be used. Legitimacy and security of contracts
is the basis of any sound economy. Engineers know what those costs should be
and, if cost overruns start coming in, the contractor who has proven incapable
should be replaced- just as any good contract would require… when provided the
industry, as opposed to the money to build industry, those people will have
physical capital. The only profits to be made then are in production; there is
no development money to intercept and send to a Swiss bank account (Smith,
2002).
William Easterly (2006) criticised
foreign aid for not having achieved much, despite its grand promises. He
laments that a tragedy of the world’s poor has been that the West spend $2.3
trillion of foreign aid over the last 5 decades and still has not managed to
get twelve per cent medicines to children to prevent half of all malaria death.
The west spends $2.3 trillion and still not managed to get $3 to each new
mother to prevent five million deaths. Moreso, the expressed disgust that a
global society has evolved a highly inefficient way to get entertainment to
rich adults and children while it can’t get twelve percent medicines to dying
poor children.
Reviews have shown that Nigeria’s
economic performance has been strong since 2005, yet poverty remains high are
about 55 percent of the population (IMF, 2008). Hauser E.M. (2009) noted that
poverty is extremely prevalent in rural areas where subsistence farmers are
entirely dependent on weather conditions and these farmers are often isolated
in villages because of poor transportation infrastructure and lack of
irrigation systems, fertilizers, technology and equipment.
Aigbokhan (2000) noted that
consumption poverty as measured by the head-count index is, respectively, 0.38,
0.43 and 0.47 in 1985, 1992 and 1996. In other words, 38%, 43% and 47% of the
population was living in absolute poverty as defined by local cost of living.
Thus, while the level of poverty increased between 1985/86 and 1992/93 by 13%,
it increased by 93%between 1992/93 and 1996/97. The corresponding figures for
urban areas are 38%, 35% and 37%, while for the rural areas the figures are
41%, 49% and 51%. One important observation is that, in general, rural poverty
is higher than urban poverty.
Ogwumike (2005) analyzed poverty based
on the geopolitical zones and noted that in 1998, 38%, 36% and 32% of the
people in the north west, north east, and central lived below moderate poverty
line respectively. The southern part of the country was relatively less
affected by poverty in 1980 as about 13% of the people in the south east, and
south-south lived below the poverty line. By 1985, poverty became pervasive in
all the zones with the northern zones still maintaining a higher share of
poverty. Headcount indexes varied from 30.4% in the south east to 54.9% in the north
east. Particularly surprising is the rising level of poverty in the south:
south-south (45.7%); south west (38.6%); and south east (30.4%). The
distribution of poverty incidence by zone in 1992 showed a mixed pattern.
Poverty headcounts remained largely at the same level in the north east zone,
but declined from 52% to 37% in the North
West, from 51% to 46% in the central. The south east
zone experienced a sharp increased in poverty headcounts from about 30% in 1985
to 41% in 1992. In the south-east, it increased slightly from about 39% to 43%,
while in the south-south; it declines from about 46% to 41% over the same period.
By 1996, poverty not only became intensified but its distribution showed very
little variation among the zones. Poverty headcounts varied from 68% in the North West and South East
respectively to 67% in each of north east, south west, and south-south. The
least was central with 66%.
Evidence in Nigeria shows that the number of
those in poverty has continued to increase. For example, the number of those in
poverty increased from 27% in 1980 to 46% in 1985; it declined slightly to 42%
in 1992, and increased very sharply to 67% in 1996. By 1999 when the Obasanjo
administration came to power, estimates has it that more than 70% of Nigerians
lived in poverty. That was why this government declared in November, 1999 that
the N470 billion budgets for year 2000 was “to relieve poverty”. Before the
National Assembly even passed the 2000 budget, the government got an approval
to commit N10 billion to poverty alleviation programme.
According to Morrisey (2001) aid is
found to have a positive impact on economic growth through social mechanisms as
(i) aid increases investment (ii) aid increases the capacity to import capital
goods or technology (iii) aid does not have an adverse impact on investment and
saving (iv) aid measures the capital productivity and promotes endogenous
technical change. But Reiffel (2005) noted that Nigeria is a particularly unique
case in Sub-Saharan Africa for two reasons:
i.
While it has one of
the largest debts in the region, it does not qualify as a heavily indebted poor
country (HIPC) and consequently was excluded from the 1996 World Bank
Initiative to broaden the number of poor countries involved in lessening the
debt burden by granting relief.
ii.
Nigeria
receives the least amount of aid per capita in the region.
The
largest international aid contributor to Nigeria is the Paris Club, an
informal grouping of creditor countries whose mission is to coordinated debt
policies in an effort to find sustainable solutions for debtor nations with
pragmatic difficulties (Hauser, E.M.) In 1986) Nigeria for the first time went
to the Paris club for debt rescheduling which according to creditor member principles
requires adherence to IMF reforms and reviews. Debt servicing in 1966 include rescheduling
of more than $7 billion in medium and long term debt (Reiffel, 2005). Nigeria was
forced to obtain further rescheduling in 1989 and 1991 of $6 billion and $3
billion respectively (Reffel, 2005). Thus, in 1993 when the possibilities of
debt rescheduling in any form was zero, the unsustainable previous debts merely
increased as debt arrears compounded by expanding interest. During the period
from 1993 to 1998 (the Abacha regime) Nigeria started discriminating the debts
it repaid and whom it repaid, neglecting the Paris club debts.
Consequently, debt to these creditors
increased from $7 billion in 1985 to $30.4 billion in 2004 (Reiffel, 1005). In
total, Nigeria’s
2004 debt equalled $35.9 billion, $30.4 billion fo which was accountable to the
Paris club.
With the establishment democracy in
1999 and a home grown policy known as the National economic Empowerment and
Development Strategy, the United
Kingdom pushed the Paris club creditor members to back the plan
for Nigeria’s
debt relief because of its endorsement to aid Africa.
Thus $ 18 billion (i.e 60 %) of its $ 30.4 billion debt was written off,
leaving the country with $12.4 billion to pay. Taking a critical look at the
aid received from the Paris club, we would realise that it did little or
nothing to alleviate the poverty situation of the people and compounded the
economy with suffocating pressure to service debt which has accumulated
interest for greater than the original aid.
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