AFRICA AND TRADE

Future directions in Aid for Trade

 The concept of Aid for Trade (AfT) has developed from a means of trade
adjustment towards a co-ordinated and more targeted way in supporting trade
and development.
 These mechanisms are currently under review with ongoing debate regarding its
next funding window.
 The broader focus of the 2022 Global Review on these issues is therefore
welcome, but there remains a lot of catching up to do and a need for better
understanding of how all AfT donors are adjusting their practices to address
both sustainability and gender concerns.
 A number of so-called AfCFTA Phase 1 issues, such as tariff negotiations, have
concluded (with some outstanding issues around rules of origin).
 Future directions of Aid for Trade: resourced, focused and aligned AfT is
discussed by the WTO’s Trade and Development Committee and the OECD
monitors donor flows, with AfT amounting to around one third of total
assistance.
 Aid for Trade disbursements increased during the pandemic, reaching an all-
time high of USD 48.7 billion in 2020.
"Trade Is Key to Africa’s Economic Growth"

 Recently, Assistant U.S. Trade Representative for African Affairs Florie Liser
sat down with America.gov writer Charles Corey to talk about how trade is
helping countries in sub-Saharan Africa.
 Because trade is vital to sub-Saharan Africa's economic future and to improving
lives and livelihoods, the 8th Annual African Growth and Opportunity Act
(AGOA) Forum, to be held in Nairobi, Kenya, August 4-6, is an important
venue for cultivation of trade opportunities, Liser said in a July 21 interview
with America.gov. And Africans must begin trading more with each other. "
 The problem is that, as is true with most of the AGOA countries, you have huge
potential but you don't have the investment and the focus on how to take that
and duplicate and multiply that." By comparison, she said, depending on the
product, Bangladesh exports to the United States three to five times the amount
of apparel that is exported to the United States by all sub-Saharan African
countries combined. "
Aid To Africa need an overhaul

Many African countries still rely heavily on foreign aid. However, several studies have
shown that foreign aid has failed to deliver sustainable economic growth and poverty
reduction.
The fact that foreign aid as currently practised has failed to achieve its poverty
reduction targets in Africa is clear from the data. Over 75% of the world’s poor live in Africa
today. In 1970 the figure was 10%. Some forecasts suggest it could rise to 90% by 2030.
Africa is the only continent in the world where official aid inflow outstrips private
capital inflow by a large margin. This is problematic since no country in the world has
achieved substantial development based on reliance on aid.
This points to the need for reform.
There are two sides to the debate on foreign aid to developing countries, in particular in
sub-Saharan Africa.
One is that Africa’s aid-dependent economic model provides “free” money which
prevents countries from taking advantage of opportunities provided by the global economy.
The other is that foreign aid is not a problem by itself, but misallocation of resources,
corruption, and bad governance limit Africa’s ability to use aid. As South Korea’s ambassador
to South Africa has argued, aid is ineffective in places where there is bad governance, and
unnecessary where there is good governance.
The arguments against aid point to gaps in the management of foreign aid. Recipient
countries pour aid money into poor and inefficient white elephant projects that neither foster
growth and development nor build good institutions. And there’s misuse of the money.
The aim of this article is to provide some key pointers to reforms that should take place.
Timely reforms of foreign aid can help to achieve significant growth and poverty reduction in
Africa.
An old debate
Nearly 50 years ago the well-known Hungarian-born British development economist,
Peter Bauer, strongly criticised government-to-government aid as neither necessary nor
efficient. He argued that it posed the danger of promoting government power, destroying
economic incentives as well as eroding civic initiatives and dynamism.
 In 2009 the Zambian economist Dambisa Moyo challenged many assumptions about
aid in her book Dead Aid. She argued that aid had not merely failed to work but had
compounded Africa’s problems.
New York University economics professor William Easterly has also been an opponent.
He argues that poverty results from an absence of economic and political rights, and that only
the restoration of these will address the issue.
The arguments put forward by these critics point to the fact that official aid creates
dependency, fosters corruption, encourages currency overvaluation, and doesn’t allow
countries to take advantage of the opportunities provided by the global economy.
A recent study highlighted the marginal effect of aid on promoting growth in Africa.
The research, done by Alabama State University economics professor Shaomeng Jia and
Mississippi State University associate professor of economics Claudia R. Williamson, was
based on extensive data from 1962 to 2013.
They found that, in the absence of good governance and institutions, aid had minimal
impact on delivering long-term growth.
Reform ideas
One way to reform foreign aid is to de-link African institutions from an aid-dependent
economic model that has made many governments think of aid as a source of income.
Instead, African countries should promote private sector development,
entrepreneurship, and improving the tax culture.
Another way could be to adopt the Marshall Plan. This innovative foreign aid model
was introduced by the US to assist 16 European nations build their economies and strengthen
democracy following the devastation of World War II in 1948.
Finally, the way aid priorities are set needs to be overhauled. If aid is going to foster
growth and development, the following five key points need to be taken on board.
Economic and foreign aid must be directed to achieving sustained growth in per capita
income by encouraging a shift from agrarian-based production to manufacturing and a
technologically sophisticated service sector. This will require African leaders to re-think their
economies, become more democratic, be open to change information and develop their own
self-dependent programmes.
Bilateral or multilateral collaborations must be established with countries that have
already pushed the technology frontier. International aid needs to be in line with this.
Both the national and foreign policies of governments need to target a development
programme that can embrace growth and that leads to eventual reduction in reliance on aid.
 Poverty and underdevelopment are exacerbated by natural disasters. This points to the
need for humanitarian aid to be directed to helping countries reinvest in resilience. In
addition, developed nations must follow cooperation and diplomacy to solve problems like
conflicts rather than using aid to pressurise governments.
Foreign aid reform needs to be designed to strengthen the agenda of the African
Continental Free Trade Area. The pact, agreed in 2018, establishes one of the largest free
trade areas in the world. Lessons learned from the Eurozone trademark as well as cooperation
with the World Trade Organization would also be valuable.
Taking these issues into consideration would go a long way to help reform foreign aid
for growth and development and achieve the 2063 agenda of the Africa Union.
Aid or trade

The lowest income countries are where aid is most needed, but they also have the worst
governance. Bad governance makes aid likely to be ineffective. Thus, where aid is needed, it
is not effective. If aid to countries with bad governance tends to perpetuate bad governance,
then aid is not just ineffective but making things worse.
o For example, Somalia in the early 1990s …between twenty and eighty percent of
food aid shipments were either looted, stolen or confiscated. The stolen aid was
then traded for arms in neighboring Ethiopia.
o “Average annual aid to countries in World Bank category ‘Fragile and conflict
affected situations’ increased 267 percent from pre 9/11 period 1996-2000 to post
9/11 period 2002-2019.”
The Paradox of Aid (from PT Bauer, and Angus Deaton)
- PT Bauer was one of the most important development economist in the 20 th century,
being both a Hungarian and a British citizen, criticized foreign aid, which he
defined as “a transfer of resources from the taxpayer of a donor country to the
government of a recipient country”. Even if some say that the rich countries are
morally obligated to give aid to poor countries, and if they don’t, they are inhumane
or insensitive; but countless empirical studies have shown that of foreign aid has
failed in helping a certain country grow or develop. “He argued that foreign aid
providers do not know which investments are appropriate for a developing
economy, so aid money is poured into bad projects (also known as white elephants),
which not only fail to encourage economic growth, but divert scarce human and
other resources away from productive uses. The limited institutional and human
capabilities of a country are wasted on unproductive rather than productive
activities. Aid destroys economic incentives, leads to misallocation of scarce
resources, and so not only fails to jump start, but actually undermines growth.”
- William Easterly, an American economist and a former executive at the World
Bank, says that — since 1949, when Harry S. Truman announced the first U.S.
foreign aid program — the West has been in thrall to a technocratic illusion: “the
belief that poverty is a purely technical problem amenable to such technical
solutions as fertilizers, antibiotics, or nutritional supplements.” But the modus
operandi is at fault because giving cash and assistance to an autocratic ruler, a
dictator, “whose very role in the hierarchy, ensures that the poor will stay exactly
where they are: at the bottom.” Thus, we turn a blind eye to the human rights
violations and to the horrors of wars or conflicts started by the oppressors that rule
the country, that rich countries try to aid. “Foreign aid is also used as a political tool
to avoid taking in refugees, Easterly said.”
o “However, he said these wealthy countries tend to assume that poverty in a
community can be solved by paying for whatever the community lacks,
even though money in itself does not lead to progress.” “Unfortunately,
dictators’ sole motivation is to stay in power. So the development experts
may get some roads built, but they are not maintained. Experts may sink
boreholes for clean water, but the wells break down. Individuals do not have
the political rights to protest disastrous public services, so they never
improve. Meanwhile, dictators are left with cash and services to prop
themselves up–while punishing their enemies.” “When a Western
development agency marches into a poor country and hands the reins of
power to a dictator, it is vitiating the very instrument that will make the poor
free, Easterly says. It is expressing disregard for the people it purports to
help, for human rights, for the principles of liberty and equality that it claims
to stand for.”
o After 9/11, Easterly noted, the highest aid increases went to the most
oppressive and violent regimes in the world. Gates once praised Ethiopian
Prime Minister Meles Zenawi, who died in 2012, despite the dictator’s
egregious human rights violations and numerous scandals. “He would cover
up one aid scandal by having another aid scandal.” But he stayed in power
because he was an ally of the U.S. in the War on Terror (a coprehensive plan
to seek out and stop terrorists around the world, which was designed by
President Bush after 9/11). “He chronicles the story of Ghana’s Kwame
Nkrumah, whom Washington supported and whose lust for power eventually
led to a brutal repression of his countrymen. And that of Paul Kagame,
whose culpability for human rights atrocities in Rwanda was conveniently
ignored by U.S. agencies, inspiring in him a grandiose sense of impunity.”
“This capacity to sleepwalk through history — which Easterly says
development technocrats are wont to do — may explain why John J.
 McCloy, as first president of the World Bank, sat down with Colombian
President Mariano Ospina Perez in 1948 to discuss the challenges of
poverty, and no follow-up report made mention of the fact that the country
was rent by violence or that the poor’s charismatic leader, Jorge Gaitán, had
been assassinated that very day. Nor were salient facts noted years later,
when the World Bank (and the United States) supported one teetering
Colombian president after another while reports failed to say much about the
hydra-headed “Violencia,” which devoured as many as 400,000 lives in the
course of eight years.”
o “According to Easterly, a deep racism and willful neglect of history have
informed much of the West’s relationship with “the Rest,” the poverty-
challenged Southern Hemisphere. The West’s patronizing attitude toward the
Rest dates back to Versailles in 1919, according to Easterly, when Western
delegations shot down Japan’s equality proposal, refusing to write into law
that Asians were entitled to the same fundamental rights as whites. At the
time, there was a reason the Americans didn’t want to sign: In the United
States, even as white immigrants poured into the country, Chinese were
being barred entry or citizenship on the basis of the racist Exclusion Act.
Today, Easterly says, the West continues to be shackled to policies and
dictatorships that prevent it from operating neutrally.”
o “According to Easterly, Adam Smith’s notion of the invisible hand — the
natural flow of the democratic process, the will of the people, the power to
make a government accountable for its actions, the right to redress
grievances — is as potent a motivator in poor communities as it is in the rich
ones. How else did indigent neighborhoods of immigrant America become
the thriving communities they are today? How else, except by allowing a
few key freedoms, has China become an economic powerhouse?”
- “The Swedish Nobel laureate for economy, Myrdal claimed that “poor people were
neither interested in rights nor capable of much individual initiative even if they had
such rights. He said national governments needed to achieve development in spite
of ‘a largely illiterate and apathetic citizenry.’ ” He embraced population control
and social engineering, arguing that the Third World needed to conquer illiteracy,
malnutrition and disease before it declared individual freedoms. Nevertheless, it
 was Myrdal’s philosophy of the helpless poor that was ultimately adopted by the
global development community.

- “Low-and-middle income countries represent some of the fastest growing markets

in the world. A 2015 PricewaterhouseCoopers report projects that, by 2050, the
country with the fastest growing economy in Africa will be Nigeria (5.4% growth).
Another report from the WEF cites Ethiopia as the current fastest-growing economy
in Africa.”

FOREIGN AID BY COUNTRY 2022

- In 2021, the United States budgeted $38 billion for foreign aid spending. As of this
reporting, it has disbursed over $32 billion. Almost 25% of that budget has gone to
just ten countries:
o Ethiopia ($1.13 billion)
o Jordan ($1.03 billion)
o Afghanistan ($860 million)
o South Sudan ($821 million)
o Congo ($814 million)
o Yemen ($814 million)
o Nigeria ($803 million)
o Syria ($774 million)
o Sudan ($488 million)
o Somalia ($475 million)
Aid helps, but is not enough

1. FOREIGN AID IS NOT JUST MONEY

- This assistance includes money, but can also be provided in the form of in-kind
donations of goods or services. Some of these goods and services include: Food aid
and distribution, Education, Water, sanitation, and hygiene initiatives, Infrastructure
assistance, Agriculture training, Climate resilience support, Peace-building
activities, Health care.
- The goal with all these forms of international aid is to maintain a functioning global
society. What we now know as US foreign aid began in 1948 with the Marshall
Plan, which supported the reconstruction of Europe after World War II. Thirteen
years later and with a shift in US foreign policy, the federal government authorized
the Foreign Assistance Act of 1961. This remains the organizing principle for our
current foreign assistance efforts.

2. IT MEETS MANY KINDS OF NEEDS

- “About two-thirds of US foreign assistance funds are earmarked as economic aid.
These funds are managed by the Department of State or an implementing agency —
most often USAID (the United States Agency for International Development) —
which award grants to organizations like Concern for specific projects and
initiatives.”
- “The remaining third of foreign aid is classified as military aid. These funds come
from the Department of Defense and are used to strengthen the military of US
allies, or to increase US national security by bolstering foreign counter-terror or
anti-narcotic missions.”
The Age of Milton Friedman

“The last quarter century has witnessed remarkable progress of mankind. The world’s
per capita inflation-adjusted income rose from $5,400 in 1980 to $8,500 in 2005. Schooling
and life expectancy grew rapidly, while infant mortality and poverty fell just as fast.
Compared to 1980, many more countries in the world are democratic today. The last quarter
century also saw wide acceptance of free market policies in both rich and poor countries:
from private ownership, to free trade, to responsible budgets, to lower taxes. Three important
events mark the beginning of this period. In 1979, Deng Xiao Ping started market reforms in
China, which over the quarter century lifted hundreds of millions of people out of poverty. In
the same year, Margaret Thatcher was elected Prime Minister in Britain, and initiated her
radical reforms and a long period of growth. A year later, Ronald Reagan was elected
President of the United States and also embraced free market policies. All three of these
leaders professed inspiration from the work of Milton Friedman. It is natural, then, to refer to
the last quarter century as the Age of Milton Friedman. “
“While there have been some major successes in improving public health, foreign aid
targeting other developmental goals has often failed to produce a lasting improvement in
living conditions. More than a billion people in the developing world still live in abject
poverty, barely at or below the income level necessary to guarantee subsistence. Is aid the
most effective way to help the world’s poor? Might there be a better way?” Some emphasize
the need for economic reforms so that poor countries can take advantage of international
trade. Also, they argue that many of these governments do not rely on the poor for political
support and so have little interest in pro-poor policies. Aid money may go to benefit only
their supporters, such as powerful interest groups or corrupt politicians. As Nobel laureate
Angus Deaton writes: “Aid undermines what poor people need most: an effective government
that works with them for today and tomorrow.”
The Belt and Road Initiative

China has become an important actor in African development. Through the Belt and
Road Initiative (BRI), it is reorganising the geographical and political space in the East
African Community (EAC), first, by heavily investing in regional connectivity projects, and
second, by promoting alternative ideas and concepts of development favourable to a Chinese-
centric order in the region. This paper argues that the BRI is actively shaping a new spatial
order in the EAC by influencing key stakeholders’ perspectives and preferences. China’s
particular visions of global and regional development through the BRI are gaining traction in
the EAC (East African Community), making it an indispensable actor with considerable
political and economic influence – and thereby challenging the role of traditional
development partners in the region.
“Aiming to strengthen China’s geopolitical foothold, the BRI is projected as an
alternative to western-led globalisation. The “Beijing consensus” places emphasis on huge
investments in physical infrastructure which in turn spur quick economic development and
foster cooperation, mutual development, and improved global governance. “Development is
seen to come not from the imposition of governance structures such as those associated with
liberal democracies, but through transnational relationships that are more inclusive, creating
‘win-win’ exchange scenarios.” The “Beijing consensus” distinguishes itself from Western-
inspired governance (“Washington consensus”) that emphasises social aspects like democracy
and human rights – an approach that some African leaders find condescending and
domineering.”
The BRI is reinforcing certain spatial forms that contribute or are favourable to the
EAC’s
agenda. These include the consolidation of regional trading blocs and regional infrastructure
connectivity projects. This alignment of interests makes the BRI particularly attractive as a
catalyst for the EAC’s economic and political integration. Projects are negotiated nationally
and implemented bilaterally between China and EAC member states. However, they are
regional in nature and are often conceived as regional projects that can affect economic
activities and livelihoods in more than one country. Within the region there is a clear re-
orientation towards harmonising national and regional economic master plans, including in
the realm of infrastructure. Approximately 50 percent of BRI connectivity projects are
located in Kenya. Traditionally considered the gateway to the EAC and the largest economy
in the region, Kenya hosted the flagship regional project connecting its Mombasa port to
landlocked countries in the EAC including Uganda, Rwanda and South Sudan.
Webography

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