The White Elephant: The Trouble with Foreign Aid in Africa

The debate about the impact and the success of the foreign aid is merely endless and still continuing. Inarguably the donor countries made a lot of mistakes. During the Cold War foreign aid was partly misused to influence or support African leaders. The idea of the often criticized 'tied aid' dominated the foreign aid from 1950s to 1980s and led to the fact that donor countries in some cases benefited much more from the aid than the development countries themselves. There are many examples of failed projects which were financed based on foreign aid. The documentary 'Sweet Gift' tells the story about a project of the Norway's development agency in the 1980s, who tried to teach Kenyan nomadic cattle herders how to fish and run a fish-freezing factory to sell the fish from Lake Turkana all over the world. The project failed miserably and the factory closed before they even started the production and was abandoned many years. Now a part of the people of the Turkana area is still dependent on food aid from the UN. Another example is the Mufindi pulp and paper factory in Tanzania, also in the 1980s (described in the book 'The trouble with Africa', Robert Calderisi), which is a good example for a 'White Elephant' project. A generous loan was given (about $200 million), but the investment was too large and the technology to advanced and it was never successful. And who paid the bill for the experiment? It was Tanzania by paying back the loan over 20 years.


The list of failed projects is long. On the other hand, the donor countries as well as the developing countries should have learned from the past and from the partly disastrous projects. There are many people denying that only the donor countries are part of the problem. Still the African continent has a huge problem with corruption, and there is no guarantee that the foreign aid money reaches the poor people of a country. Some studies claim that only 30% of the aid reaches the people in need, the other 70% percent are either wasted or lost in corruption. The Chad-Cameroon Oil Pipeline Project is a good example. The project of the 1070km pipeline was financed by a consortium of ExxonMobile, Petronas Malaysia and Chevron. The World Bank also joined the consortium and supported the project, but under the condition, that a large part of the oil revenue goes to a Future Generations Fund, health, education and other development projects. The pipeline was opened in 2003 and then operated by the consortium. However, the World Bank left the consortium 2008 because part of the revenue was used from the government of Chad to obtain arms. President Idriss Déby changed the terms of the initial agreement to give him a free hand in spending the money of the oil revenue.


Africa has more than doubled its population over the last 30 years, at the same time Africa has grown steadily poorer by loosing half its share of world markets and suffering a loss of income of about $70 million between 1970 and 1990. Considering these facts many studies come to the conclusion that foreign aid in Africa isn't working. P. T. Bauer, a developmental economist and best remembered for his opposition to state-controlled foreign aid, pointed out: "The argument that aid is indispensable for development runs into an inescapable dilemma. If the conditions for development other than capital are present, the capital required will either be generated locally or be available commercially from abroad to governments or to businesses. If the required conditions are not present, then aid will be ineffective and wasted." By implication it means, that Africa only can be developed properly by attracting private investments.

It is interesting to follow how nations like China and Malaysia are nowadays severely investing in Africa. China's cumulative foreign aid in Africa rocketed from under $100 million in the past to more than $39 billion end of 2009. Hopefully both countries learn from the past. Julius Nyerere, the charismatic first president of Tanzania, visited the World Bank 1998 and said: "We've had our faults, but you [the World Bank and the IMF] have been running Africa for the last 10-15 years, not literally, but essentially, as national budgets have shrunk, African debt has grown, and political options have narrowed. Whatever mistakes we made, we made together." Learning from these mistakes should hopefully avoid the problem with the "White Elephant" created by misguided foreign aid in the future, regardless whose fault it was. But to be honest, I'm not so sure about that.