Tuesday, October 28, 2008

THE ROLE AND EFFECTS OF FOREIGN AID IN COMMUNITY ECONOMIC DEVELOMENT A CASE OF DARESALAAM CITY IN TANZANIA

This paper discusses the role and effects of foreign aid in Community Economic Development a case of Dar es Salaam city in Tanzania. The paper will consult various literatures on the definition of foreign aid, the historical background of foreign aid. Then the paper will discuss the role and its effects that have played by looking at benefits and weaknesses in Dar es salaam. Finally the paper will make the conclusion.
Foreign aid.
Different scholars have defined foreign aid in various ways; Wikipedia defined Aid or "international aid", "overseas aid", or "foreign aid", especially in the United States as “the help, mostly economic, which may be provided to communities or countries in the event of a humanitarian crisis or to achieve a socioeconomic objective”. Wikipedia continues to categorize foreign aid into two categories as follows:
Bilateral Aid this is given by the government of one country directly to another. Many dedicated governmental aid agencies dispense bilateral aid, these includes: USAID, DFID etc.
Multilateral aid is given from the government of a country to an international agency, such as the World Bank, the International Monetary Fund, or the European Development Fund. These organizations are usually governed by the contributing countries like United States of America that always have an upper hand on IMF and World Bank.
Another definition of foreign Aid is that of Likwelile. S; Luanda. E. G; Mashindano. O.S; and Nyoni. T.S; (1994) that defined foreign aid “as all transfers from broad that have a grant element that can be in the form of soft loan, grants and technical assistance.” They continue to point out that Foreign aid may be administered on either a bilateral, government to government, or on multilateral basis. Multilateral aid is provided through international institutions such as the International Monetary Fund, the World Bank and various United Nations organizations.
Furthermore Steven Radelet, (July 2006) also defined foreign aid and argued that the standard definition of foreign aid comes from the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD), which defines foreign aid (or the equivalent term, foreign assistance) as “financial flows, technical assistance, and commodities that are firstly designed to promote economic development and welfare as their main objective (thus excluding aid for military or other non-development purposes); and secondly are provided as either grants or subsidized loans”.
Therefore for the purpose of this paper Foreign aid is defined as any assistance that is given by developed countries to developing countries that is aimed at promoting economic development and social services. This can be in a form of financial, Material and technical.
Background of foreign Aid
Foreign aid idea begun as diplomatic tool in the early days of the Cold War that was modeled after the small limited humanitarian programs for underdeveloped countries run by the Scandinavian states. The United States and European countries began similar programs to fight the spread of communism by supporting strategic allies like Greece, Turkey, and India and similarly, the Soviet Union used aid to advance its geopolitical goals, giving three quarters of its aid to communist developing countries including North Vietnam, North Korea, and Cuba.
After the Cold War, the focus of aid shifted to development, concentrating not only on alleviating poverty, but helping poor countries move toward prosperity aid that was clearly focused on using funds to attempt to permanently better the human condition in poor countries. Following what Lancaster identifies as a new international norm. Worldwide economic unrest in the 1970s and 1980s, and famine in several African countries changed aid as a system to meet the “basic human needs” of the poor.
Pallage and Robe (2001)) pointed out that Foreign aid is a significant source of income to developing countries, especially in Africa, where it averages 12.5 percent of gross domestic product as a result in such an environment, foreign aid has been a potential to play a key role in promoting developing countries’ economic growth.
Types of aid
Humanitarian aid this is a rapid assistance given to people in immediate distress or emergency by individuals, organizations, or governments to relieve suffering, during and emergencies like civil wars and natural disasters i.e. earthquakes and floods.. The provision of humanitarian aid or humanitarian response consists of the provision of social services such as food aid to prevent starvation and the provision of funding or in-kind services like temporary shelter, clothing and or transport, usually through aid agencies or the government of the affected country. For the case of Tanzania Red Cross and CARITAS have been the major distributors of such aids.
Development aid is given by developed countries to support development in general which can be economic development or social development in developing countries. It is distinguished from humanitarian aid as being aimed at alleviating poverty in the long term, rather than alleviating suffering in the short term. Development aid can be further generally classified into three categories these include: project assistance, program assistance, and technical assistance. Project assistance refers to a specific investment in the recipient country, such as the building of a road, a dam, school etc. Program assistance is usually a cash transfer as general support for a country's overall development objectives and Technical assistance represents the transfer of knowledge from the donor to the recipient, either by bringing members of the recipient country to the donor to study or by sending experts from the donor country to the recipient to guide, teach, and ultimately transfer skills and technology. For further clarifications Steven Radelet, (July 2006) define the term "development aid by pointing out that " is often used to refer specifically to Official Development Assistance (ODA), which is aid that is given by governments on certain agreed terms, usually as simple donations. It is given by governments through individual countries' international aid agencies and through multilateral institutions. The major international agencies that give aid to developing countries include Organization for Economic Cooperation and development (OECD). This is made up of the developed nations of the world. The other donors are IFM, the World Bank, and Development fund of the European Economic Community (EEC) and UN organizations. There are other national bodies, which give aid to countries like US Agency for international development (USAID), Japan international cooperation for development (JICA), Swedish international development Agency (SIDA.
Why foreign aid?
Most foreign aid is designed to meet one or more of four broad economic and development objectives: Firstly to stimulate economic growth through building infrastructure, supporting productive sectors such as agriculture, or bringing new ideas and technologies, Secondly to strengthen education, health, environmental, or political systems, Thirdly to support subsistence consumption of food and other commodities, especially during relief operations or humanitarian crises, and fourthly to help stabilize an economy following economic shocks.
The role and effect of foreign aid:
There is no agreement in development literature to which type of assistance is most effective than the other. All of them have positive and negative effects. It all depends on the country and the aid provided. It is argued that countries with economic and political stability have great chances of benefiting and producing good results when assisted. Kruger.O, Michalopoulos.C and Ruttan.V (1991) explain that countries that are politically stable and have social order are more likely to develop than those that have experienced instability.
Furthermore despite the broader objectives for aid, economic growth has always been the main yardstick used to judge aid’s effectiveness, with more aid expected to lead to faster growth. But at a very broad level, there is no apparent simple relationship between aid and growth; some countries that have received large amounts of aid have recorded rapid growth while others have recorded slow or even negative growth at the same time. While on the other hand some countries that have received very little aid have done very well, while others have not. Countries like Korea and Thailand have recorded rapid growth compared to African and Latin America countries.
On positive side the role of foreign assistance has often been effective in meeting its goals in helping countries with respect to development. Tanzania being one of them has benefited from foreign aid as do not have sufficient funds to provide public services such as education, health facilities transportation systems, clean water and poverty eradication. Tanzania Dar es salaam being a case has and is benefiting from different types of foreign aid i.e. humanitarian and development aid. For example under the humanitarian aid Dar es salaam being one of the areas that are receiving the global fund by USAID through the Health department and NGO s PASADA in Temeke District as an example is supporting Orphans and Vulnerable Children by providing them with mosquito nets; scholastic materials and building houses. The fund also is supporting the availability of ARVS for people who are HIV positive free of charge. Tanzania is one of those countries, which the HIV prevalence rate is not going down. According to the country profile (2007) the prevalence rate among adult’s ages from 15-49 is 6.5 %. People who were HIV positive at the end 2005 were 1.4 million. Children orphaned because of AIDS at the end of 2005 were 1.1 million. The support for free ARVS has changed lives of many. Very few patients could have been able to afford buying ARVS.
In addition to that Project aid has benefited Dar es Salaam city council to improve primary school education and health facilities. Most of the primary schools in Dar es Salaam were overcrowded one class use to have one hundred and twenty students instead of having the recommended thirty to forty students The Japanese International Cooperation Agency (JAICA) from January (2003 to July 2005) has been supporting the City council building more classrooms to Dar-es- Salaam primary schools this has resulted and created a good learning environment for the students.
In addition to that foreign aid has contributed to improve infrastructure in the city such as construction of roads in various parts of the city roads like Kawawa road, Morogoro Road and recent one Kilwa road has been constructed through Japan aid.
However on the other hand foreign aid has not contributed significantly to political social economic progress in developing countries and poor local people. Bauer (1991) argues that aid may distort the political life of the recipient countries. In most cases Aid that is transferred to the government of those countries help to increase the government’s power and resources instead of the local community. It has also been argued that a lot of government to government aid has not been effective because it supports strategically leaders in the government and has enabled some regimes rulers to divert money to other, nonproductive activities that are not for the country economic growth or benefit. Foreign aid has been misallocated and misused. Funds that were aimed at assisting country for development activities were used in quite different activities to maintain the administration and management operations. For example a case of Rufiji Basin Development program that was aimed at constructing and putting irrigation system at Rufiji basin the funds were utilized to construct project offices in Dare salaam instead of putting the irrigation system for agriculture in Rufiji up to date nothing has taken place in Rufiji beside the buildings at Ubungo and purchase of vehicles.
Furthermore, the recipient’s countries of aid may use it to fund projects that are poorly designed and planned. Taking the example of Tanzania country that used foreign aid to start projects that were not economically viable and did not contribute to government revenue but rather increased expenditure to service those projects or that led to having white elephants all over the country. For example construction of various industries ie Morogoro Textile, Mbeya textile, Shinyanga, Beef processing plant and the like collapsed and some of them did not even start production after some time .A case of Shinyanga Beef processing plant up to date the machines are rotting at the site. In Dar es Salaam a recent project for electricity IPTL and Richmond power stations have consumed a lot of donor’s funds that would have contributed to country development.
In addition to that aid in various ways has contributed to community not to apply their local initiative and self-determination in solving their problems. Country at large will not struggle to raise its economy through internal resources as far as they are sure that they will get assistance from foreign country. Tanzania 2007/ 2008 budget depend on foreign support at the level of 38% (Mwananchi of 4th November 2007) which in actual sense these can be raised locally through resources and taxes it has within the country. Likwelile et al (1994) pointed out “foreign aid enables governments, which in most cases crave for popularity, to increase spending without putting much effort in taxi collection. Foreign aid may thus lead to the increase in the size of government and budget deficit”. In addition to that since about half of all aid is not gifts, but loans, aid has greatly increased the debt burden of the countries, and servicing the loans creates a great foreign currency problem for them. Most of the foreign aid has particular policy conditionality that often accompanies it. For example the case of Tanzania most of the foreign aid received are always accompanied with some conditions. Wikipedia (2006) term these conditions as “tied aid” whereby the foreign aid given to a country it has to be spent in the donor country. The president’s Emergency Plan for AIDS Relief Tanzania (PEPFAR) is supporting the HIV/AIDS programs on a condition that all the ARVs must come from the United States. Most of these drugs are causing side effects and they are too strong for most of the people because they do not have enough food to eat a case of PASADA are supporting people living with HIV/AIDS. This kind of aid can do more harm than good because there is no room for discussion by the recipient
Further more on aid conditions, the new internationalist (1981, pg 9) noted that, “up to 25% of western aid budget is spent on experts. The average British expert costs $150,000 a year and they receive tax-free salaries, which are paid direct to their home countries”. King (1975, pg 9) says, “Aid creates more jobs and leads to establishment of more industries in the developed than in the developing countries.” The main beneficiaries will be the countries, which provide experts and equipment to the developing countries. Taking the example of grants from Japan that is aimed at road constructions are concentrated in Dar es Salaam ie Kawawa road and that of recent one Kilwa road you find that roads construction was or is done by Japanese company KAJIMA and KONOIKE. As a result it creates market labor for its citizens by bringing experts to manage the projects at the same time the market for all construction equipment that also come from Japan hence most of the funds of that foreign aid given to Dar es Salaam city council goes back to Japan
Conclusion
Foreign Aid has both positive and negative effects to community economic development of the country Dar es Salaam city Tanzania being a case. Aid it can be effective to support the recipient community if it is well utilized by the recipient country whereby it need to have systems in place and political will that facilitate proper use of aid for the benefit of the local community. Honest and capable government is an important component for foreign aid assistance to the country. In its absence, government officials may pursue policies that would damage the community economic development simply because those policies benefit them and others with political and economic power as a result the foreign aid will not contribute to the community economic development of the country. In addition countries benefiting from foreign aid need also to refuse aid, which comes with conditions, which do not benefit the development of the local economy of the country. There is a need to change the way aid is delivered and managed it should consider the real community economic development of the people. As Nyerere (1976) rightly said, “Development is for man by man and of man.


REFEREENCE
Abdulnasser hatemi-j and manuchehr irandoust (June 2005) Foreign aid and economic growth:new evidence from panel cointegration journal of economic development 71 Volume 30, Number 1,
Bauer Siwatibau, S and Kasper, W (1991) Aid and Development in South Pacific, Australia, Center for Independent studies.
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King (1975) quoted in Wester (1984) Introduction to the Sociology of Development, Macmillan, and London
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Oxford Advanced Learners Dictionary 6TH Edition (2000) Oxford University Press London
Pallage, S., and M.A. Robe (2001), “Foreign aid and the business cycles,” Review of International Economics 9, 641-672.
Peter Bauer, "Foreign Aid: Mend It or End It?" in Peter Bauer, Savenaca Siwatibau, and Wolfgang Kasper, Aid and Development in the South Pacific (Australia: Center for Independent Studies, 1991), p. 9.
Steven Radelet1 (July 2006) A PRIMER ON FOREIGN AID Center for Global Development
The American heritage dictionary of English language 4th edition (2000) Houghton Muffin Company
The president’s Emergency Plan for AIDS Relief Tanzania Country profile (2007) (Online) Available from http://www.pepfar.gov/press/81642.htm
Tied Aid (online) Available from http://www.bookrags.com/wiki/Tied_aid
Webster, A. (1984) Introduction to the Sociology of Development, Macmillan, London
The New Internationalist (1981) quoted in Webster (1984) Introduction to the Sociology of Development, Macmillan, and London

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