Published by the Inter Region Economic Network (IREN-Kenya) Weekly Newsletter, 2005-03-16


Donors to Africa Benefit More from AID

By Par Krause

Financial aid from rich countries has created an aid dependency syndrome in poor countries. Those who support less aid to developing countries must be ready to fight powerful forces in the developed countries – forces that need aid to survive.

There is always a lot of fuss when the Swedish International Development Authority is about to close a development project in one of "their" developing countries. The people involved in the project – SIDA employees or private consultants – criticize the decision, and say that the project looks "promising, if they only were given more time, and especially, more money".

This is a very good example of aid dependency in donor countries. Aid creates institutions in the donor countries, public and private, that have an interest that the aid to developing countries remains high, and if possible, also increases. In many developed countries foreign aid is an industry, and like in all other industries it is very important that the market remains strong. More aid means more money, and more money means more power and higher income for the people within the industry.

Sweden can be a good example, since the country is supposed to be very aspiring when it comes to foreign aid (which is not the same thing as being aspiring about the actual progress in developing countries). Sweden is one of the few countries that have met the United Nations call of foreign aid equivalent to 0.7% of their GDP. But the Swedish government has even higher "ambitions" than that: at least 1 per cent of the GDP should be spent on foreign aid. The call for more foreign aid within the country is not very hard to understand if you look at the present situation.

SIDA, the public institution that conducts the major part of all Swedish foreign aid projects, has about 800 employees. That excludes all the people within the foreign ministry who work with aid, partly or entirely. Some of the money that SIDA gets from the government is distributed to NGOs. SIDA co-operates with private companies which amount to almost 700. It is hard to know exactly how many people these companies employ, but at least thousands of people in Sweden are dependent on foreign aid for their income and livelihood.

But also Swedish private companies in general benefit from foreign aid. Many projects, or aid contracts, come together with the requirement that recipients must buy needed products or services from the donor. According to ABB, a Swedish-Swiss industrial concern, such contracts have generated US$230 millions to the company over the past 10 years. And that’s just one single company. So shareholders and industrial workers in the donor countries benefit from aid. There is a debate in Sweden that this kind of contracts, known as tied aid, should be abolished so that the recipient could choose more freely among many different suppliers, but representatives of the industry and trade unions advocate the present system.

Also, the idea of giving recipient countries more influence in conducting aid-financed projects is very controversial. This is because that would mean less power and less income for the consultants from the donor country. "Sida is endangering a billion market for consultants", was the expressive headline in a Swedish business paper a few years ago when more power for the recipient countries were discussed.

So when politicians, employees within the public aid industry, NGOs and private companies call for higher aid to poor countries they really call for more money and more power for themselves. Governments’ aim that the money spending on foreign aid should be equivalent to 1 per cent of the GDP is very suitable for those depending on aid. And since the GDP is likely to increase over time, the money spending on aid will also increase. New figures for the coming year show that the foreign aid will increase considerably. The authorities said recently that new recruitments to the aid institutions would be necessary to handle the heavier workload.

The idea is that more money spent on aid means better aid, and that there will always be need for more aid to poor countries. Why should they think differently? They live entirely on that idea! They make money from it!