FOREIGN AID IN POVERTY ALLEVIATION- TANZANIA

1.0 INTRODUCTION

The increasing integration of national economies into global markets has altered dramatically and promises to continue doing so, the volume and character of international resource flows -foreign aid inclusive. Globalization is carrying with it the threat of continued marginalization of Sub Saharan Africa (SSA) from the global development process. SSA faces marginalization in first, trade, as preferential trading arrangements are diluted by moves in the direction of multilateral trading arrangements and hence multilateral tariff reductions. As a whole Africa’s share in world trade the bulk of which is still confined to exportation of primary goods and importation of non primary intermediary, capital and consumption goods, has declined considerably in the last three decades. It varied from 4.1 to 4.9 percent during 1960 - 65, fluctuated around 4.4 percent during the 1970s declined consistently to 2.3 percent in the 1990s. Secondly, the region faces marginalization in investment, one of the critical ingredients of development, as Foreign Direct Investment flows to regions with perceived higher returns. (Wangwe, 1997b).

CONCEPTUAL CLARIFICATION

Foreign aid is the international transfer of funds loans from the multilateral agencies with the aim of facilitating and accelerating recipient countries’ development, or support for specific development. The foreign aid supports in breaching the resource capital gap in most of developing countries.

Poverty is described differently by different scholars. Sen Amartya, (1999) defines poverty in terms of capability deprivation; the approach concentrates on deprivation that is intrusively important (unlike low income which is the only instrumental significant.)

Robert Chambers (1995) Poverty refers to lack of physical necessities, assets and income. It includes but more than income poor. Poverty can be distinguished from other dimension of deprivation such as physical weakness, isolations and vulnerability and powerlessness with which it interacts. Stan Burkey (1998) refers poverty as the inability of an individual a community or a nation to satisfactorily meet its basic needs.

Globalization is a process which has a direct link with foreign aid in developing countries. The globalization can be defined as processes necessary to adapt content or code for different languages, locales, and cultures. Globalization involves defining business requirements along with the global processes for content aggregation, content management, content displaying, workflow and maintenance (Scholte 2000: 16)

3.0 HISTORY OF THE FOREIGN AID

Since the 1950s, American foreign aid rhetoric has stressed the need to develop business and private enterprise in the Third World. After 30 years of preaching the virtues of the private sector, however, the United States still directs most foreign aid to foreign governments, not private businesses. Furthermore, the aid that does go to businesses has done little to encourage free markets; foreign aid has yet to buy a single country a free market. Most of the third word countries were highly affected by coloniliazation which drain most of its local resources and created dependence attitudes. Financial flows into the developing countries mainly are dominated by private interests.

Globalization was first the result of planning by economists, business interests, and politicians who recognized the costs associated with protectionism and declining international economic integration. In promoting growth and managing adverse consequences, International Bank for Reconstruction and Development (the World Bank) and the International Monetary Fund, reduced the costs of trade, and trade negotiation rounds, which led to a series of agreements to remove restrictions on free trade

4.0 WHY FOREIGN AID

Foreign aid consists largely of one government "helping" another government by beefing up its budget, increasing its power over the private sector The increment of the aid can be channeled through various ways under set of agreements and conditions. Foreign can contribute positively into the development given free or soft conditions.

Private voluntary aid that bypasses a recipient country's political structures can help people in the Third World. The Peace Corps had good intentions, but it is now largely providing bureaucrats and technicians for foreign governments, thereby reinforcing political control over development. Rushing in medical supplies after a major earthquake or tidal wave can help the victims as long as it does not permanently increase the government's power or the people's dependence on politicians.

The question of whether foreign aid is generally beneficial or not ultimately comes down to the question of whether economic development should be undertaken by government or by the private sector. Perhaps the best answer was given in 1830 by British historian Thomas Babington Macaulay:

5.0 FACTORS WHICH FACILITATE FOREIGN AID FLOW TO

DEVELOPING COUNTRIES.

• Good governance also builds the confidence of investors in the business climate. It ensures them that contracts will be enforced, that property rights will be respected, that corruption will be controlled.

• Encourage entrepreneurial spirit for continuos production.

• Improved infrastructure

• Stable political situation

6.0 CONTRIBUTION OF AID TO THE POVERTY ALLEVIATION

STRATEGIES.

The East African news for December 10^th to 16^th 2007 narrated the situation where by the Fina Bank in Kenya was offered a credit of Dollars 4.4M from the European Investigate Bank to expand lending small and medium enterprises. The Fina Bank was its first opportunity to receive the grant for this purpose in Kenya. The credit will support the investment in agro-industry, fishing, and manufacturing.

The record of the last 50 years, from the Marshal Plan aid shows that the efforts of recipients to help themselves have been instrumental to their success. Development assistance has successfully complemented many achievements such as the green revolution, the fall in birth rates, improved basis infrastructure, improvement in health and reduction of poverty (DAC, 1996). Properly applied in conducive environment aid works.

When aid was primarily intended to bridge the gap between the country's investment target and domestic savings, it did help to bridge that gap, in gross terms. Externally derived resources, aid also bridged the foreign exchange gap in import dependent economies of SSA. But over a long period, even those seemingly positive achievements started to be put to test. Indeed, the frequent resort to project rehabilitation and SAPs in the 1980s is an adequate testimony to this conclusion. Also when a yardstick of graduation is applied, unlike in SEA, no country in SSA has been weaned off from aid.

With the onset of the adjustment regime in the 1980s, the goals of aid became a lot more blurred and the effectiveness of aid much more complicated to evaluate. Both donors and SSA countries should address this issue through improved resource use planning and macroeconomic management, as well as accountability on the use of resources. Donors should recognize the importance of long-term investment commitment to assure sustained growth.

A study of the experiences of seven countries in SSA indicated that in all of them except Botswana there have been more failures than successes. However, the case studies also demonstrate that aid to Africa has some notable achievements to its credit. Alongside many disappointments, aid has financed many development projects and programmes which achieved very high internal rates of return, including schools, clinics, health posts, bridges, roads, manpower training programmes, etc. (Carlsson, Somolekae and van de Walle, 1997). While foreign aid has been decisive in helping certain countries and communities get through times of extreme stress there is evidence of futility and even perversity of outcomes of official aid (Sogge, 1996:11).

6.1 Macroeconomic Stability

A first factor that helps to explain the success of aid is the extent to which it is designed and implemented in the context of macroeconomic stability. The seven country case studies in Africa on aid effectiveness clearly demonstrate a perhaps even more important negative impact of macroeconomic instability on aid. Particularly when it is prolonged, economic and fiscal crisis undermines the quality of public sector management, which also has a negative effect on the quality of aid. Long-term economic disequilibrium results in a weakening of the government's planning and budgeting functions. (Carlsson, Somolekae and van de Walle, 1997). International assistance is only useful in supplementing domestic resources within the context of a disciplined national policy environment that encourages the efficient and equitable use of all available resources, both foreign and domestic. In the presence of such conditions the need for external assistance is greatly reduced. In their absence, aid is of little help and is usually counterproductive (Korten, 1991).

6.2 Management Capacity of Recipients

Aid programs are more likely to be successful when the recipient government has the capacity to identify and articulate its own priorities and programmes, and the ability to implement, monitor, and evaluate the resulting programmes in the context of its own planning and budgeting. The case studies of seven countries in Africa showed that the capacity for harnessing and managing its resources effectively is generally deficient. In the absence of central state management capacity among recipients, donors try to fill the gap. For example, they resort to a host of parallel aid

6.3 Aid Relationship

The nature of aid relationships between donors and recipients has critical influence on aid effectiveness. The results from the seven country studies in Africa suggest that the aid relationship between African governments and donors has been unequal and characterised by the passivity of recipients and the dominance of donors (Carlsson et al, 1997). The unequal nature of the relationship has probably contributed to misunderstanding, resentment, and quite often conflict between the partners (SIDA, 1996).

6.4 Development of Foreign Aid

Many different factors contribute to development. Unique historical, geographical, or cultural influences may play an important role in determining whether or how fast a country develops. Factors such as a climate that is inhospitable to productive agriculture are often beyond the control of policymakers in developing countries or their foreign aid donors. Nevertheless, the academic and policy literature on development generally argues that the political and economic choices developing countries make play an important role in determining how well and how fast they develop.

6.5 Domestic Economic Policy

Sound economic management and an outward-oriented trade and industrialization strategy are important economic components of successful development. No inflationary monetary policies and low budget deficits provide a favorable environment for saving and the accumulation of capital, whereas large deficits, high inflation, and the resulting financial instability work against them. Uncontrolled fiscal policies have contributed to the problem of large deficits as have large government payrolls, inefficient government industries, and various subsidy programs. Governments may expand the money supply to pay for those deficits, a step that often leads to inflation, an overvalued exchange rate, and the production of goods that are less competitive in world markets.

The average amount of foreign aid transferred to developing countries worldwide is small compared with the size of their economies--2 percent to 3 percent of their gross national product. In individual cases, however, that figure can exceed 60 percent in a given year. But more assistance is not always more effective. Receiving too much foreign aid may overwhelm a country's absorptive capacity and thereby undermine the aid's overall effectiveness. Yet even a small quantity can be useful in achieving results, depending on its purpose and how it is spent.

Essentially, foreign aid given to developing countries reinforces what is there. If a country has good government and economic policies, the result is likely to be more good government and economic policies. If a country has a highly corrupt political system and has pursued counterproductive economic policies, the result is usually more of the same. That is not to say that foreign aid never benefits a country that is pursuing counterproductive economic policies. Child immunization programs, for example, are likely to benefit a developing country regardless of its economic policies, although a healthier population will almost certainly be more useful and productive in an economy that is growing briskly than in one that is not.

Of course, not all types of foreign aid are automatically harmful. Private voluntary aid that bypasses a recipient country's political structures can help people in the Third World. The Peace Corps had good intentions, but it is now largely providing bureaucrats and technicians for foreign governments, thereby reinforcing political control over development. Rushing in medical supplies after a major earthquake or tidal wave can help the victims as long as it does not permanently increase the government's power or the people's dependence on politicians

7.0 CHALLENGES OF FOREIGN AID IN DEVELOPIN COUNTRIES.

Critical deficiencies which explain the low level of effectiveness of aid to Africa. The main ones are lack of ownership of the development agenda, poor aid coordination, deficiencies in resource allocation and budget management and proliferation of aid projects.

Our foreign aid has made life more pleasant and entertaining for government bureaucrats in poor countries. However, it has done little to promote the production of wealth, or to breed political responsibility, or to encourage people to help themselves. American foreign aid usually only strengthens oppressive regimes, allows governments to avoid correcting their mistakes, and bails out bankrupt state-owned enterprises around the world.

Regardless of our future good intentions, American foreign aid programs will still be controlled by politicians anxious to buy goodwill and administered by bureaucrats anxious to meet their quota of loans, and they will still be received by foreign governments careless of the use of free gifts. As long as the same political, bureaucratic, and economic incentives govern international welfare, the same mistakes will be repeated

7.1 Lack of Recipient Ownerships

Structural Adjustment program fuelled substantial increase in aid to South South Africa.. Aid reached 11% of GDP by 1994, compared with only 1% in other LDCs. The SAPs were fast disbursing. But high levels of aid in many countries, undermined self-sustained development. In the end they engendered apathy on the part of recipients which in turn encouraged donor agencies to take over project planning and execution tasks, thereby jeorpadising long-term project benefits. The worst result of dependency has been the dependence syndrome characterized by abandonment of initiative and leadership to donors, especially the IMF and the World Bank. Recently both the donors and African countries have recognized the dangers of this phenomenon. Low ownership of the development agenda is common across Africa. Major policy formulations have either been done by donors or have been influenced by donors. In many African countries, the period in which SAPs were introduced has witnessed the lowest level of ownership of the policy agenda and public expenditure reviews. The ownership by the recipient has been reduced even further by the lopsidedness of the system of conditionality. African countries have been on the receiving end in the conditionality relationship.

Aid conditionality have been donor-driven rather than being a product of discussions, mutual agreement and genuine commitment. Aid should not be used to undermine the responsibility of the recipient country to assume its role. To reverse the current degree of aid control by donors and the passivity of recipient countries, the latter should be encouraged to return to medium-term planning (e.g. 5 year plans) in which broad criteria for projects/program spending of aid can be defined. The planning process can accommodate donors' views regarding areas of preference . Thus the plans would form the basis of future aid allocation. As a reflection of this long range planning approach, donors should indicate tentative multi-year resource commitments. They would also have to agree to untie their aid and increasingly provide it as program aid so that project by project allocation can be left to recipient country's Ministry of Finance to decide. (Mutalemwa, 1998). Wohlgemuth, 1998).

7.2 Poor Coordination of Aid

The large number of donors that African countries have to deal with and the proliferation of projects increase the risk of duplication and waste. A common predicament that affected aid delivery was the lack of aid coordination among the donors. It not only affected aid results, but also sabotaged national planning and added to the cost of aid administration Too often African governments have not effectively coordinate the aid effort (van de Walle and Johnston, 1996).

Donor-aid coordination falls under three categories namely, intra-governmental coordination; inter-donor coordination; and government-donor coordination.Intra-governmental aid management is currently at its weakest with regard to the overall aid management process. The problem is exacerbated by the relative strength of donor aid management in form of parallel administrative controls and project management. There are two types of inter-donor aid coordination. First, donors may coordinate their own activities. Second, donor may be coordinated by the Government of Tanzania.. Of these two the former has a formal existence, the latter is very weak.

A major constraint to the achievement of aid coordination is the lack of demand for it. A local constituency demanding an improved aid co-ordination is only beginning to emerge. Also interest in the possibility of playing one donor against another and getting access to donor funds have delayed the move towards aid coordination. For instance, some recipients may know very well that aid coordination would demand a greater justification of their aid requests. Besides, on the side of the donors, there are indications that some donors are not keen to be co-ordinated as co-ordination is perceived to be constraining freedom of action on their part. (Wangwe, 1997c, Engberg - Pedersen, 1998).

It should be emphasized further that aid coordination, however, remains a primary responsibility of the recipient. Effective aid coordination can be achieved by formulating a clear national aid strategy. Some of the key elements of a national aid strategy would include: the national objectives, strategies and priorities; an articulation of roles of the recipient, donors and implementing agencies; a stipulation of modes of disbursement and accountability; and areas of focus and concentration.

7.3 Problem in Allocation of Resources

The inability of government to cover recurrent costs and counterpart obligations undermines the impact of aid in many African countries. Although the level of education and training has improved in Africa over the years the management capacity of public bodies has remained limited. A major factor which has been counteracting the positive effects of improved education and training in the economic crisis itself which has pushed governments to reduce various recurrent expenditures including public service salaries. In several countries salaries in real terms have been reduced up to a factor of ten over the past two decades (Carlsson et al, 1997). This situation throws a challenge to the civil service reform and to the redressing of the imbalances between recurrent and capital expenditures. This is a challenge to the quality of budget management. African governments and donors continue to plan inadequately for counterpart and recurrent expenditures. In most countries, aid activities are not fully integrated into national budgeting and planning exercises. For their part, donors often fail to recognize the problem and fail to plan for the withdrawal of aid (van de Walle and Johnston, 1996)

7.4 Contradictory Trade and Aid Policies of Donors

Egypt in the 1970s and 1980s serves as an example of how protectionist trade policies by major donors can undermine economic growth. In the 1970s, Egypt adopted an economic liberalization program and was pressured by the IMF to terminate special trade agreements with various countries and adopt a free-trade system. Despite considerable disruption to many Egyptian firms that were unskilled at advertising and selling their goods in new markets, such a system was in place by 1980. But it was not destined to last. Shortly thereafter, the United States and the European Community (now called the European Union) created various protectionist barriers to Egyptian exports, such as import quotas on textiles, Egypt's primary manufactured export. As one analyst has written:

7.5 Tied Aid

Despite the large share of U.S. assistance devoted to project aid to Egypt in the 1970s and 1980s--about 42 percent--one could argue that such aid has done relatively little to promote employment, production, or exports. For example, the first loan of $32 million to Egypt's private sector was made available in 1976, but disbursing the loan took five more years. According to Heba Handoussa, "the main problem seems to have been the tied loans, which forced private businessmen to purchase American machinery and equipment." Overall, tied aid to Egypt has made projects costly because capital goods, technology, and technical assistance are packaged together and must be bought from the donor.

7.6 Coordination of Donors' Efforts

Recently, the coordination of donors has come under more scrutiny as a means to improve the effectiveness of foreign aid. In some countries, the proliferation of aid projects is so extensive that it is difficult to keep track of them all or to ensure that they are contributing to overall development. Of all the cases CBO examined, Botswana seems to have created the best system of coordinating donors.

process:

7.7 Parallel Aid Projects

Aid too rarely contributes to effective institution building because local institutions are by passed in the design and implementation of projects. Although these arrangements appear to solve an immediate problem of capacity to manage projects it tends to undermine ownership and sustainability (van de Walle and Johnston, 1996). In addition, it even weakens the already weak administration and management capacity. Such projects become islands of development, increasingly isolated from the reality of the environment in which they operate and consequently become increasingly difficult to phase out leading to continued dependency and absence of sustainability (e.g. Catterson and Lindahl, 1998).

8.0 CONCLUSION

The main challenge is to make foreign aid more effective for bringing about development and to have a strategy to graduate from aid dependence. The inhibiting force of the debt burden needs to be addressed urgently so as to release resources for development. The following specific challenges need to be addressed: ownership of the development agenda. Ownership of the development agenda, management of the conflict between management of the conflict between short term imperatives and the longer term objective of attaining sustainability short term imperatives and the longer term objective of attaining sustainability, objective of attaining sustainability, build the capacity for policy analysis and development management., all partners conditionality needs to be redefined to link more appropriately with agreed upon criteria of performance by, redefine the structure of aid relationships and address the perverse incentive structures which govern prevailing bureaucratic behavior and procedures on the part of both donors and recipients, devise new and more effective ways of reducing dramatically the bilateral, multilateral and private debt to allow allocation of resources for development and in particular for recovery of growth of the economy and exports to be realized .

In short, the constant flow of foreign funds, however targeted or conditioned, has given governments sufficient resources to allow them to implement policies that wreck their economies. True, many collectivist regimes throughout the developing world, including Tanzania, have finally had to face reality. But Western assistance unnecessarily prolonged the adjustment process, essentially treating Third World debtors as blind and uncapable to self sustain their livelihood.

REFERENCES.

1. Mutalemwa, D., (1998). Asia and Africa in the Global Economy: Supporting Paper on Foreign Aid Development in SSA. Mimeo. July, 1998.

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3. van de Walle, N., (1998). Managing Aid in Africa: The Rise and Decline of the Structural Adjustment Regime. Paper prepared for the AERC-ODC Collaborative Research Workshop on Managing the Transition from Aid Dependency in Sub Saharan Africa. Nairobi. May 21-22, 1998.

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