Andrew Mwenda on the Impact of Foreign Aid on Uganda

I recently watched a documentary on the BBC by Andrew Mwenda, a Ugandan radio journalist and Museveni opponent, which analysed Uganda’s relationship with aid. Uganda has been presented as an aid success story by donors and its government, and has even had its debt cancelled in the past. Half of its budget comes from foreign aid and President Museveni was famously announced by Thabo Mbeki and Bill Clinton to be part of an African renaissance in good governance. Read on for the reality…

Andrew Mwenda:

“I was excited when I heard that British Prime Minister Tony Blair had set up a commission to research solutions to the problems afflicting Africa – I felt it was an opportunity to breathe new ideas into the debate on Africa’s backwardness.

However I was disappointed.

After months of work they came up with the same old mantras: doubling aid, cancelling debt and reducing trade tariffs and subsidies.

They’re ignoring reality. For the last 40 years, Africa’s been getting more, not less, aid – we’ve received more than $500bn. But we are getting poorer not richer.

Let me show you, through the experience of my homeland Uganda how these recommendations don’t – and won’t – work.

Donor support

Uganda is considered one of Africa’s economic success stories. Yet we rely on foreign aid for nearly half the country’s budget.

You would assume that Uganda cannot fund its own development. But that’s not the case.

The government has got money, but chooses to spend it on political patronage and its army. It doesn’t even collect the taxes it is owed.

Allen Kagina, the Commissioner General of Uganda’s tax authority, acknowledges that Uganda collects only a fraction of the tax it could.

Uganda was forgiven its debts… as a consequence, government indulged itself in very luxurious expenditure… and invaded Congo and Sudan

She does believe the URA could fund the national budget – it would be “difficult but it is achievable.” And she also said that Uganda should aim to reduce donor support.

But Tony Blair is talking of doubling aid to Africa. Yet some African economies are so small that the amount of aid they’re getting is already skewing the economy.

Foreign aid enriches politicians, bureaucrats and aid workers, whose consumption fuels inflation.

The Ugandan government is receiving so much foreign aid that the economy is unable to absorb it. Treasury bills have to be used to suck the money out of the system. As a result, the Central Bank is holding $700m in treasury bills, and the interest on that per annum is $120m – which is incurred by the tax payer.

All in all, a very expensive exercise.

Fair trade

Uganda’s Finance Minister Dr Ezra Suruma said the country does consider finding better ways of managing aid to be “very important”.

“The problem is what we do with it – whether we invest or consume it,” she added.

“We need to invest more in equipment, technology, infrastructure and so on. Aid must be properly used to increase our capacity to produce more income.”

And what of Blair’s other proposal, fair trade?

Changing tariffs and subsidies in Europe and the USA will not lift Africa’s business out of the doldrums.

Again, why don’t we learn our lesson? This has been tried already and hasn’t worked.
Under the Cotounou Agreement for preferential trade with Europe, for example, Uganda has a quota to export 50,000 metric tons of sugar to the European Union – duty free.

But it’s never been fulfilled. In fact, not even one kilogram of Ugandan sugar has been exported to the EU. We can’t even grow enough sugar in Uganda to satisfy the domestic market.

It’s the domestic environment that holds trade expansion back.

At Ugachick – which produces 400,000 chicks each month and produces meat which it sells both in Uganda and surrounding countries – managing director Aga Sekalala wants to expand – but he needs affordable credit, and with interest rates up to 18% this is not available.

Then there’s the physical infrastructure.

Last week someone stole the electric cable linking Ugachick to the grid. It took five days to fix it, and it only happened then because Ugachick provided the manpower to carry the poles.

“The infrastructure, the roads, power – all of this is our headache, when it should be the government’s,” he said.

Entrepreneurs like Aga should be the engines for creating wealth in Uganda.

If he expanded, so would his contributions to the revenue. He’s energetic and ready to move forward.

But there is no imperative for the government to help him. Any financial gap in the budget, and they only need to turn to the international donors to fill it.

Unsustainable debt

If only foreign aid could be shifted from lining corrupt politicians’ and bureaucrats’ pockets to developing private enterprise, then Africa would have hope.

And what of the third of the Blair Commission proposals – debt cancellation? Many people think that debt cancellation is a clear cut solution to Africa’s indebtedness.

But think again. Common sense tells you it’s wrong to reward bad economic behaviour.

My friend Ben Kavuya, a money lender here in Kampala, deals with bad debtors by taking their property, their collateral.

He believes if you forgive bad debts it teaches bad lessons, creating a culture of defaulting. That’s certainly exactly what happened with Uganda.

In 1998 Uganda was forgiven its debts through the Highly Indebted Poor Countries Initiative.

As a consequence, government indulged itself in very luxurious expenditure – increasing the size of Parliament – and invaded Congo and Sudan.

And not only that, it went on a renewed borrowing spree and today, seven years later, Uganda’s debt has more than doubled and now it is unsustainable.

Parliament is so foreign aid-dependent that even the chairs and desks are funded by Denmark.

And worse, with so much of our country’s budget in the hands of the foreign aid donors, the power of Ugandan voters to hold our government to account has been usurped by international creditors – precisely because he who pays the piper calls the tune.

In this way, foreign aid undermines democracy.

Foreign aid does not help the poor out of their misery – it exacerbates their problems and prolongs their agony.

Taxpayers in the west should not be asked to pay to keep corrupt and incompetent governments in power.”

Story from BBC NEWS

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About bulletsandhoney
I read my first book when I was three, then my second one a few weeks later. It has carried on this way for decades with only temporary distractions of eating, fighting, loving, heartbreak and other such irrelevant biographical details.

18 Responses to Andrew Mwenda on the Impact of Foreign Aid on Uganda

  1. Candace says:

    So what SHOULD the west do? It’s difficult to sit back & watch, doing nothing. There must be something?

  2. MMK says:

    Candace – That is the question. I do not know the answer for it but can perhaps put forward some questions in response. Why must the west do something? Is the desire to do something a reflection of human compassion or is in intermixed with a kind of paternal concern – Africans are children who are destroying themselves and must be taken care of by western adults? The relationship between the West and Africa has for the past century been one of conquering parent to backward child. How can this relationship change? I suspect that the first priority is for westerners to demand that their tax dollars not be spent to create dependency in Africa. If the monies must be spent – and there is much to suppose that aid has become an industry like any other – then let it be spent on initiatives that promote private business initiatives as a start.

  3. Candace says:

    “Why must the west do something?” – Speaking only for myself, as a mother I do not want to sit back and do nothing while a child (or hundreds of thousands of children, or millions) starve. Through donations, I can help that child and his/her family. I can, through various agencies, pay for chickens that could be raised for eggs (to eat, to sell) and generate an income for a family somewhere (or pigs, or whatever). For less than what I spend on fancy coffees in a month, I can help two different families in two countries – why wouldn’t I? By extension, why wouldn’t I want my government to provide something similar?

    As a citizen of a (relatively, per capita) wealthy country, watching my government pi$$ away billions in graft and stupid make-work projects (google “gun registry” and canada for an example), I’d rather that cash go toward feeding & educating children in another country than supporting ill-conceived government programs at home.

    We have social programs in place that are designed to help the less-fortunate in our own country (not that it always works, as inevitably there will be those parents that shouldn’t have had children, and squander their welfare dollars on alcohol & drugs rather than food and milk, but that is not something that I as an individual can do much about). We have storehouses of grain sitting idle and, at times, rotting, while people in Africa and Asia starve. It makes no sense to me.

    I’m not a pure socialist, in that I don’t see a utopia developing should the wealthy just share their wealth. However, to NOT offer a helping hand when one is able to seems inhumane to me.

    Canada, through CIDA (a gov’t agency), provides $ for projects. I suspect this is where the local (receiving company) graft occurs. God knows that same graft is likely happening at home (trust me when I tell you that a large portion of Canadians cringe when our most corrupt gov’t in history has the gall to lecture about attaching aid dollars to “cleaning up” government – Paul Martin and his cronies could teach despots large amounts on how to SUCCESSFULLY hide the corruption and thus earn a place at the “grown up” table).

    If all aid to Africa ended tomorrow, would the citizens of the various recipient countries benefit? I find that hard to believe. Instead, the shape and form of the aid should change – build & staff schools to ensure access to education (without fees), that is the sort of thing that comes to mind for me, but I don’t live there (hence my question).

  4. Anonymous says:

    CIDA – in justifying its existence to Canadian taxpayers, I guess – claims on its website that 70 % of the aid money actually gets rerouted to Canadian business. So, the Canadians are not nearly as generous as they appear to be.

  5. Marius says:

    Sorry, did not mean to appear as Anonymous. The name is Marius.

  6. Marius says:

    I have a theory that the astonishing post-war growth in Europe owes more to an unfettered free-market brought about by the destruction of bureaucracy and the governments’ inability to collect taxes than to the much vaunted Marshall Plan.

  7. Mauris,
    You theory has lots of Emperical Evidence to back it… see http://www.cato.org/dailys/05-19-03.html
    Indeed, decades of aid experience show no correlation between aid and growth.

    Nor, as the World Bank has reported, does aid conditioned on policy reforms generally work. But those problems were evident during the Marshall Plan itself.

    A study by George Mason University economist Tyler Cowen found that rapid economic growth in countries that had been occupied by Germany during the war occurred “irrespective of the timing and extent of Marshall Plan aid.”

    In West Germany — the plan’s most often cited success because of the subsequent “German Miracle” — economic recovery began before aid started flowing and coincided with Ludwig Erhard’s elimination of many of the Allied Control Commission’s extensive restrictions on trade, production, prices and distribution.

    In every country formerly controlled by the Nazis, growth did not resume until rigid economic controls were removed. The arrival of Marshall Plan funds did not correlate with the resumption of growth.

    In a review of West Germany’s economy from 1945 to 1951, German analyst Werner Abelshauser concluded that “foreign aid was not crucial in starting the recovery or in keeping it going.”

    The economic recoveries of France, Italy and Belgium, Cowen found, also predated the flow of U.S. aid.

    Belgium, the country that relied earliest and most heavily on free market economic policies after its liberation in 1944, experienced the fastest recovery and avoided the severe housing and food shortages seen in the rest of continental Europe.

    It is questionable whether the level of U.S. aid, which never totaled more than 5% of GNP of Marshall Plan countries, had a significant financial effect.

    In West Germany, U.S. policies actually led to a net loss because reparations and Allied occupation costs amounted to 11%-15% of GNP.

    France’s military spending in North Africa and Indochina in 1949-50 equaled nearly all of the Marshall Plan funds it received during that time.

    Marshall Plan aid also subsidized the Netherlands’ military repression of an independence movement in the East Indies.

    The Marshall Plan let other countries maintain otherwise unsustainable economic policies.

    Austria, Greece and other recipients of high per capita level of U.S. funds began their recoveries only as that aid flow came to an end.

    Britain, the recipient of the most U.S. aid, had the slowest European growth rate in the postwar era.

    The lessons for Iraq should be clear. Aid is not a necessary or sufficient condition for economic recovery.

    The experiences of postwar Europe and parts of the developing world in recent decades confirm that economic freedom, not foreign aid, leads to growth and prosperity.

  8. MMK says:

    candace – Thanks for your comments. Reading the article and some of the other comments, I am sure you will see that perhaps the best thing that the Canadian government could do woulb be to take less of your money so that you have a chance to buy more African goods when they are available. I used to get angry that there were people who were hungry when as you say, countries like Canada have ‘storehouses of grain sitting idle’. But I recommend that you read this post before making conclusions about such aid: Handy Advice if You Are About to Apply For a Food Aid Job. It can be found at http://bulletsandhoney.blogspot.com/2005/07/handy-advice-if-you-are-about-to-apply.html

    I do not think that people should starve or die of curable diseases. But what makes me sadder is that most such tragedies are entirely man-made. It will not take Canadian grain to solve the problem of hunger in Ethiopia – if a cup of maize meal for a family is regarded as a solution – it will take a fundamental change by Ethiopians of the communities in which they live.

    I think your heart is in the right place, and I only hope that between your empathy and the suffering of many Africans, there can be a way of being a global citizen that does not depend on paternalism and guilt.

    Marius – I think you make a much needed point. There is this idea floating about that German wealth was based on American charity. It was anything but that. Tell us more…

  9. Candace says:

    Yes, Marius, I’d like to see how the collective experience with the Marshall Plan could be translated/transposed to Africa’s nations.

    Surprisingly (or not), it’s been uncovered here that various political heavies in Canada (and apparently in the US) do actually read blogs (or have “their people” read them, whatever). It’s amazing to read something in a blog at 1:00 am and see the issue addressed at Question Period the next day – repeatedly, so as to confirm it’s not a coincidence.

    With respect to the two children I support through World Vision, I cannot and will not pull the plug. That being said, if my charitable donations can go to a better end in the future, I’d like to make an informed decision, rather than operating on guilt.

    MMK, thanks for your enlightening blog.

  10. Candace says:

    oops, it was also Akinyi with details on the Marshall Plan.

    I’d be very interested in suggestions of how to duplicate the results of “removal of aid” because I’m not entirely sure it will happen magically (maybe I’m just a cynic?).

  11. Marius says:

    MMK, What Akiniyi wrote about the Marshall Plan in his reply exceeds my knowledge of the area by magnitudes. Instead of the word “theory” I guess I should have used “suspicion”, but I feel edified that Akiniyi confirmed it, though saddened that politicians obviously don’t take their cues from researchers but from celebrities.
    Candace, here is a link to an article that shows how Europe’s experience of post-war growth thanks to anarchy seems to be replicating itself in Somalia:
    http://allafrica.com/stories/200507110076.html

  12. Anonymous says:

    thanks for the article but i want to correct u here. mr andrew mwenda is not an oponent of museveni but a free minded an open jorunalist who speaks nothing but the truth(researhed if u care to follow it up0 thank u

  13. MMK says:

    Anon – I agree with you entirely about Mr Mwenda who I admire greatly. He is not opposed to Museveni as long as he does not go against the principles of liberty that Ugandans deserve.

  14. Kayumba says:

    Commonwealth cannot be The Answer to tough questions of our time.

    The wish of opposition in Uganda for commonwealth to do something to cause Uganda government to make certain reforms is not unique. The appeal to supra yet weak international organisation is characteristic of our time and this spirit is slowly but surely playing in the hands of the small but powerful clique of individuals who are working towards one global government. All international organisations are only powerful when US government wants use them, otherwise, they are useless. We should only be happy whenever they visit our country as did commonwealth. This is the only significant moment we can benefit from them. So, organisation on international level is not necessarily geared to strengthening national but global agendas.

    It is the wish and the cry for democracy, good governance and peace that will drive men into a one global government in hope for tranquillity but only to wake up for a fascist form of government where human rights is a thing of the past. The ability of World Bank to influence political behaviour of governments is a reflection of the subtle force behind it. This may sound ridiculous but it is in the making.

    It begins slowly by losing nationalism, patriotism and we look for outside authorities to solve our internal affairs. Why should Africans generate into weaklings to the point where we must go to those who divided and continue to divide us for resolving and supervise our governments? Once the people in form of opposition make it their occupation to see nothing good in the seating government, and at any slight opportunity find it almost fissionable to cause unrest, not only do people cheapen themselves, but play in the hands of the enemy.

    Why should any one expect that the commonwealth’s presence or absence will affect the president and not affect the country in any way? Has the suspension of Pakistan produced immediate results? And will the suspension affect one individual?

    This is not to condone bad governance but it is to probe into what bad governance immerges from? It is a misunderstanding of international geopolitical aspirations of great powers that make us draw premature conclusions of our situations. The man who manufactures guns is interested in war. The man who deals in strategic minerals and other minerals is active in acquisitions of these resources. Stable governments too have their unique problems that pertain to being stable. They can hardly be stable while Uganda is stable. So we are contending with powers in this highly completive world. War and refugees are a blessing to those who benefit from them. Diseases are not all that bad for those who are interested in making money. This is the contradictory world we live in!

    So, international organisations such AU, Commonwealth, UN and what not, are mere kraals where some big power can efficiently manage international affairs. No wonder then, even after UN disserted Rwandans in the 1994 genocide, Rwanda has not seriously questioned the usefulness of such membership. You remain there any how. Even when you are suspended from such a useless body and you happen to be of small mind you mourn. But mourn for what?

    This is a proof that we are mangled by some one. Hardly can any citizens of any country on the globe can effect significant changes without outside interference. Who knew that George Bush’s election would be marred with malpractices? When it comes to Africa why should it be stranger? We should be more thankful for the invisible Devine hand that still intervenes in man’s affairs.

    Is not worth that we Africans learn to manage our affairs without appealing to the powerful countries whose leaders are also questionable in many areas? When we want changes in Uganda we go report our leader to Tony Blair, McKinnon or George Bush or who ever, including Human Rights watch. But the truth is that every where the power that influences certain events is at work.

    Where does this attitude leave us? Our leaders become weaker and weaker, unable to make independent decisions based on national interests. Our interests get mixed up with foreign interests and we realise that all along were serving not our interests. Great people make great leaders. If want great leaders we the people must be ready to stand for the values that define us as a people. If we want our leaders to resist foreign cultural aggression that is being forced on us, we must prove to our leaders that we can stand without foreign aid and determined to eat one meal a day rather than eat three meals a day in a toilet.

    If we all knew what it means for an African leader who is revered at home and must go beg for help at the door of Paris donor club simply because he must meet the promises in his election manifesto, then we would think twice before make our leaders a laughing stalk abroad.

    Therefore, Ugandans we should try a little harder to support government efforts and also request our government to minimise aid dependence. Uganda needs not make premature steps in development. The grid for rapid growths tends to open doors to even useless investment that ruin society. And nothing comes without a price tag on it, so we should critically and suspiciously question any thing that is imposed on us from democracy, religion, feminism to aid.

    While it is possible that a neighbour may be more capable to provide for his family than my father, it does not mean he is more loving than my dad. Let us learn to live within our means and treat our people as our Children. Only then, can we minimise the chances of foreign manipulations as we experience the dad’s loving care.

    My the God of all creation bless our land and Nation- Uganda.

    Kayumba David
    Brussels
    Email: kayumbadavid@yahoo.com

  15. Otim Michael says:

    Andrew Mwenda speaks the truth about the institutions and forces that keeps Africa from flourishing.

    Get up! Stand up! Stand up for your right! Don’t give up the fight!

    “Few men are willing to brave the disapproval of their fellows, the censure of their colleagues, the wrath of their society. Moral courage is a rarer commodity than bravery in battle or great intelligence. Yet it is the one essential, vital quality for those who seek to change a world that yields most painfully to change.”
    Robert F. Kennedy

  16. julius says:

    Museveni really started well but later, appointed poor, corrupt guys like Muwezi who has poor records in which ever ministry he is given. You see Museveni is not bad but the people surrounding him are the waste. Advising him to come for the forth term etc, will all waste his governence completely

  17. John. Bosco KALISA says:

    I do agree with Mwenda that aid does not and will not uplift the economies of the african countries and what should be done is to use effectively our owns resources so that we can design policies based on our own priorities and not donors priorities.

    I am doing a research on the impact of aid on economic growth of uganda but my preliminary results indicate that aid has worsened the economic situation of uganda and poverty levels are increasing. we need to identify our priorities and orient aid depending on our priorities. I have realised that donors do not want to finance the productive sectors and you can not uplift the standards of living of your people without supporting them to engage in productive activities.Its high time to caution our leaders and negotiators to carefully look into the importance of the aid on economic development.

  18. Jeff Wadulo says:

    I agree with Andrew to a certain extent but would rather go for a middle of the road option. “Meaningful Aid”, that is tied to progress and monitored for results. It is a whole psychological game of the carrot and stick. If aid is handled well, it can have a very good effect and this has worked with some growing African democracies like Ghana.

    Jeff

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