ABSTRACT
It used to be called foreign aid, but now it goes by more fanciful names such as official development assistance and concessional resource transfers. According to Lancaster (2000), the word “Concessional” refers to the fact that foreign aid usually involves at least 25% of the money given away freely as a grant element with the remainder a loan carrying steeply discounted interest rates and long repayment periods such as 40 years or more. That description, in fact, is as good as technical definition of foreign aid as any and for tallying purposes, does include military aid, trade financing, intergovernmental loans, funding for anti-drug or anti-terrorism activities, voluntary disaster relief, or forced “contributions” to the UNO. It is increasingly being channeled through International Organizations, but many nations (like the USA) have subcabinet agencies like (USAID) for disbursing foreign aid. Foreign aid in flows in Nigeria have grown significantly in the independence period. Many studies have tried to examine the effectiveness of aid on the economic development of Nigeria, while some evaluations have found that in many cases aid does not “work”, others are ambiguous. This research thesis assesses the impact of foreign aid on economic development of Nigeria, 1960 – 1985. The research examines specific study of some projects financed through foreign assistance and with findings from qualitative oral interview of personalities who are still key players in the country’s economic development, we infer that foreign aid has not impacted positively on economic progress of Nigeria during the period under study.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Over the past half century, foreign aid has emerged as a dominant strategy for alleviating poverty in the third world. Not coincidentally, during this period major international institutions, such as the United Nations (UN), World Bank (WB), and International Monetary Fund (IMF) gained prominent in global economic affairs (Hjeertholm and White, 2003). Yet it seems that sixty years later, the less developed countries (LDCs) of the world continue to suffer from economic hardship, arising questions of whether foreign aid is a worthwhile and effective approach to boosting growth and development in recipient economies. Then how does foreign aid affect economic growth and development in recipient country? This is a question that has attracted intense debate among scholars.
The empirical evidence obtained from these extensive studies have been mixed (Murphy and Tresp, 2006, and Duc, 2006). In between, however, are some others who argue on the role of economic policy in determining the effectiveness of foreign aid in aid recipient countries. Pedersen (1996), argues that it is not possible to conclude that the foreign aid has a positive impact on growth. Morrisey (2001) claimed that aid works well conditional on other variables in the growth regression. Mosley (1980), Mosley et al (1987), Boone (1996), and Jensen and Paldam (2003) found evidence to suggest that aid has no impact on economic growth and development. Many other authors find no evidence that aid affects growth in developing countries. However, the relation between aid and economic development remains inconclusive and is worth being studied further.
The history of foreign aids dates back to international actions that followed Second World War. Indeed, several institutions have evolved from organizations originally created to contribute to post-war reconstruction. The development work of the UN began with the United Nations Relief and Rehabilitation Agency (UNRRA) founded during the war, and the World Bank, or the International Bank for Reconstruction and Development (IBRD), which provided loans for recovering western European nations, making its first loan to a developing country only in 1950 to (Colombia).
The final post-war manifestation of importance was the Marshall plan, whose success was seen as a model for development elsewhere, and whose approach was reaffirmed in the donor coordinated effort of the Colombo Plan for South and South-Eastern Asia. A final feature of the post-war international scene of importance was the first wave of independence from colonial rule, creating a constituency for aid. The first meeting of the non-aligned movement in 1965 gave a focus to this voice, as did the various organs of the UN, notably UNCTAD.
Despite the existence of multilateral programmes, bilateral technical assistance to independent countries and even the emergence of the soviet aid programme in 1956, the 1950s may be described as a decade of US hegemony in aid distribution, as it alone accounted for two-thirds of total aid in that decade (The Guardian.com,2014). . Although the programme was subject to continued commercial pressures (especially in the use of food aid), the intensification of the cold war gave U.S aid a strongly strategic orientation, which it has retained to this day. International aid was quite consciously used to stop “countries going communist”, and development aid as well as military aid mixed as necessary. In the 1960s, the second wave of independence and the troubled financial state of some already independent countries (notably India) prompted the emergence of greater amounts of bilateral programmes.
By 1969, the aid system grew and its channels multiplied and became tangled. There was unnecessary duplication in economic reporting and feasibility studies. Inadequacies of coordination implied a lack of purpose and direction in development assistance. To remedy these deficiencies, the Pearson Commission advocated many changes, among them the strengthening of multilateral agencies. The major multilateral development agencies have grown in number and size over the past fifty years.
The first group, the United Nations and the sister institutions created at BrettonWoods, commenced operations after the Second World War; but it was several years before the UN and the World Bank concentrated seriously on development. The IMF was not then and is not now – a development institution, although its work in many spheres, national and international, has a considerable impact on developing countries. The second group, the regional development banks, began to grow in the late 1950s, from the start, their objectives were developmental. In 1970, UN development agencies accounted for more multilateral Official Development Assistance (ODA) than any other channel. By 1977/73, however, they had been overtaken by the World Bank Group, while the regional development banks, such as the African Development Bank, the Asian Development Bank and the Arab Fund for Social and Economic Development, grew exponentially in their import. Today, approximately 25 percent of international aid is multilateral, while the other 75 percent is bilateral (Singh, 1988).
The concept of international aid or foreign aid, or Official Development Assistance (ODA) is widely used and accepted as a flow of financial resources from developed countries to developing countries on development ground (Todaro, 1989)1. To Uzonwanne Maria (2015), the term “foreign aid” implies a number of varied activities, ranging from humanitarian support in the wake of natural disasters to military assistance and arms donations. It is a voluntary transfer of resources from one country to another.
The author defines foreign aid as flow or transfer of resources (financial or material) from one country or organization to another for the purpose of assisting recipient country or its population meets specific needs, particularly in term of economic development. According to Wikipedia free encyclopedia (2014), official development assistance is a term coined by the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD) to measure aid (e.m.wikipedia.org). The DAC2 first used the term in 1969
The flows of foreign resources can be of many types and it is important to know the different elements. Foreign capital flows are generally divided into two broad streams – official and private. The official capital flows are in turn subdivided into bilateral and multilateral flows. Official bilateral flows consist of capital provided by government of donor to government of recipient countries. Multilateral flows consist of flows from multilateral organizations such as the World Bank, the United Nations, The IMF. Both types of the official flow can take the form of grants, loans or grant-like contributions. Grants should be considered as the most desirable type of foreign aid since they represent a net addition to the resources available for development purposes. This is because grants as foreign aid are not expected to be repaid by the recipient country. Grants do not include technical assistance or other forms of financial assistance such as a loan or loan guarantee which are required to be repaid within a stipulated period (Investopedia.com). Some loans are given by the international lending agencies (i.e World Bank) at interest rate which are lower than those in the capital markets. Where the loans are granted to the LDC’s at a concessionary rate for very long periods, say for 40-50 years, the inflows of foreign private investment in the LDCs are not exactly foreign aid because they are made on commercial terms.
Development Assistance Committee (DAC) defines foreign aid as official development assistance (ODA) and technical aid. The ODA flows must satisfy all three of the following criteria:
their primary objective must be developmental, thus it excludes military aid and private investment,
they must be concessional,3 that is the terms and conditions of the financial package must be softer than those available on a commercial basis. The DAC defines Official Development Assistance (ODA) as officials flows with a grant element of greater than 25 percent at a 10 percent discount rate.
The flows should come from governmental agencies and go to developing country’s government (OECD, 2014).
1.2 Statement of Research Problem
Nigeria is one of the poorest countries of the world despite its oil wealth. It is one of the most aided countries in the world. Poverty reduction is generally agreed to be the core motivation for foreign aid. Paradoxically, foreign aid which is geared towards enhancing economic development and poverty reduction in Nigeria has not been quite effective. The extent to which foreign aid has impacted on the economic development and poverty reduction in Nigeria is the central problem which this research seeks to unravel.
IMPACT OF FOREIGN AID PROGRAMMES ON POVERTY REDUCTION AND ECONOMIC DEVELOPMENT IN NIGERIA
