“Africa has been dependent on aid for decades. Aid to Africa over the last 30 years is estimated at US$1.2 trillion. Twenty-three African countries (43%) are dependent on aid. The average per capita aid to Africa stands above 50%, with seven countries exceeding 100%, while the global average is 20 – 25%,” said Elsabé Loots, Professor Emeritus (Economics) at the University of Pretoria. “But despite vast amounts of aid flows over the years, poverty on the continent remains widespread with 460 million people or 30% of the population still living below the extreme poverty line.”
Loots was presenting the sixth and final STIAS public lecture for 2024. Her area of specialisation is development economics, with her research primarily focused on African economic development topics and globalisation. Over her career, she has been involved in a range of sectoral industry reports, two NEPAD African Peer Review Mechanism Background Papers and an African Union/United Nations Country Review Mission. She served as Dean of the Faculty of Economic and Management Sciences at the University of Pretoria, Dean of the Faculty of Economic and Management Sciences at the Potchefstroom Campus of North-West University, and as Head of the School of Business and Economics at Monash South Africa. She also held professorial appointments at the universities of the Free State and Johannesburg.
She is a former President of the Economic Society of South Africa and of the South African Commerce Deans Association, served on the International Advisory Board of the Association for the Advancement of African Women Economists, is an inaugural member of the Women in Business Education and an elected member of the Academy of Science of South Africa, and served as the Co-Chair of the AACSB Africa Regional Network. Her latest book Economic Shocks and Globalisation: Between Deglobalisation and Slowbalisation, was published this year.
Loots explained that official development assistance (ODA) or aid is the transfer of money or resources from predominantly richer countries usually to developing countries with the aim of fighting poverty and supporting development. ODA, also supplied from multilateral l institutions and development banks, can be in the form of grants or loans on concessional terms.
ODA originated from the Marshall Plan in which funding from the United States was used to rebuild European infrastructure after World War II. “Under the Marshall Plan countries received funding for a limited period and could choose how to use it. The model was successful in rebuilding Western Europe and Great Britain and the idea took root to expand this concept to the rest of the world in the form of ODA, unfortunately with a mixed success rate over the years.”
Most current available data on aid flows are from the Organisation for Economic Co-operation and Development (OECD) which compiled data from the 30 European DAC member countries, non-DAC member countries like Kuwait, Saudi Arabia, Russia, India and Malaysia, and flows from multilateral institutions. Although the DAC member countries pledged to donate at least 0.7% of their respective gross national income to poor countries, only a small pool complies with the guideline.
Loots also explained the different generations of thinking on the topic – from the first in the 1960s and 70s where aid was seen as an increment in the capital stock of the recipient country; the second generation studies in 1980s in response to the debt crisis, that focused on the aid-growth relationship and policy reforms; the third and fourth generation studies in the 1990s/2000s focussed on economic growth, aid effectiveness, aid-good policy debates, absorptive capacity and the role of institutional factors as Asian economies opened up, the end of the Cold War with increased participation from Eastern Europe, and ; the introduction of the Millenium Development Goals and the focus on poverty reduction; and, the fifth generation studies that further elaborate on aid-effectiveness and a wider emphasis to include the quality of political institutions and which followed the 2015 launch of the Sustainable Development Goals when donor countries began channelling support towards their achievement.
“Since 2020, the global economy continues to experience numerous destabilising shocks,” she said She pointed out that the current aid landscape since 2020 is influenced by the COVID-19 pandemic, the Russia Ukraine war, monetary restructuring policies and fiscal budget constraints in donor countries, the Middle East conflict, the slowdown in global economic growth, the changing geopolitical power shifts and the continued intensifying climate challenges.
The history shows that aid flows in the past did not escape global shocks. In fact, the more recent destabilising geopolitical, economic, and even climate shocks are already influencing the nature, direction, structure, and extent of aid flows.
Notwithstanding the increase in global aid flows, the current shifts in the aid landscape include declining levels of funding for debt relief (at the lowest level in nearly two decades), but increases in aid spending on COVID-19 vaccines, refugees and on military and other aid to Ukraine.
Although Africa remains the largest recipient of ODA, during the 2019 – 2022 period aid flows declined in 57% of African countries. The European Union remains the biggest donor of African aid and the US the highest donor country. There has also been a shift from grants to concessional loans, a trend that may be problematic for especially the HIPCs of Africa. On a positive note, food aid kept rising and aid for energy generation form renewable sources peaked.
“The G20 triple agenda introduced as part of the New Delhi declaration in 2023 is supposed to reform aid architecture. But we don’t know if it will materialise or just be a talkshow,” she added. “It’s supposed to be a forum to get multinationals to help eliminate poverty, boost prosperity and triple sustainable lending by 2030 – but this is not currently happening.”
She also noted that many donors are bypassing recipient-country governments with non-governmental organisations responsible for 75% of projects. This circumvention is sometimes linked to a poor response to aid in Africa along with factors like state weaknesses in absorbing aid, corruption, donors with top-down mindsets, competition between emerging aid and long-term development priorities, fragmentation of aid, and earmarked donor channels.
But, overall, Loots noted that “The changing global geopolitical power shifts are causing shifts in the global distribution of power and adding pressure to the influence of multilateral institutions and could impact on aid flows to Africa. From a policy formulating and planning perspective, it’s essential to understand whether these destabilising shocks and challenges have caused or will contribute to a paradigm shift in the aid-debate to migrate to the sixth generation thinking on the topic where the structure, sectoral allocations, donor composition and management of aid may differ from previous periods.”
Enter China
In this complicated and challenging arena China’s increasing role in Africa can’t be ignored. China is now the largest individual country donor of development aid to the continent. Since China is managing its foreign aid differently from other donor countries, Loots described China as reshaping the global landscape of development finance.
She emphasised that China follows a more unconventional, pragmatic approach, with less conditionalities, more flexibility, and few strict rules. “However, they also fund authoritarian regimes and sometimes support questionable projects. There are also questionable lending practices – with high interest rates and penalties resulting in debt traps. The financial arrangements are complex and confidential.”
“While Chinese aid in the 1970s has been aimed at facilitating its domestic economic development, its role has now changed to strengthening their leadership role in global governance, increasing their power in international affairs and improving their global image.”
Chinese aid has been led by the Belt and Road Initiative since 2013, especially in East Africa, and the Forum for China Africa Cooperation.
Loots pointed to the challenges in accessing data on Chinese aid flows to Africa. “The data on Chinese aid are ad hoc and usually come from the recipient countries themselves. We know that the biggest recipients in Africa are Angola, Kenya and Ethiopia. There is a strong focus on infrastructure and, for image purposes, some investment in education and other sectors. But the main objective is to use aid to promote China’s political, economic and strategic interests.”
“I do have concerns about the level of Chinese involvement in East Africa,” she said. “The region is the best continental performer growth wise but what about falling into debt traps and the level of interference including political? The infrastructure focus is clearly needed in Africaand we do see the benefits, but what about the longer timeframe?”
“Africa has also suddenly become an important roleplayer between China and the US.”
“However, lack of data means we can’t do detailed analysis,” she added. “There are studies being done but they are hard to do – they rely on scarce data from China and other sources like social and traditional media. We need quality data for quality analysis. Increasingly there is work being done by Chinese researchers within and outside China which will add to the validity of the data.”
“Of course, there are voices from within Africa to move beyond aid,” she concluded. “But aid effectiveness remains challenging. We would need to get the continent to grow economically beyond population growth, and, to replace aid, we would need at least US$100 billion per annum, which is highly unlikely. There are no real solutions on the table on how to move beyond aid.”
Michelle Galloway: Part-time media officer at STIAS
Photograph: SCPS Photography