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LDP 602: PROJECT FINANCE

Discuss the extent to which Development Aid is relevant in the 21st Century Africa and
suggest alternatives to Aid
Table of Contents
1 Introduction ........................................................................................................................................... 1
2 Development Aid in Africa ................................................................................................................... 3
2.1 The Role and Effectiveness of Development Aid ......................................................................... 6
2.1.1 Success Stories of foreign aid in Africa: Case of China Aid to Africa ..................................... 7
2.2 The Case Against Development Aid in Africa ............................................................................. 9
2.2.1 Challenges of tied Aid ........................................................................................................... 9
2.2.2 Aid is Expensive ................................................................................................................... 10
2.2.3 Conditions associated with Foreign Aid .............................................................................. 10
2.2.4 Aid has fueled corruption is some African countries .......................................................... 11
3 Alternatives Approaches for Development Aid .................................................................................. 12
3.1 Aid in different approach ............................................................................................................ 12
3.1.1 Align Aid to Support Development Strategies .................................................................... 12
3.2 Search for non-aid & non neo-liberal approaches....................................................................... 12
3.3 Enterprise .................................................................................................................................... 13
3.3.1 Enterprise Logic vs Aid Logic ............................................................................................... 13
3.3.2 The Logic of Aid ................................................................................................................... 13
3.3.3 The Logic of Enterprise........................................................................................................ 13
3.4 Trade ........................................................................................................................................... 14
4 Alternatives Sources of Financing Development Projects .................................................................. 16
4.1 Direct Foreign Investment (DFI) ................................................................................................ 16
4.1.1 Direct Foreign Investment as a Source of Finance for Development Projects ................... 16
4.2 Government Agents .................................................................................................................... 17
4.3 Foundations ................................................................................................................................. 17
4.4 Corporate Social Responsibility.................................................................................................. 18
4.5 Faith Organizations ..................................................................................................................... 19
4.6 United Nations Agencies ............................................................................................................ 19
5 Conclusion .......................................................................................................................................... 21
6 References ........................................................................................................................................... 22
1 INTRODUCTION

Foreign Aid can be defined as the international transfer of public funds in the form of grants or
loans either from one government to another (bilateral assistance) or through a multilateral
assistance agency like the World Bank. A grant is a financial or material resource bestowed by a
funding agency for the purpose of achieving specific, predefined goals and objectives without
expectations for repayment. A loan has to be paid back, the principle plus interest or the principal
alone. It is said to be a soft loan when only the principal or the principal plus a concessional
interest is expected to be paid back.

In 2006, $103.6 billion dollars of foreign aid flowed to developing countries. Over the past 50
years, the amount of foreign aid dispersed totals over $2.3 trillion 2006 dollars(Easterly, 2006).
However, despite a large amount of time and resources devoted to development assistance, a lack
of theoretical consensus surrounding the effectiveness of foreign aid remains. Two competing
theories have emerged. The public interest theory argues that foreign aid is necessary to fill a
financing or investment gap, and this will in turn lift countries out of a so-called poverty trap (for
example, Sachs 2005). This remains the core argument for the use of foreign aid over the last 50
years. A contrasting theory, a public choice perspective, contends that foreign aid is ineffective
and possibly damaging to recipient countries (Bauer 2000; Easterly 2001).

The role of foreign aid in the growth process of developing countries has been a topic of intense
debate. Foreign aid is an important topic given its implications for poverty reduction in
developing countries. Previous empirical studies on foreign aid and economic growth generate
mixed results. For example, Papanek(1972), Dowling and Hiemenz (1982), Gupta and Islam
(1983), Hansen and Tarp (2000), find evidence for positive impact of foreign aid on growth;
Burnside and Dollar (2000) and Brautigam and Knack (2004) find evidence for negative impact
of foreign aid and growth, while Mosley (1980), Mosley, Hudson and Horrell (1987), Boone
(1996), and Jensen and Paldam (2003) find evidence to suggest that aid has no impact on growth.
It should be noted that, although Burnside and Dollar (2000) concluded that foreign aid has

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positive effects, this conclusion applies only to economies in which it is combined with good
fiscal, monetary, and trade policies.

However, Leeson (2008) offers an alternative explanation. Most developing countries have weak
institutions and bad policies, contributing to why they are poor. Thus, where aid is needed, it will
be unhelpful because the necessary institutions are lacking. Where it can do some good, in those
countries with good policies and institutions, it is not needed.

This paper discusses the extent to which development Aid is relevant in the 21st Century Africa
and suggests alternative approaches to development aid as well as alternatives sources of funding
development projects other than development Aid .In subsequent sections we shall discuss in
details the the role and effectiveness of of development Assistance, Cases Against Development
Aid, Alternatives to Development AID in Africa and Conclusion.

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2 DEVELOPMENT AID IN AFRICA

Aid is the “transfer of resources on concessional terms—on terms that are more generous or
‘softer’ than loans obtainable in the world’s capital markets”(Cassen & Associates, 1994).
The term “foreign aid,” for the purposes of this report, refers only to Official Development
Assistance (ODA). ODA is defined as the flow of official financing to the developing world that
is concessional in character, namely grants and loans with at least a 25 percent grant component
(The World Bank, 1998). ODA is generally administered with the objective of promoting the
economic development and welfare of developing countries, and comprises both bilateral aid that
flows directly from donor to recipient governments and multilateral aid that is channeled through
an intermediary lending institution like the World Bank. This definition excludes debt relief,
technical assistance, and other forms of aid.

The International Monetary Fund (IMF) defines ODA as: Flows of official financing
administered with the promotion of the economic development and welfare of developing
countries as the main objective, and which are concessional in character with a grant element of
at least 25 percent (using a fixed 10 percent rate of discount). By convention, ODA flows
comprise contributions of donor government agencies, at all levels, to developing countries
(“bilateral ODA”) and to multilateral institutions. ODA receipts comprise disbursements by
bilateral donors and multilateral institutions. Lending by export credit agencies—with the pure
purpose of export promotion—is excluded(International Monetary Fund, 2003).

Traditional development economics has long viewed foreign aid as a tool for overcoming the
savings gap in developing countries. Based on the assumption that the Third World is poor
because it lacks the capital necessary for making income generating investments, mainstream
economics literature suggests that aid can help developing countries by closing this financing
gap that otherwise leaves them stuck in a “poverty trap.” The “big push” argument portrays aid
as the necessary catalyst for investment that would, in turn, lead to growth and presumably
initialize an upward path to economic development(Schabbel, 2007). Sachs (2005)prescribes a
comprehensive package of massive aid transfers and widespread reforms that aim to tackle
multiple socioeconomic pathologies quickly and simultaneously. Shock therapy of this sort,
Sachs argues, can end extreme poverty for the world’s “bottom billion” by 2025.

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However, half a century of historical evidence of aid flows to Sub-Saharan Africa suggests that
this “big push” paradigm does not actually work in practice. As home to a large proportion of the
world’s “bottom billion,” Sub-Saharan Africa has attracted substantial amounts of foreign aid
over the years. ODA flows to the continent currently stand at around $80 billion per annum and
the figure is projected to reach $125 billion by 2010. In aggregate terms over the course of the
last 50 years, foreign aid transfers to governments in Sub-Saharan Africa totaled a staggering $1
trillion(Kasper, 2006). Nonetheless, as shown by the figure below, over the same period of time,
growth of GDP per capita in Africa actually registered a marked decline and was for many years
even negative. With only a few exceptions, actual GDP per capita figures also declined across
most of Sub- Saharan Africa. For example, World Bank calculations show that if theoretical
models had predicted correctly, foreign aid transfers to Zambia, which began in the 1960s, would
have by today pushed per-capita income to over $20,000. In practice, however, Zambian income
per capita has stagnated at around $600 for years. This provides a stark example of the failures of
foreign aid in Sub-Saharan Africa.

Source: Erixon, F. (2005) “Why Aid Doesn’t Work.” BBC News.

In the figure above, between 1970 and 2000 as aid rose, growth slowed.

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There is a growing convergence of opinion in the academic community that aid has so
spectacularly failed to achieve its intended outcomes in Sub-Saharan Africa because high aid
intensity is actually associated with an erosion in the quality of governance.

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2.1 THE ROLE AND EFFECTIVENESS OF DEVELOPMENT AID
According to the Congress of United States (1997), aid to developing countries is useful in
promoting economic and social development. Some developing countries, particularly in East
Asia, have grown rapidly since the early 1960s. South Korea and Taiwan, for example, were
both aid recipients in the 1950s and 1960s; now they are aid donors. South Korea was a
relatively poor country in the 1950s. Today, the World Bank considers it an upper middle-
income country, and it no longer receives economic assistance from the United States.

The purpose of foreign aid is to facilitate and accelerate process of development through
injections and to reduce foreign exchange constraints. The following are some of the ways that
foreign aid achieves this purpose:
i. The undertaking of new projects. External finance supports the importation of the
necessary capital goods used in projects.

ii. Help finance public projects such as hospitals, schools etc which the country may be
unable to adequately finance from its tax revenue.

iii. Fund governmental and non-governmental interventions in all facets of development,


income generating projects, poverty reduction projects, civic education, peace and justice,
health related projects, shelter, capacity building etc.

iv. Provide technological transfers which bring with it technological know-how and new
skills into a country.

v. Relief aid in support of natural catastrophes enables the affected countries to spend their
limited foreign exchange on essential imports.

vi. Support structural transformation especially where conditions include implementation of


certain policy reforms.

The US Foreign Assistance Act of 1961, gives some of the objectives of aid as:

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i. Alleviating the worst physical manifestations of poverty among the world’s poor majority
ii. Promoting conditions that enable developing countries to achieve self-sustaining
economic growth with equitable distribution of benefits
iii. Integrating developing countries into an open and equitable international economic
system
iv. Increasing the opportunity and capability for the poor to participate in the development
process
v. Increasing agricultural productivity per unit of land through small-farm, labor-intensive
agriculture
vi. Contributing to improvements in the health of the greatest number of poor people in
developing countries
vii. Helping developing countries to develop, produce, and effectively use energy
viii. Assisting the development of the private sector in developing countries
ix. Integrating women into national economies to enhance their status and to further the
development process
x. Supporting human rights by not providing assistance to countries that engage in a
consistent pattern of gross violations of these rights
xi. Reducing environmental degradation and promoting natural resources management
xii. Using, whenever feasible, private and voluntary organizations to implement development
activities
xiii. Providing international disaster assistance
xiv. Emphasizing the use of smaller, cost-saving, labor using technologies

2.1.1 Success Stories of foreign aid in Africa: Case of China Aid to Africa

According to Berthelemy (2011), Chinese development assistance to Africa takes different


forms: grants extended for social projects (health, education, and housing) in the form of material
assistance, technical assistance and personnel training; interest-free loans given notably for
infrastructure projects; concessional loans provided by China EXIM Bank; and debt relief.

Berthelemy further notes that Chinese investment in Africa has increased rapidly since 1996,
stimulated by incentives from the Chinese government and by the economic recovery of African

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countries. By 2005, China had already established more than 800 enterprises in Africa, covering
49 countries.

Since 1956, China has helped African countries establish nearly 900 projects including: textile
factories, hydropower stations, stadiums, hospitals and schools. In terms of projects completed
and handed-over, Ethiopia, Sudan, Tanzania, Zambia, Mali, Egypt and Algeria have been among
the top recipient countries on the continent(Wenping, 2013).

After the establishment of FOCAC in 2000, Chinese development assistance and investment in
Africa has improved and been strengthened rapidly. Furthermore, since China focuses its aid on
projects and manages it in a bilateral way, it can act quickly and with less or shorter procedures.

According to research carried out through the Rockefeller Foundation-funded “Asian Drivers”
program, which draws on field studies in 28 African countries, new donors’ engagement with
African nations are boosting Africa’s exports and economic growth, especially in net oil-
exporting countries. At the same time, these new donors are providing economic opportunities
for countries neglected by traditional investors and financers. With new donors’ finance, African
countries are addressing infrastructure deficits (the current funding gap for infrastructure in
Africa totals at least $35 billion a year). They are also lowering the costs of doing business and
facilitating trade. In addition, cheaper goods and services from Chinese firms have yielded
welfare gains for African consumers.

More importantly, the economic success stories of many new donors, particularly China, has
provided African governments with another model of how to develop their own economy-ideally
based on their own priorities. Thirty years ago, Malawi, Burundi and Burkina Faso were
economically ahead of China on a per capita basis. Now, China has become the second largest
economy in the world, and 400 million people have been lifted out of poverty. This success has
attracted attention from other developing countries, especially Africa. Hopes are high for
drawing lessons from China’s experiences to speed up their own development.

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2.2 THE CASE AGAINST DEVELOPMENT AID IN AFRICA

2.2.1 Challenges of tied Aid

Decision-making process surrounding aid disbursement is burdened with different stakeholders,


special interests, and rent-seeking activities. The aid process entails various layers of self-
interested actors that include donor and recipient governments, donor agencies, producers, and
citizen interest groups. These interests may impact negatively on projects and on overall
development. Aid can either country tied or project tied.

2.2.1.1 Country tied aid

Country tied aid requires recipients to purchase a certain percentage of goods from the donor
country. This may lead to the importation of inappropriate technology and inputs at a higher cost
from the donor country than could be obtained from alternative source. Donor producers
overcharge recipients due to their increased market power and prohibit recipients from being
able to purchase goods cheaper elsewhere. Domestic producers find it in their interests to try and
secure a position where their products are related to the tied aid. The United States, for example,
requires about 75% of its aid to be spent on products from American companies. Other donors
have similar requirements(Easterly, The White Man's Burden: Why the West's Efforts to Aid the
Rest Have Done So Much Ill and So Little Good, 2006). If Britain, for example, funded the
Kenyan Government’s sponsored project by way of a soft loan in the form of aid, the Kenya
Government will not have the option of buying the required equipment from a relatively cheaper
source from another country, say, China. In such a case, Kenya will be required to pay a loan of
which it may not have maximized. Besides, the British technology may be capital intensive while
a more labour intensive capital may have been more appropriate for Kenya’s unemployment
problem. Worse still, Kenya may be dependent on British spare parts throughout the life of the
project.

2.2.1.2 Project tied aid

Project tied aid is where aid money is disbursed for the purpose of undertaking specified projects
only, whether or not the projects are priority to the recipient. Such aid is usually driven by the
national priorities of the donor country which may not be consistent with the priorities of the

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recipient country. This may lead to implementation of projects that are not priority projects
especially if the recipient government has little to say.

2.2.2 Aid is Expensive

Aid is increasingly being borrowed on commercial terms which are characterized by high
interest rate that impose huge burden on developing countries since substantial proportion of
export earnings has to be used to service debt. The insidious aid culture has left African countries
more debt-laden, more inflation prone, more vulnerable to the vagaries of the currency markets
and more unattractive to higher-quality investment.

2.2.3 Conditions associated with Foreign Aid

Foreign aid often comes with conditions which may adversely affect certain sectors of the
economy. IMF and the World Bank often impose economic reform programmes as a condition
before advancing aid. Economic reform programmes are a combination of fiscal, monetary and
sectoral policies or regulations used to change the relative prices and the level of government
spending, liberalization of the foreign currency market to ensure that it accurately reflects the
relative scarcity of different currencies. While these conditions are well intentioned, they often
do not take into consideration the reality of the recipient countries. For example, economic
reform programmes advocate increased trade liberalization that sometimes harm domestic
producers.

2.2.3.1 Structural adjustment programmes

Structural adjustment programmes (SAPs), a series of economic and political reforms initiated
by the World Bank and International Monetary Fund in Kenya since 1988 and especially after
1991 have transformed many aspects of the daily life of Kenyan people. These programmes have
been linked to the high rate of income inequality, inflation, unemployment, retrenchment, which
have lowered living standards. Furthermore, the SAPs in Kenya have been linked to the
increasing deviant and crime rates, ethnic hatred and discrimination and welfare problems,
especially in the areas of education and health (Rono, 2002).

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2.2.3.2 Economic Reform Programmes (ERP)

Economic Reform Programmes (ERP) constitute conditionalities imposed usually by the World
Bank & IMF. They are a combination of fiscal, monetary and sectoral policies orregulations and
create institutions that are used to change the relative prices and the level of government
spending. They include:
 A liberalization of the foreign currency market to ensure that it accurately reflects the
relative scarcity of different currencies.
 The reduction of government spending aimed at reducing the government deficit.
o It is desirable to reduce the budget deficit because budget deficits are inflationary
and lead to crowding out of private investment through high interest rates.
 Trade liberalization: Reduction of protectionist measures like tariffs, quotas and
exchange controls with the aim of improving the efficiency of domestic producers by
opening them to foreign competition.
 Privatization of state enterprises where the role of the public sector in the economy is
reduced and most non-strategic state enterprises are sold off to the private sector.
 Price liberalization whereby price controls are gradually abolished and prices are
determined by forces of demand and supply.

2.2.4 Aid has fueled corruption is some African countries

Aid flows destined to help the average African end up supporting bloated bureaucracies in the
form of the poor-country governments and donor-funded nongovernmental organizations. In a
hearing before the U.S. Senate Committee on Foreign Relations in May 2004, Jeffrey Winters, a
professor at Northwestern University, argued that the World Bank had participated in the
corruption of roughly $100 billion of its loan funds intended for development. In the year 2002,
the African Union, estimated that corruption was costing the continent $150 billion a year, as
international donors were apparently turning a blind eye to the simple fact that aid money was
inadvertently fueling graft. With few or no strings attached, it has been all too easy for the funds
to be used for anything, save the developmental purpose for which they were intended (Akinola,
2012).

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3 ALTERNATIVES APPROACHES FOR DEVELOPMENT AID

3.1 AID IN DIFFERENT APPROACH

3.1.1 Align Aid to Support Development Strategies


To align aid to development projects the following steps are required:
 Recipient countries should design their own comprehensive development frameworks
that raise economic growth and poverty reduction in a sustainable manner. It is such a
framework that donors could consider financing.
 Donor institutions should shift away from greater reliance on aidconditionality to induce
developing countries governments to adopt good policies.
o Foreign finance even if it is conditional finance, is less likely to generate a reform
programme in a country in which there is no domestic will for reform. However,
once a serious reform programme has started in a country, then financial
assistance can be useful to help consolidate it.
 Human and Physical Infrastructure: Good policies by themselves are necessary but not
sufficient to stimulate greater domestic and foreign investment in developing countries.
 The efforts should be complemented by infrastructure and in such circumstances, foreign
aidto a reforming government becomes necessary is such an environment.
 In the above circumstances, foreign aidwould improve the environment for private
investment by creating confidence in the reform programme and by helping ease
infrastructure and other structural bottlenecks.

3.2 SEARCH FOR NON-AID & NON NEO-LIBERAL APPROACHES

Alternative finance for development is required. A search into ways of achieving a social and
solidarity-based economy, centered around individuals and on satisfying their needs, and which
will lead not only to the sharing of the means of production and of income, but also to the
sharing of decision-making power.

This social and solidarity-based economy entails:


 Redistribution of wealth and the means of production;
 Full employment for everyone;

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 Worldwide justice and solidarity;
 Access to power, knowledge and know-how, for everyone;
 Freedom of expression and of organization, for everyone

3.3 ENTERPRISE

3.3.1 Enterprise Logic vs Aid Logic


 Aid logic is different from enterprises logic.
 Aid logic is passive, enterprise logic is active & it is entrepreneurial.
 The logic of aid perpetuates the psych of expecting intervention always from outside
which is why sustainability is only wished but hardly gained.
 Alternative Financing must reconcile the logic of aid and that of enterprises.

3.3.2 The Logic of Aid


 This is inherently informed by the social philosophy which is essentially about welfare.
In welfare sharing takes precedent over production.
 Factors of production are underutilized since the concept of economic rationality is
hardly pursued deliberately.
 This logic supports survival rather than transformation. E.g. In many societies
entrepreneurship is considered contra to the social wellbeing.
 The Examples include:
o Farmers pursue traditional agriculture as defined by culture whether it still makes
sense or not,
o Traders keep market days religiously to sell and buy that which will last them
only until the next market days.
o Co-operative societies follows the same logic of welfare
o NGOs involved in economic empowerment more often than not support cosmetic
projects

3.3.3 The Logic of Enterprise


 The logic of enterprise is always restless, sustained by entrepreneurial psych.
 The assumption of economic man/woman is at play.

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 Factors of production are driven towards wealth maximization which is why
transformation is possible
 The focus on return on investment becomes the project sustaining factor
 The Examples include:
o Farming is pursued as an enterprise, where crops or animals are kept for their
economic sense
o Trading is pursued as a real alternative for income generation and transforms
overtime from petty to large scale
o Empowerment initiative focus on self-sustenance of a business based on return.
Growth is deliberate beginning with absorptive capacity but builds capacity over
time
Every project should begin and end with sustainability in mind based on the principles of an
enterprise but funded on the basis of solidarity, aid. Sustainability should be based on income
generating.

NGOs involved in economic empowerment should be bold in their initiative to cause


fundamental change but not camouflage their limitations. This calls for realistic definition of
project scope.

3.4 TRADE

 One of the ways out of the vicious circle of overreliance on aid is trade. African countries
need to trade themselves out of poverty.
 To achieve effective trade volumes, infrastructure has to be developed to lower costs of
production.
 Two things are needed:
o First, heavy investment in in priority areas
 Roads infrastructure, energy, information technology, education and
health.
 This will have the effect of raising productivity, increasing household
incomes and promoting overall economic development

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 Ultimately they will support LDC’s in ‘trading’ themselves out of poverty
through lowering the cost of doing business, increasing factor productivity
and thus making goods competitive in the international markets.
o Second, there must be market access for LDC’s goods. The developed countries
need to open their markets to the exports of developing countries, e.g. AGOA
 Efforts to be done:
o Mobilizing domestic resources for development
o Promoting international trade
o Promoting role of private sector through simplifying business, easing tax burdens,
increased access to credit and reducing the cost of doing business.

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4 ALTERNATIVES SOURCES OF FINANCING DEVELOPMENT PROJECTS

4.1 DIRECT FOREIGN INVESTMENT (DFI)

DFI refers to investment carried out by individuals or companies as opposed to government aid.
The experience in developing countries shows that DFI is undertaken by large multinational
corporations (MNC). A multinational corporation is an enterprise which has a base in the home
country but operating wholly or partially owned subsidiaries in other countries. Today the
individuals are increasing their investment in developing countries. Recently, a trend is emerging
where individuals are increasing their investment in developing countries. For example in Kenya,
substantial foreign investment comes in through the Nairobi Stock Exchange. Besides, the
Government of Kenya has taken deliberate efforts to attract DFI. The Investment Authority is
facilitating this indicatives.

4.1.1 Direct Foreign Investment as a Source of Finance for Development Projects

DFI refers to investment carried out by individuals or companies as opposed to government aid.
The experience in developing countries shows that DFI is undertaken by large multinational
corporations (MNC). A multinational corporation is an enterprise which has a base in the home
country but operating wholly or partially owned subsidiaries in other countries. Today the
individuals are increasing their investment in developing countries. Recently, a trend is emerging
where individuals are increasing their investment in developing countries. For example in Kenya,
substantial foreign investment comes in through the Nairobi Stock Exchange. Besides, the
Government of Kenya has taken deliberate efforts to attract DFI. The Investment Authority is
facilitating this indicatives.
i. DFI plays an important role in filling the resource gap between targeted or desired
investment and locally mobilized savings. At the macro point of view DFI enables a
nation to achieve its growth target. There is a positive relationship between the increase
of investment (in projects) and levels of growth. In the Kenya case, the movement
towards the realization of Vision 2030 will be enhanced by the increase in DFI.
ii. DFI can fill the gap between targeted government revenue tax and locally raised taxes.
This function is based on the presumption that DFI through MNCs lead to production and

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subsequent taxation on the profits generated. In this way, financial resources for
development projects can be mobilized.
iii. DFI in the form of private firms and individuals can fill the gap in entrepreneurship.
Quite often these individual and firms partner with local entrepreneurs. In effect, a lot of
financial resources are mobilized for development projects.
iv. Finally, private foreign firms play an important role of creating employment. By
extension, employment generates income and raises possibilities for increased savings
and subsequent investment.

4.2 GOVERNMENT AGENTS

These refer to the various government ministries. Government ministries finance projects from
public money allocated to the ministries by central government. The key fundamental role of
government and its agents is to improve the quality of life for her citizens. It is for this reason
that all the government's efforts, resources and operations are committed for development
purpose.

Since 2003, the Kenyan Government is attempting to consolidate development initiatives for
greater impact through what is known as sectorial planning. This is a form of inclusive planning
that includes all development protagonists in each sector. For example, when planning for the
Health Sector, all agencies involved in health interventions are involved at all levels, the
division, district and province. Ideally, where this system works, any development agent can
apply for funding from the government or its agency for its planned intervention especially
where the government does not have capacity to directly intervene.

4.3 FOUNDATIONS

Foundations are organizations created to mobilize funds for development. They are not-for-
profit and have specific focus towards which funds are raised. Foundations may also and often
have charitable purposes. These types of nonprofit organization may either donate funds and
support to other organizations, or provide the sole source of funding for their own charitable

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activities. To obtain funding from foundations one must know the cause for which they were
found and criteria for eligibility.

Some examples of foundations: Chandaria Foundation which has funded education projects such
Chandaria School of Business at the United States International University and the Chandaria
Business Innovation and Incubation Centre at Kenyatta University. Safaricom Foundation which
supports projects that provide sustainable solutions to the most pressing social challenges. Its
specific focus areas are Education, Health, Economic Empowerment, Environmental
Conservation, Arts and Culture, Music and Sports. The Foundation also responds to disasters and
humanitarian emergencies. Other foundations include: The Ford Foundation; The Clinton
Foundation; Bill Cates‟ Foundation; The Rockefeller Foundation; The Mac Arthur Foundation;
The Toyota Foundation;The Moi Foundation, etc.

4.4 CORPORATE SOCIAL RESPONSIBILITY

Corporations are increasingly ploughing back to the society some of their profits by funding
various social and developmental projects. Corporate social responsibility is based on the
understanding that businesses are not just economic institutions. Management's social
responsibility goes beyond making profits to include protecting and improving society's welfare.
Businesses have responsibility to a society that endorses their creation, supports them by buying
their products/services.

Toyota Kenya for example in 2014 partnered with Light up East African Foundation to provide
needy households with solar lanterns. East African breweries in 2011 partnered with Skillshare
International to construct earth dams, water regulations systems and farm ponds in various arid
and semi-arid areas such as Narok, Transmara and Laikipia among others.

Magadi Soda Company is situated 120 Km South West of Nairobi. It is situated in Magadi
Division of Kajiado District. The company sits on an isolated island with a population of about
3,000 people. For this population which comprises of the employees and their families,
government, business people, local community and other service providers, the company
supports a continuing non-Business social support cost. The Magadi Township's total
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infrastructure is created and totally maintained by the Company. There is neither Government
nor local council's subsidies. The company provides and supports schools, a hospital, social and
sports facilities, housing for local community as well as support to local administration and
houses/offices for NGOs operating in the area.

4.5 FAITH ORGANIZATIONS

Faith organizations are those organizations that profess a particular religious conviction. They
mobilize financial resources either from their membership or from other agencies for
improvement of the quality of life. There are many faith based organizations which participate in
development as a fundamental contribution to humanity other than their core business of pastoral
care. Many international faith based organizations dispense their aid without bias to religious
conviction. However, there are some that are discriminatory on the basis of faith.

The Catholic and Anglican Church have built numerous community schools and hospitals.
Through the Catholic Health Commission of Kenya, the Catholic Church runs close to
30% of all healthcare facilities in Kenya. The Church has an expansive network which
consists of 448health units (54 hospitals, 83 health centers and 311 Dispensaries) and more
than 46 Community Based Health and Orphaned and Vulnerable Children (OVC)
Programs. In the Arid and Semi-Arid Areas, the Church has and manages mobile clinics
for nomadic communities; these are difficult areas that other organizations, including the
Government, are not able to reach.

4.6 UNITED NATIONS AGENCIES

The United Nations Agencies were formed after the World War II to fill the developmental gap
between the desired levels of development in various countries against the ability of nations to
support those developmental needs. Ever since these bodies have mobilizes resources around the
world to intervene by initiating and supporting many projects. We shall describe the role and
mandate of some of the United Nations Agencies.

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Table 1: United Nations Agencies

United Nations Agency Role


Food and Agriculture The Food and Agriculture Organization of the United
Organization of the United Nations (FAO) is the lead agency for agriculture. FAO is
Nations (FAO) mandated by the United Nations to ensure that all people
have access at all times to adequate nutritious and safe
food. This ensures that they can contribute to economic and
social progress through agriculture and rural-based
development and help improve the management and
utilisation of natural resources.
Joint United Nations The Joint United Nations Programme on HIV/AIDS
Programme on HIV/AIDS (UNAIDS) is a partnership that aims to achieve universal
(UNAIDS) access to HIV prevention, treatment, care and support.
With a vision of “Zero new HIV infections.
United Nations Development The United Nations Development Programme (UNDP) is
Programme (UNDP) the UN’s global development network, connecting
countries with knowledge, experience and resources to help
people build better lives. UNDP’s focus is on helping
countries build and share solutions to the challenges of
democratic governance, poverty reduction, crisis
prevention and recovery, environment and energy and
HIV/AIDS. UNDP helps developing countries attract and
use aid effectively. UNDP supports the protection of
human rights, capacity development and the empowerment
of women.
United Nations Environment The United Nations Environment Programme (UNEP) is
Programme (UNEP) mandated to provide leadership and encourage partnerships
in caring for the environment by inspiring, informing, and
enabling nations and people to improve their quality of life
without compromising that of future generations.
United Nations Population Fund The United Nations Population Fund (UNFPA) mandate is
(UNFPA) to achieve universal access to sexual reproductive health,
promote reproductive rights and reduce maternal mortality.
United Nations Children’s Fund The United Nations Children’s Fund (UNICEF) is a leading
(UNICEF) advocate for children globally. UNICEF is the driving force
that helps build a world where the rights of every child are
realized.

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5 CONCLUSION

Sound policy and good economic management matter more than foreign aid for developing
countries. As the record shows, without good institutions, aid is likely to have a detrimental
impact on the quality of governance in a recipient developing country. In the absence of these
strong institutions, assistance efforts should be dedicated to improving the quality of governance
before they can be effectively devoted to any economic development effort.

Finally, foreign aid transfers should henceforth pledge to abide by the Hippocratic Oath to “do
no harm.” Although more progress has been made over the course of the last 50 or so years in
alleviating poverty than during any comparable period of time in history, poverty remains a huge
global challenge. Over one billion of the world’s people continue to live in conditions of absolute
poverty, subsisting on less than $1 a day(Sachs, 2005). As such, even if development economics
have not yet found ways to help them, global actors should at the very least take every effort not
to make their condition any worse. If foreign aid is hurting rather than helping them, then it is
clearly in need of being restructured, such that policy and incentives can be better coordinated to
achieve the desired outcomes. In the meantime, research efforts must continue to search for the
answers.

Governments across the continent should continue to search for more effective approaches.

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