Foreign Aid Will Not Make Poverty History

Alex O. Awiti, PhD

There is an innate paradox in the global conversation about poverty alleviation

that eludes even the most astute scholars. Proponents of foreign aid are
advocating for a big push, featuring an increase in foreign aid through which
billions of dollars could be transferred to the poor. Yet $2.3 trillion in foreign
aid and nearly sixty years later, over one billion people around the world are
still hungry, infirm, illiterate and homeless.

According to Prof. Sachs, out of every dollar of aid given to Africa, an estimated
16% went to consultants from donor countries, 26% went into emergency aid and
relief operations, and 14% went into debt servicing. How much of the remaining 40%
escaped corrupt officials to benefit the intended recipients is unknown. The
challenge is to make sure that aid reaches the poor. Otherwise the new epoch of
global compassion toward the poor will be a repetition of the experience of the
last six decades.

Proponents of aid believe that the poor cannot create wealth. Hence the need, they
argue, to give aid, an act of wealth substitution. An alternative, less popular
view, advocates for wealth creation through the development of market-oriented
ecosystems comprising producers, small and medium enterprises (SME), large
enterprises financial institutions, multinational companies, research
organizations, foundations and aid agencies.

Innovative engagement with markets can stimulate wealth creation, especially if

the focus is on a creative combination of quality service, local capacity and
local needs. Whenever a high willingness to pay intersects with affordable costs
for a commodity or a service, markets will work for the poor.

Rural Kenya is festooned in the colours of the two mobile telephone companies.
Today in a country of about 34 million, nearly 9 million use mobile phones. The
bottom of Kenya’s economic pyramid is part of this consumer group. As a result,
smallholder farmers can find out the market price their produce with a text
message or phone call. Cash transfer across the country can be done painlessly via
text message. This perspective gives poverty alleviation a new dimension.

The private sector has successfully created a market-oriented ecosystem for cell
phone connectivity. Why not market-oriented ecosystems for affordable health
services, reliable safe water and clean energy supplies? Entrepreneurs can
catalyze sustainable economic growth by identifying market opportunities and
business models that meet the needs of underserved communities in emerging
economies. In essence, entrepreneurs can be true allies in poverty alleviation
through market solutions, employment and wealth creation as opposed to aid and
subsidies.

Proponents of foreign aid often think of poverty as a technical problem they can
be solved using a universal blueprint or Big Plan and huge dollars in financing.
If it were that simple poverty would be history. Efforts to alleviate poverty must
recognize that poverty is a complex labyrinth of social, institutional, political,
historical, geographical and technological factors.
We must refrain from seeing foreign aid and charity as the only way out of
poverty. We must test other approaches. Wealth creation through entrepreneurship
must replace wealth substitution through foreign aid. We need to regard the poor
as “undercapitalized and unsupported entrepreneurs,” and view poverty as the
absence of opportunity and growth.

A coalition of local entrepreneurs, NGOs, multinational companies, foundations,

aid agencies, and governments can create a market-oriented ecosystem, providing
poor people with skills, technology, information, credit, infrastructure, and
markets necessary for sustainable development.

An evolutionary perspective can help to clarify the meaning of sustainable

development. Sustainability can be viewed as the capacity to differentiate, select
and maintain adaptive capability. Development is the process of creating growth
and maintaining opportunity. Hence Sustainable development is the goal of
fostering adaptive capabilities, creating growth and maintaining opportunities.

Alleviating poverty through wealth creation is essentially an evolutionary

process. It proceeds through differentiation of homegrown solutions, selection
according to a criterion of fitness, and amplification or scaling up of successful
solution to the next level-creating growth and maintaining opportunity. In this
context, fitness can be viewed as value-adding economic transformations and
transactions that produce goods and services that meet the needs of the poor.

It is time to question the role of foreign aid in stimulating and sustaining

economic development. However, I do not think that there are no circumstances when
aid is inappropriate. Smart aid that is strategically targeted will undoubtedly
alleviate distress among many desperate people. But clearly, foreign aid is not
the universal panacea for poverty alleviation.