Providing Aid Hurts Recipient Countries' Local Businesses Too

Libyan security forces stand guard as people turn in weapons in Benghazi, Libya, Saturday, Sept. 29, 2012. Hundreds of Libyan
Libyan security forces stand guard as people turn in weapons in Benghazi, Libya, Saturday, Sept. 29, 2012. Hundreds of Libyans have converged on a main square in Benghazi in response to a call from the military to hand over their weapons, some driving in with armored personnel carriers, vehicles with mounted anti-aircraft guns and hundreds of rocket launchers. The call by the Libyan chiefs of staff was promoted on a private TV station earlier this month. But the call may have gained traction in the wake of the attack against the U.S. consulate in Benghazi in which the American ambassador and three staffers were killed. The attack was followed by a popular uproar against armed militias which have increasingly challenged government authorities. (AP Photo/Ibrahim Alaguri)

Two weeks ago I posted how cutting U.S. aid to the Arab world would hurt U.S. businesses. What followed was a series of tweets by Khaled Beydoun and Sana Saeed (tweeting as @legyptian and @SanaSaeed respectively) who pushed back on a related point:

@legyptian tweets: @pitapolicy @SanaSaeed So, I don't get it, are you advocating that the rights of US biz interests trump local Arab ones?

As another blogger shared, "So what, development aid to the Arab world hurts local Arab businesses!" I agree because this point extends to other recipient countries' local businesses too.

Development aid has received much pushback -- so much so that the U.S. Agency for International Development has shrunk in size and in its role, according to a recent GAO report. Conversely, the broader category of U.S. economic assistance through technical assistance and such has grown via other institutions -- like the U.S. State, Treasury and Defense Departments.

@SanaSaeed ‏tweets: @pitapolicy @legyptian Not explicitly but that's an implication, however unintentional, no?

My humanitarian answer to both Khaled's and Sana's question is: "No, I'm not advocating that the rights of U.S. business interests trump local Arab ones if I'm arguing from a poverty alleviation standpoint. However, as someone who used to review American interests in the legislative branch: Yes, I would have advocated development aid to propel U.S. business interests in the short to medium term. In the long term, I would have had to adjust my answer because we would have observed the long-term consequences would have fueled Anti-American sentiment -- which ultimately hurts U.S. business interests.

Development Versus Military Aid: Isn't All Working Towards the Same Goal?

@legyptian tweets: @pitapolicy @SanaSaeed I'm not sure that you can sever/segregate military intervention and biz interests, they typically go hand in hand

Khaled's point challenges the intent behind providing any type of aid -- be it development or military. Take a look at the Middle East & North Africa region where 13 out of the 16 countries, that are not high-income, receive development aid and at least one-third of them receive military aid. Algeria, Israel, Morocco, Jordan, Pakistan, West Bank & Gaza, Libya, Lebanon, Iraq, Sudan, and Yemen all receive some form of U.S. development aid. Afghanistan and Egypt receive aid from all three. Overall, Afghanistan, Egypt, Iraq, Pakistan and few others also receive military aid. After parsing out the the military aid from the entire aid package, the intent to operate in countries, like Yemen, we see that the strategic goals remain the same.

@SanaSaeed tweets: Also not just an issue of business--affects citizens, especially those in lower social economic strata

Khaled Bey ‏@Legyptian tweets: Indeed, much of the poverty in the Arab World can be attributed to dictators' facilitation of US biz interests

Both Sana and Khaled introduce criticism for international aid even if we exclude the military aid, which has served as a powerful tool for recipient countries' leaders to exert stronger control over their people. Aside from Egypt, development aid supposedly assists Yemen with its poverty challenges.

As I mentioned to the attendees of my Economic Development seminar at the Envision Arabia Summit in New York last week: From an altruistic standpoint, development aid is great in theory, but awkward in practice because either 1) we employ a false sense of a "savior complex" mentality when providing aid as a donor, or 2) we prescribe aid as a substitute for facilitating foreign direct investment. The reasons for the awkward implementation include:

  • Aid becomes tied to too many conditions, thereby raising reporting requirements to the point of a bureaucratic nightmare.
  • Aid promotes industries that are the donor countries' interests.
  • Aid undercuts opportunities for wide-scale localized development when country elites benefit from a more empowered decision-making role -- perhaps we see this more with aid programs oriented towards democratization???

MENA Example: Not helping Yemen's Local Economy

The Congressional Quarterly points out that the recent U.S. allocation of development funds of $170 million is proportionally small, but military heavy. Since Yemen's Arab Spring, the U.S. is concerned with the rising al- Qaeda element. Thus, the U.S. has introduced a mix of strategic poverty alleviation and military assistance to neutralize a breeding ground for recruitment in joining al Qaeda. The United States plans to give an additional $52 million in aid for areas targeted for recruitment by al Qaeda.

Sana Saeed ‏@SanaSaeed tweets: Exactly. But if we look at it even in national interest terms, it doesn't work. Aid today = enslavement

Again, I would have to say that I would mostly agree with Sana's point for the reasons shared above regarding the long term. Sana's argument strengthens when considering who else among the aid community advocates her point. Poverty Cure, a non-profit powerhouse of economists and former focusing on aid effectiveness, explains that "the majority of studies have found that foreign aid has had no relationship with investment and growth in developing countries." As economist Carl Schramm states, "increasingly we're understanding that this concept of just flooding a country with aid is actually destructive to the development of creative labor markets." Overall, aid develops dependency rather than trade and innovation which improves development.

Just south of the MENA region, Africa's aid development examples attest to the adverse affects of development aid. Yes, MENA is on the whole "wealthier" compared to Sub-Saharan Africa. But let's not kid ourselves. We must consider two variables that do not apply across the board in the MENA region -- which actually highlight more similarities between Sub-Saharan Africa and many MENA countries than what might consider "politically incorrect." 1) Natural Resource Wealth

2) Political Instability

Number one: Oil wealth in the GCC nations removes them from the aid recipient category. So the argument that "aid to the MENA region is different" is a non-starter. If MENA countries are receiving development aid, then it's because they don't have an abundance of natural resource wealth. (Yes, human capital is a natural resource. But this is an unnecessary semantic debate.) On that note, Sub-Saharan Africa has its share of mineral wealth too -- the diamond industry in Angola.

Number two: The embassy attacks show how political instability hinders and will continue to hinder foreign direct investment and business development regarding the MENA region, as we have seen with Sub-Saharan African countries.

According to Omidyar Network, a group that focuses on small to medium enterprise growth, Omidyar Network's Managing Director Malik Fal, asserts that foreign aid tends to delay the development of modernized business and the environment needed to facilitate local businesses in Africa. When I start to reflect on the latest policy focus to jump-start entrepreneurship in the MENA region, there's an ironic disconnect. Forget about "modernized business." Entrepreneurship cannot organically take hold if economic or agricultural assistance focus on the industries that the donor country pinpoints.

In the end, we must recognize that development aid has to outgrow the 20th-century mentality of "saving" a country when in fact, we are not -- no matter how noble our intentions. Social justice groups contend that aid is less about helping the needy, and more focused on political massaging.

Some may refer to the tool of development as 'neo-colonialism' where the recipient country becomes the "tool." Others may refer to development aid as a band-aid approach to globalization where those that have been left behind will continue to need additional assistance. Locals in the aid recipient countries will have the best descriptive term. We should probably ask them before we start patting ourselves on the back on how development aid is an alternative to their lackluster foreign direct investment.