Foreign aid fund is lining the pockets of the corrupt elite

Published by The Times (20th February, 2020)

Perhaps the most famous quote on foreign aid came from Peter Bauer, a brilliant British development economist who challenged the conventional wisdom that chucking huge sums of money at struggling nations would lift them out of poverty. He stated almost half a century ago that aid was a mechanism by which ‘poor people in rich countries are taxed to support the lifestyles of rich people in poor countries’.

Yet naive western politicians love to pose as saviours of the poor, while developing nations happily accept the handouts. So the international community has ignored Bauer’s wise words. Global aid spending has soared almost tenfold since he made that remark — to the benefit of cheerleading charities and fat-cat consultants, if not to people in poorer parts of the planet. There is much evidence of flawed projects and wasted funds, as I have seen on three continents. Foreign aid also has unintended consequences for developing nations by freeing up cash for other purposes such as buying arms and presidential jets. And there are countless examples of grotesque corruption in aid recipients from Afghanistan to Zambia.

It is difficult, however, to prove a direct link between donor funds and money stolen by despots and crooked politicians. Yet now a document has emerged from the World Bank to inflame the debate over aid ineffectiveness. It was leaked after the chief economist reportedly resigned in protest at a decision to withhold it. Elite Capture of Foreign Aid, written by three academics, shows that World Bank payments to 22 poor countries over two decades were followed by a jump in capital flows to secretive financial havens. The more reliant a nation was on aid, the higher the leakage of funds, rising to 15 per cent in the most dependent nations.

The findings are a blow for the aid industry, and for British politicians who gave away £14.6 billion last year despite public disgruntlement. They follow another study, into a scheme in Ghana designed to prove that aid works. It concluded, however, that ‘the project does not appear to have reduced poverty or hunger at all’.

The latest study does not prove that foreign aid fuels theft but the authors dismiss other explanations as ‘harder to reconcile’ with their data. And there is likely to be far more ‘leakage’ from many less well-monitored British projects. Clearly Bauer was right. But will politicians heed his brave words?

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