Forty Years of Misdirected Aid to Africa
In the year Obama was born, Kenya had higher per capita income than South Korea. Why did one nation prosper from foreign aid and the other stagnate?
December 27, 2009 - 12:24 am
During President Obama’s visit to Ghana, he commented to that country’s parliament about unfulfilled promises in Africa, saying that “countries like Kenya had a per capita economy larger than South Korea’s when I was born. They have been badly outpaced.” The year Obama was born the per capita income in South Korea was $209, while in Kenya it was $305. The same year both countries became immediate recipients of the Foreign Assistance Act of 1961 via USAID. Years later, Obama has become president, yet his father’s country has been far eclipsed by South Korea.
Obama’s statement should not be cast as an interesting figure, but instead as a call to action. There is a need to look at these two countries and determine why Korea achieved what it did with USAID assistance, yet Kenya — with the same assistance — remains mired in the past.
One of the reasons why South Korea and Kenya have had such different levels of success is a result of two different USAID strategies. In South Korea, USAID concentrated on institutional infrastructure, initiating a long-term development strategy. It financed the Korea Development Institute and the Economic Planning Board for long-term fiscal planning and linked both with Harvard University. It built the Korea Institute of Science and Technology and partnered it with the U.S. National Academy of Sciences, and provided the initial grant capital, in perpetuity, to the Korea Development Bank. The new medical schools were partnered with counterparts in the U.S., using an English curriculum. USAID financed the Korea Health Development Institute to support demonstration projects designed to provide critical operating data on a future choice for national health reform. No USAID contractors were involved: all decisions were in the hands of local personnel.
In just 15 years, South Korea was able to establish a firm path toward universal health insurance. This institutional infrastructure was instrumental in the emergence of Korea’s entrepreneurial spirit, most noticeably in its export industries of automotive, electronics, steel, and shipbuilding.
In contrast, what happened in Kenya? Over a 17-year period, its GNP went from 4.2% during 1980-1990 to 2.0% during 1990-97. Its average annual percentage growth in agriculture value added went from 3.3% to 0.8%, industry went from 3.9% to 2.0%, and services went from 4.9% to 3.6% — all in the same period. After President Mwai Kibaki came into office in 2002, the Kenyan branch of Transparency International was brought in as an advisor in fighting corruption. It found that the Kenya African National Union, the former governing party, had built a war chest of $1 billion — held abroad and standing ready to be used in future campaigns. With the issue of who really governs Kenya today, these purloined funds from aid assistance can decide the difference.
The international development community seems unmindful of past evaluations of aid to Kenya. For decades, three countries in Africa were designated sites for aid from Denmark. Then in the late 1990s, Kenya was finally dropped because of its poor human rights record. In 2007, the Canadian Senate conducted a two-year review of its aid agency, CIDA. It concluded that Africa is the only continent in the world not to have benefited from the last forty years of significant global growth, and that CIDA has failed to make a foreign aid difference in Africa.
Many aid organizations are based on the aspiring premise that aid monies affect health outcomes. However, empirical studies by the World Bank, WHO, and the International Monetary Fund negate this assertion. In 2007, the IMF determined that “despite the vast empirical literature considering the effects of foreign aid on growth, there is little systematic evidence on how overall aid affects health, and none at all on how health aid affects health.” Policies dependent on the assumption that aid monies can have a positive effect on Kenyan health needs totally ignore past experience.
Today, Kenya’s per capita income is $1,600; it is $27,600 in Korea. Korea has entered the OECD community of donor nations; Kenya is a wholly owned subsidiary of the donor community. If the donor community is to overcome its 40 years of failure in Africa, then it needs a new business model. It needs to enable governments to lower the cost of doing business and create environments that are attractive for private sector growth and investment. It also needs to increase institutional infrastructure.
The example of Kenya and South Korea reveals aid organizations’ failure to properly evaluate what has worked and what doesn’t. There needs to be more analysis and reporting on evaluating international aid assistance. The world can not rely on international aid agencies repeating past mistakes. The international development community needs to respond to President Obama’s challenge and understand its mistakes. It needs to begin to look at success models and replicate what has worked, not what continues to fail.