Flat White

World Cup winning aid scamming

14 June 2018

2:28 PM

14 June 2018

2:28 PM

In many circumstances, poor people in the developing world would actually be better off if their dictators gave their foreign aid money to rich English football clubs.

Seriously.

Earlier this month it emerged that the Rwandan government has entered into a 30 million pound sponsorship deal with major English football club Arsenal, the team President Paul Kagame just happens to support. Unsurprisingly, this has attracted the ire of many given the British government currently transfers Rwanda £62 million in foreign aid annually and the heartbreaking conditions in the country where 63 per cent of people live in extreme poverty.

While this reaction is understandable, it would be better for many countries if their governments simply gave their foreign aid transfers away to eye-wateringly rich football clubs in England. Firstly, because foreign aid so regularly serves to consolidate the power base of the authoritarian regimes that have made their countries poor in the first place. And secondly, because it often harms the long-term economic health of recipient nations.

Authoritarian regimes use foreign aid to shore up their support in a number of ways: by rewarding political allies through corrupt contracting, directing programs towards favoured ethnic or tribal groups, spending the money on the state security apparatus or simply through theft, bribery and patronage. For example, in Ethiopia in 2010, Human Rights Watch reported how autocrat Meles Zenawi withheld famine relief from all except ruling party members to bolster his support.


Whilst foreign aid proponents will rightly point out that Britain’s contribution to Rwanda is earmarked for poverty relief, it is tragically naïve to think that the money always ends up where it is meant to. Indeed, development economist William Easterly estimated in 2008 that 76 per cent of United States foreign aid went to countries judged by private consulting group PRS to be most corrupt. Government accountability mechanisms in authoritarian regimes aren’t what they are in liberal democracies.

When money is lost to corruption it’s not a waste – it’s actually much worse. It can consolidate the power of the very governments that are at best keeping their nations poor, and at worst brutally repressing their people.

While it’s true that corruption would happen in authoritarian regimes anyway, foreign aid often exacerbates the situation by strengthening the government’s hand. The extra funding means they have to make even less of a concession to those that might curb their power, like opposition political parties, civil society and trade unions.

Apart from raising the stakes in the corruption game, foreign aid very often harms the long-term economic wellbeing of recipient nations through ill-conceived economic plans. For example, foreign aid has been used by the Pakistani government to sustain price controls in agriculture, entrenching inefficiency and slowing the emergence of other industries. Furthermore, there is increasing evidence that foreign aid crowds out entrepreneurship in developing countries.

This is not to say that all foreign aid is bad. There have been some genuine successes over the years and aid is certainly beneficial in emergency situations such as natural disasters and war. Furthermore, there are opportunities to reform foreign aid to make it serve poor people better. But this will require a radical re-think of how foreign aid operates.

And this is not a criticism of charity in itself. A great number of NGOs do hugely beneficial work. Although it should be noted that local grassroots organisations that focus on one or two things are generally more effective than big organisations that try and fix everything all at once.

But the real path out of poverty is free markets, strong and clear property rights, a fair and transparent legal system, democracy and civil society. Foreign aid is a deeply flawed system that often puts this further out of reach by reinforcing the powerbase of fundamentally bad governments. Paul Kagame buying himself an executive suite at the Emirates is the least of its problems.

Peter Gregory is a Research Fellow at the Institute of Public Affairs in Australia.

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