This document provides a theoretical analysis of economic aid in relation to Ghana and Nigeria. It examines aid from three perspectives: realism, liberalism, and neo-Marxist critique. It analyzes the motivation, conditionality, and effectiveness of aid to these two countries. It finds that aid has not benefited development and has instead increased dependency on foreign loans. World Bank aid to Ghana came with many conditions that decreased sovereignty over energy policy. Nigeria has accumulated large debts from aid that are paid through taxation instead of social spending. In conclusion, foreign aid has hindered rather than helped development in Ghana and Nigeria by creating dependency and interfering in domestic policy.

1. Student number: 08002751 01 PIR-30094 The Global South
Theoretical perspective on economic aid in relation to Ghana and Nigeria
The first part of this essay will be a brief comparative outline of why the two nations
of Ghana and Nigeria have been chosen for this theoretical study. The importance of
this is to explain that bilateral and multilateral aid from both countries derives from
the impact colonialism; through the exogenous and endogenous factors. After having
explored those concepts our attention will focus on the theoretical perspective of aid;
according to the realist module, liberalist and critical module. The importance of those
three perspectives is to understand the motivation, conditionality and effectiveness of
aid in relation to Ghana and Nigeria and to argue that foreign aid is not beneficial to
development and rather it can be hindrance to development. Thirdly, how those
examples of motivation, conditionality and effectiveness relate to Ghana (whereby it
received multilateral aid from the World Bank in 2009) and Nigeria (how it deals with
paying off its creditors from the Paris Club). Then conclude that foreign aid is not
helping nations to development, regardless the context it has been framed because it
simply creates a dependency theory on nations within the global south to borrow more
aid more only to be repaying interest on those loans.
Ghana and Nigeria are two middle size countries within West Africa which were
colonised by the British in the nineteenth century. From their transition from
colonised nations to independent nations in late 1950s and early 1960s, they have
become lower middle economies. Whereby Ghana’s main exports are coca, gold,
diamonds and newly discovered oil, whereas Nigeria’s is a heavily oil based
economy. Arguable the effects of colonialism is what has caused this dependence on
foreign aid through endogenous and exogenous factors of development argued by
Rodney (1972). Rodney (1972) argues that exogenous factors; which were that Britain
became able to industrial through the colonisation of Ghana and Nigeria, and
exploitation of there natural resources therefore hindered Ghana and Nigeria’s chance
of structure readjustments to its economy even after independence (Rodney
1972:135). Nevertheless Lal (2004) in his book In Praise of Empires counter argues
this view by Rodney (1972) arguing that the British rule of the empire opened new
technology and trade to other regions of the world. Therefore the endogenous factors
of military rule in both nations and mismanagement of the economy has caused both
nations to seek international help through foreign aid not the exogenous factors from
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2. Student number: 08002751 01 PIR-30094 The Global South
colonialism. Nevertheless Rodney’s (1972) argument that the exogenous factors of
development caused this dependency from the continent of Africa, is not necessary
true because if so the idea blame is not distributed to nations of Ghana and Nigeria
rather it is there own internal structures of post-colonialism that has rendered them to
seek bilateral or multilateral aid. Although Lal’s (2004) argument that the empire
brought wonderful technology and trade was only to the benefit of the ruling elite in
both Europe and Africa and did not benefit everyone, consequently this creation of
difference in wealth has caused Ghana and Nigeria to seek aid, regardless of
endogenous factors argued by Lal (2004).
Aid is one of the most debated topics within international relations simply because
there is no definitive answer to whether it is beneficial or a hindrance for countries to
achieve development. Classical realist theory determines that aid is given by states to
determine their state interest of perseveration, military needs and alliances,
consequently foreign aid is minimum presented for humanitarian reason (Schraeder,
Hook and Taylor 1998: 297). Although Schraeder, Hook and Taylor (1998) argue
this, it is believed this notion of foreign aid donations only applied to the cold war
mentality of the past. Therefore due to the changing nature of international politics it
is no longer relevant as an analysis. Nevertheless it can be counter argued that this
theory towards aid today is relevant because western donors such as Great Britain still
attach conditions towards their foreign aid such has the notion of good governance
which has highlighted when Great Britain refused to give aid to Nigeria in 1993 due
to military government (Dowden 1993).
Liberalist notion of foreign aid counter argues the realist notion, to percieve that aid is
given to strengthen humanitarian cooperation between nations and therefore has the
potential for ameliorating third world poverty and promoting economic development
(Schraeder, Hook and Taylor 1998: 297). The liberal notion of aid argued by
Schraeder, Hook and Taylor (1998) can be too limited as a perspective due to aid that
is given for humanitarian reason can have conditions attached to this, as a
consequence humanitarian aid with conditions; can it really be classed as aid for
humanity reasons or does it become nothing more of a form a donor nation to the
precipitant nation as a political means to advance one countries ideology or political
stance within the world. Argued by Dunning (2004) whereby the end of the cold war
western nations gave aid to Sub-Saharan Africa with the promoting of
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democratisation, even at the cost of losing Africa clients. Consequently the selectively
of aid through the liberal notion can be a hindrance because nations can choose not to
give aid when needed by the recipient nation due the conditionality attached towards
aid, consequently this liberal notion of aid argue by Schraeder, Hook and Taylor
(1998) can be limiting idealistic if they want to ameliorate third world poverty yet not
want to donate.
Neo-Marxist critique challenges both realist and liberalist theories of aid. That aid is
nothing more due to the capitalist exploitation which enhances the power of the elites
through the industrialised and non-industrialised nations. Whereby the consequences
of industrialisation created the powerful elites to control the financial institutions to
regulate and distribute aid, as a result creates the divide of north-south relationships.
These theoretical approaches of aid are important in relation to three paradigms of aid
according to O’Brien and Williams (2007) in Global Political Economy. Firstly the
motivation for aid is heavily contested due to the theoretical perspective one perceives
the justification for aid being giving. According to Pearson (1969 p.8) the
straightforward answer to why aid is given “that it is only right for those who have to
share with those who have not”. Pearson (1969) liberal notion of aid does not give an
empirical account as to why aid must be given to nations seeking help, although most
nations would not object to aid been given. Nevertheless there is no moral
justification for aid on the basis, according to Sogge (2002) the notion of aid is not for
the beneficence but power, which is reiterate by Hayter (1971) in Aid as Imperialism.
Sogge’s (2002) argument that aid is not for the beneficence but for power is too
narrow as an idea due to notion of free aid, whereby there are no conditions attached
to the aid negotiations therefore can be spent in any manner by a recipient nation.
Although it is impossible to definitely define the motivation of aid from one country
to another nevertheless it seems that the motivation of aid is to help other nations. The
extent to which helping a nation through aid does not later become a hindrance can be
question; in relation to Ghana and Nigeria it is now becoming a hindrance.
Secondly, conditionality of aid throughout the cold war period aid was given from the
two superpower nations to control and maintain their political alliances within the
world. Even though the cold war period has ended the realist paradigm still holds
value, due to good governance from recipient nations is now becoming the conditions
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which must be upheld. Arguably the conditions attached to good governance decrease
the sovereign rights of nations to govern themselves without external international
interference (Sogge 2002: 61). Sogge’s (2002) question is simply do to nations have
the legitimate right to impose these conditions. Despite Sogge’s (2002) argument he
does not recognise that this is not a decrease of sovereign powers, rather a pull of
sovereignty whereby nations who already practise good governance would not be
hindering their sovereign rights rather a continuation of their domestic policy.
Lastly, effectiveness of aid is only in relation to the motivation of aid being given.
Scholars on the left of the political spectrum argue that aid is a system to control the
structure of economic finance and does not give opportunity of non-elites to run the
structure of the world economy inherently in their favour. Therefore no matter how
much aid is given it can not be effective in the context to the overall picture. Although
on the political right scholars argue that aid does not motivate nations to go through
development like the Europeans, secondly it is not necessary for development.
Despite these two antagonised position of the political spectrum; aid does have a
positive impact on productively although is not answer for poverty reduction
(Dalgaard, Hansen and Tarp 2004).
In 2009 the World Bank gave a crisis loan to Ghana in total of 535 million US dollars,
the three loans approved by the World Bank in 2009 for Ghana are: the second natural
resources and environmental governance development policy operation (10 million
US dollars), a transport sector project (225 million US dollars) and lastly economic
governance and poverty reduction credit (300 million dollars (Honkaniemi 2010). On
this loan alone there were 57 conditions attached, including both benchmarks and
binding conditions. These conditions stipulate how Ghana should manage the energy
sector, fiscal policy and lastly public sector reform (Honkaniemi 2010). Honkaniemi
examples illustrate that aid given from an international institution with the notions of
conditions attached especially in the field of energy not only decreases the national
sovereignty to energy security however it highlights the poor rights to energy lost
through this aid package. The motivation for aid argued by Sogge (2002) is power,
this is emphasised by Abdullah Darimani reaction to the energy conditions whereby
the hikes in energy would hinder poor consumers (Abdullah Darimani quoted by
Honkaniemi 2010). Sogge’s (2002) argument that aid giving is only for power, can be
justify because power is ability to exert influence over one another; world bank has
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exerted influence directly in Ghana’s energy policy regardless the effects it has on the
poor.
Although the justification for Sogge (2002) argument is not necessary true to an
extent; Ghana would not seek aid as a means to economic growth because Ghana
knew the underlying motivation of the World Bank was to undermine its power of
sovereignty. Furthermore power does not necessary have to be coercive which Sogge
(2002) is implying rather cooperative which the World Bank would argue by Ghana
illustrating its effectiveness from the aid loan.
Effectiveness of aid on recipients cannot be divorced from the argument of
motivation; therefore it is not surprising most scholars are critics of aid effectiveness
(O’brien and Williams 2007: 323). According to Burnside and Dollar (2000) in Aid,
policies and growth the effectiveness of aid is relative overall although in specific
policy environments there has been a positive impact on growth. In relation to Ghana,
economic growth has continued to increase year on year also has aid donations from
the World Bank every other two years in Ghana since 2005. Therefore Burnside and
Dollar (2000) would argue there is a direct correlation; which can be contributed to
specific policy environments, therefore it plausible to say multilateral aid donation
from the World Bank to Ghana in 2009 will have a positive impact. Despite the
positive impact of aid in relation to specific policy environments it does not give the
ability of governments to governance without it; rather it has caused a placebo effect
to Ghana’s economy whereby their gross domestic product (GDP) is increasing
however the country is not industrialising.
Brautigam and Knack’s (2004) evidence disagrees with Burnside and Dollar (2000),
Brautigam and Knack (2004) notes that countries, who are recipients of aid over a
long period of time, have a decrease in the quality of governance through institutional
weakening. Due to the high cost of aid programmes limiting government incentives to
solves problems by themselves. In relation to Ghana the World Bank loan has not
increased effectiveness overall, due to previously Ghana as asked for multilateral
loans from World Bank, therefore the governance of the nation is now becoming
dependant on loans to keep its economy working.
Nigeria post independence was a very rich country however throughout the years
from independence it has borrowed substantial amount of money through multilateral
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loans amounting to substantial debts. The total amount of debts owed to creditors in
the Paris club totalled 30 billion US dollars (AFRODAD 2007). Loan repayments on
aid have caused dependence effect, whereby countries have to borrow more to pay of
previous debts until they pay the whole debts. The importance of this means that
government money through taxation could be spent else on important parts of society;
health, education, schools, is not happening due to it is repaying debts. Argued by
Hayter (1971) that aid has never been an unconditional transfer of resources therefore
the recruitment of this negative transfer is debt. The importances of this means that
the effectiveness of aid is not effective in the wider picture due developing countries
are paying back 100 million dollars everyday (actionaid. 2010).
Ghana and Nigeria case studies have highlighted the problems with multilateral aid as
a useful way of developing. Whereby the motivation of aid from international
institution is for development of projects to specific policy environments, although the
consequences of effectiveness are limited and outweighed by the disadvantages.
Through conditions attached from the World Bank and the Paris Club loans have
become an interference to both nations economic policy and domestic policy; Ghana
it created a division whereby the poor could no longer afford energy and in Nigeria
taxation was not spend on social programmes rather paying debts to creditors.
Lower middle income economies should not be spending government money on
repayments from institutions rather should be trying to decrease the disparity of the
division of wealth in their nations created by the endogenous and exogenous factors.
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