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Mr. Godwin C. Nwaogwugwu is a former World Bank Analyst/Consultant. He is a senior key resource person on Information systems, E-business Development, Youth Programs, and Africa Initiatives for many international agencies, and governments. He is the author of several best-selling publications. His writings in very simple language inspire many young readers around the world

Youth And Career Development

Foreign Aid Or Debt Trap?  - An Insight For African Youths

 By: Godwin C. Nwaogwugwu

 Published March 8, 2007

A  top UK finance minister and Chancellor of the Exchequer, Gordon Brown, while addressing a Jubilee 2000 rally, at St Paul's Cathedral, London called debt  “the greatest single cause of poverty and injustice across the earth and potentially one of the greatest threats to peace.” Debt impedes sustainable human development, security, personal freedom, and political or economic stability.

The Debt-Poverty Cycle

Debt repayment process is often laden with diabolical mechanisms designed to replicate the debt on a greater scale. It starts with low interest rate bait (if payments are made on time). Irregular and untimely payments attract penalties, astronomical interest rates, and bad credit rating. Bad credit rating in turn, makes the individual a credit risk not able to access further credits. Thereafter, a large portion of his or her income is applied towards repayment of old loans at high interests leaving him/ her with little reserve to pay for quality education for his/ her children, or making investments towards their future. Worse still, if the debtor dies, his/ her children will assume the debts making it a cycle of poverty. The story continues. Once happy family eventually becomes unhappy plagued with frustrations, hopelessness, and feeling of insecurity. They snap over minor issues and fight to finish over scarce resources. They become mere ‘laborers in the master’s vineyard’ the difference being that this ‘master’ is a mean-spirited capitalist; lives right here on Earth and do not reward hard-work. In a nutshell, the debtors become 'modern day slaves', very angry slaves!

This same principle applies to foreign aids. For those in the international circle this ugly tale is familiar with the so-called African debt crisis, the unseen hand behind all wars, poverty, diseases, illiteracy,   and perpetual servitude plaguing Africa.

Foreign Aid Or Debt Trap?

According to J. W. Smith, in the publication ‘The World’s Wasted Wealth 2’, (Institute for Economic Democracy, 1994), "Because the First world wasn’t concerned too much about developing the Third World the loans created debt traps, and reduced competition.." Most of Africa's debt resulted from loans to dictatorial governments (who were either placed in power or backed by the powerful countries themselves), resulting in little benefit to the people. These governments were rife with corruption and embezzlement.   Loans were often siphoned back to foreign banks, which loan the funds back to the developing countries. Susan George, in her 1992 book, ‘Debt Boomerang: How Third World Debt Harms Us All’, estimated that a net of about $418 billion borrowed funds flowed right back north between 1982 and 1990.  Western creditors and banks sometimes push ill-judged loans at a very high cost to corrupt government officials in Africa who often are eager to borrow unwisely and corruptly diverted the funds.

Carrot In One Hand, Rod On The Other

Many foreign aids are ‘tied funds’ that come with conditions like preferential exports. This ensures that more money comes out of the benefiting countries than is given. The benefiting nations are eventually saddled with debt repayment resulting in depressed wages encouraging brain-drain whereby indigenous experts who could help develop the economy leave the country in search of greener pastures. Internal social and political problems also arise. Indebted countries spend more resources on fighting crime, diseases, etc. Therefore, not much effort is put into developing industrial goods for export. This has turned African countries today to dumping grounds for cheap sub-standard, imported products, undermining local products and destroying local economy.  Forever they are needy and dependent.  Over 80 percent of foreign aid returns back to the creditor nations through exports to the benefiting nation.

It’s Fueled By Politics And Not Compassion

Foreign debt is not a financial or an economic problem at all but in every way a political one. The cancellation of $20 billion dollars of Iraqi debt by UK following the fall of Saddam Hussein shows that politics and not compassion fuels foreign aids.  In 2005 The Japanese Government, on the request by African leaders through the New Partnership for Africa's Development (NEPAD) announced that it would within a span of three years double the amount of Overseas Development Assistance (ODA) in Africa. Japan launched another package to be realized with the African Development Bank (ADB). The initiative is called - the Enhanced Private Sector Assistance (EPSA) for Africa with loans of up to $1 billion over the next five years.  But the Prime Minister of Malaysia commenting on a similar package to Central America once pointed out that, “Although Japan furnishes loans, it takes back with its other hand, as if by magic, almost twice the amount it provides.” In 1986, Central American authorities estimated that the wealth drained from Latin America was more than $70 billion in a single year in the form of money or merchandise for which the region didn’t receive anything in exchange. Do African leaders learn any lesson at all?

Debt Relief Helps But Not The Solution

Zambia is an example of an African country that has embarked on Structural Adjustment Programs, Poverty Reduction Strategies and belongs to Highly Indebted Poor Countries Initiative (HIPC). Zambia got a possible $3.8billion debt write off, but still owes billions. Most African countries treat debt relief, as a clean slate to start all over again “your sins are forgiven, so you can start afresh sinning”. Debt relief can only make impact in Africa only if benefiting nations build up their local economies in order to change the situation. Borrowing at all should be limited to encouraging local production and export from Africa in order to turn the tide, as a consumer continent.

Conclusion

No one can develop a nation using foreign aids. Rather real democratization, genuine good governance, tighter controls on reckless financial spending and corruption all can bring about real independence for African countries. Over-dependence on foreign aids undermines economic growth in Africa. Unless African governments take pertinent steps to encourage the production of goods, exports, and diversified economy, capitalization will continue to be a problem. Foreign debt is modern day slavery. A ‘Slave cannot rise above the master’.

On a lighter note maybe African leaders should start taking oats-of –office before African shrines. I mean those that are said to kill offenders instantly.

 References:

•  J.W. Smith: The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), pp. 139-141.

•  Susan George, Debt Boomerang: How Third World Debt Harms Us All, (1992),

• Huw Evans (UK's Executive Director at the IMF and World Bank 1994-97):  “Debt Relief for the Poorest Countries” (Journal Article in Development Policy Review (September 1999)

•  http://www.jubileeresearch.org/jubilee2000/news/brown0903.html

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