Corruption in International Aid

Aid is useful assistance in cash and/or materials given to any country in need during disaster. If it is optimally utilized for the purpose it is meant for, it can help. O’Neil, the visiting United States Secretary of the Treasury, condemned the way development aid is being used in some developing countries (Nakazibwe and Mulumba, 2002). The effectiveness or good impact of aid can be felt only if the institutions meant to channel aid and the government of the country where the aid is directed, work for the good of the citizenry (World Bank, 1997; Stiglitz, 2002; Commission for Africa, 2005). Most problems with aid occur where there is leakage of funds which starts from project design, where the projects are overstated to fit the bidder’s selfish interest. Typical cases are Kenya and Uganda where millions were overstated (Chepkemei, 2002; Kelly, 2002; Nakazibwe and Mulumba, 2002). In the past decade there have been documented cases of how aid meant for the beneficiaries has been misappropriated or in most cases has disappeared without trace (Hancock, 1989; Hawley, 1999). Aid in-flow creates opportunities for wealth because not only can it be diverted by the ruling elites to other ventures or projects, but it also provides many opportunities for rent seeking (Azmi, 2005; Hawley and Philips, 2004; World Bank, 1997). Katrina flood disaster is an example of how corruption can drain aid; imagine a record of 7,000 cases of fraud (Fox News, 13 June 2006).

Aid flows from donor countries to recipient countries. The effectiveness of aid depends on policies, institutions and circumstances which exist in the recipient country (Stiglitz, 2002). As aid became vulnerable to misuse for private ends, international aid organizations, lending institutions and researchers have begun to acknowledge publicly the problem which corruption and bribery pose mainly in developing and transitional countries (Coolidge and Rose-Ackerman, 2002; Dollar and Pritchett, 2001; Hancock, 1989; IMF, 1997; Maipose, 2000; McCarty, 2002; Svensson, 2001; UNDP, 1997; World Bank, 1997). Similarly, in the 1980s, Korten (1990), Clark (1991) and Pope (2000) argue that the increase in aid dissemination culminated in rapid growth of NGOs which in turn enlarged its services: and this must have contributed to cases of bribery and corruption in most of the funded development projects, making it an important and global issue. For instance, at the meeting of the G8 leaders in Canada on 26 June 2002, U. S. President George Bush pointed out that:

“The U. S. won’t be putting money into a society dominated by corrupt leaders and I suppose other countries won’t either.”

There is also a correlation between corruption and receipt of donor assistance and the provision of resources for development in developing and transitional countries (Stiglitz, 2002; BBC 2, 30 June 2005). Funds meant to alleviate endemic problems like food shortages, healthcare, shelter and education, have been embezzled, misappropriated or diverted to other private uses, mainly into private pockets in Swiss accounts (Hancock, 1989; Obasanjo, 1994, 2002; Short, 2000; White, 2000). The monies stolen from many developing countries which would have helped meaningfully to alleviate poverty and the standard of living of the citizenry in Africa instead have been siphoned off to developed contries.

The leakages of funds in development projects have been found right from the project design, where requirements for the project are inflated to suit a particular individual, company or firm (UNDP, 1997, 1998). According to Hancock (1989), bidding for the project is seriously manipulated, leading to assigning of the contract to an underperforming company or individual at an overstated price. A classic example is the World Bank $280 million financed Bujagali Dam in Uganda, which became part of a bribery scandal (Transparency International, Daily Corruption Report, 20 November 2002). For example, Hancock (1989) points out that:

“There is much that it does there which is dubious, much that harms the poor and the vulnerable, and much that scars and wrecks the environment, much that is arrogant and wrong.”

Similarly, in Malawi, according to White (2000) the government used £1.7 million foreign aid to purchase 37 Mercedes-Benz limousines for senior Ministers; the Malawian government failed to account for £7 million, part of the $52 million European aid package intended for health, and many tonnes of maize grains disappeared from the store (Associated Press, 13 August 2002 and Daily Mail & Guardian, 27 November 2002). About 20 % of the World Bank and other International Agencies loans are siphoned off every year by Indonesians and also in other developing countries (New York Times, 26 January 2003). That is why public projects such as roads, installation of electricity and sinking of boreholes are left uncompleted (Dike, 2003). Similarly, Svensson (2001, p. 3) posits that:

“Expectation of aid alone can enhance rent-seeking behaviour and thus reduce the quality and provision of public goods.”

In addition, according to the IMF (1987, p. 1) annual report

There were numerous instances of parallel or overlapping fund and bank missions in which the staff of the two institutions collaborated closely in the field.”

Typical cases are Haiti, Kenya, Pakistan and Uganda. Aid countries or organizations contribute to the poor, or non-delivery of aid to the beneficiaries (Stiglitz, 2002). Similarly, Easterly (2002) argues that the international aid bureaucracies record mistakes and wastes. But despite the World Bank-led intervention to save Africa, the continent’s share of world trade shrank over the past 10 years from 4 % to 1 % today. Meanwhile, while the aid allocation to Africa is shrinking, the World Bank has swollen its staff strength from 657 in 1969, to 10,000, and the contracts from government development agencies are a big source of revenue for NGOs and civil society (Easterly, 2002). This gives room for corruption because of the duplication of projects by NGOs (Hancock, 1989). However, in real terms, according to Onyango-Obbo (2002, p. 4):

“Less of this money reaches the poor because the chain of people beginning from the donor governments, through to the aid agencies, the NGOs, their local partners and their affiliates, has grown so long; there are simply too many mouths biting off their piece of the pie along the way.”

Also, Pope (2002, p. 1) in a lecture on ‘How can we keep development Aid free of Corruption and Empower the Voices, delivered at Corpus Christi College, Oxford, argued that:

“Corruption in development does not only occur at the recipients’ end of the food chain. Much aid is never delivered at all, either blocked in the ’donor’country under policies which ensure that the aid is intended more for the local consultants’ firms than the benefit of the recipients.”

Classic examples abound in some countries (Obasanjo, 2002; This Day, 22 October 2002). Pronk (2001) elucidates that a new convention is emerging that aid should be disseminated selectively and preferentially to those governments that the donors think have demonstrated their commitment to their policies. MCA hinges on “ruling justly”, “investing in people” and “promoting economic freedom”.

Aid should be disseminated to the beneficiaries as supposed, so why the need for tying aid to commerce? Millennium Challenge Account [MCA] or Millennium Challenge Corporation, which was initiated by U.S. President George Bush, might again have its motive. The goal, according to Lerrick (2002), is nothing less than to transform the way aid is given and received, because despite a 50-year outpouring of more than $1,000 billion, global generosity has clearly failed and he argues further that, Aid benefits have long fallen short of two-thirds of World Bank projects in the poorest countries.