FOREIGN AID IN KENYA

 

DISCUSS THE TYPES, INTENDED PURPOSE AND MAJOR TRENDS OF FOREIGN AID IN KENYA BETWEEN 2000 AND 2016

Instruction:

Discuss the question under the following sub-headings:

1. Types of foreign aid in Kenya
2. a)      Private foreign investments by Multinational Corporations (MNCs) vs

Transnational Corporations (TNCs)

Private foreign investment is the private capital investment of one country in another by either an individual or corporations. MNCs are companies with assets in at least one country other than its country while TNCs are companies with no borders as they do not consider any country as their home county. TNCs are a type of MNCs.

1. b)      Loans vs grants

Loan is borrowed sum of money which is expected to be paid back with an interest while grant is a sum of money given by a government or other organization for a particular purpose. Aid to African countries in form of Loans and grants from rich countries has little to do with helping the developing countries. The profits made by donor countries prove it all. Africa, Kenya included pays more in form of loan repayment, tax invasion and repatriation of profits to donor countries than it receives in form of loan and foreign investment every year.

Loans and Grants are given to a country to perform a specific purpose or project. Kenya has shown an increase in loans and grants especially from China from the year 2002.

 

 

1. c)      Programme vs project aid

 

1. d)     Tied aid

Tied aid is an aid given by a country or group of countries to another country on condition that its spent on the goods and/or services from the donor country/countries. Tied aid is an important for the trading systems in the world especially development through trade. Buying goods and services from donor country or group of countries only, as a condition of an aid decreases the value of the aid and the projects the aid supports. Tied aid seems to contradict the principles of World Trade Organization (WTO) that promote free trade.

The construction of Standard Gauge Railway (SGR) in Kenya was 90% funded by Exim Bank of China. The requirements of the project were, engineering, construction and procurement contracts be awarded to a specific corporation owned by Chinese state. Kenya was compelled to sign a contract with a Chinese company to run the SGR business thus China providing services.

 

2. Purpose of foreign aid
3. a)      Developmental (to promote economic growth and poverty alleviation);

It has been a controversial issue in establishing the relationship between foreign aid and economic development. Scholars argue that there is a positive relationship between foreign aid and economic development but for radical elements, the mutual relationship between them is considered to be directly opposite. Foreign aid channeled to a country with clear development goals can be used to strengthen policies, planning and establish strong central institutions.

Consequently, high levels of foreign aid may lead to aid dependence. Continuous provision of aid to a county seems not to make significant contribution in supporting the recipient country to achieve self-sustaining development. Universally, increase in aid should lead to an increase in growth development. Kenya’s economic growth has increased as from 2002 possibly because of change of government. Over the same period, Kenya has also development macroeconomic policy reforms. Some of this reforms have been at the requirement of the donor community.

 

1. b)      Commercial (to cement commercial and financial relations with the aid donor-recipient, open markets, and ensure opportunities for investors, contractors, and suppliers from the aid-giving countries);

 

1. c)      Political (to maintain the allegiance of governments that are politically aligned with the donor, Humanitarian relief e.g. after 2011, 2015 and 2027 droughts

 

3. Trends of Foreign Aid

Bilateral versus multilateral aid

Bilateral aid is an aid given by a single state/country to another while multilateral aid is aid given by alliances of multiple countries or states e.g. International Monetary Fund (IMF) to a state.

Both bilateral and Multilateral channels consider selectiveness when giving aid as its assumed to increase effectiveness of foreign aid. Multilateral channels’ selectiveness is based on giving aid to poorest country when targeting development and better governed countries when targeting spending wisely while bilateral channels base their selectivity on institutional quality.

Bilateral aid is more transparent because a sum amount of money from a specific donor country goes to a specific country or project whereas a big sum of money going to a big organization gives an image of misuse and wastage of funding. Besides, multilateral aid allows for effective pooling of financial resources from different corporations and countries thus causing a significant impact on development. Nevertheless, bilateral aid tends to be selfish as they seek to benefit the donor state more than it benefits the recipient. This may lead to economic colonial ties between the donor and recipient countries.

Kenya experience a noticeable bilateral flows increase since 2001 possibility because of change in government regime and commitment reform.

 

1. b)      From West to Looking East: emerging players such as the Chinese

China has become a great influence in foreign aid to African countries where Kenya is at the top in those receiving China’s loans. China’s aid does not intend to exploit Kenya, not only because of Kenya-China long standing friendship but also due to similar development course of the two countries. Due to Kenya’s good credit history, China has established a comprehensive partnership with Kenya. China’s lending rates lower than international market one with longer grace period has contributed to the shift of Kenya’s interest in foreign aid to the East

 

1. c)      Magnitude of international aid in relation to local economy: from internal reliance (e.g. taxes under Kibaki regime to heavy public debt) i.e. endogenous versus exogenous growth

Aid was never considered a component of national income thus exogenous net increment on capital of the recipient country. As much as Kenyan government is capable of paying for most of its functions but it also depends on other sources in funding some of its functions. Kenya has a debt equivalent to half the country’s Gross Domestic Product (GDP) but loans from financial institutions are not considered as aid. If the donors withdraw funding, Kenya will still be in a position to pay for its functions because 95% of the national budget is funded by tax payers.

 

1. d)     Domination of large scale infrastructure projects.

 

4. Conclusion

 

Bibliography

Chimia Annamaria and Arrowsmith Sue, “Adressing Tied Aid: Towards a More Development -Oriented WTO”, Journal of International Economic Law, 12, no. 3 (2009): 707-747

 

Gulrajani, Nilima Bilateral versus Multilateral Aid Channels: Strategic choice of donors. Oversee Development Institution, March 2016. P 12

 

“Implications of tied lending in new railway line,” Daily Nation. Retrieved from:

 

Kariuki, Ngare “The myth about aid: How Africa is losing out as donors reap big-time,” Daily Nation, 31 July 2014

 

Kilmister, Megam “Bilateral versus Multilateral Aid, Development in Action.

 

Mwega Francis M., A case study of aid effectiveness in Kenya, Volatility and Fragmentation of Foreign aid, with a focus on health Wolfensohn Center for Development, working paper 8, January 2009

 

Ojiambo Elphas, Oduor Jacob, Mburu Tom and Wawire Nelson, “Aid Unpredictability and Economic Growth in Kenya,” African Development Bank Group, no. 22 (2015) 7-8

 

Omotola, Shola Foreign Aid, Debt Relif and Africa’s Development: Problems and Prospects,” South African Journal of International Affairs 16, no. 1(2009):87-102

 

Warah Rasna, “It is imprudent to claim that Kenya is not aid dependent,” Nation Media Group, 11 February, 2013

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