The dynamics of foreign aid and underdevelopment in Nigeria

By Abhinash & Priya Chetty on June 11, 2024

There are several countries offering aid to Nigeria and China is among its major donors to help alleviate its poverty and ensure consistent growth and development (Wang, 2007). Between 2000 and 2012, China managed approximately 1700 projects worth $75 billion in Africa. It also provided soft and commercial loans worth $5 billion for Africa (WOODS, 2008). The US foreign aid accounted for $3 billion, mainly for military assistance.

Furthermore, the US also donated 24 Mine-Resistant Armor-Protected vehicles to Nigeria (Los Angeles Times, 2017). Japan on the other hand managed about 148 aid projects in Nigeria and built 325 classrooms in Oyo for educational purposes in the country. Additionally, Europe in 2014 through its European Commission provided humanitarian aid worth €155 million that covered the basic needs of internally displaced people such as food, clinical services, shelter and protection (European Commission, 2017).

The impact of foreign aid on Nigeria’s development has been a subject of extensive debate. While foreign aid is intended to foster development, there are arguments that it has, in some cases, perpetuated dependency and underdevelopment. Foreign aid plays a crucial role in Nigeria’s economic growth and development. Adeolu (2012) and Odusanya (2011) both highlight its positive impact on economic growth, particularly when channelled into productive sectors. Ikong (2019) further emphasizes its positive impact on national development.

Utilisation of foreign aid for security & military assistance in Nigeria

Nigeria has been a notable recipient of significant international aid, ostensibly intended for development purposes, yet a substantial portion of this assistance has in reality been diverted and redirected towards security and military initiatives (Fisher, J. and Anderson, M, D., 2015. Brown, S. and Grävingholt, J., 2016). The linkage between development aid, security, and the War on Terror is a complex and nuanced dynamic that has significantly impacted the orientation, understanding, and efficacy of official development assistance discourses (Aning, K., 2010).

Nigeria faces significant security challenges, including terrorism, insurgency, and organized crime. International aid has played a crucial role in addressing these issues through security and military assistance. This aid aims to strengthen Nigeria’s defence capabilities, improve internal security, and combat various threats. The effectiveness and implications of utilizing international aid for security and military purposes remain important areas of study and debate in the field of international relations and security studies. Nigeria receives military aid through two major programmes; the Economic and Financial Crimes Commission (EFCC) and the National Human Rights Commission (NHRC) (Arseneault, 2017).

Furthermore, it gets aid from the US in the form of military equipment and transformational facilities. On a critical note, the US government also criticised the administration of Nigeria for not protecting its citizens from abuses and terrorist activities. In 2017, US$593 million was provided by the US in order to fight against corruption (Gaffey, 2017). While Nigeria’s security challenges, including the Boko Haram insurgency, have been well-documented, the utilization of international aid to address these issues has raised important questions regarding the prioritization of security over other critical development needs, the potential misappropriation or mismanagement of funds, and the broader implications for human security in the country (Brown, S., Grävingholt, J. and Raddatz, R., 2016).

Foreign aid received by Nigeria for socioeconomic development

Foreign aid plays a crucial role in Nigeria’s economic growth and development. Foreign aid has a positive impact on various sectors in Nigeria, including agriculture (Verter, 2017), education (Mukaddas, 2019), and economic growth (Odusanya, 2011). The reliance on external financial support for capital projects can lead to a lack of internal development of robust economic policies and practices, which is essential for long-term growth and development (Obijiaku, 2015). However, the link between foreign aid and economic growth is complex, with some studies finding a negative or non-significant relationship.

Aid programs such as ODA and EDUCAID were useful for primary and secondary education and also provided skills for the workforce (Babalola et al., 2000). However, despite being rich in natural resources, there is rampant poverty in Nigeria due to a lack of food security for its population. International grants and aid are useful in alleviating poverty (Sidding, Aguiar, Grethe, Minor, & Walmasley, 2014). The dependency of Nigeria on the oil and gas sector has affected the agriculture sector to the extent that food has to be imported. Developed countries such as the USA and the UK are providing extensive support for alleviating poverty via the provision of basic amenities (Adebayo & Ojo, 2012).

In 2012, the economy of Nigeria slowed down, the rate of unemployment was 21% in 2010 and 24% in 2011. China provided billions in debt relief in 2006. In addition to this, USD 200 million was granted in 2012 for agricultural purposes. On a critical note, a study conducted by Chinecherem and Uju, (2015) found that foreign aid contributed negatively towards the capital generation in Nigeria.

The linkage between development aid, security, and the War on Terror is a complex and nuanced dynamic that has significantly impacted the orientation, understanding, and efficacy of official development assistance discourses (Aning, K., 2010). It has been reported that foreign aid is often siphoned into private foreign accounts, which not only deprives the intended sectors of necessary funding but also undermines the overall economic stability of the country (Obijiaku, 2015). In the context of the educational sector in Anambra State, factors such as corruption, poor policies, and inadequate institutional frameworks significantly hinder the effectiveness of foreign aid. These obstacles prevent the successful implementation and utilization of development funds, which are crucial for educational reforms and improvements (Chukwuemeka, 2014).

The rise of armed groups and instability due to socio-economic inequalities

There are concerns that the securitization of foreign aid has led to greater external control and manipulation of Nigeria’s development agenda, with donor countries and institutions imposing security-centric policies and priorities that may not align with the country’s long-term interests or the needs of its citizens. As noted by one study,

Conditionality’s around human rights, around good governance, around women empowerment amongst others are deemed necessary and fair. But when it comes to security issues donor countries leverage their financial muscle to advance their own agenda.

Fisher, J. and Anderson, M, D., 2015

This dynamic has the potential to undermine Nigeria’s sovereignty and erode public trust, as citizens perceive the government as beholden to external interests rather than focused on domestic development goals. Additionally, the diversion of funds away from social welfare, education, and other critical sectors exacerbate existing socioeconomic inequalities and further fuel grievances that contribute to the rise of armed groups and instability.

Foreign aid enabled Nigeria in 2010 to use 66.5% of that aid for debt servicing. This was effective in improving the socio-economic condition of the nation along with the reduction of debt ratio. In the same year, 6.3% of foreign aid was used for economic development only (Adeolu, 2017). This practice was criticized by development experts who argued that debt servicing did little to address the root causes of Nigeria’s security challenges, which were fundamentally linked to socioeconomic disparities, marginalization, and lack of good governance. In the years since, Nigeria has continued to devote significant portions of its foreign aid budgets towards security sector interventions, despite persistent human rights concerns, allegations of corruption, and the limited demonstrated impact of these measures in effectively reducing the threat of violent extremism.

Impact of unfavourable economic policies and external control through foreign aid

External control through aid often comes with conditions that prioritize donor interests over domestic needs, leading to the adoption of policies that may not align with Nigeria’s long-term economic goals. A range of studies have explored the impact of external factors on Nigeria’s economy. Nyatepe-Coo (1993) and Peter (2012) both found that external debt has a negative impact on economic growth, with Nyatepe-Coo also highlighting the role of inappropriate policy responses in exacerbating the Nigerian debt crisis. The introduction of debt servicing in Nigeria has been significantly influenced by the accumulation of external debt, which was exacerbated by external shocks and domestic policy responses. Nyatepe-Coo (1993) highlights that a significant part of the increase in Nigeria’s external debt was due to financing capital flight, and after 1981, current account deficits became more prominent in debt accumulation. The growth in external debt was partly caused by adverse external conditions, and the Nigerian debt crisis was worsened by inappropriate policy responses.

Aid-driven policies focus on short-term solutions and import-dependent strategies, undermining efforts to develop domestic industries and value chains. Osuagwu (2015) further discusses the impact of foreign debt on Nigeria, noting that the introduction of foreign loans, which were intended to spur development, has instead led to economic setbacks. This has been marked by increased corruption and money laundering, with the nation’s economy experiencing severe poverty and economic disintegration. The paper also points out that the conditions and policies in place prior to the approval of these loans have made it difficult for economic growth and development to occur in Nigeria.

However, Peter (2012) also noted a positive impact of foreign aid on growth, while Uzonwanne (2015) found a negative impact of foreign aid on capital generation. These findings suggest a complex relationship between external factors and Nigeria’s economic performance, with the quality of institutions playing a crucial role in determining the effectiveness of foreign aid (Hassan, 2021).

Gabriel (2013) notes that while external debt stock contributes significantly to Nigeria’s GDP, debt servicing has a negative, albeit insignificant, impact on GDP. This suggests that the costs associated with servicing debt also detract from economic growth, especially if the debt is not managed effectively.

Ojo (2012) provides a more detailed analysis of the adverse effects of external debt on Nigeria’s economy. The study indicates that a high level of external debt has led to several economic problems, including the devaluation of the national currency, an increase in retrenchment of workers, continuous industrial strikes, and a poor educational system. These issues collectively contribute to the economic depression in Nigeria, highlighting the severe consequences of mismanaged debt servicing.

Dependency on aid weakens domestic accountability mechanisms and democratic institutions, as governments prioritize pleasing donors over serving the interests of citizens. Socioeconomic inequalities play a significant role in driving the rise of armed groups and instability in Nigeria. Addressing these root causes through inclusive economic development, good governance, and conflict resolution measures is essential for promoting stability and reducing the appeal of violent extremism. Sustainable peace and security require comprehensive strategies that prioritize social justice, equity, and opportunities for all Nigerians.

References

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Priya is the co-founder and Managing Partner of Project Guru, a research and analytics firm based in Gurgaon. She is responsible for the human resource planning and operations functions. Her expertise in analytics has been used in a number of service-based industries like education and financial services.

Her foundational educational is from St. Xaviers High School (Mumbai). She also holds MBA degree in Marketing and Finance from the Indian Institute of Planning and Management, Delhi (2008).

Some of the notable projects she has worked on include:

  • Using systems thinking to improve sustainability in operations: A study carried out in Malaysia in partnership with Universiti Kuala Lumpur.
  • Assessing customer satisfaction with in-house doctors of Jiva Ayurveda (a project executed for the company)
  • Predicting the potential impact of green hydrogen microgirds (A project executed for the Government of South Africa)

She is a key contributor to the in-house research platform Knowledge Tank.

She currently holds over 300 citations from her contributions to the platform.

She has also been a guest speaker at various institutes such as JIMS (Delhi), BPIT (Delhi), and SVU (Tirupati).

 

I am currently working as a Research Associate. My work is centered on Macroeconomics with modern econometric approach. Broadly, the methodological research focuses on Panel data and Times series data analysis for causal inference and prediction. I also served as a reviewer to Journals of Taylor & Francis Group, Emerald, Sage.

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