Inefficiency of Aid focused in Kenya: Difference between revisions
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= | =Kenya Before Poverty= | ||
When Kenya gained their independence in 1963, | |||
When Kenya gained their independence in 1963, they restructured their government. Economically speaking, the central government, and the Office of the President in particular were given full economic policy making decisions. This meant that any implementation of any major economic policy initiative would always require the agreement of the President. In the post-Independence years, the Kenyan government expanded its involvement in productive activities through the establishment of new state-owned enterprises (SOEs) and joint public and private ventures in manufacturing and commerce. The Kenyan government created the industrialization strategy in the 1960’s and 1970’s, which was based on import substitution. They were established in order to produce substitutes for previously imported consumer goods. Throughout the 1960s through the 1980’s, the Kenyan government led a decent economy, in fact it was pretty decent. The growth rate of GDP averaged 5.8% annum in 1965-73 and 5.3 1974-80. There were growths it domestic rural incomes, regular exports of goods to Tanzania and Uganda, agricultural sector grew by more than 5%, while the manufacturing sector grew by more than 10%. The overall balance of payments of deficit was extremely manageable, at 3-4% of GDP. | |||
==Falling Economy== | ==Falling Economy== | ||
So, then is it that Kenya’s economy had crashed by the | So, then is it that Kenya’s economy had crashed by the late 1970’s? One of the many reasons that affected Kenya’s economy is the first oil shock in 1973. Kenya was extremely dependent on imported petroleum products but because the prices rose significantly, it negatively affected the economy. The government responded to falling economy by implementing “import substitution” through restriction on imports, price controls, nationalization of industry and establishment of marketing boards. Market boards allowed the Kenyan government to purchase agricultural goods at government set prices lower than the market prices. In the beginning these polices set by the government did well for the first few years, but soon fell through. All of the economic policies set by the government led to economic stagnation and has terrible end results. When blamed for the economic situation, the Kenyan government justified their actions as a natural response to price influctuations. In 1981, when the fiscal deficit rose to 9.3% of GDP, with the balance of payments reaching 12% of GDP, and the inflation rate increasing an average of 12% to18%, the Kenyan government responded by combining forces with the IMF for a stabilization program. The program was successful in that they reduced the fiscal deficit to 3% but did this in the expense of investment and growth. | ||
==Problems with Kenya== | ===Problems with Kenya=== | ||
Like most countries that are significantly poor, it is not just one problem that needs aid, there are many. Kenya has to decide what takes priority in terms of what problems will get help. One of the main reasons Kenya needs aid is to repair the crumbling infrastructure and restore effective delivery of social services. Kenya is considered one of the poorest countries in the world, so it is no surprise that more than half of the population is living in extreme poverty, with the capita income decreasing yearly. Adding to this is the HIV/AIDS virus. The government has to try and eliminate as much of it and prevent the spreading of the virus before it sweeps the country away. More than 140,000 adults died from the virus every year, with the numbers increasing, with more than 1,400,000 infected citizens. The government needs to set up programs like a HIV/AIDS prevention program but cannot afford to. Additional social problems that the government needs to address are the education system for the children. Another huge problem that the government must address is Kenya’s external debt, which is more than $5.1 billion dollars. | Like most countries that are significantly poor, it is not just one problem that needs aid, there are many. Kenya has to decide what takes priority in terms of what problems will get help. One of the main reasons Kenya needs aid is to repair the crumbling infrastructure and restore effective delivery of social services. Kenya is considered one of the poorest countries in the world, so it is no surprise that more than half of the population is living in extreme poverty, with the capita income decreasing yearly. Adding to this is the HIV/AIDS virus. The government has to try and eliminate as much of it and prevent the spreading of the virus before it sweeps the country away. More than 140,000 adults died from the virus every year, with the numbers increasing, with more than 1,400,000 infected citizens. The government needs to set up programs like a HIV/AIDS prevention program but cannot afford to. Additional social problems that the government needs to address are the education system for the children. Another huge problem that the government must address is Kenya’s external debt, which is more than $5.1 billion dollars. | ||
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There are many reasons why aid has not benefited Kenya. The first reason is government corruption. Another reason is that donors will become so involved in their donating country, and not knowing the country’s detailed problem, they | ====AID Beneficial to Kenya’s economy?==== | ||
There are many reasons why aid has not benefited Kenya. The first reason is government corruption and reckless ways of using the aid. In Kenya, like most other countries in Africa, studies have shown aid does not help the country to invest money. In fact, savings always decreases significantly when the amount of aid given is high. So where does the aid go towards then? The majority of it will be used for consumption. Studies have shown that as a country gets more aid, an increase in government consumption takes place. Figure 2 shows the relationship between aid and government consumption. | |||
[[Image:Graoh_2.JPG|thumb|Description]] | |||
By comparing Kenya’s growth rate with the growth rate which might have been applied if the gap theory was valid. The gap theory-when a country has insufficient funds/resources for investments. Graph 3 shows how extreme poverty would have been eradicated by the 1990’s. | |||
[[Image:Graoh_3.JPG|thumb|Description]] | |||
Additionally, Kenya would have been it the economic group with Spain, Portugal, and New Zealand, as the countries would have the same GNI range. Another reason is that donors will become so involved in their donating country, and not knowing the country’s detailed problem, that they essentially help crowd out private sectors or private investors. By helping out these sectors or investors, they are preventing any growth of entrepreneurship and handicapping economic growth. Really this just means that they are helping out the small percentage of the elite and handicapping and hurting the common man. Another reason why aid has not been beneficial is because of aid dependency. Many countries that receive aid will deliberately widen the financing gap and focus towards consumption, where they will spend a large amount of money of current consumption. Having a bigger financial gap allows countries to demand more aid. Kenya is guilty of doing this. Kenya’s dependency on aid means that original strategy and incentives are changed in order to get more and more aid instead of focusing on ways to alleviate poverty, debt, and other social problems. The final graph shows us the efficiency of aid in Kenya. That is, the more aid Kenya gets from wealthy nations, the more harm it is doing to the economy rather than benefiting it. The graph shows us an inverse relationship between aid and the gdp. | |||
[[Image:Graph199.JPG|thumb|Description]] | |||
Back to [[The Impact of Global Aid]] | |||
Latest revision as of 18:06, 30 November 2006
Kenya Before Poverty
When Kenya gained their independence in 1963, they restructured their government. Economically speaking, the central government, and the Office of the President in particular were given full economic policy making decisions. This meant that any implementation of any major economic policy initiative would always require the agreement of the President. In the post-Independence years, the Kenyan government expanded its involvement in productive activities through the establishment of new state-owned enterprises (SOEs) and joint public and private ventures in manufacturing and commerce. The Kenyan government created the industrialization strategy in the 1960’s and 1970’s, which was based on import substitution. They were established in order to produce substitutes for previously imported consumer goods. Throughout the 1960s through the 1980’s, the Kenyan government led a decent economy, in fact it was pretty decent. The growth rate of GDP averaged 5.8% annum in 1965-73 and 5.3 1974-80. There were growths it domestic rural incomes, regular exports of goods to Tanzania and Uganda, agricultural sector grew by more than 5%, while the manufacturing sector grew by more than 10%. The overall balance of payments of deficit was extremely manageable, at 3-4% of GDP.
Falling Economy
So, then is it that Kenya’s economy had crashed by the late 1970’s? One of the many reasons that affected Kenya’s economy is the first oil shock in 1973. Kenya was extremely dependent on imported petroleum products but because the prices rose significantly, it negatively affected the economy. The government responded to falling economy by implementing “import substitution” through restriction on imports, price controls, nationalization of industry and establishment of marketing boards. Market boards allowed the Kenyan government to purchase agricultural goods at government set prices lower than the market prices. In the beginning these polices set by the government did well for the first few years, but soon fell through. All of the economic policies set by the government led to economic stagnation and has terrible end results. When blamed for the economic situation, the Kenyan government justified their actions as a natural response to price influctuations. In 1981, when the fiscal deficit rose to 9.3% of GDP, with the balance of payments reaching 12% of GDP, and the inflation rate increasing an average of 12% to18%, the Kenyan government responded by combining forces with the IMF for a stabilization program. The program was successful in that they reduced the fiscal deficit to 3% but did this in the expense of investment and growth.
Problems with Kenya
Like most countries that are significantly poor, it is not just one problem that needs aid, there are many. Kenya has to decide what takes priority in terms of what problems will get help. One of the main reasons Kenya needs aid is to repair the crumbling infrastructure and restore effective delivery of social services. Kenya is considered one of the poorest countries in the world, so it is no surprise that more than half of the population is living in extreme poverty, with the capita income decreasing yearly. Adding to this is the HIV/AIDS virus. The government has to try and eliminate as much of it and prevent the spreading of the virus before it sweeps the country away. More than 140,000 adults died from the virus every year, with the numbers increasing, with more than 1,400,000 infected citizens. The government needs to set up programs like a HIV/AIDS prevention program but cannot afford to. Additional social problems that the government needs to address are the education system for the children. Another huge problem that the government must address is Kenya’s external debt, which is more than $5.1 billion dollars.
The United States is Kenya’s largest aid donor. Last year, in 2005, the United States donated more than 50 millions dollars in aid to Kenya. The aid was to serve in ways that would improve the balance of power among the institutions of government, used for the health issues, education support for youth, improving the general income of the citizens by increasing agricultural and rural enterprise opportunities. In addition to the aid given by the US, Kenya also receives aid from other countries. The overall assistance given to Kenya annually is about $700 million. However, even with millions flowing in, Kenya does not seem to be improving economically. Why?
AID Beneficial to Kenya’s economy?
There are many reasons why aid has not benefited Kenya. The first reason is government corruption and reckless ways of using the aid. In Kenya, like most other countries in Africa, studies have shown aid does not help the country to invest money. In fact, savings always decreases significantly when the amount of aid given is high. So where does the aid go towards then? The majority of it will be used for consumption. Studies have shown that as a country gets more aid, an increase in government consumption takes place. Figure 2 shows the relationship between aid and government consumption.
By comparing Kenya’s growth rate with the growth rate which might have been applied if the gap theory was valid. The gap theory-when a country has insufficient funds/resources for investments. Graph 3 shows how extreme poverty would have been eradicated by the 1990’s.
Additionally, Kenya would have been it the economic group with Spain, Portugal, and New Zealand, as the countries would have the same GNI range. Another reason is that donors will become so involved in their donating country, and not knowing the country’s detailed problem, that they essentially help crowd out private sectors or private investors. By helping out these sectors or investors, they are preventing any growth of entrepreneurship and handicapping economic growth. Really this just means that they are helping out the small percentage of the elite and handicapping and hurting the common man. Another reason why aid has not been beneficial is because of aid dependency. Many countries that receive aid will deliberately widen the financing gap and focus towards consumption, where they will spend a large amount of money of current consumption. Having a bigger financial gap allows countries to demand more aid. Kenya is guilty of doing this. Kenya’s dependency on aid means that original strategy and incentives are changed in order to get more and more aid instead of focusing on ways to alleviate poverty, debt, and other social problems. The final graph shows us the efficiency of aid in Kenya. That is, the more aid Kenya gets from wealthy nations, the more harm it is doing to the economy rather than benefiting it. The graph shows us an inverse relationship between aid and the gdp.
Back to The Impact of Global Aid
