What's wrong with the foreign aid programs of China, Venezuela, and Saudi Arabia? They are enormously generous. And they are toxic.
My friend was visibly shaken. He had just learned that he had lost one of his clients to Chinese competitors. "It’s amazing," he told me. "The Chinese have completely priced us out of the market. We can’t compete with what they are able to offer."
Of course, manufacturing jobs are lost to China every day. But my friend is not in manufacturing. He works at the World Bank.
His story begins in Nigeria. The Nigerian government operates three railways, which are notoriously corrupt and inefficient. They are also falling apart. The World Bank proposed a project based on the common-sense observation that there was no point in loaning the Nigerians money without also tackling the corruption that had crippled the railways. After months of negotiation, the bank and Nigeria’s government agreed on a $5 million project that would allow private companies to come in and help clean up the railways. But, just as the deal was about to be signed, the Chinese government offered Nigeria $9 billion to rebuild the entire rail network — no bids, no conditions, and no need to reform. That was when my friend packed his suitcase and went to the airport.
It is not an isolated case. In recent years, a variety of wealthy, nondemocratic regimes have begun to undermine development policy through their own activist aid programs. Call it rogue aid. It is development assistance that is nondemocratic in origin and nontransparent in practice; its effect is typically to stifle real progress while hurting average citizens.
China has backed such deals throughout Africa; its funding of infrastructure there has boomed from $700 million in 2003 to between $2 and $3 billion for each of the past two years. Indeed, it is a worldwide strategy. In Indonesia, Beijing agreed to expand the country’s electrical grid. Too bad the deal calls for building plants that use a highly polluting, coal-based Chinese technology. No international agency would have signed off on such an environmentally unfriendly deal. In the Philippines, the Asian Development Bank, which lends money at low interest rates to poor countries, had agreed to fund Manila’s new aqueduct. It too was suddenly told that its money was no longer needed. China was offering lower rates and fewer questions.
What’s behind this sudden Chinese drive to do good around the world? The three short answers are: money, access to raw materials, and international politics. The coffers of China’s Central Bank are bursting with nearly $1.1 trillion in foreign exchange reserves — the world’s largest. Beijing is increasingly leveraging this cash to ensure its access to raw materials while also boosting international alliances that advance China’s growing global influence. What better than a generous foreign-aid program to ensure the goodwill of a petropower like Nigeria or a natural resource-rich neighbor such as Indonesia?
China is not the first country to rely on aid as a tool to advance its interests abroad. The Soviet Union and the United States spent decades giving "development aid" to dictators in exchange for their allegiance. Even today, American largesse to Egypt and Pakistan is rooted in geopolitical calculations. But, beginning in the 1990s, this system slowly began to improve. With greater media scrutiny, many developed countries were shamed into curbing these practices. Today, the projects of organizations like the World Bank are meticulously inspected by watchdog groups. Although the current system is far from perfect, it is certainly more transparent than when foreign aid routinely helped ruthless dictators stay in power.
Nor is China the only regime offering rogue aid. President Hugo Chávez has not been shy in using his nation’s oil-fueled international reserves to recruit allies abroad. Indeed, Venezuela’s ambassador to Nicaragua, explaining his country’s large aid packages to the region, bluntly announced in early January, "We want to infect Latin America with our model." Thus, hopes for Cuba’s opening as a result of Fidel Castro’s demise and the island’s bankruptcy will likely be dashed by the roughly $2 billion in rogue aid that Chávez supplies to Cuba every year. Worse, his generosity ultimately harms Cubans who, because of these artificial lifelines, will be forced to wait even longer for the indispensable reforms that will bring their society opportunities for true prosperity.
Iranian aid to Hamas in Palestine or Hezbollah in Lebanon is equally damaging to the people there. Clearly, this financial support has boosted Iran’s influence in the region. Far less clear is whether average Palestinians and Lebanese will ever be better off thanks to Iran’s generosity. The same can be said of Saudi Arabia’s massive overseas educational aid program. Are Pakistani boys whose parents cannot afford to send them to school well served by attending Saudi-sponsored religious schools that fail to equip them with the skills needed to get a job? They are surely better off going to any school than being in the streets. But why should these be the only two options? Why can’t the Saudis fund education, the Chinese pay for infrastructure, and Chávez help Cuba’s economy without also hurting poor Pakistanis, Nigerians, or Cubans?
Because their goal is not to help other countries develop. Rather, they are motivated by a desire to further their own national interests, advance an ideological agenda, or sometimes line their own pockets. Rogue aid providers couldn’t care less about the long-term well-being of the population of the countries they "aid."
What we have here — in states like China, Iran, Saudi Arabia, and Venezuela — are regimes that have the cash and the will to reshape the world into a place very different from where the rest of us want to live. Although they are not acting in concert, they collectively represent a threat to healthy, sustainable development. Worse, they are effectively pricing responsible and well-meaning aid organizations out of the market in the very places where they are needed most. If they continue to succeed in pushing their alternative development model, they will succeed in underwriting a world that is more corrupt, chaotic, and authoritarian. That is in no one’s interests, except the rogues.