Development, Structural Change, and Foreign Aid in Sub-Saharan Africa: A case study of Cameroon

Development, Structural Change, and Foreign Aid in Sub-Saharan Africa: A case study of Cameroon

Abstract

Low-income countries need to considerably build consumption to meet all inclusive scope objectives for key wellbeing benefits, on the grounds that they have low-livelihoods, most will be not be able to raise satisfactory supports solely from household sources in the short to medium term. Foreign aid will be required to meet these important requirements (Johannes et al 78). Then again, there has long been a worry that the quick entry of a lot of  foreign trade in a nation could prompt an increment in swelling and loss of universal aggressiveness, with an unfavorable effect on fares and monetary development, a financial marvel termed ‘Dutch illness’. Of the 15 low-income nations that are expanding help financed wellbeing burning through, 7 have high macroeconomic dangers that may oblige the maintained development of spending (Rodrik 6562) . These conditions additionally apply in one-quarter of the 42 nations thus right away expanding spending. Wellbeing powers ought to know about the various danger elements at play, including elements that are wellbeing division particular and others that by and large are definitely not. They ought to likewise understand that there are powerful means for moderating the danger of Dutch illness connected with expanding improvement help for wellbeing .Cameroon is classified among the low-middle income countries. Since it turned into a brought together and independent nation in 1961, Cameroon has gotten noteworthy measures of outside guide, the majority of it from France and the European Economic Community. Since the 1960s, financial development in the nation has been entirely noteworthy. Somewhere around 1965 and 1980, the total national output developed at a normal yearly rate of 5.1% and at a rate of 2.3% somewhere around 1980 and 1990. Cameroon appears a decent experiment for deciding the impacts of remote guide on financial development on developing countries. This paper develops the thesis on development, structural Change, and foreign aid in Sub-Saharan Africa with a close study of Cameroon as one of our sample area of study. It brings out the idea that foreign aid doesn’t work through a collection of evidences from variant sources.

Introduction

In psychology, the law of Abundance claims that there is enough wealth in the world for everyone to have enough money and resources to live fulfilling lives. However, 1.2 billion people live with less than $1.25 dollars per day and 2.3 billion people suffer from water-borne diseases each year to this day (Rodrik 6562).   Indeed, Poverty has been around for centuries now and over the years, Sub-Saharan Africa has particularly become a poster-child for it. Indeed, 47% of Africa’s 726 million inhabitants live below the international poverty line of $1 a day and 239 million people in Sub-Saharan Africa were undernourished in 2010 according to the UN food and agriculture organization (Johannes et al 78). Low-income developing countries need to considerably build use to meet all inclusive scope objectives for key  administrations and to accomplish huge upgrades in populace well being, for example, those focused by the Millennium Development Goals.1–3 Almost every one of the nations with the most squeezing well being needs have low earnings and are unrealistic to have the capacity to raise satisfactory supports solely from local sources in the close future.4 Increased improvement help will be required to supplement any expansion in residential assets(Edwards 1358-1343). The universal group has reacted by considerably expanding duties to advancement help for well being in chose low-salary nations.

Notwithstanding, there has long been worry that the quick entry of a lot of outside trade in a nation could prompt an increment in expansion and loss of universal aggressiveness, with an unfavorable effect on fares and financial growth.7–9 This paper looks at the dangers that guide streams for wellbeing posture for key macroeconomic variables, audits the late cross country and nation level exact studies and proposes how unfriendly impacts could be minimized. It likewise outlines how worries with macroeconomic results of help streams are connected to the subject of monetary space and spending plan roofs in the general population segment. For centuries, the Western World, which happens to be more fortunate has tried to come up with many ways to help terminating poverty or at least diminishing it in sub-Saharan Africa but all their efforts have had minimal impacts.  One of the means through which they have attempted to attenuate poverty is Foreign aid. In fact over  $1 trillion of development-related aid has been transferred from rich countries to Africa over the past 60 years, yet real per-capita income today is lower than it was in the 1970s and as you can see on the graph below, growth per capita has actually decreased as foreign aid has been increasing in Africa.

Source: Easterly, W. (2003). Can foreign aid buy growth?. Journal of Economic Perspectives, 17(3), 23-48.

Colonialism of Foreign Aid

To understand Foreign aid in Sub Saharan-Africa, one has to take a historical gaze at it. The earliest form of Foreign Aid dates back to the early 1920’s when colonial powers such as Germany, France, and Great Britain were helping their colonies with development. They supported programs that mainly focused on developing infrastructure such as railways, ports and roads which in essence benefited them the most because it facilitated mercantilism and transporting raw material to the Western World (Johannes et al 78). This paternalistic relationship has actually set the tone for more Western interest-related foreign aid outflows occurring now.

Great Britain, which colonized began giving money to its colonies in the  as part of  the 1929 Colonial development act that aimed at improving transport, research infrastructure and accumulating capital in the colonies. By 1935, the U.K had granted 1 million pounds to its colonies and as a part of this act and more than 100 million pounds was borrowed on the London Market by colonial governments by the 1940’s. In the 1950’s the UK even created the Exports Credit Guarantee Department (ECGD) as a way of loaning out money to colonies rather than just granting it. The conditional ties to the loans were also very paternalistic and required that the money be invested on British goods and the loan paid at a commercial rate. When it came to administering the aid in colonies, Britain was also very paternalistic. Only well educated expatriate were dispatched abroad and allowed to work in agencies whose role was to administer the aid. Actually all colonial powers made sure that educated and capable expatriates were in charge of how the aid fund and that is assumed to be the reason why Foreign aid was actually more productive during colonial time.

France, which colonized Cameroon, put the most emphasis on bringing qualified expatriates to occupy administrative jobs in the colonies and handle foreign aid funds. Indeed, there were over 50 000 French technical assistance personnel working in colonies, which are way less than the 14, 000 workers that England had in its colonies. The reason for such outpour of French workers abroad is none but less that France’s desire for cultural assimilation. Unlike Britain which only saw its colonies as business partners, France actually had hopes of seeing is colonies completely assimilate to the metropole. As a result, effort to develop colonies was larger and so were grants as you can see on the chart below. However, French aid was aimed in such a manner that it allowed it to hold a tighter grip on its colonies. For instance, French colonies in Sub-Saharan Africa were forced to join the Franc zone, and that agreement was basically a way of using the colonies to subsidize French farmers. Similarly, French Aid remained intentioned- Filled post independence. Loans and grants were only attributed to former colonies who would hire and buy French personnel and products or that would.

Source:  World Bank, World Development Indicators, 2007.

The sad truth about colonial aid is that it did not pave a strong way for future aid. Indeed, once African countries became independent for instance, most expatriates left as the ‘Africanization” process began but the desire to provide foreign aid and grants did not. These phenomena created a shortage of qualified personnel that would efficiently manage the colossal aid projects thrown at African countries by organizations such as the IMF and the World Bank in the future. Indeed, when expatriate left very few locals were educated enough to handle aid projects because locals often were not often chosen to work in upper-level civil positions under colonial rule (Ghirmay 415-425). The lack of strong skill bases was a big problem when it came to managing foreign aid as some countries such as Burundi, only had one qualified accountant in the whole public sector in 1990.

Development and Growth explained

What is Economic development and how is it measured? Economic development in a non Eurocentric context has existed and been measured for ages in different civilizations (Rodrik  6562). However, when approaching the matter in terms of Foreign Aid, it is important to revisit Key classical economic principles which are listed below and apply them to how Aid is handled to recipients.

• Neoclassical model
• Exogenous growth
• Endogenous Growth
• Solow Model
• Structural Change

• The Neoclassical Model

Alludes that Economic growth is stimulated by Capital, labor and technology utilized in a manner that would maximize growth.

• Exogenous Model

Connotes that outside forces are what drives economic growth and that without them, economies would stagnate even if inside labor, capital and technology increase.

• Solow Model

Purports that increase in capital accumulation and labor are not sufficient to keep an economy flourishing because of diminishing returns in the long-term. The Solow-Model actually supports the idea that developing economies should quickly be able to catch up to developed ones if they handle their economies well.

• Endogenous Model

Refutes Exogenous Growth and implies that growth is stimulated by factors that are internal to the economic system and catalyze new technology.

To completely abide by only one of those models when it comes to evaluating economic growth may be a bit excessive as exceptions were found to all of them (Rodrik  6562). However regardless of their different approach towards economic development all these concepts promote the following similar ideas.

1. Capital accumulation: In a Neoclassic Capitalistic way, Capital accumulation is the pioneering factor when it comes to triggering economic growth.
2. Labor: Is paired with Capital accumulation and to make it more efficient. Human capita is often associated with labor since a more educated labor can generate higher return and work more efficiently.

3-Technology trade: The west has historically been known as the creator of technology that the rest of the world then exports and tries to imitate while the West is moving on to even more refined technology. Therefore, the introduction of new technology is crucial when it comes to keeping a healthy competitive economic agenda.

Structural Change

Structural changes pushes the idea that economic growth in developing countries can be achieved through shifting the structure of Production and is the most widely recognized approach to economic growth. Foreign Aid proponent Sachs particularly attaches a lot of merit to it and often applies it to the case of the East Asian Tigers economic expansion which can be considered a Foreign Aid success story. However, structural change has often also been criticized many economist such as Ravalli on and Datt, (19); Bourguignon and Morison, (98). These latter find that there is some evidence that agricultural growth is more effective at reducing poverty than manufacturing growth in agriculturally dependent countries and believe that it is unrealistic to prioritize a shift towards industrialization in countries where reducing poverty is considered more urgent than generating growth.

• Promoted Industrial development and technology

In classical development theories, industrial development is central. It is believed that economic growth in poor countries depends on the extent to which economies move towards high-productivity sectors and that industrialization occupies a very important place in that scheme (Ghirmay 415-425). Indeed, when a country modernizes its agricultural sector by adapting new technology, it can generally expect to see higher productivity growth in agriculture as well as increasing returns to scale and gains from innovation.

• Productive Shifting in Sectorization

Just like economists Vendor and Caldor’s growth theory stated, productivity and output growth reinforce each other. By shifting to higher productivity sectors such as industry and services, developing countries would utilize their resources in more intelligent manners and not experience slow economic growth as they welcome technological changes . As you can see on the charts below, countries that shifted their focus from Agriculture towards industrialization and services early on, noticed increasing annual growth in GDP while those who remained stuck on trying to expand agriculture experienced decreasing GDP Rates.

Source: World Bank, Africa Development Indicators, 2007

Efficient Labor Productivity and shifting

In order for a successful shift in sectorization to occur, labor productivity also has to shift accordingly. Indeed, developing governments should put an emphasis on shifting labor from low productivity sectors to high productivity sectors (Ghirmay 415-425). Sub-Saharan Africa particularly has the resources to do since base on data from the World Bank, 59% of 20-24 year olds in Sub-Saharan Africa will have had secondary education in 2030, compared to 42% today. This will translate into 137 million 20-24 year olds with secondary education and 12 million with tertiary education in 2030.

Foreign Aid Issues

Despite some success stories and Foreign aid generally does not have a good reputation in the Economic world and economists from all generations have critiqued it discourse. The main complaints about the issue have resurfaced in many economic studies and have all proved the inefficiency of Aid (Ghirmay 415-425). The most popular one and probably one of the oldest also is the assumption that first tier- countries did not require any aid when it came to triggering economic growth and that as a result,  developing countries are actually hurt by Foreign aid.

Foreign Aid and Poverty Eradication

As indicated by Goldfarb and Tapp (2), contributor nations regularly offer guide so as to kill neediness on the planet. The thousand years advancement objectives are a manual for some contributor nations and even make it less demanding for them to organize foreign aid in their yearly spending plans (Ghirmay 415-425). The viability of foreign aid in African nations is for the most part a measure of how destitution levels are reflected after the utilization of remote guide. In any case, it is hard to set up plainly that foreign aid is specifically in charge of neediness destruction as there are different variables included. Giver nations enthuse that poor nations are unequipped for killing destitution since subjects can’t gain and make ventures. Accordingly, outside guide is intended to be a huge whole of capital, which would trigger financial development. Lamentably, research demonstrates that foreign aid has been ineffectual in killing poverty and that it has in fact added to significantly more difficulties for beneficiary nations. Foreign aid disappointment in Africa has been looked into and recorded widely. Karabegovic and McMahon (55) attest that foreign aid is insignificant in the advancement of financial improvement in Africa. Foreign aid neglects to expand interests in third world African nations and without a generous build; neediness levels stagnate or even ascent. Actually, the result of remote guide is the arrangement of substantial governments and establishments, which influence monetary improvement adversely. The Increase of government authorities is frequently joined by uplifted levels of debasement achieved by misappropriation of foreign aid and other false exercises. As a rule, foreign aid is wasted and despite the fact that on occasion it can be utilized determinedly, it neglects to give long haul answers for destitution destruction. This is so on the grounds that, the greater part of the undertakings started by giver subsidizing are utilized to advantage the beneficiaries for a brief span because of existing conditions from contributor nations.

In spite of the recognition that foreign aid is the way to killing poverty in Africa, is the way that financial flexibility must acknowledged through the making of open and compelling monetary foundations in poor African nations (Nunnenkamp 1103). Foreign aid is not a necessity for improvement and as saw in most third world African nations; it has prompted overdependence on foreign aid. It does as such by making the feeling that western nations are rich and in this way anticipated that would offer help to poor nations. An ordinary case situation of any African nation displays the inclination for underdeveloped nations to offer work, crude materials, and markets for western givers giving them supportable development to the detriment of poor people. What’s more, poor nations grasp dependence on donor help and neglect to make other advancement motivators, which exacerbate the condition of neediness. Another component, which emerges from remote guide, is mistreatment. Bauer and Yamey (57), battle that as beneficiary governments’ forces and power are elevated by outside guide, clashes are certain to result because of the politicization of life. That is, governments use foreign aid to fuel political plans and create strategies, which disturb neediness and obstruct development.

Poor African nations additionally keep on accruing colossal obligation from remote guide and this has just added to destabilizing the nations’ monetary states. This weight additionally draws in monetary emergencies, social and political issues in those nations. At the point when underdeveloped nations are paying off debtors, they frequently consume their incomes on overhauling these obligations and thusly, they are left without capital for financial development. Besides, there is dependably the probability that benefactor nations will stop supporting advancement ventures when underdeveloped nations neglect to benefit their advances. This activity induces a string of negative impacts, for example, lying off specialists, presenting confinements and robust duties, and hindering importation of shopper products, all in an offer to pay up the obligation (Johannes et al 78). Besides, obligation has additionally achieved control of underdeveloped nations by givers. Notwithstanding forcing conditions, benefactors regularly come in, assume control government strategies, and even control how money related and different levels of organization are run. Thus, underdeveloped nations are left feeling debilitated and significantly more unstable about their monetary limits.

There is undoubtedly outside guide has now and again been of huge help to underdeveloped nations. Western nations have eased fleeting emergencies, for example, nourishment deficiencies and even put resources into undertakings, which have profited poor people. In any case, it is prominent that underdeveloped nations are more awful off with the vicinity of outside guide. In a perfect world, they don’t need to depend on remote guide with a specific end goal to kill destitution. Indeed, even in this way, take note of that western nations are likewise confronted with the same testing financial and social issues. In spite of this, contributors have dependably figured in underdeveloped nations in their yearly spending plans and altogether honored them substantial gifts to the detriment of those tormented by destitution and different issues in their own particular nations. Case in point, Cameroons spending on outside guide keeps on expanding yearly. As they do as such, they are additionally mindful of the way that outside guide is demonstrating shifty and neglects to get the craved results of destitution annihilation and financial manageability in underdeveloped nations. As committed as they are to this course, Canada’s own particular patio is littered by neediness and minority bunches needing help and help.

Poverty has expanded significantly in Cameroon and this is reflected in the ascent in dependence on safe houses and sustenance banks. Destitution markers are appetite, poor lodging, and vagrancy for poor people. Undoubtedly, as the administration is caught up with sending subsidizing to African nations, hunger has tormented such a variety of Canadian youngsters at a disturbing rate. As per a study by Connor, McIntyre and Warren (961), destitution levels in Cameroon are unsatisfactorily high and all the more so for youngsters who are not in a position to battle for themselves. They likewise show that one youngster in each five is influenced by neediness across the country. Neediness annihilation is at the bleeding edge of a few associations, which anticipate obliterating impacts for the nation’s future work limits. Hunger and neediness in youngsters is generally joined by ailments and sick wellbeing in those influenced. These perspectives are prone to prompt youngster Mal-advancement and even fatalities which just restrains youthful kids from growing up strongly and ready to render administration to their nation. It is the ideal opportunity for western nations to understand their residential issues before stretching out help to others. This will result to withdrawal of outside guide and the redirection of this guide to such activities as appetite and destitution destruction, advancement of appropriate lodging and offering welfare administrations to poor people.

Source:  World Bank, World Development Indicators, 2007.

Foreign Aid and dependence

Indeed, by delegating the task of providing capital and investment to foreign donors, it is yielding for recipient countries to spend little to no time developing economic agendas of their own and emphasizing on self-bettering. Indeed, as you can see on the table below, we can see that 27 sub- Saharan countries were drawing at least 25% of net aid as a percentage of government expenditures in 1999. In some extreme cases it was even revealed that in countries such as Malawi and Ghana, foreign aid was funding almost 50% of government expenditure for nearly 20 years.

Source:  World Bank, World Development Indicators, 2007.

Indeed, it has been proven that countries that are used to receiving foreign aid .And quickly become dependent on it and even ask for more to function. For example, only 13 countries were receiving net aid at levels above 10% of GDP but 10 years later, that figure had doubled and now applied to 30 countries in the region. This illustrates that when a country becomes so dependent on foreign aid this may result to stagnant growth, and its economic economic growth being affected.

Diary of International Business and Cultural Studies outside Aid and Growth shows a significance of outside guide to the economies of creating nations, it is vital to comprehend its commitment to economic development of creating nations. In this way, this paper breaks down the impacts of remote guide on the financial development of creating nations (Rodrik   6562). These impacts are broke down utilizing board information arrangement for remote guide, while representing provincial contrasts in Asian, African, Latin American, and the Caribbean nations and the contrasts in salary levels. One of the contributions of this paper is its data to the current observational writing on the impacts of remote guide on monetary development of creating nations through its exhaustive examination covering an extensive number of creating nations and additionally a more extended time period. The study concentrates on the time period 1980-2007. Keeping in mind the end goal to better comprehend the impact of help on development and also any change of its impact after some time, three separate models for shorter time periods, specifically, 1980-1989, 1990-1999,furthermore, 2000-2007 were likewise assessed. Despite the fact that it is the 21st century, numerous developing nations still face the issue of genuine asset issues. An expansive segment of these nations are in the progressing fight with serious obligations and entirely reliant on their financial help inflows. Unfortunately, the weight set on these nations by obligation adjusting is time after time over whelming. Also, official improvement help (ODA) streams have fallen over the past decade, and creating nations need to hunt down option approaches to wind up more effective with the usage of help inflows by means of the right arrangements and look for imaginative systems to attract extra guide. Because of the significance of this point, the effect of outside guide has been the subject of exceptionally broad examination. The key question that both the contributor and the beneficiary nations question is whether help has any impact on creating country’s development and their level of neediness.

Colossal and hurtful inflow of aid

In his book “Can Foreign Aid buy Growth?” William Easterly conveys the idea that many foreign aid programs fail not because of the lack of good management but also because they propose colossal aid projects that are not compatible with the recipients. Many economist support that hypothesis and it is indeed true that expected returns on foreign aid operations have been qui deceiving.

Possibly manage the multiple projects that donors want to fund; donors have to set up units independents from the government with off-budget funding. For example, a recent organization for Economic Cooperation and Development (OECD) study of the aid system in Mali showed that between 1985 and 1995, the majority of donors used project implementation units rather than working through the regular; some donors including the USA used them for all their projects in Mali.

Create Capita and finance

With knowing that Foreign aid will constantly be able to meet their government’s expenditures, many African governments completely denied themselves sources of revenue, investment, capital, labor and technology. Instead, they find comfort in waiting for foreign aid to provide for structural change and are therefore not building healthy self-sustaining economic agendas. For instance, seventy one percent of African countries were flagged as having lower than expected tax returns in 1995 and ironically those same countries were receiving more than 10% of GDP in aid. These statistics are simply alarming when considering the fact that all these countries suffer from colossal budget deficit. A good example is Cameroon which faced this challenge, it had  low exports rate thus affecting agricultural and oil production since the those who were in authority allowed foreigners who and there were high imported good from foreign countries ,this generally deteriorated the economy of Cameroon.

Finance & Entrepreneurship

Ever since Foreign aid has replaced government as a source of national revenue and guidance, it has also affected the finance and entrepreneurship sectors of many countries. Indeed, on top of government themselves delaying their work to aid donors, they are not paving the way for stable financial sectors that could support local businesses nor advocating for Research and Development on a local scale. Indeed, governments expect aid donors to provide the aid, create platforms to invest the aid, and bring the technology and infrastructure to use the aid to work. This vicious cycle has made it very hard for developing countries to thrive because how can an economy grow if it has no financial blueprint? Similarly, how could third world countries ever catch up to first tier countries if they always wait for these latter to transfer technology and pocket the profit? Depending on the donors for financial aid is making countries to grow slowly economically, namely the developing countries. Such countries are not even investing on their own industries, instead are just looking for donors who will support them and grant loans or financial support.

Bureaucracy

Another aspect of foreign aid that stifles economic development is its ability to create non-reproductive bureaucracy levels. Indeed, just like the Dutch disease that was previously discussed, it has been proven that foreign aid pours money into governments that are not used to generating ends up being seen as a source of personal wealth rather than a starting capital to start up and operate economic agendas.

As a result, since being part of the government seems like the only way of having access to money in those countries, everyone wants to work for the government and have their piece of the pie. Subsequently, the size of government increases but ironically, the quality of governing compresses and individual government officials become richer. The table below shows the central government expenditure wages versus other classifications, and one can see the increase in the ratio of wages and salary to other goods and services as well as capital spending increase in all least developed countries.

Source:  World Bank, World Development Indicators, 2007.

Case study: Cameroon as an aid recipient over the years

After gaining its independence in 1960 from France, Cameroon became one of the most successful countries in Central Africa and was endowed with a lot of natural resources as well. Indeed, it managed to smoothly transition from a colonial economy to an independent one and like other Sub-Saharan-countries; its economy was mainly oriented towards agriculture. However, not long after its independence, oil was discovered along its coasts and instantly triggered a facilitator in the economy. This discovery boosted the economy as foreign investment poured in and for a while Cameroon was doing much better and experiencing more elongated growth than other sub-Saharan African countries. Nevertheless, because of the tense political atmosphere and lack of wise decisions when it came to making economic decisions, Cameroon’s economy has not been able to break through and doesn’t even stand as an emerging economy yet.

Source:  World Bank, World Development Indicators, 2007.

In the early 60’s the Cameroonian government began to adopt a series of five-year plans that all aimed at increasing GDP. All the plans emphasized on agriculture since it is the prime component of GDP in Cameroon but Cameroonian policy makers such as Tchinda knew that a country cannot really experience growth without industrialization and were already planning schemes for the economy to transition from an agricultural one to an industrial one. The first five year plan lasted from 1960 to 1965 and was elaborated by minister of economics, Kodock. It meant to double GDP per capita in 20 years but as time went by, government officials spotted a few flaws in the plan and introduced the second five- year plan that put emphasis on ameliorating the lives of people in rural areas. Unfortunately, this plan did not seem to perform as well as it was expected to and a third 5-year plan that aimed to increase overall national agricultural production by requiring that more than half of investments must be related to the agricultural field was adopted. In the years to come, three more of those five year plans were adopted and were all not as successful as projected. Indeed, the Cameroonian government at that time did not realize that instead of focusing on agriculture, it should have begun to find ways to accumulate capital, diversify its output, innovate, take advantage of Cameroon’s rich mining resources and focus on industrialization and services.

Source:  World Bank, World Development Indicators, 2007.

• Agriculture, value added (% of GDP) in Cameroon from 1964 to 2008.
• Industry, value added (% of GDP) in Cameroon from 1964 to 2008.
• Services, etc, value added (% of GDP) from 1964 to 2008.

Actually, if one looks at this graph representing GDP per sector in Cameroon, one can see that industry and services were not blooming as fast as agriculture in the 60’s and 70’s and that is because of  the first president,  Ahmadou Ahidjo . This latter wanted to opt for an import substitution industrialization method whose goal was to make Cameroon begin to industrialize, depend less on foreign import while diversifying its export portfolio and slowly move away from agriculture.

Agriculture in fact is and has been Cameroon’s main industry but Cameroon also has dynamic hydrocarburants, metallurgy, wood, cement, oil and soap industries (Grilli and Markus 209-218). However, those industries as well as agriculture take up too much labor that could be moved to higher productivity sectors in Cameroon and that is what Ahidjo was trying to do by promoting manufacturing instead. With his import substitution industrialization method curbs loans that would be used to buy capital, and tariffs on imports as well as other protectionist policies (Grilli and Markus 209-218). However, even though this concept seemed good, it was not realistic because as Cameroon invested a bit less in agriculture, most of the raw material needed to be imported for manufacturing to blossom in Cameroon and the importers ended up with a large if not even larger advantage since now Cameroon was massively importing raw materials hoping to produce finished goods and become more of an industrial country (Grilli and Markus 209-218). As a result of this substitution industrialization method, many manufacturing industries actually died in Cameroon as they were not skilled enough to compete and could not afford foreign raw material .After realizing that it had made a huge mistake, the government began to reprioritize agriculture and cut investments towards industry and services. Unfortunately, the budget and trade deficit also ridiculously grew and put the country in a very tough position. In other words it resulted to poor economy of the country. The graph below shows Cameroon shares of GDP by Expenditure.

Source:  World Bank, World Development Indicators, 2007.

It is showing house financial consumption expenditure (percentage of GDP) of Cameroon from 1964       to 2012.

• General government final consumption expenditure (percentage of GDP) of Cameroon from 1964 to 2012.
• Gross capital formation (percentage of GDP) of Cameroon from 1964 to 2012.
• Net exports of goods and services (percentage GDP) of Cameroon from 1964 to 2012.

Luckily for Cameroon, president Ahidjo was overthrown by a military coup in 1982 and Paul Biya took over and surrounded himself with a different cabinet that had better and more realistic views on how to economically guide Cameroon.

Indeed, shortly after   he was elected, he launched a structural adjustment program called the program of economic adjustment and it had seven cut main goals which includes :reduce the budget deficit, devaluate the currency, increase interest rates, privatize certain industries, reduce government spending , increase taxes and lastly cut salaries in public administrations by 50%. On top of the structural adjustment program, Biya also wanted to restore macroeconomic faith in Cameroon and invested in industries that exported the most to boost competition and to encourage the founding of a steady growth (Isaksson 310). However, to finance all the major structural changes that he was implementing, Biya had to get a six hundred billions CFA loan from the IMF and this latter asked that Cameroon becomes more vigilant and improves its banking system as a condition to receive the loan. Therefore, Cameroon saw its deficit grow some more but luckily, the devaluation of the CFA in 1990 alleviated the pain and Biya’s government decreased public salaries by 50% again to decrease government spending. These two events can be seen on the graph above as it illustrates a decrease in household consumption, government consumption, gross capital formation and net exports of goods and services in 1990.Health, industry and agriculture. Aid to the energy, transport and communication sectors was partially fungible, while that to education was the least fungible.

Foreign Aid

Development Aid, commonly referred to as Official Development Assistance (ODA), has been granted to Cameroon by first tier nations, international aid agencies and through multilateral institutions such as the IMF. Charities such as Action and Oxfam serve in Cameroon just like in most Sub-Saharan countries and provide aid towards more specific cause such as AIDS. As you can see on the chart from Johannes, Foreign Aid inflow is correlated to recurrent expenditure and investment expenditure in Cameroon. Indeed, the graph that the flow of aid to Cameroon has been very stable at about 5 percent of GDP but leveling a low of 1.8 percent in 1987 and a peak of 11 percent in 1994 and subsequently leveling again to 5 percent. However, according to a study by Isaksson (309) “What does aid to Africa finance?” countries including Cameroon were pooled and the results showed that that most aid (90%) boosted government expenditure. Indeed, about half of the aid was used to finance external debt service payments; one quarter financed investments and the other quarter offset current account deficits. At certain level, aid was highly fungible in health, industry and agriculture. Aid to the energy, transport and communication sectors was partially fungible, while that to education was the least fungible.

The figure below shows foreign aid flow and public expenditure in Johann the recurrent expenditure per year against the percentage of GDP. In the graph we will also compare the annual investment expenditure with percentage GDP. Very crucial to compare the yearly ODA flow with the percentage of GDP.

JOHANN

Source:  World Bank, World Development Indicators, 2007.

Dutch Disease and Debt Crisis

As we are talking about Foreign aid, which is believed to have an effect almost as detrimental on economies as the Dutch diseases, we can analyze Cameroon’s Dutch disease and debt scenario. The Cameroonian economy absurdly relies on its export of oil and most foreign direct investment is related to the oil industry as well. As the graphs above show, the correlation between trades, the value of oil and debt is very strong and that is because since the Cameroonian economy failed at diversifying, it relied on its revenue and savings from the export of oil to mostly pay back its debts. Indeed, the 1980’s peak oil crisis has a disastrous effect on the Cameroonian economy because oil prices dropped since the demand of oil was much lower than the supply and Cameroon was hit hard because its only real stable source of revenue was in jeopardy (DeLancey 316-318). To attenuate the crisis, the government had to borrow much more money from international institutions and that widened the already large debt deficit that Cameroon had.

Source:  World Bank, World Development Indicators, 2007.

.

Ironically, one would think that by borrowing money the living conditions in Cameroon would ameliorate because it could suggest that the government is borrowing to accumulate capital or invest but the opposite happened. Indeed, after the oil crisis there was an increase in budget deficit and, the quality of life and social indexes fell in Cameroon as the country saw its economy shrink.  Indeed, Cameroon’s debts increased by 95% in 8 years only (1988-1995) and most of its small revenue went into paying back its debts. Therefore, the country barely had money to invest in itself and was suffocating ( Joseph 57). The table above indicates well how the debt grew over the years and how it impacted the population. For example, GPD per capita (PNB/HAB) started to slowly decrease in 1983 (oil crisis) and had generally been decreasing ever since. Meanwhile, the external debt generally grew ever since while exports have somehow been stagnant or on and off.

To better understand the debt level of Cameroon, one had to take a look at its debt ratios and listed on the table above are some ratios from the 1970’s to the 1990’s. The global debt or GDP (debt or PNB) for example had been increasing up until the beginning and indicates that the government had not been able to generate a GDP that would sustain its debt. The debt/GDP ratio of a country is considered alarming to the World Bank once it is above 165% and in Cameroon, it even reached 389% in 1986 (DeLancey 316-318). Similarly, the debt services or export which accounts for how well the country is paying back ratio had also been increasing which insinuated that Cameroon was having a hard time repaying its debt. For example, the World Bank believes that a country is having a very though time repaying its loans if it is above the 20% limit and Cameroon once even reached 15.3% .this is shown in the following graph;

Source:  World Bank, World Development Indicators, 2007.

One factor that made the debts crisis even worse in Cameroon was its high inflation issues. Indeed, the CFA was giving a hard time to most countries that used in Central and West Africa until it was devalued by 50% in 1994. Unfortunately, this devaluation on top of the domestic fiscal contractionary policies led to a 65% decrease in purchasing power for the population. The economy had reached one of its all-time low and could not even hope for an increase in consumer confidence to boost it back since PPP brutally decreased. Therefore, the budget deficit kept increasing and the revenue was decreasing. Luckily for Cameroon, it benefited from the IMF’S debt relief program in 2004 and by 2006, Cameroon saw $ 3475 billion of its debt balance disappear.

Cameroon has come a long way but to be honest it could have accomplished much more. Indeed, the social indicators on the table below have indicated some improvement at least compared to the past other developing countries. However, there are definitely more issues to fix in Cameroon than to praise Cameroon for accomplishing in the past. One of those issues for example is the fact that the Cameroonian government’s worst mistake was to rely too much on the oil industry and failed to diversify from the beginning (DeLancey 316-318). The worst part is that Cameroon still heavily relies on oil to these days while the country is running out of oil and no new sources of oil and gas have yet to be found. Also, because of the debt and oil crisis, Cameroon has been unable to use the money it had wisely set aside to invest in human capital and had to use it to pay back some of its debt to alleviate its deficit. However, now that it has a smaller deficit, it can afford to borrow money to invest toward building Research development as well as human and physical capital so that in a few generation, it could have a skilled labor and properly move labor from low productivity sectors such as agriculture to high productive sectors such as the industrial or service sectors. Furthermore, Cameroon also has to work on its trade liberalization methods to appeal foreign countries to trade and invest there while it has to also reduce its protectionist ways.  Another thing that Cameroon has to work on is creating a safe environment for companies to start operating businesses because right now it is ranked as one of the most undesirable countries to start a business because of factors such as corruption and lack of protection of trademarks. From experiences a country with poor political institution may have challenge when revenue increases, due to booming in primary good exports (Joseph 57). If it is not sterilized by use of appreciated local currency, this boosts domestic absorption through unstrained public spending. This relatively increases foreign exchange and eventually it throws trade balance to deficit, that is due to uncontrolled spending, and may result to debtness.This is the Dutch disease and it affects the economic volatility of a country. This situation is very much common in the sub Saharan countries. Among them we have Cameroon which at some period it had a lot of debts and very little to develop economically. In 1970 a boom in agricultural commodity in followed by another one, in 1978 there was an oil boom, oil revenue increased between from 0 percent to 46 percent of the revenue from export,it was between 1978 and 1982,there was also domestic absorption in there was also domestic absorption in the country it rose to 103 percent of GDP it was due to government spending (Ala et al 78). Consequently affected agricultural and manufactured exports and attracted imports which accelerated the deterioration of trade balance this and eventually resulted to unsustainable indebtedness of 1980s this was the potential onset of Dutch disease.

Benefits of Withdrawing From Foreign Aid

The withdrawal of foreign aid from underdeveloped nations would sum to huge advantages for western nations as well as for poor African nations. As prior specified, foreign has injured advancement in African nations and destitution is still a noteworthy issue. In this way, with the withdrawal of foreign aid, there would not be completely grave outcomes. Truth be told, African nations would be moved to devise enduring answers for their residential issues (Joseph 57). Rather than being reliant on foreign aid and accumulating huge obligations, underdeveloped nations can use their incomes in subsidizing their own advancement extends and not paying up obligations.

Pulling back outside guide can in fact make it conceivable to determine household neediness issues in western nations. In any case, this activity might likewise evoke different negative repercussions. In many examples, western donors choose to do as such because of their sympathy toward poor nations; there are backhanded increases from offering help and political impacts. Political variables found in contributor nations are exceptionally in charge of remote guide to African nations. This choice for the most part results from civil arguments and voting methodology by contributor’s residential political organizations. Foreign aid, which is given to underdeveloped nations, impacts worldwide exchange essentially which results to changes in pay dispersion designs in contributor nations. At the point when there are enormous buyer crevices between poor underdeveloped nations and benefactor nations and unequal dissemination of possession in western nations, they are sure to advantage generously. Such intrigue bunch offer money related motivating forces to legislators and other approach designers who thusly are required to control foreign aid strategy as declared by Mayer and Raimondos-Moller (99). Withdrawal of foreign aid would in such a case cause political wrangles and deny vested parties the enormous advantages they are utilized to(Joseph 57). To be sure, this would imply that the giver government does not endure immediate or backhanded misfortunes.

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Conclusion

It is clear from the above discourse that foreign aid has just added to execute underdeveloped nation’s neediness levels. Foreign aid has prompted expanded obligations and fleeting arrangements, which don’t do much for financial, social, and political issues, which torment these nations. Truth be told, defilement and the prohibition of minorities have resulted from remote guide, further easing the very individuals it is intended to help. Regardless of their will to offer outside guide, western nations additionally, confront destitution and different issues. In this way, subsequent to measuring the negative marks of remote guide for underdeveloped nations and the local issues in beneficiary nations, it is famous that outside guide is pulled back. Withdrawal of outside guide will prompt contributor nations concentrating on the minorities in their own nations, dispose of advantages collected without anyone else vested parties, and fuel Africa’s have to end up autonomous and build up their own residential development strategies. Moreover, Western nations, for example, Canada and the U.S need to tidy up their nations before offering assistance to others. Cameroon’s economy has been versatile not withstanding security and compassionate emergencies at the northern fringes with Nigeria and the eastern outskirts with the Central African Republic (CAR) and in spite of stagnant economies in the OECD nations and a lull in development among the rising economies. Cameroon’s development was driven by the optional area and a bigger supply of vitality and rural merchandise. As per projections, development is set to stay solid in 2015 (5.4%) and 2016 (5.5%) on account of a broadening strategy went for creating esteem chains in agribusiness and adding to the development segment and the supply of vitality (Konings 567). Notwithstanding seeking after a reasonably expansionary monetary approach, the powers have tried to activate charge income and enhance the profits on open consumption. They have essentially diminished inadequately focused on sponsorships on petroleum items and made changes to extend. The 2013-15 spending plan expects to keep up the current line of financial approach in 2015. The 2010-20 GESP gives a structure to regional improvement in Cameroon; yet making an interpretation of it into a proactive spatial incorporation strategy is taking quite a while. Basic strains and a feeling of avoidance in some territorial groups have been increased by the demographic change achieved by the landing of exiles from neighboring nations. Are prompt moves in the responsibility for capital in rustic territories? These shifts significantly debilitate Cameroon’s long-standing peace and social union, leading to improvement in economic status of the country. It is clearly that Cameroon has developed economically and it does not always depend on the developed countries such as USA for financial aid dependence for anything else. They should be aware of the effects associated with and all the developing countries and the sub-Sahara countries this will result to economic stability and development.

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Appendices

Appendix I: Distribution of Total Foreign Flows to Cameron (1970-94)

Appendix II: Foreign Resource Flows to Africa (1980-95)

Source: Africa Development Report, 1997. Figures have been rounded to 1 decimal point.

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