5 Historic Examples of Foreign Aid Efforts Gone Wrong

Well-meaning international aid efforts have existed for centuries. So have their unintended consequences

By Orestes R Betancourt Ponce de León. He holds a Master of Public Administration from the Middlebury Institute of International Studies. He is a former research intern with the CATO Institute and currently specializes in the sector of international development.

"In his 1850 essay, “That Which is Seen, and That Which is Not Seen,” Frédéric Bastiat explains that “in the economic sphere, an act, a habit, an institution, a law, produce not just one effect, but a series of effects.” Unintended consequences transform good intentions into bad policies, and one of the best examples of this is foreign aid.

Mansa Musa’s good intentions may be the first case in history of failed foreign aid. Known as the “Lord of the Wangara Mines,” Mansa Musa I ruled the Empire of Mali between 1312 and 1337. Trade in gold, salt, copper, and ivory made Mansa Musa the richest man in world history.

As a practicing Muslim, Mansa Musa decided to visit Mecca in 1324. It is estimated that his caravan was composed of 8,000 soldiers and courtiers—others estimate a total of 60,000—12,000 slaves with 48,000 pounds of gold and 100 camels with 300 pounds of gold each. For greater spectacle, another 500 servants preceded the caravan, and each carried a gold staff weighing between 6 and 10.5 pounds. When totaling the estimates, he carried from side to side of the African continent approximately 38 tons of the golden metal, the equivalent today of the gold reserves in Malaysia’s central bank—more than countries like Peru, Hungary or Qatar have in their vaults.

On his way, the Mansa of Mali stayed for three months in Cairo. Every day he gave gold bars to the poor, scholars, and local officials. Mansa’s emissaries toured the bazaars paying at a premium with gold. The Arab historian Al-Makrizi (1364-1442) relates that Mansa Musa’s gifts “astonished the eye by their beauty and splendor.” But the joy was short-lived. So much was the flow of golden metal that flooded the streets of Cairo that the value of the local gold dinar fell by 20 percent and it took the city about 12 years to recover from the inflationary pressure that such a devaluation caused.

Since then, the unintended consequences of good intentions in foreign aid have occurred again and again. More recent historical examples abound:

1. Between the 1950s and 1960s under the Food for Peace program—created by Dwight D. Eisenhower in 1954—the markets of India, Pakistan and Indonesia had to compete with the massive flow of donated agricultural products from the United States. The donations bankrupted thousands of local farmers and restricted the development of agriculture in these countries for decades.
2. In 1971, the Norwegian government earmarked $22 million for a fish processing plant in Kenya on Lake Turkana. The aim was to export the fish and provide employment for the Turkana people, but they were nomads with no knowledge or interest in fishing. In addition, the cost of refrigeration equipment and drinking water were very high. The plant closed after a few days.
3. The World Bank loaned Tanzania more than $10 million for cashew nut processing. As a result, by 1982 Tanzania had 11 factories capable of processing three times what was produced each year. On top of that, within a short time, six of the factories were idle and in need of spare parts and the other five were running at less than 20 percent of their capacity. It was cheaper for Tanzania to send its raw cashew nuts to India for processing.
4. In 1995, during the civil war in Sudan, Christian Solidarity International began paying between $100 and $50 ransom for Dinka slaves captured in the south of the country. It became more lucrative to sell slaves to well-meaning Europeans and North Americans than to sell them to the North for $15. The dynamics of good intentions encouraged this market and the slavers to take more captives.

Adding to the problems of unintended consequences is the problem of the incentives of the very organizations working in the international aid sector. In 2019, Devex published the investigative series “What went wrong?”

This organization—which is the communications platform and largest provider of contracting services to the international development sector—reported how in Kenya alone in the last 10 years some 22 projects failed in almost every sector “including health, education, gender equality, housing and climate change adaptation.” Devex reaches a key conclusion as to why these mistakes are repeated: “In an industry that tends to reward good news with more funding, aid organizations can be reluctant to admit to project shortcomings or, worse, project failure.”

Then, does kind-hearted international development aid work? Contrary to Jeffrey Sachs‘ argument for increasing spending on foreign aid, economist William Easterly states that “the West has spent $2.3 trillion in foreign aid over the past five decades (…) so much well-meaning compassion has not brought results for people in need.”

Though many like Bill Gates think foreign aid is unquestionably good, the flow of capital from developed countries largely fuels the corruption of recipient governments and diminishes the accountability of these governments to those most in need. What is worse, it postpones the reforms necessary for these countries to integrate into world trade under sound institutions and economies free of bureaucratic burdens. After all, this is the best way to achieve progress!

International development agencies seem to be gaining awareness of the impact of unintended consequences. Nevertheless, it is not enough. The US Government Accountability Office (GAO) reported that in 2015 six major organizations considered unforeseen side effects in only approximately 28 percent of the evaluations of their foreign aid projects.

Very often, unforeseen consequences end up destroying the good intentions of those who forget what is seen and what is not seen, as Frédéric Bastiat wrote. Unfortunately, as Milton Friedman said, “one of our great mistakes is to judge policies and programs by their intentions and not by their results.”

It is not a matter of abandoning solidarity, but of learning and becoming more effective in the noble task of helping those most in need."