8 Ways Foreign Aid Can Be A Massive Problem

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Foreign aid is the loan or donation of economic, military, or humanitarian assistance by one country to another. Each year, richer countries provide billions of dollars in international aid. Its objective is to help poorer countries develop and achieve security, as well as providing humanitarian relief to people affected by crises, conflicts, and disasters.

Although foreign aid has a commendable objective, over recent years more attention has been paid to the potential negative effects of aid. Several studies have shown that foreign aid can be a major problem. But how can something with such good intentions be such an issue? Let us explain…

Foreign Aid Can Create Dependency

The first way that foreign aid can be a problem is that it creates dependency. The aim of foreign aid is to lift of people out of poverty, assist people affected by disasters and conflicts, help developing country governments run more effectively and allow poorer nations to defend themselves.

International ais is not supposed to be a long-term solution. Issues arise when short-term aid becomes long-term dependency.

Many problems are caused by foreign aid dependency. Countries that receive large amounts of aid may fail to develop economically and become reliant on external assistance. Giving aid to governments can also disincentivize them to progress, as difficult choices can be avoided in favor of retaining overseas aid.

As well as there being a problem with developing country governments becoming dependent on foreign aid, many poor communities become reliant on international assistance programmes. Essentially the problem at government-level is mirrored at community level – when a dependency on outside aid is formed, there is less incentive to change, address difficult challenges or wean-off the foreign assistance being provided.

It Can Distort the Market

The second major problem that foreign aid can cause is that it can distort local markets. There are several ways this can happen.

When a disaster strikes, international aid can flood the area. But, by providing huge amounts of aid for free to affected people, it means they no longer use local business for their needs. Most things people need, even in a disaster zone, can be provided locally, but problems arise when huge amounts of external aid is provided to people for free.

This is a major reason aid agency try to procure locally and are moving to cash distribution models – to try and solve this issue.

Foreign aid can also distort the labour market, pushing up wages and incentivising people to leave needed jobs. Many people in recipient countries join NGOs because wages are higher and conditions better, but this removes their skills from local organisations that may need them.

Overseas aid provided directly to governments can also cause a problem with market distortion. Areas where recipient governments choose to spend large amounts of aid money can experience inflation, price rises and distortion to rental, labor, and consumable markets.


Another big problem with international aid is corruption. Millions of dollars a year in aid is lost to corruption. There is even some evidence that foreign aid increases corruption.

Aid funds and materials are lost to corruption through theft, appropriation, deliberate mismanagement, and nepotism. Corrupt governments and local officials are well known to get rich in many places through mis-using foreign aid. This is a major problem because it means local people lose trust in both their officials and international aid organisations and donors.

Foreign aid is provided to poor governments and aid projects are ran in some of the most impoverished communities in the world. This is good because it means aid goes to the people that need it, the problem is that many of these places have huge amounts of corruption. This limits the effectiveness of aid, makes it more expensive and means donor governments are less likely to continue to donate.

Another issue with overseas aid is that it has not proven to be affective in tackling corruption. In fact, it may even make corruption worse.

International Aid Can Fuel Conflicts

A huge problem for foreign aid is that it can actually fuel conflicts, not stop them. There are many ways it does this.

Firstly, many countries provide military assistance to allied nations or countries that are strategically important to them. This can allow those governments to continue fighting and reduce the chances of them coming to the negotiating table. This is major issue with international military assistance.

Secondly, international aid can be taken by armed groups – distributed, sold, or appropriated, and this can help them continue fighting. Many aid NGOs must negotiate with armed groups for access to beneficiaries and this often comes at the price of providing aid, resources or even just legitimacy to these groups.

One of the aims of foreign aid is to help bring peace and security. However, one of the biggest problems with foreign aid is that it can actually fuel conflicts and do the exact opposite. This is an issue donors must address if aid is to become more effective.

It Fails to Address Under-Lying Causes

One of the problems of foreign aid is that it often doesn’t address the under-lying causes of issues in developing countries. Many times, aid works as a ‘sticking-plaster’ – addressing short-term problems but failing to make substantial long-term improvements.

Many developing countries have chronic issues that prevent them from developing. These could be corruption, inefficiency, conflict, lack of infrastructure, lack of community development or poor governance. International aid rarely addresses problems such as these. Instead, it focuses on short-term solutions, such as providing medical aid, saving lives, protecting livelihoods, or equipping a countries military.

The problem with overseas aid is that if the major under-lying causes of a countries lack of development are not addressed, chronic crises will continue. Strong political will is needed to make major changes in many countries and international aid does more to retain the status-quo than help countries to make the difficult, but necessary, changes needed.

International aid needs to resolve its short-term focus and find a way to encourage recipient countries to address their chronic issues. This would resolve on of its major problems.

There Is Not Enough Localization

International aid has a major problem with being too controlled by donors and organizations from rich Western countries. Localization is the process of moving the control of aid to the Global South, directly to countries and communities it is designed to help.

Essentially, people know what is best for them. It is hard for outsiders, especially from richer countries, to know how best to help people in developing countries or those affected by disasters. However, the aid industry has a major problem with localisation. Although the sector talks big – in actual fact major Western donor governments and large international NGOs still control most of the world’s aid.

The lack of localisation is a major issue that international aid needs to resolve. Localising aid makes it more effective, efficient, accepted, and appropriate. It is also more dignifying for people who receive aid to have a greater say in what, how and when they receive assistance.

Foreign aid also has a problem with a lack of accountability, especially to recipient communities. Localisation addresses this issue by giving beneficiaries a greater say in the aid they receive.

Aid Can Be Misused

There is a major problem with foreign aid being wasted. Any aid that is wasted means less that reaches people in need. There are several ways that aid is wasted.

Firstly, aid money and resources are used on projects that are ineffective or don’t actually meet the needs of beneficiaries. Secondly, aid money is lost to corruption or through nepotism. Lastly, a huge amount of aid money is used to fund major international organisations – it is debatable wjether this money is wasted, but many people feel it is a major issue in the aid sector.

Another way that aid money is wasted is when loans or grants are given by donor countries that are misspent by recipient governments. Many governments in developing countries lack the accountability, controls and practices needed to effectively manage international aid money.

Foreign aid needs to address the issue of wastage if it is to become truly effective. The waste of aid also drives public opinion in the West against foreign assistance, and this is becoming a major problem.

International Aid Can Prop-Up Bad Regimes

A final problem with international aid is that it can often prop-up bad foreign governments. Huge quantities of financial, material, and military aid are given to dictatorial regimes around the world by Western donors. For example, some of the largest recipients of foreign aid are:

  • Afghanistan
  • Bangladesh
  • Vietnam
  • Iraq
  • South Sudan
  • Jordan

We can all agree that these countries have poor human rights records. However, overseas aid allows governments like these to remain in-place and prevents regime change in many countries. This is a major issue with foreign aid as it actually goes against it’s core aim of helping people and promoting human rights.

Another way that international aid helps to prop-up often corrupt and dictatorial regimes is by lending them international legitimacy. A government that receives huge amounts in overseas aid is able to command a level of legitimacy from this.

Often, when foreign aid is given to a regime, it uses these funds on projects to assist their population, which in-turn allows them to direct their own funds often towards more oppression. Essentially, overseas aid can allow some countries to further the repression of their own people and better survive attempts to over-through or reform the government. This is a huge problem!


Duncan is the founder of Humanitarian Careers. With over ten years experience in the aid industry across fifteen countries, Duncan set-up Humanitarian Careers to help people launch their own career in international aid.