How Africa can rethink foreign aid

In 2009, Lesotho experienced a sharp, if largely unnoticed, fiscal shock. The global financial crisis had begun to ripple through the world, and South Africa’s economy – like many others – was not immune.  

That mattered more than most people realised. As a member of the Southern African Customs Union (Sacu), Lesotho relies on customs revenue collected by South Africa and shared among its smaller neighbours. That year, Sacu transfers collapsed.

In a country where those transfers fund more than half the government’s annual budget, the shock was immediate and severe. Salaries went unpaid. Projects stalled. And citizens who had come to expect that the state – backed by outside funds – would deliver basic services, found their trust slipping. This was no ordinary fiscal tightening. This was a state built on someone else’s income. 

Fast-forward to 2025. History, this time on a continental scale, seems to be repeating itself. The US is scaling back USAID operations across Africa. Longstanding programmes in health, education, agriculture and governance have closed. Early estimates are dire: in South Africa alone, the withdrawal could cost 500,000 lives over the next decade. 

In offices from Pretoria to Kampala, civil servants and NGO staff have packed boxes. In clinics, essential drugs go unstocked. In rural towns, training programmes that once promised a path to opportunity have vanished. And, like Lesotho in 2009, many African governments are discovering just how deeply their service delivery depended not on tax collection, but on the benevolence – and budget cycles – of foreign capitals. 

This may be a crisis, but the questioning of foreign aid should not surprise anyone paying attention. Already in 2023, a Development Co-operation Report by the OECD warned that the international aid system required systemic reform. Yet, as I’ve argued elsewhere, this moment is also an opportunity. The great rethink is here. What is the future of foreign aid? And more urgently, how should we design aid that works? 

Politics and markets

I propose two simple principles. First, foreign aid must not disrupt the relationship between democratic governments and their electorates. Second, it must work through the market, not replace it. These are not ideological positions. They are grounded in historical evidence. 

Let’s begin with the first. 

In a functioning democracy, governments are accountable to their citizens through taxation and representation. This principle can be traced to the medieval Magna Carta: rulers who needed tax revenue had to consult those who paid, laying the foundations for modern representative government. Over centuries, the reciprocal exchange of taxation for public services became the fiscal social contract. 

Foreign aid can distort this logic, particularly in countries where the social contract is still forming. Governments reliant on taxes must answer to the citizens who pay them. But when external donors fund core services – schools, clinics, infrastructure – accountability shifts. Leaders become more responsive to international agencies than to their own voters.

Political actors respond to incentives: if aid flows regardless of performance, the pressure to deliver reforms weakens. Compare 17^th-century Spain, enriched by New World silver and thus able to sidestep institutional reform, with England, where limited revenue forced rulers to bargain with parliament, laying the foundations for democratic government. Aid, like resource windfalls, can substitute for taxation, dulling the drive to build responsive states. 

Political scientists Nic Cheeseman, Gabrielle Lynch and Justin Willis add depth to this view. Their book – Why Do Elections Matter in Africa? – shows that voters in many African democracies often judge politicians not by abstract policy platforms but by visible responsiveness: school fees paid, events attended, infrastructure repaired. These exchanges constitute a local “moral economy”, embedding accountability in daily acts of reciprocity. When foreign aid delivers these services directly, that relationship weakens. If a donor-funded NGO builds the borehole or pays the school fees, credit no longer accrues to the local councillor or MP. Voters lose leverage. Politicians lose incentives. 

Economist William Easterly captures this in his critique of the “development biz”, the sprawling global aid industry that often prioritises disbursement and metrics over genuine local accountability. Aid agencies focused on donor capitals risk creating parallel systems that displace rather than strengthen domestic institutions.

Easterly’s warning resonates with a broader economic literature: like oil or mineral wealth, large aid inflows can shield governments from pressure to govern well, fostering complacency and stunting institutional growth. 

The second principle is just as vital: foreign aid must work with markets, not against them. 

Many well-intended interventions ignore this. A classic case is food aid. For decades, the US has shipped surplus grain to Africa. In emergencies, this can save lives. But in normal years, it floods markets, depresses prices and undermines local farmers. 

Economics is clear. In a functioning market, scarcity raises prices and stimulates production. But when free food arrives, it disincentivises planting, distorts supply chains and lowers rural incomes. The damage persists long after the aid is gone. For example, economists Nathan Nunn and Nancy Qian show in a 2014 paper that US food aid, driven by domestic wheat production, depressed local food prices in recipient countries and prolonged civil conflict in fragile states.  

How can we, then, support the poorest places while preserving these two essential principles: avoiding disruption to the political contract and supporting, rather than replacing, markets? 

Complementary aid

The answer lies in investments with broad social benefits that markets and governments often underprovide – what economists might call positive externalities.

Take education. Funding teachers’ salaries is the responsibility of government. But endowing a chair in agricultural science at a national university or establishing a public health research centre? These generate knowledge, innovation and capacity without supplanting basic services. (A good rule of thumb: even in wealthy countries, academic chairs are often funded through philanthropy.) Such aid is additive, not substitutive. It complements what the state should do without letting leaders off the hook.  

The same logic applies to markets. Donors should target areas where the market fails to invest, especially when benefits are diffuse or long term. Agricultural research is one example. Governments with short political horizons rarely fund experimental crop trials or biotech research. But a donor-supported programme developing drought-resistant seeds benefits thousands once adopted. Crucially, this kind of aid empowers local producers without distorting prices or crowding out private initiative. 

Access to markets remains one of the most powerful – and underused – levers for African development. Yet African producers and entrepreneurs face a wall of obstacles. For farmers, rich-country agricultural subsidies are among the most damaging. A small number of cotton growers in the US receive billions in support, depressing global prices and undercutting more efficient producers in West Africa. In Europe, subsidies for grain, dairy and sugar distort competition and make it harder for African goods to reach foreign shelves.

But the devil is often in the detail. Across sectors – from fashion to fintech – African exporters must navigate a thicket of non-tariff hurdles: complex regulations, duplicative certifications, opaque customs procedures and safety requirements designed with other markets in mind. These frictions rarely show up in trade statistics, but they strangle opportunity. 

Some of the most effective forms of aid involve clearing these paths. That starts with reforming the trade rules themselves – lowering tariffs, removing quotas and dismantling subsidies that skew competition.

But it also means helping African businesses comply with existing standards and access to new markets. And beyond goods, it means making movement easier for people. African businesspeople, researchers and students face some of the highest visa costs and longest wait times in the world. My own UK visa for a conference this June cost more than a thousand times South Africa’s hourly minimum wage. My students applying for Schengen visas are met with fees, delays and red tape that would deter even seasoned travellers. These are structural barriers that cut Africa off from the networks it needs to grow. 

The 19^th-century Basotho king Moshoeshoe I was once advised by his mentor Mohlomi: “Go govern with love; see always in thy subjects men and brethren”. He understood that leadership was not about giving handouts, but about building trust.

That, in essence, is the lesson for foreign aid. You cannot build strong states by displacing them. You cannot build markets by distorting them. And you cannot build a future by doing for others indefinitely what they must do for themselves.