What have we done with US aid?

Why has substantial US aid to Egypt failed where it has succeeded elsewhere? We have mainly ourselves to blame, writes Mustafa Kamel El-Sayed*

Mustafa Kamel El-Sayed Any foreign aid programme can be said to have succeeded when it is no longer needed. The Marshall Plan extended by the US to countries in Western and Central Europe after World War II was entirely successful, so were the US assistance programmes for countries of East Asia, including Japan, South Korea and Taiwan during the same period. All of these countries had "graduated," not only by regaining their economic health, which had been largely impaired by the devastation of that war or of civil wars, but by becoming serious competitors with the United States, the former donor country, as was the case with Japan and Germany, or by becoming, in their own right, aid donors as South Korea and Taiwan have done.

Egypt has been a fortunate recipient of foreign aid, both in the 1960s as well as since the mid-1970s. It has received large amounts of aid from the United States, the countries of Western Europe, Japan and Arab Gulf countries. For many years it has been the largest recipient of aid among developing countries, getting considerably more than other more populous and poorer countries such as India, Pakistan and Bangladesh. Despite the magnitude of aid, which in the case of that provided by the US is no less than $25 billion over the last quarter century, Egypt has not achieved the status of a newly industrialised country. No fewer than twelve countries in East and South East Asia and Latin America have made this leap.

The present state of the Egyptian economy does not bode well for the future; witness the profound crisis of a shortage of domestic and foreign investment, a mounting budget deficit and an ever-widening trade deficit. What went wrong? Why haven't successive Egyptian governments managed to use the relatively large flow of economic, food and military assistance in order to build local productive capacities that could eventually enable Egypt to dispense with foreign aid altogether, rather than becoming addicted to aid and struggling very hard to maintain it, if not to increase it?

One possible answer to this question is that aid provided to Egypt was never conceived as a means for fostering Egyptian self-reliance, with this goal understood only in relative terms. Spokespersons for USAID, the largest aid donor to Egypt, are the first to admit that aid to Egypt is highly political.

American assistance was given to Egypt by the US as a reward for Egypt's signing of the peace treaty with Israel. The economic development of Egypt was not the primary goal, but rather the stability of the Egyptian regime, which had faced a popular revolt in January 1977 only a few months before it embarked upon its daring move to conclude a peace treaty with a country that it had gone to war against four times.

American assistance was thus offered to Egypt as an incentive to maintain its commitment to the treaty in the face of Arab opposition, and later, domestic opposition. For this reason, aid was dispensed from the highly political Economic Support Fund, used by the US government to bolster friendly regimes.

The political nature of aid is also seen in its uses. A considerable part of the assistance given to the country was used to encourage Egypt to adopt a policy of economic reform, including privatisation of Egypt's large public sector, a matter which was rejected by Egyptian officials throughout the 1980s, and one which is progressing very sluggishly at present, despite the presence of people giving their unconditional support to privatisation within the cabinet, including the prime minister himself, the ministers of economy, treasury, public business sector and many others. Economic reform, as conceived by American officials, is not unanimously accepted in Egypt, even by many Egyptian businessmen who are quite apprehensive about the adverse consequences. They are particularly concerned about the potential impact on their businesses if the Egyptian market were opened to foreign products, particularly the cheaper high quality goods coming from countries of East and South East Asia.

The political nature of aid is also seen in the fact that from the initiation of the US programme for aid, military assistance has exceeded economic assistance by nearly half. Egyptian officials are not opposed to the privileged position accorded to military assistance. This fact alone, however, is quite revealing of the order of priorities of US policy-makers when it comes to aid given to Egypt.

There is no shortage of critics of foreign aid in general and US assistance provided to Egypt in particular.

Some condemn foreign aid in general, viewing it as an expression of a power relationship, with the donor country using the aid to impose its own conception of the "good society" on the recipient country. In their view, foreign aid is an instrument of social engineering, practised on an international scale. The fact that the notion of the "good society" is shared by the ruling elite in both the donor and recipient country does not invalidate the reality of aid as an unequal relationship. Others would address a more specific critique of US assistance to Egypt, arguing that volume was insufficient, that the hands of Egyptian policy-makers were tied to projects favoured by US officials running the programmes, or that certain development projects, necessary for Egypt, such as desert reclamation, could not be considered, as a matter of principle, by USAID officials.

However, some of these complaints might have also been made regarding the cases in which assistance was provided to countries of East Asia. The outcome of the aid relationship there was different from what happened in Egypt. Despite these complaints, it would be difficult to argue that US assistance was not useful for Egypt. The cause of the different outcomes relates more to the nature of economic governance in both Egypt and these other countries.

An examination of how the $24.3 billion of US assistance provided to Egypt during the last quarter century was spent shows that $6.7 billion were earmarked for commodity imports, $5.9 billion for physical infrastructure, $4.5 billion for basic services including healthcare, family planning, education, agriculture and the environment; $3.9 billion for food aid and $3.3 billion for cash transfers and technical assistance.

It would be difficult to argue that projects financed by US assistance were not necessary for the Egyptian economy, or that expenditure of such volumes of aid did not relieve acute problems in areas such as power generation, availability of schools or basic urban services. Even if these were not matters of priority for the Egyptian economy, a proposition that few would reasonably advance, these projects would have allowed the Egyptian government to use its available resources to accelerate other projects of more urgent priority to the Egyptian economy.

However, the analysis of the outlays of aid expenditures suggests a faulty assumption by both US and Egyptian officials. Aid was used in order to create an enabling environment for both the Egyptian private sector and foreign investments. Provision of funds for commodity imports, establishment of infrastructure and improvement of basic services as well as policy reform all aimed at shaping an economic, social and political climate that would encourage the private sector and foreign firms to increase their investments in the country. The success of this rationale depended very much on the response of both the private sector and foreign investors. However, herein lies the difference between Egypt and the successful "tigers" of East Asia.

The latter did not spend their time waiting for those courageous and generous private and foreign investors to come and pull their economies out of the doldrums. Instead they proceeded, particularly in South Korea and Taiwan, to take active measures to increase domestic savings and to adopt plans that would push the development of their economies. More importantly, they disciplined their private sectors so that they invested only in those projects and sectors that fell within state plans. Added to which, they used their control over the financial sector to make sure that generous loans by state-owned banks, extended during the take-off period, would only go to those firms that abided by government instructions. Regular meetings between the head of state and business people would ensure that difficulties obstructing attainment of plan targets were rectified immediately.

The private sector was made to dance to the tune of the state in South Korea and Taiwan, but it was excessively cajoled in the case of Egypt and left to dance to its own tune. For this reason, one may not admire the authoritarian nature of the state in East and South East Asia, but it would be difficult to deny that they are really developmental states.

If, with the provision of so much American, European, Japanese and Arab aid to Egypt during the last quarter century, Egypt has not made the breakthrough to the status of a "newly industrialised country" do not blame aid donors, but blame economic governance in Egypt.

* The writer is director of the Centre for the Study of Developing Countries, Cairo University.

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		Al-Ahram Weekly Online 21 - 27 June 2001 Issue No.539
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