The Paradox of Financial Flows

Abstract

African countries, especially those south of the Sahara have become increasingly dependent on foreign aid or official development assistance (ODA) largely due to such factors as falling export receipts, a weak capacity to generate internal savings, a major problem of debt overhang, and a relatively high susceptibility to capital flight. This aid is mainly from the Organization for Economic Cooperation and Development (OECD) governments and includes other financial flows channelled through multilateral agencies.1 During the 1990s, official development financial flows (ODF) accounted for 70 to 80 per cent of all resource flows into Africa and 9 to 11 per cent of the region’s entire GDP. This is a far higher proportion than in Latin America (0.5 per cent) and Asia (1 per cent). For the 33 least developed countries in Africa in 1995, ODF accounted for over a fifth of national income.2