Foreign Aid: Reasons for Its Failure and Recommendations on How to Improve Its Effectiveness – The Case of Mozambique

Abstract

The problem addressed in this study was the ineffectiveness of foreign aid as a tool for reducing poverty and inequalities, with a focus on Mozambique. Despite receiving an average of $1.95 billion annually from 2008 to 2020, Mozambique continues to exhibit low living standards, poor health, and inadequate education. The persistent inadequacy of these social indicators suggests that foreign aid may not be effectively addressing the problem. The study adopted the purpose of exploring stakeholders’ perceptions about the effectiveness of foreign aid through a qualitative, case study approach. The theoretical framework comprises three categories: pro-aid theories, anti-aid theories, and conditional theories. Data were collected through open-ended interviews with 25 stakeholders, purposefully sampled from six distinct groups. The study had two research questions: (1) What are the reasons for the failure of foreign aid in delivering economic growth and poverty reduction in Mozambique? and (2) What concrete actions could be taken to improve the effectiveness of foreign aid in delivering economic growth and poverty reduction in Mozambique? Using NVivo for data analysis, 15 themes emerged - nine related to the causes of foreign aid failure and six suggesting potential improvements. The most mentioned reasons for aid ineffectiveness included misalignment between donor objectives and recipient needs, weak institutions, and insufficient state capacity. The most suggested measures for improvement were the need for better selectivity criteria and enhanced mutual accountability among stakeholders. The findings imply that foreign aid could be more impactful with selection, allocation, and implementation reforms. Practical recommendations include refining recipient selection criteria, establishing collaborative decision-making platforms, and prioritizing direct budget support to enhance recipient country’s ownership. Future research should consider longitudinal studies to evaluate the long-term impact of aid, comparative studies in similar contexts, and investigations into increasing civil society participation and improving donor coordination.