The Case for Impact Investing Over Aid: Observance and Personal Experience
By Tsering Kenji Sherpa, who is currently a fourth-year student pursuing International Relations and Business Administration at IE University. Content Coordinator at Fundie Ventures.
The famous proverb, “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime,” lies at the heart of impact investing. This general principle of alleviating poverty by becoming self-sufficient has a long history in literature as well as in practise. This was the central motto of the startup imPACKT Farm, which I had the opportunity to partner with during my second year of university. This startup focused on providing tools (aquaponic farms in this case) so that farmers could grow their own food without having to be dependent on the weather, the in-arable soil or the unpredictable impact of climate change.
As a student of International Relations and Business Administration, I was aware of the benefits of a social enterprises versus ineffective aid. imPACKT Farm was clear on the fact as much as they wanted to provide food security for farmers, they did not want to be a non-profit. Doing so would be going against their motto of “teach a man to fish,” as they would be dependent on aid donors for their operations. Instead, they took the social enterprise route: choosing to be both for-profit and have a social impact. A decision was made to test the product in Nepal, a country that had recently been devastated by the earthquake.
However, upon reaching Nepal, I realised the people’s perception towards the project was not the same as my own. They had become so used to receiving aid that the thought of paying for an aquaponic farm that would make them self-sufficient was no longer plausible. The farmers expected us to build the farm and provide all the necessary equipments and capital as aid.
For decades, aid has been the most common way to help developing countries reduce poverty and develop essential sectors such as education, health, food security and fundamental human rights. International non-profit organisations, as well as national and local non-profits, are often dependent on foreign aid for their operations. According to the World Bank, the net official development assistance and official aid received by developing countries amounted to $158.352 billion in 2016 alone.
Despite these significant efforts, poverty still continues to be a pressing issue. The development goals of non-profit organisations, including the Millennium Development Goals of the United Nations, to eradicate extreme hunger and poverty as well as to achieve universal primary education have remained largely unsuccessful. This stark contrast between effort and outcome has not gone unnoticed. In the past decade, there has been surge in research and publications on the topic, such as Dambisa Moyo’s Dead Aid or William Easterly’s The White Man’s Burden. The research highlights not only the ineffectiveness of aid but also its negative impact in the social-political economies of developing countries.
Providing aid not only creates dependency but aid itself is often dependent on power relations and politics. For example, Trump’s presidency has impacted the flow of aid to various countries and organisations. Trump’s plan to cut foreign aid supporting HIV/AIDS treatment in South Africa and Ivory Coast could lead to death of 1.8 million HIV infected people over the next 10 years as a result of cut in antiretroviral drugs. This is because 90 percent of Ivory Coast’s funding for HIV care and prevention depends on international aid. Similarly, in December 2017, Trump gave a statement on how the US could cut off financial assistance to countries who condemned the US’s recognition of Jerusalem as the capital of Israel.
For countries that are dependent on aid, such cuts result in real impact on people’s lives. In a world that is getting more polarised day by day, dependency on aid only creates more uncertainty.
For all these reasons (and more!) social entrepreneurship and impact investing are not only more effective than aid but also necessary for developing countries to alleviate poverty and work on creating impact that is self-sufficient. From my personal experience, I saw how aid not only creates dependency but also unfriendly environment for grassroot economic participation. It is clear that what developing countries need is not constant context-dependent aid but entrepreneurial investments in social impact that will render them sustainable in the long run.
