When Western governments sneeze, development projects in Africa catch a cold. In 2024 alone, these governments disbursed $42-billion in official development assistance (ODA) to Africa. But the aid tap is tightening. The US has announced a dramatic reduction in foreign aid, the UK is slashing its aid budget as it prioritises defence spending, and Germany is weighing similar cuts following its recent elections.

The ripple effects across Africa will be significant. Already, we are hearing that programmes to combat HIV, malaria and tuberculosis on the continent – for which the US and the UK have historically provided half the funding – are under threat. The continent’s transition to a low-carbon future is also in jeopardy, given that clean energy investments in many of Africa’s least-developed countries rely heavily on financing from Western nations and a limited number of development finance institutions.

The benefits of ODA to Africa have been well documented. But there have been drawbacks too, and one of the least examined – at least in the popular media – is its potential drag on industrialisation, a subject that is the focus of a research article published in the journal International Economics in December.

Conducted by economists at the University of Dschang, in Cameroon, the research analyses data from 42 countries in sub-Saharan Africa spanning the period 1995 to 2021. It was inspired by Africa’s disappointingly low industrialisation level – despite being the world’s biggest aid beneficiary – and the conventional wisdom that industrialisation is generally associated with growth acceleration. This is why the UN’s ninth Sustainable Development Goal places significant emphasis on the development of resilient infrastructure, inclusive and sustainable industry, and innovation.

The study is emphatic about the relationship between foreign aid and industrialisation in Africa: the billions the continent has received from Western donors over the decades have hurt industrialisation. Here’s how: governments that receive the bulk of their revenue from foreign sources are more inclined to be accountable to their donors than to their populations, thus reducing the quality of their institutions – including those essential to production and the establishment of a solid industrial base.

This finding gels with the oft-repeated argument that developed countries sometimes use aid as leverage to ensure that only those that do their bidding ascend to leadership positions in developing countries.

There are caveats, however. For one thing, where a fair amount of the foreign aid is channelled towards essential human capital development or invested in energy projects, a significant boost in industrialisation was observed, while a stalling or outright regression ensued where the emphasis was on health and humanitarian causes. Secondly, a strong democratic culture, coupled with the availability of highly skilled individually, is an effective antidote to the generally negative impact of foreign aid on Africa’s industrialisation push.

But why should we worry about the continent’s low industrialisation levels? The reasons are plenty. First, studies without number have proved that productivity is higher in the industrial sector than in any other sector. Second, manufactured goods provide other economic sectors with greater economies of scale. Third, given the low unemployment rates in Africa, a manufacturing-focused structural change is crucial in creating a large number of new, high-quality jobs.

A key takeaway from the University of Dschang study is that African governments should pay particular attention to fostering democracy and human capital development if their all-important industrialisation drives are to benefit fully from the much-reduced ODA that Western nations are still prepared to extend to them.

Had they done so from the get-go, there would be much to show for the significant amounts they have received to date. Those in the know tell us that, in one-third of the countries in sub-Saharan Africa, the figure is equivalent to 10% of gross national income.

The ODA cuts announced by Western governments should also serve as wake-up call to aid-dependent nations that perhaps it’s about time to reduce their vulnerability – by aggressively mobilising domestic resources. The international community could assist by strengthening the capacity of these countries to go this route.