Third year law student Stefanos Papanikolaou on the West’s changing approach to aid and international development
International aid remains an important factor for the development and prosperity of states. As long as there is a distinction between developed and developing nations, foreign aid will remain a point of reference for the global community.
The reason why the North-South dialogue persists is rooted in the legacy of colonialism and decolonisation. Colonialism refers to the process of occupation and domination of regions and exploitation of populations and resources, imposing economic, political, and social control by the colonial power. Decolonisation on the other hand, refers to the process of independence for the colonies and the end of colonial rule. With the New International Economic Order (NIEO), which was a set of proposals introduced by developing countries to promote a fairer global economic system, developing countries supported the end of this dependency and proposed this new framework — this new setting for interdependent economies. However, these new conditions allowed the resurgence and reemergence of colonialism in a hidden, modern form.
After World War II, with the Marshall Plan (launched in 1948, was a U.S. initiative to provide economic aid for the reconstruction of Europe after World War II.), the concept of economic aid began to take shape. Direct economic aid aimed to provide immediate support and address crises in countries facing emergencies. Simultaneously, a new form of assistance emerged: development assistance. Specifically, despite the existence of conditions and requirements for the provision of aid, such as the mandatory purchase of products from the aid-providing country in cases of bilateral agreements (conditionality), the entire endeavour proved ineffective.
Over the years, it became clear that the system was not delivering results. The exhaustion of aid-providing countries, known as “donor fatigue” combined with the lack of proper utilisation of aid by recipient countries, led to a new situation. This new setting allowed developed countries, in search of new investment opportunities, to relocate companies to tax havens, boosting their profits. At the same time, these countries succeeded in exercising political influence, intervening in internal affairs and expanding their reach.
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Find out moreBefore we proceed with further analysis of the title, we must provide some basic information.
Under international law, foreign investments are classified, in general, into foreign direct investment (FDI) and indirect, foreign portfolio, investments (FPI). The main difference lies in the level of control. In direct investments, the investor exercises substantial control. The investor does not merely acquire shares but actively participates in the management and strategy of the company. It may involve establishing a company from scratch (greenfield investments), acquiring or merging with an existing company in the host country (mergers & acquisitions), or forming a joint venture between countries (joint ventures). On the other hand, indirect investments involve acquiring financial assets, such as stocks, bonds, and other securities, which do not grant the investor management control over the company. These investments are typically short-term or medium-term.
The question I pose at this point is: why is there criticism of foreign investments as a new form of aid?
The answer is simple. The nature of foreign investments acts as a form of colonisation. The technique of “debt-trap diplomacy” applied by countries such as China, which has expanded notably in Africa and Latin America, is sparking intense debates. Countries unable to repay their loans allow China to exert geopolitical influence and implement its Belt and Road Initiative (BRI). A notable example is Sri Lanka, which granted China a 99-year lease of the Hambantota port due to its inability to repay its debts. This agreement is often accompanied by a lack of strict regulations, transparency, and frequent environmental degradation, with unsustainable exploitation of natural resources due to the absence of enforcement of conditions. A similar example is the case of Piraeus, where the U.S. and the EU view Chinese investment as a means of expanding China’s geopolitical influence.
One of the consequences of this strategy is the reduced local development. In developed economies, profits are repatriated, and wealth is redistributed without being reinvested into the local market with new investments. Consequently, profits may leak into tax havens or the parent company. China, in fact, uses Chinese labour and materials for the construction of its projects. Ultimately, the primary concern of investing countries is the desire to control the host nations in terms of their international presence, exerting political pressures to avoid criticism from countries with ties to the investing nation on issues such as human rights or Taiwan.
Countries with strong economies continue to exert influence without allowing for a truly mutually beneficial collaboration. Therefore, there is an urgent need for transparency and the avoidance of excessive dependence on external powers. At the same time, relations between states should follow the principles and rules of the international community, offering each other opportunities for genuine development and prosperity.
Stefanos Papanikolaou is a third-year law student at the Aristotle University of Thessaloniki and an active member of the European Law Student Association. He has a strong interest in international trade law and global development policy and recently served as an official delegate at the 62nd United Nations Framework Convention on Climate Change session in Germany.
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