The Influence of Foreign Aid on Civil Unrest

Fast Facts:

• Foreign aid from Gulf oil producers to poorer Muslim countries during periods of high oil prices allowed rcipient governments to become more repressive and stave off rebellion.
• But when oil prices fell and aid dried up, opposition groups were emboldened and conflict and instability increased.

Following the Arab Spring in the early 2010s, a wave of revolutions and civil war swept across the Muslim world. This was not the first outbreak of civil war in the Muslim world in recent times. From the late 1980s to the end of the 20th century, eight predominantly-Muslim countries experienced civil war resulting in at least 1,000 battle deaths per year, and many others suffered less deadly but nonetheless serious civil conflict. Most of this occurred in non-oil-producing Muslim countries; Muslim oil producers remained relatively stable.

Research by Eric Werker, the William Saywell Professor and PhD program director at SFU’s Beedie School of Business, and Faisal Ahmed of Princeton University points to one factor influencing such conflict that some may find surprising: foreign aid. Beginning in 1973, when the price of oil began to skyrocket, the Gulf nations of the Organization of the Petroleum Exporting Countries (OPEC) started distributing extremely generous amounts of foreign aid to poorer, non-oil-producing Muslim countries. This aid had few strings attached – it was mostly in the form of grants – and its provision was highly correlated with the price of oil. According to Werker and Ahmed, the aid helped recipient states to stave off rebellions and maintain political control and stability. A high level of aid raises the stakes for conflict by increasing the “size of the pie,” but makes an incumbent government more capable of financing repression and suppressing a revolt. As a result, opposition forces are hesitant to challenge those in power because they know they will lose. When aid declines to a more moderate level, there is a greater chance for the opposition to win and a higher incidence of civil war.

The example of Somalia under Siad Barre, who served as President of the Somali Democratic Republic from 1969 to 1991, illustrates this dynamic. From 1969 through 1990 Somalia received, on average, foreign aid equal to 18.5% of its GDP. At first, much of the aid came from the Soviet Union, which supported Barre’s scientific socialist platform. In the late 1970s, Barre switched allegiance from the Soviet Union to the United States and replaced scientific socialism with a clan-based approach to maintaining power that pitted clans against each other. With increasing foreign aid from Gulf donors, Barre favored the clans in his inner circle and bombed his rival clan’s strongholds. But as the price of oil fell in the mid-1980s and Gulf aid declined, excluded clans rose against Barre’s divide-and-rule policy through armed revolt, leading to Barre’s downfall. As one Somalia scholar observed, foreign aid, when it was plentiful, “provided the glue that held the system together in spite of internal waste and corruption.”

A similar dynamic unfolded in the first decade of the 21st century. By 2010, foreign aid to Egypt, Syria, Tunisia, and Yemen was reaching its lowest levels in 40 years. In Egypt, for example, foreign aid had fallen from 13% of GDP in 1990 to less than 1% of GDP in 2009; Yemen’s had declined from 8.3% of GDP in 1990 to around 1% of GDP in 2009. This helped to bring about the Arab Spring, and the conflict it produced, by improving the odds of overthrowing repressive regimes.

The story Werker and Ahmed reveal is that higher levels of foreign aid can “buy” political stability for a time by helping authoritarian governments stifle dissent. When this aid declines, however, the likelihood of conflict increases. In retrospect, the cases of foreign aid studied here might only have delayed the inevitable. The researchers write, “Decades after they might have – in the absence of oil-price-induced aid doled out by Gulf oil producers – these countries made rapid (potential) steps toward democratization.”