Sending donated items can undermine the local economy

Recently the local news featured the story of an aid group seeking donations of slightly used soccer balls and shoes to send to children in Afghanistan. Although this sounds like a great way to get involved and help out sending donated goods can actually undermine the economic recovery of the people you are trying to assist. By importing items and then giving them away for free, instead of purchasing them locally, you out compete the local shop keepers trying to sell similar goods. They, in turn, do not purchase more these items from local manufactures and farmers. If enough goods are given away for free it can bankrupt the local businesses that are struggling to survive.

Would we allow goods that would compete with items made in the US to be shipped in and given away for free?

Let’s look at this from a different angle. Suppose instead of soccer equipment being shipped by the US to Afghanistan, China, concerned about a prolonged economic downturn in the US, decides to donate fuel efficient cars to California to help the world’s 6th largest economy recover. Would the US allow China to import donated cars? Think of the effect this would have not only on the car dealers in California but also to the car manufactures and parts manufacturers throughout the US. To protect our own markets the US has import restrictions and tariffs, other countries have similar regulations.

Importing goods often costs more than buying them in country

Shipping items is also very expensive. Costs that need to be considered include air or sea transport, custom fees or tariffs, and overland transportation once in country. It is often cheaper to buy the goods in country which would put money into the local economy. Shopkeepers who are struggling after years of war would welcome the business, they may then buy more soccer balls from the factory. With increased orders the factory would have more work for their staff, which may lead to increased wages with which workers could feed their families and buy soccer balls for their own children.

Guidelines for in-kind donations

The Center for International Disaster Information (CIDI) has some great guidelines for in-kind donations, even if it’s not a disaster. Here’s an excerpt:

“unlike in-kind donations, cash donations entail no transportation cost. In addition, cash donations allow relief supplies to be purchased at locations as near to the disaster site as possible. Supplies, particularly food, can almost always be purchased locally- even in famine situations. This approach has the triple advantage of stimulating local economies (providing employment, generating cash flow), ensuring that supplies arrive as quickly as possible and reducing transport and storage costs.”

Buying locally supports the local economy which speeds recovery

Although the intention behind the donation of sporting equipment was good, good intentions alone are not enough to ensure good aid. Buying locally is always preferable to shipping in goods from outside. Donated goods undercut the local economy and if the markets are undercut often enough businesses will fail creating more people in need of aid.