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The poison of aid
Thursday, 08 October 2009 01:15

Why is Africa still so poor?  According to Dambisa Moyo, it is because the West has provided so much "help" to Africa.  Over the past 50 years, more than $1 trillion of official development assistance has been given to Africa, but left the continent in a never-ending cycle of curruption, disease, poverty and aid-dependency.  In her words, " Aid has been, and continues to be, an unmitigated political, economic, and humanitarian disaster for most parts of the developing world."

Moyo's story is not a new one.  Bill Easterly has well documented the downfalls of aid.  Paul Collier and Jeffrey Sachs have well analysed Africa's problems.  And rock stars Bono and Bob Geldof have led African advocacy efforts to the world's leaders.

But Moyo's story has the merit of being an African story.  She was born in Zambia.  And she has seen the development world from many angles, working at the World Bank and Goldman Sachs, and studying at Harvard and Oxford.  What's more, she proposes some practical solutions.

So what is the state of Africa?  Sure, Africa is a diverse continent with great diversity in its cultures and histories.  But one thing that most African countries have in common in the degree of poverty, the extent of corruption, the incidence of diseases, the dearth of infrastructure, the erratic and poor economic performance, political instability and tendency to violent unrest and even civil war.   

Over the past five years, things seemed to be improving with economic growth rates of 5 per cent and democratic elections in a number of countries.  But despite this, overall things look bleak.  With an average GDP per capita of $1 a day, sub-Saharan Africa is the poorest region in the world, and the region is poorer than it was in the 1970s.  Over half of the 700 million Africans live on less than a dollar a day, it has the highest proportion of poor people in the world.  Life expectancy has stagnated, and hovers around 50 years.  In many countries life expectancy has fallen due to HIV/AIDS.  One in seven children die before the age of five.  Adult literacy has plummeted below pre-1980 levels.  And half the continent remains under non-democratic rule.  Between 1970 and 1998, when aid flows to Africa were at their peak, the poverty rate in Africa rose from 11 per cent to a staggering 66 per cent.

Now, let's look into the African aid story.  What is aid?  In short, it can be grants (gifts, you could say) or concessional loans.  These loans are invariably very soft -- low interest rates, long repayment periods and often written off, if repayment proves a problem.

The African aid story really started after World War 2.  Post-war reconstruction aid to Europe was judged a success.  With most of Africa going through decolonisation, it was thought that aid would help the poor continent.  And then came the Cold War, aid became a means for the two superpowers, US and USSR to buy friends.

Over the decades, aid flooded into Africa, as development practitioners moved from one fashion to the next -- from industrialisation and infrastructure, poverty reduction, structural adjustment, good governance to the glamour and celebrity aid of today.

What have been some of the effects of this aid?  First, many bright ideas can undermine local development.  Take the case of the African mosquito net maker, who maufactures 50 nets a week, employs 10 people, who each support 15 relatives.  Then, enter the Hollywood movie star who pushes his government to send 100,00 mosquito nets to the country.  While those nets might help some the recipients, this act wipes out the netmaker and the livelihood of his staff and their dependents.   

Second, aid has fuelled massive corruption.  Zaire's President Mobutu Sese Seko stole $5 billion from his country.  Nigeria's President Sani Abacha placed the same amount in a Swiss bank account.  The list of corrupt practices in Africa is almost endless.  But with aid's help, corruption fosters corruption.  Foreign aid can also foster conflict.  The prospect of seizing power, and gaining access to unlimited aid is irresistable. 

Foreign aid can also choke off the export sector, but pushing up the exchange rate ("Dutch disease").  It can reduce savings and investment, it can cause inflation.  More fundamentally, aid can promote a depenency culture which promotes inefficiency and saps economic vitality. 

What are Moyo's solutions?  She proposes that Western donors announce a deadline, say in 5 years, for the termination of all aid.  Then African countries should take their destiny in their own hands in the following ways: borrowing on commercial terms international bond markets; encouraging more Chinese investment in infrastructure; pressing for genuine free trade in agricultural products; fostering microfinance; giving poor people clear property rights that they can use as collateral; and making it cheaper for migrants to send remittances back home.  And lastly, she recommend not rushing to multi-party democracy.  What is needed is a decisive benevolent dictator to push through the reforms necessary to get the economy moving.

In conclusion, Moyo makes a very convincing case about the negative effects of aid in Africa (this is implicitly recognised by donor countries which work together on the so-called aid-effectiveness agenda at the OECD).  However, it is not clear that aid has had such a negative impact everywhere.  She cites the apparently succesful reconstruction of Europe after the war.  And it seems clear that many Asian countries have used aid effectively.

In addition, her call for a stop to aid is perhaps not very realistic.  Developed country governments are under irresistable moral and political pressure to provide aid, including by rock stars like Bono and Bob Geldorf.  Further, they are subject to competition by new donors like China, which are vying for political influence in developing countries.  And many non-governmental organisatiuons like the Gates Foundation are unstoppable in their efforts to improve health and other conditions in developing countries.

Lastly, the pollution of a couple of centuries of industrialisation is causing global warming with negative impacts, especially on small island states and communities in the developing world.  The moral imperative of helping the developing world adapt to climate change should be unescapable.

Dead Aid by Dambisa Moyo.  Allen Lane.  2009

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