Dead Aid

Why has Africa not developed the way that countries in Asia and Latin America have? Why is most of the "bottom billion" made up of inhabitants of Sub-Sahara Africa? Every year or two a new book comes out with the answer to these questions: Jeffrey Sachs blaming geography and proposing a ‘big push’ of billions of extra dollars of aid or William Easterly pointing the finger at institutions or Bob Geldoff pointing at everybody. Or is it the legacy of colonialism or the lack of trade or entrepreneurial spirit – or is it a mixture of all of these. This year’s offering blames what is actually supposed to be the cure for most of Africa’s woes – aid itself. Before explaining why, it is worth noting who the author is: the white, ageing, male, Anglo-Saxon authors have been supplanted by a young, black, female, African. So far perhaps so good but this is no ordinary African. Moyo studied in Oxford and Harvard, worked for the World Bank and Goldman Sachs. Thus her analysis and prescriptions come as no surprise. That’s not to say that there is not some validity in what she says but when all is said and done she could easily be just another ageing, white, male, Anglo-Saxon author peddling this year’s model solution to the problems of the African continent.So what’s the problem with aid? First one must distinguish between types of aid. Humanitarian responses to disasters such as the Asian Tsunami and the type of aid, especially educational and health services, provided by religious and charitable organisations are outside of Moyo’s analysis. She focuses on the big buck aid transfers from bilateral (generally individual countries) and multilateral (World Bank and IMF) donors. Billions of dollars of this type of aid has been poured into Africa for the last 60 years and what is there to show for it? In some ways the aid industry got off to too good a start with the Marshall Plan which helped to rebuild Europe after the Second World War. This is seen as the archetypal success story which donors have been trying to repeat ever since but with far less success. For Moyo, aid has a number of serious drawbacks which do not just reduce the effectiveness of aid but actually make it harmful. Corruption is number one on her list. Aid money is just too easy to steal. This would perhaps not be so bad if at least a certain percentage got through to its intended recipients but even if this does happen, aid will have contributed to a breakdown in the relationship between government and governed. The elites do not need to engage with the majority of the population in order to live; they have other sources of income. In particular there is no need to tax the population and therefore no social contract. Even if we dislike paying tax, it puts an obligation on the government to provide us with services in return and if they do not, in a democracy they are likely to be voted out of office.Aid can also have a negative impact on exchange rates. As it is often provided in US dollars, when it is exchanged for local currency it causes that currency to appreciate and therefore makes exports dearer and imports cheaper, exactly the last thing the country needs. It can also cause inflation to rise and thus reduce saving and investment. Finally, for Moyo, aid gives a serious, possibly unintended negative, psychological message to the recipients. The donors are rich and the recipients are poor so, out of the goodness of the donors’ hearts they will give away some of our wealth. While Moyo says that Africa has to move on from blaming its colonial heritage for its current ills, a point I personally think she makes too strongly, she sees in aid a shadow and perhaps more than a shadow of the colonial mentality. The word "underdeveloped" as used to describe the poorer countries can be understood as an adjective but also as a verb ie, they have been deliberately underdeveloped by the developed countries.So what to do? Moyo’s pretty radical solution is to switch off aid. OK, not today but in, say, five years time putting the recipient countries on notice so that they can plan ahead for this. What will take its place? Trade, remittances, microfinance and the issuance by developing countries of corporate bonds. While fine in theory, and there is evidence that these will contribute to helping along development, none of them singularly or combined is a panacea for Africa’s problems. In particular, they all require as a prerequisite a stable governmental regime, precisely the sort of environment in which aid would work. Trade will only enhance development if the earnings from trade reach those who need it and are not creamed off by government officials and middlemen in the developing countries themselves and in their trading partners. Moyo recommends that Africa looks to China rather than the West as its saviour. China certainly has, or at least had, plenty of cash to splash around to access the resources that it needs to support its own population, but China is going to do this on its own terms. What investment they make in Africa is very much geared to making access to minerals easier and, given the amount of investment they are doing, they have generated relatively few jobs, preferring instead to bring along their own workers, of which they currently have a plentiful supply. Microfinance has had a number of success stories and appears to help the empowerment of women but it too is not without its problems. As for remittances these have been around for a long time and it would be equally justifiable to blame them for slowing down development as to blame aid. Remittances are free money and, like aid, reduce the incentives to develop the local economy. Finally if countries were to issue corporate bonds, how will we know if the finance raised will be used wisely and not just wasted by the governments involved who will be saddling their country with increased levels of debt and interest repayments. Bankers have short memories, so bad behaviour by a government does not necessarily stop banks and other investors from queuing up to invest again within a few years.Moyo’s book is not much more than a summary of a small part of Masters course on development. She has nothing new to add to the debate and does not even present the existing arguments particularly convincingly. Niall Ferguson in his forward to the book wishes for more Moyo and less Bono. However, I am afraid that he will have to put up with Bono for a while longer.Dermot Grenham is an actuary in London.


Join Mercator today for free and get our latest news and analysis

Buck internet censorship and get the news you may not get anywhere else, delivered right to your inbox. It's free and your info is safe with us, we will never share or sell your personal data.

Be the first to comment

Please check your e-mail for a link to activate your account.