Why Aid Is Not Working and How There Is a Better Way for Africa
We live in an era of the culture of aid which highlights ‘the rich should help the poor and that is morally good’. This conception is reinforced by pop culture (from Bob Geldof to Bono), the media, and a number of global initiatives that make aid the norm of dealing with poverty and its adverse effects on humanity. Yet the impact of aid on Africa’s success in the fight against poverty has remained one of the most contested issues of our time.
In her captivating book ‘Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa’, the Zambian Economist Dambisa Moyo presents a controversial case against aid, challenging the perceived view that foreign aid helps alleviate poverty and fosters economic development in Africa. She argues that despite over USD1 trillion of aid being poured into Africa in the past fifty years, it has failed to tackle poverty and foster economic development. Has this assistance improved the lives of Africans? Moyo investigated deep into the matter and reveals an ugly truth. In fact, across the continent, the recipients of this aid are not better off as a result of it, but worse, much worse, she concludes.
Written in times of global financial crisis, it is not surprising that the book was well received globally. Although Moyo is not the first person to argue against aid, she came up with a compelling case. Born and raised during her formative years in Zambia, Dambisa Moyo’s life took unexpected turn in 1990 due to the attempted coup d’état against President Kenneth Kaunda, the first President of Zambia. The situation triggered her to leave for the USA to finish her studies. Studying her master’s at Harvard and doctorate in Economics at Oxford, and having worked for the World Bank and Goldman Sachs, Dambisa Moyo developed a combination of academic wit and real-life experience on development.
What is interesting about the book is, its lucidity and the passion with which Moyo presents her case. The main tenet of the book is that post-WWII development policy of aid has condemned Africa to corruption, conflict, and poverty. To substantiate these bold claims, the book calls for historical evidences.
The book starts with offering a clear historical account of the phases of the aid agenda: the formative years of the Bretton Woods Institutions, the World Bank and the International Monetary Fund (IMF) in the 1940s; the Marshal Plan era to reconstruct war-torn Europe in 1960s; aid for industrialization in post-independence developing countries in 1970s; aid for poverty reduction in 1970s; the period of stabilization and structural adjustment programs in the 1980s; good governance in the 1990s; aid for democracy in the 2000s; and finally, aid for everything.
Though the book paints Africa as poverty-stricken, conflict-ridden, rife with corruption, with stagnating life expectancy and declining adult literacy, it is not entirely dismissive. It acknowledges the recent revival through strides made in the financial development sphere.
The book recognises the part played by geography, colonialism, culture, tribal divisions, and poor institutions for Africa’s underdevelopment. What it seriously underscores is the role of aid in failing Africa.
Though the book cites a number of studies and statistics, establishing a relationship between aid dependency and the proliferation of corruption as well as with increasing poverty and conflict is problematic. Moreover, several success stories with aid are missing. With some of the analysis, the book glosses over facts. In refuting the geographical argument, the book cites how Saudi Arabia has overcome the geographical problem, while failing to mention the role of its oil reserves.
In suggesting alternatives, Dambisa Moyo says “the book offers another road; a road less travelled in Africa. Harder, more demanding, more difficult, but in the end a road to growth, prosperity, and independence for the continent.”
The book suggests stopping aid and puts forward alternatives to African countries: the use of international financial markets for bond issues for their financial needs; inviting mega Chinese investment in infrastructure; expanding access to finance for the poor, particularly by enhancing the outreach of micro-finance institutions (MFIs); reducing the cost of remittances to increase its inflows; pushing the US, EU, and Japan to stop subsidies for agricultural products and allow free trade, so that African countries fetch better prices in the international market; and making the dwellers of slums land owners.
Overall, Moyo’s analysis of aid breeding dependency appears right, but her solution is simplistic. With the complete stopping of aid, Africa will be in political and economic chaos.
Moyo argues that poverty levels continue to escalate, while growth rates have steadily declined in Africa even if billions of dollars are poured into the coffers of African governments in the name of development.
Provocatively drawing a sharp contrast between African countries that have rejected the aid route and achieved relative prosperity and others that have become aid-dependent and experienced poverty increases, Moyo illuminates the way in which over-reliance on aid has trapped developing nations in a vicious circle of aid dependency, corruption, market distortion, and further poverty, leaving them with nothing but the “need” for more aid to break the trap. She argues, aid has disabled and politically-stunted African governments.
Development requires capital accumulation and of course human capital formation. Moyo suggests cutting aid after which African countries would search for alternative sources for funding their development. This is very simple, she argues. Because the West pumps billions of dollars each year into African countries, Moyo argues, African governments have forgotten to think innovatively and install functioning institutions that would improve the state of their economies so that tax collection picks up to finance development.
Debunking the current model of international aid, Moyo offers a bold new road map for financing development of the world’s poorest countries that guarantees economic growth and a significant decline in poverty—without reliance on foreign aid or aid-related assistance. Issuing bonds in the international financial market requires good credit standing; the price of the instruments can be very volatile due to political and economic events as the USD1 billion euro bond issued by Ethiopia proved in recent months. This makes refinancing and raising additional funds very expensive.
The book’s suggestions about MFIs or legal right on land ownership are not novel. Despite the idea of land ownership being good, the implementation could be too complex. In a country like Ethiopia, it requires constitutional reform. The cost of money transfer is one issue that affects remittances. The causes of low-level of remittances goes beyond the cost of money transfer.
Completely shutting down aid does not help Africa. Aid can make differences if used properly. If it is used to encourage entrepreneurship, vocational training, investment in infrastructure and human capital, etc, it can make differences. What is very essential is aid should come with accountability. Unconditional aid fosters dependency and corruption.
No doubt, aid invites undue foreign political and economic interferences. Africa cannot depend on aid forever. The way to come out of aid dependency entails a genuine political commitment to be self-reliant through development.
Dead Aid is an unsettling yet optimistic work, a powerful challenge to the assumptions and arguments that supports a profoundly misguided development policy in Africa. And it is a clarion call to a new, more hopeful vision of how to address the desperate poverty that plagues hundreds of millions in the continent.
10th Year • Feb 2022 • No. 104