African aid: help or hindrance?

Giving aid is part of the problem, says the Zambian-born author of Dead Aid. So if the money is being misused “to fuel corruption and conflict”, what can be done to help the poorest countries?

Have we not been generous enough? In the past 60 years, more than $1 trillion (£687 billion) in development-related aid has been sent to Africa. Millions more have been raised during Live 8, Make Poverty History, the Millennium Development Goals, the 2005 G7 meeting and countless other campaigns.

But has the $1 trillion really made Africans better off? Or has the West, in the end, made everything worse?
“We live in a culture of aid. We live in a culture in which those who are better off subscribe – both mentally and financially – to the notion that giving alms to the poor is the right thing to do,” says Dambisa Moyo, the author of Dead Aid published by Penguin.

“The problem is that aid is not benign – it’s malignant,” Moyo writes in her provocative first book. “No longer part of the potential solution, [aid] is part of the problem and in fact aid is the problem.”

A controversial thing to say. But people do listen to what singers such as Bono and Bob Geldof, or actors such as Madonna and Angelina Jolie, say about poverty. So perhaps the views of a Zambian-born economist (with a PhD in Economics from Oxford and a Masters from Harvard) are also valid.

Moyo writes that the notion that aid can alleviate systematic poverty, and has done so, is a myth. And that comes from a former World Bank consultant. “Millions in Africa are poorer today because of aid; misery and poverty have not ended but increased.”

The fact most strongly substantiating her allegations is that poverty persists despite all the money that has poured into developing countries.

Citing a World Bank study, she notes that “85% of aid flows were used for purposes other than that for which they were initially intended, very often diverted to unproductive, if not grotesque venues.” A deputy director of the World Bank’s economics department is quoted as saying: “When the World Bank thinks it is financing an electric power station, it is really financing a brothel”.

Moyo claims that aid instils a culture of dependency, fuels conflict, facilitates rampant and systematic corruption – all with detrimental consequences for growth. Aid chokes off the export sector and desperately-needed investment. Aid fuels wars, coups and despots. She says it is a vicious cycle that perpetuates under-development and guarantees economic failure in the poorest countries.

And she is not the first person to raise those points. Others, like William Easterly, an economist specialising in foreign aid, have criticised the traditional aid approach before. However, unlike Easterly in The White Man’s Burden, Moyo comes up with an agenda. And – unlike Jeffrey Sachs, another economist specialising in foreign aid and author of The End of Poverty, who estimates that all poor countries require a doubling in aid and therefore is “depressingly maintaining the status quo” – she calls for a radical change.

Moyo cites official figures without getting lost in statistics or complex mathematical models. The comparisons she draws make the current global economy appear ridiculous. For example, each European Union cow gets $2.50 in subsidies every day which “is more than what a billion people, many of them Africans, each have to live on every day”.

Dead Aid is an exceptional book, in many ways. It is not just about criticising the traditional approach. It is about introducing an array of economic measures – trade, foreign direct investment, the capital markets, remittances, microfinance and saving – that, when coupled with the right policies, can make development happen.

One point on her agenda is microfinance. Microfinance – an economic development approach intended to benefit the working poor by giving them access to basic financial services – can also be a powerful development tool. “Today, microfinance brings groups of people into the economy for the first time by offering the poor a range of saving tools. Even small loans can boost business productivity gains and contribute to job creation and raise family living standards: better nutrition, better health and housing, more education.”

Practically everyone can get involved. Lending to the poor, Moyo writes, is no longer constrained by national boundaries, or by financial institutions. For example, through innovations such as Kiva, a microlending website that allows individuals to directly lend to entrepreneurs in the developing world.

Repayment rates of microloans made to “the unbankable” by far exceed those of loans made in developed countries.
Microfinance institutions, most notably in Bolivia and Bangladesh, have enabled the poor to lift themselves out of poverty. They have proved that the poor are “creditworthy” and recently even attracted the attention of commercial banks, investors and other service providers.

Moyo is not asking for a huge increase in aid. What she is proposing is not an experiment, it is giving poor countries what rich countries already have. Therefore, she is credible.

Consider China, for example, which achieved unprecedented growth rates after it had opened and reformed its economy. Or Ghana and Gabon that have successfully issued bonds and raised capital. Or emerging Botswana and South Africa who have decided to no longer depend on aid.

Moyo’s book is fascinating because it tells us how we can make development happen. However, the questions of how to get African and global policymakers to adopt her plan remains only partly answered. It is difficult to imagine that the “brutal”, “corrupt” and “spendthrift” leaders that are “indifferent to their countries’ needs” will embrace her proposals.

Also partly unanswered is the question of how to promote investment in countries where – to use a phrase from the British envoy to Kenya, Sir Edward Clay – corrupt ministers are “eating like gluttons” and vomiting on the shoes of
foreign donors.

But the biggest challenge will be to take the sparkle away from “glamour aid”.