Dead Aid or Wrong Approach? Notes on Dambisa Moyo.

Published on 14th July 2009

Dambisa Moyo Photo courtesy
There is no doubt that something is going wrong with the relationship between Africa and the aid that comes from the West. In “Dead Aid”, Dambisa Moyo points to the two trillion US Dollars that have been flowing as ‘aid’ to the developing countries, most of it to Africa, in the last six decades. But obviously, the money does not help. The situation in Africa is deteriorating. Moyo says: not only in spite of the aid, but even because of it. Aid is the cause of the increasing poverty in Africa. Moyo is not alone with her criticism of aid and the demand to stop it1. However, she tries to prove that aid for Africa has not only been useless, but destructive: it makes the poor poorer and growth slower; aid is a political, economic and humanitarian disaster2. And therefore: aid has to stop!

Which are Moyo’s arguments? Are they convincing? Do they cover the full reality and reveal the real problems?

In the first part of her book, Moyo discusses “why aid is not working”. She distinguishes three forms of aid: (1) humanitarian and emergency aid, (2) charity-based aid on the ground, and (3) systematic aid as bilateral aid from government to government or as multilateral aid from institutions like World Bank or IMF to governments. The book concentrates on the third form, the systematic aid.

A World Bank study has shown that 85% of funds are misused. Although funds are bound to conditionalities, these do not work. One of the conditions that is imposed mainly after the Cold War, is democracy. It is considered as a prerequisite for economic growth, but rather the contrary is the case. Thus, “in an ideal world” a decisive benevolent dictator would be more efficient for economic growth. Aid may appear to be effective in short-term, but in reality it is not sustainable. “One of the most depressing aspects of the whole aid fiasco is” that those who are involved in development know, that aid doesn’t work. (39-46)

Beyond this statement that “aid does not work”, Moyo is convinced that aid itself is the problem. Why? Above all, aid makes dependent, lazy and careless. Governments rely on the constant flow of aid, but at the same time allow a strong foreign influence on their politics. Aid receiving governments are not compelled to use the funds economically; they even can misuse it. Thus, aid supports corruption; it “props up corrupt governments”. And donors are to be blamed as they continue transferring aid to corrupt governments. With the flow of aid, accountability becomes unimportant, there is no need of mutual trust, and, therefore, “aid erodes the essential fabric of trust”, i.e. the social capital that is necessary for development. Worldwide 500,000 persons are involved in the aid business and are interested that it will continue. Further arguments of Moyo in this respect are: Aid reduces savings and investment; it can be inflationary. Aid chokes off the export sector. It causes bottlenecks because often governments are not able to absorb it. (47-64)

Some times, the Marshall Plan is considered to be a proper model for help for Africa. Moyo’s explanation how the Marshall Plan for post-war Europe was conceptualized and how it worked is helpful for the understanding of aid for Africa with the result that it cannot work there. The reasons are: European countries were not wholly dependent on aid. The Marshall Plan was finite. Europe had the relevant institutions in place, therefore, the Marshall Plan was aid for reconstruction, not for development. (35-37) - This hint to the Marshall Plan shows that we have also to look at the situation to where aid is going, not only to aid per se!

Moyo sees the purpose of her book to show how development can be financed without aid - based on a free-market system with socialist values (Does Moyo mean the new Chinese model? Or the “social market economy” in Germany?). The book is to be a “road map for Africa to wean itself off aid. “The aim is an aid-free world” which should be possible between five to ten years. (75-76)

According to Moyo, what should African governments do in order to finance the development of their countries? First, they should go to the finance market by issuing bonds. This would further the credibility of their countries. Emerging markets have advantages, as - for example - they are counter-cyclical. (77-96) Second, African governments should strengthen their ties with China. For, “the Chinese are our friends”, “they’ve got what we want, and we’ve got what they need”. They have made a big political, economic and social impact on Africa since the beginning of the millennium. China’s straightforward approach offers an attractive alternative to the imposing attitude of the Western donors. (98-111) Third, African countries should promote trade. In this context, Moyo points to several hindrances of trade: to restrictive trade embargoes of mostly Western countries by which Africa loses an estimated $ 500 billion per year; to the subsidies for cotton and sugar and to the $ 2.50 per day for a European cow; to the Africa-internal custom tariffs of in average 34% for agricultural goods. Europe should address trade issues, not aid. (115-119)

Fourth, the chances of small-scale banking should be taken: micro-credits as shown by the Grameen Bank in India or by K-Rep Bank in Kenya; remittances of Africans from the diaspora which were $ 20 billion in 2006; as well as savings.

The world should “abandon the obsession with aid and draw on proven financial solutions”. For, “it is the economy that matters”. “Good governance... will naturally emerge in the absence of the glut of aid”. (141-152)

So far Dambisa Moyo’s arguments. Should we now encourage the big donor agencies to make a phone call to African governments - as Moyo proposes - and to tell them that aid flow will stop after five years? Before we do that, let us have a critical review of Moyo’s proposals. We will look into the context of her economic approach; and we will go beyond the economic approach and try to see a wider horizon of the development issue.

Moyo concentrates on ‘systematic aid’. With respect to development, the emergency aid may be neglected as it is providing repair and compensation. However, talking of development, it cannot be neglected what Moyo calls “charity-based aid on the ground”. There is an expansive development co-operation going on between Western and African organizations that is not just “charity”: drilling wells, erecting and equipping schools, supporting women groups, training farmers, setting up examples for reforestation and for farmer communities, training media people, supporting government administration, doing political and civic education, strengthening civil society, promoting legal advice to citizens, assisting political parties and residents associations, giving scholarships, promoting exchange between Africans and Westerners, community development and citizen participation... All this is not the ‘systematic aid’ that Moyo is talking about, even if the money may come from a government. Those activities intend to contribute to the development of African societies; their strength is not the money, but rather the know-how transfer.

Moyo may counter and say that these activities did not help Africa become wealthier. On the one hand, she may be right - because those many projects have a national impact only when they are supported by a political and social structure; otherwise they just have an impact on a small group of people. On the other hand, has anybody done critical research on the question: Where would Africa be today without this development co-operation? This could include the question: Where would Africa be without ‘systematic aid’?

Based on his own negative experience, Mo Ibrahim3 rejects Moyo’s proposal that African governments could easily raise money through issuing bonds. Debt markets are not open to the African countries; the cost of government bonds is materially higher than that of World Bank and others (which Moyo has mentioned herself); financial institutions are not interested in investing in sub-Saharan Africa as financial markets do not understand Africa. According to this objection by Mo Ibrahim to bonds as an African solution, Moyo’s proposal has to be taken with caution.

Similarly, recently there has been warning against micro-credits4. It would be a gross and dangerous mistake to save the poor from poverty by micro-credits. There is a danger of overindebtedness because poor households tend to take credits to pay for food, health, education, a wedding or even to repay a former credit. The system of micro-credits may break down, the bubble may burst. Micro-financing should be taken care of not only by financiers but also by development experts. Even Yunus of the Brameen Bank himself has issued a warning.

While Moyo pledges for bonds, micro-credits and trade with a rather sober economic mind, it seems that her look towards China gets ‘blue-eyed’. The Chinese are not Africa’s friends. They reach for what they need from Africa - resources. For this, they contribute to the infrastructure in Africa to get hold of it - without sentimentality,‘mora¬lity’ or conditions. They have no problems to support Bashir of Sudan because there is oil - like the Western countries had no problem with Mobutu because he was on their side during the Cold War. The Chinese construct government buildings in Africa and import everything from China- up to screws and power sockets. The workforce comes from China, too, including their prisoners. They flood the African market with the cheapest goods possible - cheap in price and quality - and by that destroy or hinder African manufacturing. Trading with them may turn out to be a dangerous enterprise because they may ship to Africa something totally different than what has been ordered and nobody will help the African merchant at the end. Chinese construction companies outbid local firms, often subsidised by their government; they do not co-operate with local companies; thus, there is no economic development on the local level5. Chinese are feared for their unreliable payment morale. In spite of the benefits Africans may get temporarily from Chinese investments, are they adequately paid for the natural resources that China is taking out of Africa? Why not process those resources in Africa which would stimulate economy? Indeed, “it would be foolhardy” for Africa to deal with China alone as Moyo states herself (122). And it is foolhardy to consider the Chinese as the saviours of Africa.

Moyo mentions NEPAD only once (123) and this in an inadequate context, namely under “economic and trade agreements”. NEPAD is much more than that and if taken seriously by Africans as well as by donor countries, it could be a real development concept. It is astonishing that Moyo brushes NEPAD aside. Did she have to write something ‘new’, more sensational? In the NEPAD document6, African statesmen put the emphasis of Africa’s development on their own responsibility and in the hands of Africans in general. They promise to promote conflict prevention, democracy and human rights, macroeconomic stability, transparent legal frameworks, education, technical training and health services, role of women, law and order, infrastructure, agriculture and manufacturing. Moyo may argue that this sounds good - but what has happened since the inauguration of NEPAD in 2001? Is NEPAD anything more than just a paper? We have to ask back: Is “Dead Aid” more than just a paper? What deserves more to be supported, “Dead Aid” or, for example, NEPAD? Which one has the more realistic and holistic perspective on Africa’s development? Definitely NEPAD.

To be continued

Footnotes

1. One of the representatives of this thinking is James Shikwati, Kenya. See his online magazine “The African Executive”: www.africanexecutive.com  and the related articles by various authors. Also some contributions to the “Bonn Appeal” support this opinion: http://www.bonner-aufruf.eu/.
2. Dambisa Moyo: Dead Aid. Why aid is not working and how there is another way for Africa. London (Penguin Group) 2009, p. XIX. Further references are made in the text.
3. Mo Ibrahim: “Good governance can only bolster aid to Africa”; in: Daily Nation (Nairobi), 3 June 2009, first published in Financial Times.
4. I. Guérin/M. Roesch/J.-M. Servet: Développement: quand la ‘bull’ de la microfinance éclatera, in: Les Echos, 16 June 2009.
5. J. Nyabiage: Chinese snap up huge contracts; in Daily Nation (Nairobi), 23 June 2009.
6. See numbers 48 and 49 of the NEPAD document, October 2001.

By Helmut Danner,

Helmut Danner (PhD) Education has worked in Adult education, community development, political and civic education: 10 years in Egypt, 9 years in Kenya.


 


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