Why Aid is Not Working in Africa

africa_aid“The state of Africa is a scar on the conscience of the world.” These were Tony Blair’s words not long after his 2001 election victory – a statement that echoes the American character in VS Naipaul’s novel A Bend in the River who speaks of Africa “as though Africa was a sick child and he was the parent”. For decades, non-Africans have subjected the world to patronising instruction about the continent. The tendency to outsource political thinking to wealthy pop stars culminated in the Live 8 concerts, when self-congratulatory musicians capered around the stage calling for more aid, the cancellation of debt and saying: “Every time I clap my hands, a child in Africa dies.”

Is lack of charity the problem? Dambisa Moyo points out that, since the second world war, around $1 trillion has been transferred from richer countries to Africa. But it is hard to see what benefit this has brought to a region that remains trapped in failure. Why, Moyo asks, “is it that Africa alone among the continents of the world seems to be locked into a cycle of dysfunction? Why in a recent survey did seven out of the top 10 ‘failed states’ hail from that continent?” Moyo, a Zambian economist educated at Oxford and Harvard, who has worked for the World Bank and Goldman Sachs, believes that foreign aid is the root cause of the spiral that has led Africa into its present situation.

Starting with the Marshall Plan and post-war reconstruction, she tracks in some technical detail the West’s approach to Africa. The underlying assumption was that foreign aid was the only way to kick-start an underdeveloped region. But as we have seen with the rapid advance of Asia’s poorer countries, indigenous economic activity is the only real engine of growth and development. Moyo has plenty of examples of the way in which aid and haphazard loans led to extreme corruption. After President Reagan met Mobutu Sese Seko of Zaire and agreed to his request to reschedule a $5 billion debt in the late 1980s, Mobutu promptly leased Concorde to fly his daughter to her wedding.

Moyo believes that dependency on aid “undermines the ability of Africans, whatever their station, to determine their own best economic and political policies”. She is rightly angry about the way Africa’s elected officials and policymakers have often been excluded from the debate, and had little opportunity to argue the merits and demerits of aid, and alternative answers: “This very important responsibility has, for all intents and purposes, and to the bewilderment and chagrin of many an African, been left to musicians who reside outside Africa.” Since the situation remains bleak, western activists tend to press for further aid in an attempt to make things better.

Dead Aid is a polemic, but Moyo devotes more than half of the book not to outlining what she believes has gone wrong, but presenting possible solutions. She analyses examples where African countries have had economic success. In her view, changes in the world economy since globalisation offer new opportunities for Africa. It is easier than it was for poor countries to access the international capital markets by issuing bonds; emerging market-bond funds have produced strong returns in recent years. Practical measures should be taken to break down trade barriers within Africa. Transferring money, including remittances from family members abroad, needs to be made easier and cheaper. Moyo points out that it costs $1,500 to ship a car from Japan to the Ivory Coast, but another $5,000 to move it to Ethiopia. She offers a variety of solutions – all of them market-based – and notes, for instance, that most of Africa still lacks micro-financing schemes (where small amounts of money are lent to individuals and to communities), which have an excellent track record of actually working.

Externally, there are still numerous obstructions on trade: the OECD should radically slash agricultural subsidies, which have the effect of blocking African farmers from being able to export their goods. Foreign investment is another area that may bring new benefits. In Moyo’s opinion, Chinese direct investment and the resultant building of infrastructure such as roads and railways to extract minerals and foodstuffs have had a mainly beneficial effect. China remains popular in much of Africa, and “many Africans scoff at the notion that westerners should be outraged by Chinese implicit support for Africa’s corrupt and rogue leaders. It is, after all, under the auspices of Western aid, goodwill and transparency that Africa’s most notorious plunderers and despots have risen and thrived”. Moyo suggests that all aid and disguised aid in the form of unrepayable loans should now be phased out, except after natural disasters.

Would the solutions that Moyo proposes be successful? We cannot be sure, but it is clear that the old model of aid and soft loans to Africa has been a tragic, epic failure. There are two areas where I disagree with her analysis. First, she puts insufficient emphasis on the environmental damage that would follow the advance of foreign investors in Africa, and second I believe she is wrong to look at successful Asian economies such as Taiwan and Singapore and deduce that democracy is of secondary importance.

Last month, I travelled from a country without freedom of speech (Egypt) to one where it is in full swing (India), and the immediate change in atmosphere made me feel that an open and democratic system must have a wider, longer-term economic benefit. Even if Moyo’s prescriptions – micro-finance, foreign direct investment, more trade, issuing bonds to raise capital – do not work in the way that she hopes, at least they will put Africans in control of their own destiny, and give small-scale business people and entrepreneurs the opportunities that they have had elsewhere. I suggest that Bono buys a copy of Dead Aid and claps Bob Geldof over the head with it, repeatedly.

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