(Week 7): Dead Aid

In her book Dead Aid  Dambisa Moyo offers four alternative sources of funding for African economies: sovereign and private bond markets, foreign direct investment, international trade, and microfinance.

Book cover of Dead Aid: Why aid is not working and how there is another way for Africa (source: amazon.com)

Book cover of Dead Aid: Why aid is not working and how there is another way for Africa (source: amazon.com)

Usually sovereign debt markets are more disciplined than the institutions responsible for issuing foreign aid loans which means that to be considered viable candidates African governments selling debt must have a certain level of financial stability and be able to maintain it. While Microfinance does run the risk of one loan spreading to an entire community, there is a strong incentive to repay loans because of this risk. Foreign Direct Investment (FDI) without political conditions can be seen as a viable alternative to foreign aid and is being used by other donor countries such as China.  China has invested in infrastructure in return for claims on some of the surplus of goods produced. One thing that stands out on Moyo’s website and in her TED talks is her emphasis on China’s FDI.

International trade is something that few African countries have taken full advantage of, in part because the continent is under many internal controls and tariffs. If these internals tariffs and controls were to be removed international trade could be more of a possibility for much of Africa. I think that Microfinance and FDI could be effective in both Rwanda and Kenya, but I am not sure how big of an impact they would have on the economies of these countries and how long it would really take to make an impact.  While these alternatives are not perfect, and easier said than done overall I agree with Moyo that they are good, sustainable alternatives to foreign aid.

Microfinance clients of Trust Group in Rwanda (source: opportunity.org)

Microfinance clients of Trust Group in Rwanda (source: opportunity.org)

In Dead Aid, Moyo argues that the focus and drive behind aid shifts with each decade.  The 1960s were the decade of industrialization.  She says that the early 1960s saw an “underlying shift towards a greater focus on aid funding for large-scale industrial projects” (15). Then in the 1970s there was a shift to foreign aid focused on poverty.  While, in the mid-1970s nearly two-thirds of aid was still focused on infrastructure, under Robert McNamara the World Bank’s focus was reoriented to focus on poverty-based approach to development.  Like the infrastructure aid before, the poverty-related aid often came in the form of grants, which had to be paid back with interest.  Which later put many of these African states in further crippling debt. The foreign aid of the 1980’s Moyo calls, “the lost age of development.”  “Up until the 1980s the notion that governments were the ultimate arbiter of resource allocation lay at the core of economic planning, leaving little room for any sort of private sector…The 1980s saw a rise of neo-liberal thinking which argued that governments should liberalize their economies in favor of the laissez-faire paradigm which encompassed the private market.” For Africa this meant that this economic overhaul necessitated two new aid-based programmes, Stabilization and then structural readjustment.  The foreign aid of the 1990s Moyo categorizes as “ a question of governance” By the end of the 1980s “emerging-market countries’ debt was at least $1 trillion US dollars. This was seen as the crash of the aid-based development model and it set the stage for policy shifts in the 1990s. Discussions in Foreign aid in the 1990s were critical.  It was after many Asia and Latin American countries were back on track for growth and many African countries were stagnated that the donor community “converged on the idea that governance” was needed for sustainable and economic growth and had been lacking in much of sub-Saharan Africa. Moyo says the legacy of aid in the 90s still exists; that “governance remains at the heart of aid today.”

Crowd during Live Aid concert in 1985 (source: telegraph.co.uk)

Crowd during Live Aid concert in 1985 (source: telegraph.co.uk)

The foreign aid agenda of the 2000s marked the rise of glamour aid, although this was not the first time that celebrity had got involved in orchestrating “world-wide pity” for Africa. Most notably the July 1985 Live Aid Concert watched by 1.5 billion people. Among other events this paved the way for moral campaigners for anyone from Pope John Paul II to Bono to the average Joe to take a part in.  I was surprised that foreign aid in the 1960s was so focused on industry.

The Washington Consensus is a set of broadly free market economic ideas, supported by prominent economists and international organisations, such as the World Bank, the EU, the IMF and the US. Most critical voices of the Washington Consensus focus on trade liberalization and the elimination of subsidies. Critical voices were found particularly in the agriculture sector. In countries rich in natural resources the criticism was focused on the privatization and exploitation of these abundant natural resources.

U2's Bono visiting a school in Leso (source: blogs.britannica.com)

U2’s Bono visiting a school in Leso (source: blogs.britannica.com)

When Moyo quotes a critic of the western aid model saying “my voice can’t compete with an electric guitar” she is referring to “glamor aid”  which is the use of celebrity to raise awareness on certain aid related issues and generate  more funds as a result.  A common example is Bono the Irish lead singer of U2. She is basically saying that her critical voice cannot compete with the starpower and name recognition that a celebrity like Bono generates. That the average Joe is not likely to spend more than a few moments thinking about foreign aid and it is much more likely that because of that Bono’s voice (or another celebrity’s) might be the only one that is heard and considered for the average citizen of the world when it comes to aid. When Rwanda’s President Kagame’s mentions geopolitical rivalries “in the context of post-Second World War” he is talking about the United States and the U.S.S.R during the Cold War.

Aid is not working for many reasons among them geographical and historical considerations of a country.  One reasons geographical location has prevented aid from working is natural resource dependence and a developmental curse.  She cites arguments made in books like Gun, Germs, and Steel that focus on the impact of geographical location. Moyo gives the example that “many African countries were unable to capitalize on commodity windfalls of the 1970s leaving their economies in a state of economic disaster.” Historical factors such as colonialism are common explanations for Africa’s underachievement.  Moyo thinks that these reasons, and others, do not tell the whole story she argues that no factor should condemn Africa to a permanent failure to grow. She says “that while each of these factors might be part of the explanation in differing degrees, in different countries, for the most part African countries have one thing in common” and they all depend on aid.

Book cover of Guns, Germs, and Steel (source: wikipedia.org)

Book cover of Guns, Germs, and Steel (source: wikipedia.org)

The main weakness I see in Sachs’s argument really comes down to countries continuing to give aid, and more of it  Moyo’s whole book is discouraging this. I think that the alternative solutions that she provides are viable, but I am not sure of their effectiveness on a larger scale until I have seen the impact over a longer period of time than most of these alternatives have experienced.


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