Week 7: How Dead is Aid?

According to Dambisa Moyo, author of Dead Aid, there are four alternative sources of funding for developing African economies, including sovereign and private bond markets, foreign direct investment, international trade, and microfinance. By integrating these economies into the global community, especially Kenya and Rwanda, I think these alternative sources are viable. I would argue that microfinance has drawbacks, at times creating unsustainable debt accumulation, in which poverty due to deprivation is supplanted with poverty because of debt.

Dead Aid: Why aid is not working and how there is another way for Africa (source:http://www.dambisamoyo.com/books-and-publications/book/dead-aid)

Dead Aid: Why Aid Is Not Working and How There Is Another Way For Africa (source:www.dambisamoyo.com)

Large-scale aid transfers date as far back as the nineteenth century, Moyo highlights the British Colonial Development Act of 1929, which gave grants for infrastructure projects in poorer countries. Then there was post-war aid, which manifested during industrialization. It aimed to prevent poverty, promote democracy, provide a stable world economy, promote international monetary cooperation, and prevent possible global financial crisis. After seeing how aid worked in Europe, richer countries turned to Africa, highlighting the emerging development agenda. Insisting that investment capital was critical for economic growth, developing and newly independent states were targeted by Britain and America. Moyo identifies the successes of the Marshall Plan (a rescue package, worth up to $20 billion for Europe after WWII) and the freed resources of the World Bank and IMF as drivers of historical aid.

The Washington Consensus was a set policies that were needed for “first stage policy reform” to increase economic growth. It emphasized the importance of macroeconomic stability and integration into the international economy. These policies included fiscal discipline, trade liberalization, and a reduced role for the state (WHO). This neoliberal consensus was controversial, for these policies required the elimination of subsidies, which could harm the domestic agriculture economy.

Both Moyo’s website and TED talks highlight the role of China in the fluctuating global economy. Foreign Direct Investment (FDI) in China is evidence of the success of alternative sources for aid. Instead of simply giving money to developing countries, China has provided infrastructure in exchange for goods.

In this powerful talk, economist Dambisa Moyo makes the case that the west can’t afford to rest on its laurels and imagine others will blindly follow. Instead, a different model, embodied by China, is increasingly appealing. A call for open-minded political and economic cooperation in the name of transforming the world.

Glamour aid has been trend over the past two decades and Moyo says, “my voice can’t compete with an electric guitar”. We can take Bono as an example of a celebrity that uses their public profile to raise awareness for a certain cause or ask for donations. Moyo is suggesting that her criticism of current aid is overshadowed by the support of popular culture. Rwandan President Kagame’s statement about geopolitical rivalries is referring to, “the primary reason [that there is little to show for the more than $300 billion of aid that has gone to Africa since 1970] is that in the context of post-Second World War geopolitical and strategic rivalries and economic interests, much of this aid was spent on creating and sustaining client regimes of one type or another, with minimal regard to developmental outcomes on our continent”.

Bono presented Burmese democracy activist Aung San Suu Kyi with the Ambassador of Conscience Award. (source: WFJA)

Bono presented Burmese democracy activist Aung San Suu Kyi with the Ambassador of Conscience Award. (source: WFJA)

According to Moyo, there are many reasons why aid in African countries is not working. These include historical, cultural, and geographical aspects of many of these developing countries. She highlights the lack of natural resources in some areas and a resource curse in others. Historical exploitation, including colonialism and slavery, has not provided the necessary economic atmosphere for successful aid. Moyo also argues that these reasons “do not tell the whole story”, suggesting that historical failure cannot dictate future success.

Moyo’s suggestions include weaning Africa off its addiction to aid, using a gradual reduction in systematic aid over the next decade. By investing in the rather stable bond market, African countries could possibly avoid having to rely on aid. In Kenya and Rwanda, these solutions might be able to overcome the poverty trap by not relying on external assistance.

As African aid rose, growth slowed. (source: World Development Indicators Online)

As African aid rose, growth slowed. (source: World Development Indicators Online)

In The End of Poverty, Jeffery Sachs analyzes how the poverty trap forces people to remain poor and prevents mobility. He suggests that official development assistance (ODA) will help jump-start the process of economic growth, allowing people to break out of poverty. Moyo counters his solution with the argument that Sach’s estimate of total investment in MDGs way overshot the actual need. Supporting that further aid was merely funneling more money than necessary. She offers that bond market investment, like in Ghana, could be a viable solution to the “aid path”.

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