11^th June 2012

Recently I finally got around to reading Dead Aid: Why Aid is Not Working and How There is Another Way for Africa (Penguin 2010) by Damisa Moyo. As I read it, it was hard not to see the situation here through the lens her book provides.

Moyo grew up in Zambia and then studied economics at Harvard University, followed by a PhD at Oxford, before going on to work as a consultant at the World Bank in Washington DC. So she knows of what she speaks. Now she is a global economic strategist at Goldman Sachs in London and a trenchant critic of the global aid industry.

“Over the past thirty years, the most aid-dependent countries (in Africa) have exhibited growth rates averaging minus 0.2% per annum,” she writes. “For most countries, a direct consequence of the aid-driven interventions has been a dramatic descent into poverty…..between 1970 and 1998, when aid flows to Africa were at their peak, poverty in Africa rose from 11% to a staggering 66%. But the point about corruption in Africa is not that it exists: the point is that aid is one of its greatest aides.”

In other words, rather than being part of the solution, aid is part of the problem.

Paul Collier, well-known academic and author of ‘The Bottom Billion’, describes Moyo as “to aid what Ayaan Hirsi Ali is to Islam…an African woman, articulate, smart, glamorous, delivering a message of brazen political incorrectness.”

Formerly one of Collier’s students at both at Harvard and Oxford, he says she cannot be dismissed as simply a renegade who has rejected her roots. The point is, he explains, that she is deeply wounded by the lack of development in her home country, Zambia, and the overall impact of aid on society in societies that have come to rely on it. Her argument is a version of the ‘welfare dependency’ complaint writ large.

Aid, she says, is like oil – easy money – enabling powerful elites to embezzle public revenues.

“With aid’s help, corruption fosters corruption, nations quickly descend into a vicious cycle of corruption. Foreign aid props up corrupt governments – providing them with freely usable cash. These corrupt governments interfere with the Rule of Law, the establishment of transparent civil institutions and the protection of civil liberties, making both domestic and foreign investment in poor countries less attractive. Greater opacity and fewer investments reduce economic growth, which leads to fewer job opportunities and increasing poverty levels. In response to the growing poverty, donors give more aid, which continues the downward spiral of poverty.

“This is the vicious cycle of aid. The cycle chokes off desperately needed investment, instils a culture of dependency, and facilitates rampant and systemic corruption, all with the deleterious consequences for growth. The cycle that, in fact, perpetuates underdevelopment, and guarantees economic failure in the poorest, aid-dependent countries.

“Vast sums of aid not only fosters corruption, they breed it. Aid supports rent-seeking – that is, the use of government authority to take and make money without trade or the production of wealth.”

Frankly, I found her critique devastatingly accurate. Unfortunately, her suggested solutions, that governments could find money for development through financial markets, both international and domestic, so that ‘market discipline’ will force them to be honest, will likely stick in the craw of many in the industry and will likely be dismissed. She is also a little too sanguine about the redemptive role of microfinance.

Her timing could also not have been worst. As Collier notes, events have overtaken her arguments in the brief interval between writing and publication, as the opportunity for African governments to raise money on international markets has evaporated since the GFC, along with investor appetites for risk.

Unfortunately her iconoclastic book has made her a celebrity with the American Right – feted by Steve Forbes and embraced by the Cato Institute – reinforcing what Michael Gerson calls “the broad American belief that foreign aid is stuffed down tropical rat holes.” This makes it all the more difficult for members of the Liberal-Left aid community to objectively examine her views, which is a shame.

However, respected experts, such as Adrian Wood, formerly chief economist of the Department for International Development, share her concerns, arguing that there should be a ceiling to aid as a proportion of the budget. Kofi Annan has praised ‘Dead Aid’ as a “compelling case for a new approach to Africa”. Historian Niall Ferguson responded by saying, “This reader was left wanting a lot more Moyo, and a lot less Bono,” in reference to her savaging of uninformed rock star philanthropists, who she feels often do more harm that good.

There was even talk before the GFC of multilateral lenders like The World Bank and the IMF acting more as loan guarantors and allowing the financial markets to do the rest. Now however, these lenders are too busy trying to rescue so-called ‘advanced economies’. Most insist that strengthening governance criteria is a better approach, despite little evidence that these have ever worked. In fact, Moyo shows how feeble aid agencies have been: when occasionally one gets tough, others step in to compensate.

This is because aid agencies’ performance is usually judged by short-term criteria, such as how much aid is disbursed, rather than longer-term effects on accountability. If aid money isn’t spend, it can’t be rolled over the following year, putting jobs in the agencies in question at risk! Most of the most egregious offending governments know this, and safely assume aid will keep flowing regardless of what it do. In fact, one could cynically think that the governments in question and those running the aid programmes on the ground have their interests aligned, that many of the latter appear to have a vested interest in the status quo.

Decades of direct foreign aid to African governments has often propped up corrupt elites, shielded leaders from the consequences of their own incompetence and delayed necessary reforms, Moyo says. The development of Africa has not even been the purpose of foreign aid. Here in Cambodia, as in Africa, most Western governments provided aid money here to assuage their guilt – in this case, over their tacit support for the Khmer Rouge after the Vietnamese invasion and their initial denial of support during the famine that followed.

Cambodia is ranked 164^th out of 183 countries by Transparency International and, in May 2009, then U.S. Ambassador to Cambodia, Carol Rodley, calculated that around $US700 million a year of foreign aid is lost through graft. And, of course, some wags insist that Cambodia is really part of Africa rather than Asia, just as the Philippines, with its Spanish rhythms, is really part of Latin America. To know Africa is to understand Cambodia, so they say.

So this all sounds rather familiar.

Gerson, however, accuses Moyo of ingratitude for failing to recognise the efficacy of programmes such as the President’s Emergency Plan for AIDS Relief “that helped save her homeland of Zambia from social and economic ruin.” It is true, her book can at times seem a bit naïve a times – such as her attitude toward Chinese engagement in Africa, something equally obvious here – but the book is essentially a polemic designed to get people thinking.

Gerson accuses her of conflating all aid as bad. Frankly this is unfair. Her point is that too often aid has unintended consequences because its lacks transparency and accountability, and continues to be ladled out even when it is clearly failing to meet its objectives. As such, it compounds rather that solves the very problems it is designed to address.

All this may yet be moot, however. As Collier concludes, anticipated cuts in aid budgets by Western governments as a result of their own economic problems now may inadvertently allow her thesis to be tested.