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Aid--the silent killer of growth.

Dead Aid why Aid is not working and how there is another way for Africa

By DambisaMoyo

[pounds sterling]14.99 Allen Lane ISBN 978-1-846-14006-8

Author Dambisa Moyo is an alumna of Harvard University's Kennedy School of Government and worked as a consultant for the Washington-based World Bank before going on to Oxford for her PhD and then joining Goldman Sachs for eight years as a consultant. And in the same way that she constructs her book, she began our conversation by outlining the current world of Aid and the tragic absurdities it has created.


"It was quite an obvious book to write really. After all, since the 1960s, Africa has been the recipient of somewhere in the region of $1 trillion yet we've seen growth decline and poverty levels rise. The reality of the situation is that Aid has not worked, it has not delivered."

Dead Aid examines just why this should be, and economist and author Niall Ferguson's foreword to the book sums it up quite succinctly: "Moyo's crucial insight is that the receipt of concessional (non-emergency) loans and grants has much the same effect in Africa as the possession of valuable resources; it's a kind of curse because it encourages corruption and conflict, while at the same time discouraging free-trade ... not only is Aid easy to steal, as it is usually provided directly to African governments, but it also makes control over government worth fighting for."

Moyo elaborates in more detail: "What I am talking about is government to government Aid, not humanitarian Aid, not NGO Aid. As well as spawning corruption and conflict, I identify how this Aid stifles the entrepreneurial spirit and encourages a bloated bureaucracy that chokes off the very business development that is crucial for Africa's economies."

Describing Aid as "the silent killer of growth", Moyo accuses it of infecting economies with the Dutch disease. The Dutch disease is when large foreign currency inflows, such as Aid, cause the value of a local currency to appreciate. That, in turn, means a country's exports are less competitive on international markets and the economy suffers. International Aid donors then respond by sending additional tranches of Aid to failing economies, creating a highly damaging vicious circle. As Moyo writes in Dead Aid: "Aid inflows have adverse effects on overall competitiveness, wages, export sector employment (usually in the form of a decline in the share of those in the manufacturing sector) and ultimately growth."

Moyo says: "There is another very critical point regarding the Aid-dependent model--the whole notion of the disenfranchising of the citizen. In a world where the government is accountable to donors, there is no accountability to the domestic citizenry--that's a huge issue."

It is these arguments that make up the first part of Dead Aid. She makes no claim that it is the first critique to be levelled against Aid. Indeed, Moyo dedicates her book to the Hungarian-born London School of Economics economist, Peter Bauer, whom she describes as "a lone dissenting voice" in an era when the pro-Aid model enjoyed wide support.

She also tips her cap towards Bill Easterly whose book The White Man's Burden provided numerous case studies on the failure of Aid policies, Paul Collier, author of The Bottom Billion that criticises the West's inability to pay heed to the unique circumstances of individual Aid-recipient countries, and Jeffrey Sachs, her Harvard professor for a year and author of The End to Poverty--although she takes issue with Sachs, questioning why he proposes the free-market model for regions like Eastern Europe but a much more interventionist approach for Africa.

In the second part of Dead Aid, titled 'A World Without Aid', the narrative explores new approaches to breaking the Aid-dependence syndrome. Former UN Secretary-General Kofi Annan says of the book: "It is time for Africans to assume full control over their economic and political destiny. Africa should grasp the many means and opportunities available to them for improving the quality of life."

Moyo presents a number of tangible opportunities that, if seized, might achieve such progress. But first, it would seem, she believes we have to destroy the myth that Aid is indispensable. Moyo asks us to imagine that, in say five to 10 years time, the Aid flow came to an end. What would be the result?

Moyo's answer is that it could provide a huge boost for Africa's fortunes. In fact, this scenario may not be so far-fetched in the current financial crisis. Will the West even be able to continue to finance Aid? Whatever the answer, it is time for Africa to start planning, and Moyo has clear proposals. The first is to substitute trade for Aid--and immediately Moyo takes a radical tack. "I'm recommending African governments stop expending resources and effort trying to negotiate round after round with the World Trade Organisation and instead try to foster relationships and alliances with countries where there is a real opportunity to sell African produce. China, which only has 7% arable land has 1.2bn people to feed."

Rather more conventionally, she is firmly for building intra-Africa trade and would like to see all inter-Africa tariffs and duties scrapped. "We have got to get rid of this obsession of selling goods just to the West. One of the estimates of population growth that we arrived at when I was with my old employer, Goldman Sachs, was that by 2030 there will be an additional 2bn people in the global middle-class, mainly coming from emerging economies. They represent a huge market for Africa. 2030 is so close! African governments must really focus on this.

"My book also discusses the need to attract FDI, and support domestic investment. The business environment in Africa is often not conducive to doing business. Just getting a business licence, or even obtaining a passport, just basic documents, can often be a nightmare. Governments could overturn the system overnight, but as we were talking about earlier, it is the stifling bureaucracy, that is holding Africa back."

A Capital Solution

Being a self-confessed free-marketeer and given her banking background, it is hardly surprising that Moyo should be a proponent of the opportunities the international capital markets hold for Africa. A vital precondition for issuing sovereign bonds is for countries to obtain a rating--essentially determining their creditworthiness. And Moyo says that the bond market has clear benefits in that it obliges a country to develop a culture of fiscal prudence and use the funds they raise in a constructive manner.

"Accessing the bond markets is not that hard," she writes in Dead Aid. "First a country or a company must acquire a rating [15 African countries have taken this step] ... second the country must woo the international investor--those people willing to lend to it." She also makes the interesting point that no company can achieve a ranking higher than the country in which it is located.

Later she writes about sovereign bonds: "There are good reasons to believe that the greater desire of many African leaders to see their countries excel should give investors the comfort that governments will fare better with private debt flows today than in the past ... and emerging market fundamentals make a strong case for being some of the best opportunities around."

But given the current gloom in the financial markets, will there be a market for African sovereign bonds? "The reality is that still, even after everything that has been happening in the last 18 months, the capitalist model, the free market model, has been the only model that has delivered economic growth," she argues. "I am not saying that unfettered capitalism is fine, clearly it has its problems, but Africa needs to move much closer towards that model.


"What will be important for Africa is not to focus on traditional markets and be worried about just issuing bonds to the US and Europe but to really try to develop alliances and relationship elsewhere and, as in its trade policies, to look beyond the West." Finally, she wants Africa to realise the potential of domestic savings, requiring a further deepening of Africa's financial services industry. Harnessing all the monies that are informally 'saved', she believes, could be a major development in capital formation.

"I tell the story in the book, because I thought it was cute, about how two boys playing kick-ball in Maiduguri, north-east Nigeria, found $6,000 wrapped up in black plastic bags. Presumably the owner had hidden it there because they had no trust in storing the cash elsewhere!"

She also believes that micro-finance has a pivotal role to play in Africa's economic development, and is a firm devotee of Kiva, the pioneering online investment platform that led the way for others as a means of raising small loans in the West for African entrepreneurs.

There is not that much that is startlingly new about what Moyo writes about in Dead Aid. Most Africa watchers will have come across these arguments before, but she has set them out with admirable clarity and precision, assembling the facts in an easy-to-read, accessible narrative. No doubt, this is what has attracted the West's mainstream media in such numbers; a media usually blinkered by Africa's tragedies rather than its extraordinary potential.
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Publication:African Business
Article Type:Book review
Date:Mar 1, 2009
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