Book Review: DEAD AID: why aid is not working

Book Review: DEAD AID: why aid is not working and how there is a better way for Africa. Dambisa Moyo

A new book has added to the voices demanding whether all the aid sent to Africa has helped the continent, or whether it would do better without such aid. Prosper Yao Tsikata of the Center for International Studies, Ohio University, examines this new challenge to accepted ideas.

Dambisa Moyo, a Harvard cum Oxford trained Zambian economist, confronts the venerable aid establishment in her new book “Dead Aid,” swimming against the mainstream ideological underpinnings of the age-old benevolent institution with somewhat watertight arguments against the unremitting flow of aid to African countries, metaphorically declaring aid dead.

The fundamental thesis of her book is that aid has not only failed to stimulate economic growth on the continent, but the life-support mechanism has consigned the continent to an “economic vegetative state” at which point economies on the continent have become unresponsive to aid or will be worse off with further dose of it.

Written in a “soft economic language,” Moyo carries along even the non-economics graduate with clarity of thought and evidence-based arguments to shore up her position. She exposes the reader to the labyrinth of intricacies associated with international market lending, simplifies its operations in relation to countries and corporate organizations, and offers basic econometrics of great importance to policy-makers, economic ministers on the African continent, the aid fraternity, individuals in development finance, and inquiring minds. Her book is a watershed where both recipients of foreign aid and the benevolent donors can pause to take stock of the 60 years of aid to the African continent. While Moyo’s work contain some important arguments and observations, there are a few weaknesses too, based on the socio-economic and political dynamics of the continent.

At the micro level, Moyo employs two important anecdotes to illustrate how aid drives hardworking entrepreneurs out of business. She evokes the mosquito net scenario by which recipients of free mosquito net not only drive the entrepreneur out of business, but deprives his workers of income and concomitantly starves their dependents. As an alternative, there is he sunglass and umbrella scenario: both items serve as protect in tandem with the changing weather, an analogy suitable for diversification of investment portfolios in order to spread risk.

Western countries have conducted experiments in Africa for years without success, trying to assist the continent get on its feet. Examples of some of the Western prescriptions are the Economic Recovery Program, Structural Adjustment Program and, recently, the Highly Indebted Poor Country initiative. As an alternative to some of these policies followed under the auspices Western countries, and watered-down with aid, Moyo is calling for the strengthening of the middle class; for making African governments accountable to their people through the collection of taxes, and not aid, in order to build up a social capital; for wooing of investors and acquisition of rating as a guide to investors; for countries in Africa that have not already established functional stock markets to do so; for inclusion of the poor and unbankable a functional financial system along the lines of the Bangladesh’s successful Grameen Bank; and venturing into the international capitals market, citing examples from South Africa, Botswana and some of the emerging-markets.

Turning to all the things that are wrong with aid, Moyo provides an inexhaustible list: a culture of aid-dependency, conditionalities attached to aid, politicization of aid, aid as impetus to inflation, diminishing exports, difficulty in absorbing large inflows of cash by African economies, and reduction in domestic savings and investment, among others, all of which are interconnected and with chain reactions or ripple effects driving nations into greater poverty.

The contentious practice whereby western countries hedge their agricultural produce through subsidies to their farmers, placing African farmers at a great disadvantage cannot be underestimated in this discussion. In 2004, the United Sates blacklisted Ghana and other developing countries for trade practices that made American rice on their markets less competitive. A year later, America and Europe blocked Chinese textiles from entering their markets, for the simple reason that it was killing the textile industry in their countries. Over- liberalization of African economies has ruined agriculture and its related industries on the continent, rendering its people consumers and not producers. Ghana again, as an example, recorded US$500 million in rice imports alone in 2008, while young men and women lost jobs and arable land went uncultivated, a clear proximate cause of poverty within the context of global power relations of which aid is a part. In Moyo’s new economic approach, the suggestion is fair-trade by turning to China and other Asian countries.

Moyo mentions the Marshall Plan which saved Europe from ruins after the Second World War, saying it was well-intentioned and directed towards reconstruction and not development. But for Africa, not only has aid become amorphous, lacking specific targets, it also became a tool for maintaining strategic geopolitical controls: aid go to allies, regardless of how deserving a country is.

However, ironically, while Moyo commends Ghana and Gabon for venturing into the international capitals market—where Ghana issued US$750 million 10-year bonds in September 2007, as a model for the rest of the continent, a new regime in Ghana stretched the begging-bowl to the IMF in less than 6 months after assuming office, for US$600 million. The question then arises: what has happened to the financial interest Ghana generated in the international capitals market leading to the oversubscription of her bonds to the tune of US$5 billion of unmet investor demands, if in less than two years the country has to return to the IMF for a lease of new life for her economy?

Cancelling debt and replacing it with new aid does not help either. When in 2005, after the Live 8 concert in Britain directed more attention to the debt crisis, Ghana’s debt burden was reduced by 50 per cent, it was a great relief as Ghana, before opting for the opting for the Highly Indented Poor Country (HIPC) initiative spent 40 per cent of its GDP on debt service. But within 3 years, Ghana was back at the 2005 debt levels. There have been inconsistencies in government financial programs, and financial innovation has eluded leadership of the continent, leading to the aid-decency syndrome.

Regarding regionalization of markets. Moyo makes a classic case for economies of scale that this can promote, citing Kenya, Tanzania, and Uganda which together could generates a market force of 100 million people, with the potential benefits of free-trade and single-currency. But this is where we fail most as a continent. In spite of ECOWAS provisions for the free movement of goods and services within the West African sub-region, the reality is the opposite. Robert Calderisi makes light of this in his book, “The Trouble with Africa, “markets are small, and weak transport links discourage internal trade. But Africans have been trading –or smuggling—goods across borders for decades and have been migrating to jobs wherever they can find them, at a pace that makes a mockery of official efforts at African Unity.” But however well unofficial trade may be doing, there are barriers to official trade. As an example, there is currently a ban on Ghanaian goods on the Nigerian market. Inter-country rivalries and lack of harmonious economic or trade policies form the cornerstone of discussions at annual sub-regional and inter-country conferences year in, year out, but sadly do not engender the intended results. Maybe, when the aid tap is turned off, as Moyo suggest, African leaders will act prudently with some urgency. But for now, the idea of African countries forming a regional coalition to access the bond markets can only be considered a mirage.

Closely linked to the issue of regionalization is the issue of xenophobia and ethnocentrism on the continent. The most recent is the xenophobic attacks on foreigners in South Africa. Earlier in 1969, Nigerians and other West African nationals were expelled from Ghana. Nigeria did the same in 1983, expelling Ghanaians and other African nationals. During Cote d’Ivoire’s recent years of crisis, Ivorians have turned on African immigrants. These tensions are ever-present in African countries, especially when things go wrong.

Within the individual countries, ethnicity instead of being a positive cultural heritage, has become a diabolic attribute that must be exorcised. Rwanda, Kenya, the Democratic Republic of Congo, and Sierra-Leone are countries that come to mind. Even the democratic process in the so-called democracies on the continent has been injected with the ethnic poison. Elections are wantonly rigged, rendering the process treacherous and questionable.

Leading on from the above, Moyo’s work leads the reader into the dynamics of why FDI is still a long way away from becoming a reality in Africa, despite its cheap labor as compared to India and China, countries that have used similar inducements to attract FDI into their economies to turn their fortunes around. She describes two sorts of disincentives: man-made problems (widespread corruption, a maze of bureaucracy, a highly regulatory legal environment and endless streams of red-tape); and those relating to infrastructure (roads, telecommunication, power supply, etc). The fact is that private investment capital, as opposed to aid, is scared off by corruption and all the other man-made disincentives. So even though returns on investment may be 10 per cent in emerging-markets elsewhere, they may not be 10 per cent on the continent, in view of all the disincentives. Therefore, the investor may move to other more competitive emerging-markets, instead of Africa.

On remittances from abroad, there is no doubt that they depend on the migration of the highly-skilled from the continent. The flight of these professionals, trained at the expense of their compatriots, from the vital sectors of the various economies on the continent is still a cause for raging debate in losing countries. When the most brilliant and talented are cherry-picked, with 70 000 graduates leaving the continent each year, national development and the formation of a vibrant middle class is in jeopardy. Africa is losing its daughters and sons again as in the slave trade, though without force this time. According to Patrick Manning, “the inhabitants along the lagoons of Benin believe that cowries were obtained by the use of slaves. A slave was thrown into the sea and allowed to drawn. The cowries would grow on the body of the salve, and after a time the body would be dredged up and the cowries collected from it.”

He explained: “the story is both true and untrue: cowry shells, of course, were money in Africa. The story is untrue in that cowries grow in the Indian ocean, not in the Atlantic or the lagoons edging it, and untrue in that slaves were not drowned in order to get them. But the story is true as well as picturesque in its presentation of the sacrifice made in order to gain money in exchange. It is a stark example of the ideology justifying slavery in Africa. Africans seem to throw away precious resources, young men and women, on exchange for money.”

While remittance may be helpful in reducing poverty at the micro-level and in the short-term, (for individual beneficiaries of remittance), they distort the long-term macro-developmental agenda.

In her final analysis, Moyo calls for a reversal in the situation where 75 per cent of the money coming into the economy of African countries is from foreign aid while, trade money from the capitals market, and Foreign Direct Investment (FDI) contribute 5 percent, 3 percent and 5 percent respectively, and the rest from domestic savings and remittance. Her proposal for cutting back aid by 14 per cent each year for 5 years, to reduce the contribution of development aid to 5 percent while trade, FDI and the international capital markets become the lead sources of finance for development, seems ambitious and daring, considering the historical and geopolitical obstacles which impede Africa’s trade and FDI with the major global powers, as she has identified herself.

But the undeniable truth is that government-government aid has failed to deliver the desired results, and there is the need to consider other initiatives that will be directly poor-centered, whereby the poor individuals and their communities can benefit directly, rather than relying on corrupt government machinery as a conduit.

Moyo’s book should be seen as a wake-up call to the continent and all its stakeholders, about the dire consequences that are already unfolding, to consider alternatives ways of assisting the continent. Africa’s per capita income today is less than in the 1970s; Africa attracts less than one per cent of global capital flow; there is a huge drop in life expectancy across the continent as compared with the gains of the 1950s; one in 7 children die before age 5, rise in poverty from 11 per cent in 1970 to 66 per cent in 1980 when aid flows were at their peak; Africa’s per capita income is less than in the 1970s; and a host of other issues that confront the continent today.

Moyo’s call to ignore Western criticisms with regard to Africa’s increasing partnership with China is in the right direction. In the changing dynamics in global politics, it is clear that the US has effectively become, economically a client state of China just as other African countries, while at the same time competing with China for natural resources. This implies that with huge debts owed to China by the US, the US is not well placed to criticize Africa’s increasing relationship with China. And it was on the watch of the IMF and the World Bank, appendage institutions of the West, that most of the despicable levels of corruption were committed by African leaders against their own people, while the West continued to support these leaders with aid. But while China certainly comes into the picture for Africa as a competitor of choice and a lead partner in boosting trade and FDI for mutual benefits, as African countries cultivate this relationship the leaders must be careful not to dislodge the neocolonialists only to replace them with a more manipulative system.

Authored by Prosper Yao Tsikata, Center for International Studies, Ohio University, for the African Prospects, London.