A Zambian economist
is stirring up debate over aid. Dambisa Moyo,
formerly with the investment firm Goldman Sachs, argues that financial assistance
has created a culture of dependency in Africa and should be cut. She's making her
views known on the lecture circuit in the US and Europe and with her new book,
called Dead Aid.
comes as activists worry that the global economic crisis could bring a drop in
overseas development assistance. According to the OECD (Organization for
Economic Cooperation and Development), last year industrialized countries provided
119 billion dollars in overseas assistance to the developing world, with more
than 22 billion dollars going to sub-Saharan Africa.
Dambisa Moyo says
aid to Africa has failed. In her new book, Dead
Aid, Moyo says poverty rates in sub-Saharan Africa have increased over the
past 40 years from 11% to 66%. At the same time, donors have given the
continent billions of dollars in development funds.
Moyo, a graduate of
Oxford and Harvard, says aid harms Africa in a number of ways.
Aid and Governance
In remarks in April
to the Carnegie Council in New York, she said aid raised by international
celebrities and NGOs sometimes help prop up ineffectual leaders. It also relieves
governments of one of their primary duties – providing services for their
"In many African countries," says Moyo, "the government is basically not involved in society. They have completely
abdicated their responsibility. They don't have to cater to their people, they
spend their time courting the donors to get more money. That basically means
that they have abdicated their responsibilities."
But Moyo says
market mechanisms could also sanction corrupt leaders:"[The markets would
just shut down on them]," she says,"if African governments borrowed money from the
international capital markets and claimed to investors that they were going to
invest it in productive activities to grow the economy and pay back the
interest and the principal but then spent the money on keeping themselves in
private jets or whatever and did not use the money productively."
Aid and Debt
international lenders perpetuate dependency on foreign aid. She says the International Monetary Fund often writes a
country's development policies. In
contrast, IMF officials say they invite
national governments to come up with their own development strategies, which
the institution usually agrees to support.
"Basically," says Moyo, "we end up
in the situation where African governments, even today, are spending about $20
billion in interest payments every year. That money is being spent to keep the
system in place. So you pay a little bit of money to the World Bank and they
re-lend to you. Or you pay a little bit of money to Norway or the United
Kingdom or U.S. aid agencies, and then you get the money back."
Moyo says aid
also feeds conflict. In states without developed private sectors, factions
fight for the only entity that has a pool of cash, the government.
She says aid
also causes inflation: Economists say that aid can drive up exchange rates,
damaging growth by making exports more expensive.
"Think about this as dollars
going into, let's say, Kenya," Moyo explains. "You send them a billion dollars going in [which
buy up the national currency]. It means that the Kenyan shilling becomes less available, so
it becomes more scarce, meaning that it becomes stronger, so it appreciates.
That kills off the export sector, because nobody wants to buy Kenyan goods if
the shilling is so expensive."
Taxation With Representation
The economist says
without aid, governments would have to raise taxes by strengthening the private
sector or collect them from private citizens. This, she says, would create an
expectation of accountability on the part of citizens.
In Ethiopia, she says that could be
done by selling phone licenses to companies.
With competition, phone rates would drop. At the same time, the
government could raise revenues by taxing phone calls.
"Ethiopia," she says, "is the
second-largest population in sub-Saharan Africa. Nigeria has about 100 million people.
Ethiopia has about 90 million people. The mobile phone penetration rate is two
percent in Ethiopia, so about two percent of the population has a mobile phone,
compared to the average in Africa, which is about 30 percent -- One in three
Africans has a phone. Compared to
the fact that there are now 30 countries that have over 100 percent mobile
phone penetration rates [meaning people have more than one mobile phone].
"Why am I telling this story? Because we have a lot of evidence now that
mobile phones are very, very important
and they can be very, very influential in terms of providing jobs and
generating an income. I'll give you a specific example.
"In Ghana there is a lot of literature about how a farmer can now
call city A and say, "Listen, I'm in the rural area. If I bring my sack of
corn to you how much are you going to charge?" He could find, "If I
bring it to city A, I'll get paid $20. If I bring it to city B, I'll get paid
$40." Therefore, the farmer can improve his income by taking it to city
"But here we have a government [Ethiopia] with 90 million people …..that
is also one of the governments that is at the G20 asking for bailout money.
"Why am I bringing this up? Because why would it be so difficult for the
government to sell off the license, earn a one-off large fee, but also maybe
even put on a tariff so they can continue to earn a usage fee from people using
the mobile phones. [They could] provide
a real chance for its citizens to actually start to do business, start to be
able to trade, and generate incomes for them to stand on their own two feet.
This is a classic example of the type of attitude that I think pervades the
"Perhaps it is no surprise that 97 percent of the budget in Ethiopia is
aid-based. It shows a lack of innovation. There is a lack of any effort being
paid to try and wean the country off of aid."
Moyo says governments could raise money from issuing bonds, particularly on the
capital-rich markets in China and the Middle East.
The Evolution of Aid
After the end of
the Cold War in the early 1990s, the World Bank conditioned aid on a number of
changes meant to encourage exports and engage in international trade. Among
these so-called "structural adjustments" were decreases in government spending and
efforts to attract foreign investment and encourage exports.
Many credit changes
with lifting African growth rates to over seven percent per year, reversinga
decade of decline.
Moyo is not
the positive things we've seen in Africa in the past 5-10 years," she says, "have been in
spite of aid, not because of it. We will never be able to strip out the
commodity effect – the boom which has been huge impetus for growth numbers in
recent times. My view on aid is that it is incredibly destructive and long term
will not create jobs, alleviate poverty or spur growth. I have not heard from
anyone advocate aid to say it is generating jobs."
In Defense of Targeted Support
But some economists
say aid linked to the adoption of free-market policies has increased exports --
Paul Collier writes that aid has added about one percentage point to the annual
growth of the "the bottom billion." Without aid, he says, the poor would have
As for claims that
aid leads conflict, Collier writes that aid helps boost growth rates in post-conflict situations, and helps mitigate the risk of relapse.
Sharing that view is Liberian president Ellen-Johnson-Sirleaf.
She has said reducing aid would slow private-sector growth, poverty reduction,
and even peace. She says it's better for wealthy countries to fund poorest now,
since it would be less than paying for peacekeeping operations later.
Shanta Devarajan is
the chief economist of the Africa
region at the World Bank.
"[Over the last 15 years]," he says, "aid has
increased and African countries have grown, including countries that have
received large amounts of aid. It would be presumptuous to say there is a direct
link that every dollar of aid generated this growth. But some of that aid
supported policy reforms or built infrastructure to help them benefit from
commodity prices and they grew. And it is not just oil, there are 21 non-oil
exporters that grew at over four percent a year for over a decade and a half."
Others note that
since the end of the Cold War, aid has been used more effectively. In some
cases, donors channel aid through NGOs rather than corrupt or inefficient
bureaucracies. The US Government's Millennium Challenge Accounts targets countries
with a record of good economic management.
Moyo says she
supports the efforts of the International Monetary Fund in the short term to
help African countries withstand the global financial downturn. Over the
long-term, however, she wants Africa to better ways of financing development.
Economists say if
the global downturn leads to cuts in assistance, Moyo's ideas may be put to the