Dead Aid

Over the past sixty years, writes Dambisa Moyo ( Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa ), Africa has received over $1 trillion in aid.  Study after study concludes that it has had minimal, or even negative effects on Africa’s economies: One study finds that there is no impact on growth, another that aid is actually inversely related to savings, another that aid is used on consumption rather than investment.  ”Over the past thirty years, the most aid-dependent countries have exhibited growth rates averaging minus 0.2 percent per annum.”

The culprit, she says, is corruption: “aid is one of [corruption’s] greatest aides.”  She describes the cycle of aid:

“With aid’s help, corruption fosters corruption, nations quickly descend into a vicious cycle of aid.  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 unattractive.  Greater opacity and fewer investments reduce economy growth, which leads to fewer job opportunities and increasing poverty levels.  In response to growing poverty, donors give more aid, which continues the downward spiral of poverty.”

One measure of the problem is the estimate that “at least US$10 billion - nearly half of Africa’s 2003 foreign aid receipts - depart Africa every year.”  Many of Africa’s civil wars, she says, are motivated as much by a lust to get a piece of the aid pie as by tribal animosities.

Why keep giving aid to corrupt governments?  One reason is that pressure to lend is built into the aid system: “For most developmental organizations, successful lending is measured almost entirely by the size of the donor’s lending portfolio, and not by how much of the aid is actually used for its intended purpose.”  Another reason is “donors are apparently unable to agree on which countries are corrupt and which are not.”  In 2002, for instance, the Bush administration included Malawi on a list of qualifying countries, just a few weeks after a widely publicized corruption case in which  grain shipments had gone missing while the people starved and after one of the main witnesses in the corruption had “mysteriously disappeared.”

Moyo suggests four alternatives for helping Africa: governments should access international bond markets, like their Asian counterparts; they should encourage direct foreign investment, especially in infrastructure, largely provided today by China; they should push for free trade in agricultural products, calling on the US and the EU to drop subsidies on farming and level the playing field; and, they should encourage the development of microfinance institutions.