BOOK OF THE DAY: PÁDRAIG CARMODYreviews Dead Aid: Why Aid is not Working and How There is Another Way for Africa, by Dambisa Moyo, Penguin Books 188pp, £14.99
THIS IS an engaging and provocative book on the effects of aid on Africa. Dambisa Moyo is the latest in a series of former World Bank employees to write on the faults of the global aid system, of which they were until recently a part.
The premise of the book is that aid is the primary cause of Africa’s underdevelopment. The mismatch between African needs and increased Western aid has arisen, she argues, because the most vocal global campaigners on Africa are western, particularly Irish, celebrities. According to one African activist quoted in the book, “my voice can’t compete with an electric guitar”.
Moyo reviews the history of western aid and then details what she sees to be its destructive effects: the creation of a dependency culture; enhanced opportunities for political corruption; and distortionary macro-economic effects. Developmental failure then increases the need for more aid.
According to the author, aid serves as a type of rent, where nothing has to be produced in order to receive it. Given that the private sector is weak in Africa, the best and the brightest follow the money, but in its pursuit are corrupted. Aid, she argues, has served to prop up some of Africa’s worst dictators, such as Robert Mugabe in Zimbabwe. This corruption in turn hampers private sector development.
The macro-economic effects of aid are well known. When unearned foreign money enters an economy it becomes more plentiful, meaning that less domestic currency is required to buy it. This makes the local currency more valuable. Consequently exports become more expensive and imports cheaper, leading to trade balance problems, among other things.
Moyo argues that the solution to Africa’s problems must come primarily from private sector finance through accessing global capital markets for investment, encouraging remittances and micro-finance for small businesses. This type of finance does not generate perverse incentives as it operates on business principles. The South African government has recently used its good bond rating to underwrite an infrastructure investment fund for Africa, for example; Kiva, a website based in California, allows anyone to lend very small amounts to micro-entrepreneurs in Africa.
This book is written with conviction and a sound understanding of economics. However, the analysis places too much emphasis on the harmful impacts of aid, without examining its benefits – the children fed and inoculated, or the small-scale hydro-electric dams built. While Africa grew poorer during the 1980s and 1990s, it might have been worse in the absence of aid.
The author calls for most aid to be cut off to force self-reliance. If this happened what would be the results in Ethiopia which, according to her, depends for 97 per cent of its government revenue on aid? The author ignores the substantial progress made in aid design and delivery recently, without presenting evidence that it does not reach the poor. Donors have designed systems to ensure effective tracking of funds, and in Uganda revenues received in local schools are now posted outside to ensure transparency. Indeed, although the author notes dramatic poverty reduction in Uganda in the 1990s, she fails to acknowledge that the country was heavily dependent on aid during that time.
Many of the issues that Moyo identifies are real and pressing. However, aid is not the primary cause of, or indeed solution to, Africa’s problems. For her “good governance trumps all”. But the global bargain whereby corrupt elites are supported by western governments and companies, as long as they continue to allow resource exports, is not addressed in the book. More fundamental changes in the distribution of power between African countries and the rich world, and between elites and more general populations, are required than simply cutting off aid.
Pádraig Carmody is author of Tearing the Social Fabric: Neoliberalism, Deindustrialisation and the Crisis of Governance in Zimbabwe