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Aiding and Abetting? Economists SayAssistance Only Makes Africa Worse

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Record amounts of American aid has been targeted in recent years to Africa, from the Millennium Challenge Corporation’s focus on helping African nations that are reforming their governments and economies, to the President’s Emergency Plan for AIDS Relief (PEPFAR). Total U.S. assistance to the continent has ballooned from billion to almost billion in just eight years, and with a new president of African decent in the White House, hopes are high for even more aid.

It remains to be seen how much President Barack Obama will offer in light of the economic crisis, though he recently called for class="import-text">2009May.Africa Develpoment.txt billion to support smallholder agriculture in the developing world, a proposal some experts said could be a major breakthrough in African development.

But for decades, foreign aid to Africa has been a favorite whipping boy of conservative Western elites, who point to corrupt regimes on the continent and “white elephant” aid projects that waste millions while doing little to change Africa’s persistent poverty. Yet the small number of such critics and their lack of experience in Africa have also limited their credibility on the topic.

Enter Dambisa Moyo. A native of Zambia, the Oxford-educated economist and Goldman Sachs veteran recently created a stir with her new book “Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa,” which argues that foreign aid to Africa has hurt, not helped the continent. In fact, she argues that aid is an “unmitigated economic, political and humanitarian disaster” that has only made Africans poorer.

While the thesis of the book — that aid has actually contributed to corruption, stifled entrepreneurialism, and should be replaced with solutions like microfinance — is not in itself revolutionary, the fact that it comes from a female native of Africa rather than a Western white male has turned heads.

The Anti-Bono? “As one critic of the aid model remarked, ’my voice can’t compete with an electric guitar,’” Moyo writes in “Dead Aid,” referring to U2 musician Bono’s high-profile campaign to boost African aid. “One disastrous consequence of this has been that honest, critical and serious dialogue and debate on the merits and demerits of aid have atrophied,” Moyo writes, suggesting that most foreign government aid to Africa should be cut off within five years to force African nations out of poverty.

Such talk has led some to label Moyo the anti-Bono, and she indeed has railed against what she calls the Hollywood pity campaign to portray Africa as a basket case. But Moyo herself has gotten plenty of media attention for her controversial work. Beyond the hype though, Moyo makes a simple point to back up her assertions: Poverty levels continue to rise while growth rates have steadily declined and millions continue to suffer in poverty — despite billions of dollars being poured into the continent for years (a trillion dollars, in fact, over the past 60 years).

Conversely, many prominent economists say the problem is that not enough aid has been devoted to Africa — even a trillion dollars over 60 years is a drop in the bucket compared to, for instance, the U.S. government’s financial bailout over the past few months. But Moyo challenges this assumption. Instead, she argues that over-reliance on aid has trapped developing nations in a vicious circle of aid dependency, corruption, market distortion and further poverty, leaving them with nothing but the “need” for more aid.

‘Hyenas in Charge of the Meat Market’ Moyo isn’t the only African calling for a radical change in the concept of foreign assistance. Marian Tupy, a South African and a policy analyst at the libertarian Cato Institute, sees a negative correlation between aid and economic development in Africa.

“Many African countries are poorer than in 1960, and the gap between Western countries and Africa has grown since then,” he said, noting that countries that have not relied on aid, such as China, have experienced far greater growth and have done more to reduce poverty.

Tupy refuted claims by aid supporters that Africa’s economic success over the last five years (the continent grew an estimated 7 percent in 2007) is evidence that foreign assistance is finally paying off. He pointed out that the highest-growing African economies, such as Nigeria, grew simply by exporting oil and other mineral resources at a time of record global commodity prices. With a worldwide recession stunting demand for such commodities, African economic growth has been halved.

“African governments have not used these good economic times to reform their economies and make their business environments more conducive to private sector expansion,” Tupy charged. “So prospects for growth are not as good now, and that reflects the reality on the ground.”

Tupy — like Moyo — also argues that aid undermines democracy on the continent by making African leaders and governments more responsive to the requirements of aid agencies rather than to the needs and requirements of their own people.

“Aid creates a sense of dependence,” he said. “Instead of reforming their governments and liberalizing their economies in order to grow their economies, African countries rely on aid [which] acts as a disincentive to reform.”

Tupy’s comments were echoed by Andrew Mwenda, managing editor of the Independent newspaper in Kampala, Uganda. “Western aid to Africa has done more harm than good precisely because it acts as a subsidy for government corruption and incompetence,” he said. “Most African countries have dysfunctional governments [and] such dysfunctions create opportunities for elites who control the state to plunder public resources, so there are strong constituencies with a vested interest in their perpetuation.”

Mwenda said Western donors mistake these institutional dysfunctions — like poor health care and education systems — as byproducts of fiscal constraints and think aid is the obvious solution. “Yet pouring more Western taxpayers’ monies into such governments is like putting hyenas in charge of the meat market.”

Taking Aim at Africa Critics of the current aid system say that both Africans and donor nations would be better served by less general aid and more targeted programs. Todd Moss, senior fellow at the Center for Global Development in Washington, agrees that the most successful aid initiatives are highly targeted ones. “PEPFAR, which can tell you exactly how many people are on life-saving antiviral medicines, shows that when you put resources behind a specific set of outcomes, you can achieve real results,” he said.

Even some strong supporters of aid to Africa agree that highly targeted, measurable aid programs have the best track record. “The biggest successes have been the ones linked to service delivery targets, such as PEPFAR, the president’s malaria initiative, and global AIDS initiatives,” said John McArthur, chief executive officer of Millennium Promise, a New York-based nonprofit. “All share a basic set of characteristics: clear plans, technical review, good financing and accountability. The criteria should be straightforward — is the money going to its intended uses?”

Tupy suggested that if aid is phased out, remaining funds (such as humanitarian aid) should not be spent on “mega-projects” but on small, defined projects where success or failure can be easily determined, such as programs to support spraying against malaria.

“Instead of measuring Western help to Africa in terms of dollars spent, it should be measured in terms of goals accomplished,” Tupy said. “There is very little accountability and transparency currently in terms of how aid monies are spent.” Tupy noted that one reason for this is the rapid increase in the number of aid agencies and NGOs involved in Africa, which complicates the aid “picture.” He added that the limited capacity of African governments to handle aid funds efficiently also hinders accountability and transparency.

Investing in a Different Approach Like Moyo and Tupy, Mwenda calls for less aid and more private sector involvement to complement such reforms. They argue that increased foreign investment, microfinancing, trade and free market enterprise are the paths to success for Africans — not help in the form of handouts.

“We need to shift resources from those who tend to consume to those who tend to invest, from politicians and bureaucrats to innovators in the private sector,” Mwenda said, adding that the Obama administration could create real change in how aid is used by establishing a venture capital fund for African entrepreneurs.

Western nations, the World Bank and aid agencies are making some such moves toward creating the infrastructure needed for African economies to flourish, recently committing class="import-text">2009May.Africa Develpoment.txt billion for transportation improvements in southern and central Africa designed to encourage trade. And groups such as the Millennium Challenge Corporation have long tied performance results and good governance with assistance.

But Mwenda argues that outsiders can only do so much. “External actors can only offer you an opportunity,” he said. “The ability to turn that opportunity into economic growth and development depends on a nation’s internal institutional and policy capacity. Africa lacks this internal policy and institutional capacity partly because of aid and the dependency mentality it has created.”

Tupy agreed that internal reforms are the key to Africa’s success, not outside assistance. “The debate about foreign aid creates an impression that the answers to African development lie in the West,” he said. “That view is profoundly mistaken. The answers lie mostly in Africa. The West cannot reform African states. They have to do that themselves.”

It’s a point Moyo stresses in her book. “Scarcely does one see Africa’s (elected) officials or those African policymakers charged with the development portfolio offer an opinion on what should be done, or what might actually work to save the continent from its regression,” she writes. “This very important responsibility has, for all intents and purposes, and to the bewilderment and chagrin of many an African, been left to musicians who reside outside Africa.”

Tupy urges African governments to create an environment for economic expansion, such as simplifying tax codes, easing rules on opening a business and hiring or firing workers, and strengthening the rule of law and property rights so that business owners can rely on bureaucrats to carry out the law without bribes. He explained that doing business in Africa is difficult because of two domestic reasons: policies such as trade protectionism that kill economic growth and lack of strong institutions such as property rights. “Until those shortcomings are addressed, it will be difficult for African countries to grow,” Tupy predicted.

The Cato scholar warned that while Western nations can help African economies with such methods as eliminating tariffs on African goods and lowering their own trade barriers, care must be taken not to generate incentives for the wrong behaviors. He cited debt relief as an example, arguing that it rewards countries that “destroy their economies” by forgiving their debts while forcing growing countries to repay their debt. “That’s one of the worst disincentives to good government,” he said. “Debt relief also leads to African governments simply going on another borrowing spree.”

Figuring Out How to Help While the G-20 group of the world’s leading economies recently committed to increasing aid to Africa, experts agree that the painful recession being experienced in the West will eventually have a negative impact on those promises of assistance. “The total amount of money spent by Obama on aid will probably more depend on the U.S. economy than anything else,” said Tupy, who expressed doubts that the G-20 will be able to uphold its commitments.

But McArthur of Millennium Promise expressed hope that aid wouldn’t be cut, calling the amount of aid dollars already “miniscule from a macroeconomic sense” — especially compared to the trillion-dollar U.S. economic bailout program (not to mention its trillion-dollar wars). “We shouldn’t be turning inward at a moment when we should be turning outward to get the world through it together, because we are all interconnected,” he said. “This provides yet another lesson about why this needs to be a coordinated response.”

Moss of the Center for Global Development predicted that U.S. aid under Obama will not decrease, partly because of the long U.S. budget cycle and prior commitments from the Bush administration that “put a lot of money into the pipeline.” The United States pledged in 2005 at the G-8 summit to reach .8 billion in aid by 2010. And although a lot of the aid budget is politically vulnerable, HIV/AIDS funds are less vulnerable because once people are on antiviral drugs, you’d essentially be killing them by taking them off.

Moyo has said that she isn’t addressing “emergency and charity-based aid” in her arguments, and that such aid is relatively small “compared with the billions transferred each year to the [ruling elites] of poor countries’ governments.” But she does recommend other paths to economic independence in the form of foreign direct investment, widespread microfinancing development and unfettered agricultural trade. “We know what works,” she says. “We’ve seen China do it. We’ve seen India do it.” And Africa can do it too, she says, if both well-intentioned donors and their recipients rethink conventional wisdom. According to Moyo, “The lives of billions rest on getting the right financing solutions to the problems of developing nations.”

Next month: Aid workers offer a different perspective on assistance programs and why they risk their lives to help the world’s poor.

About the Author

Mark Hilpert is a contributing writer for The Washington Diplomat.

Last Edited on July 8, 2014