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Why Dead Aid is Dead Wrong

Posted: 04/24/09 04:15 PM ET

The argument that aid isn't working is gathering global momentum. But we should be wary of the analysis offered in Dambisa Moyo's influential new book.

In March, thousands of campaigners from development charities took to the streets of London. Their target was the G20 summit. With the global economic downturn pushing Africa into recession, the marchers had a simple message for the governments of rich countries. As one banner put it: "Remember Africa--increase aid to fight poverty."

If you believe Dambisa Moyo, a Zambian economist who worked at Goldman Sachs, the campaigners should have stayed at home. In Dead Aid she argues that development assistance is not merely a waste of money, but that is a cause of Africa's persistent poverty. Rejecting what she describes as "orchestrated worldwide pity," Moyo also has a simple but stark message: "aid has been, and continues to be, an unmitigated political, economic, and humanitarian disaster." She is leading a crusade to cut development assistance--and she can point to an impressive fan base. Writing in the Foreword, the historian Niall Fergusson tells us that he "was left wanting a lot more Moyo, and a lot less Bono." So what is Moyo's appeal?

Her starting point is that aid is not working. The line of argument runs roughly as follows. Over the last few decades, donors have pumped billions of dollars in aid into Africa. Meanwhile, the number of poor people in the region has continued to rise. Why has so much aid done so little good? Moyo provides a statistical and anecdotal bombardment aimed at showing that aid chokes-off economic growth, sponsors corruption, and fosters financial dependence on foreign donors. Why bother with taxing your citizens when you have access to easy money in the form of aid?

Moyo's solution to the aid problem is nothing if not clear-cut. She advocates a hefty dose of cold-turkey. "What if," she asks, "African countries each received a phone call... telling them that in exactly five years the aid taps would be shut-off - permanently?"

As good fortune would have it, Moyo has a ready-made antidote for aid dependence. African governments, she argues, should raise money by issuing bonds on international credit markets. Dead Aid also offers some wider advice on economic growth. Instead of obsessing over more aid, we are told, Africa should be calling for fairer trade and stepping-up efforts to attract Chinese investment. And civil society organizations should worry less about democracy because "it matters little to a starving African family whether they can vote or not."

What should we make of all this? Is it time for Bono and Bob Geldof to stop haranguing rich world leaders for a better deal for Africa? Should Oxfam campaigners be matching under the banner "Turn off the Aid Taps Now"?

These questions matter. Half of Africa's population--some 390m people--live in extreme poverty. Almost 5m children do not live to see their fifth birthday because of diseases like malaria, diarrhoea, and HIV/AIDS. And in an increasingly knowledge-based global economy, one-in-three primary school age kids are out of school. Fighting this deprivation is an ethical and humanitarian imperative. Aid is supposed to be a weapon in this fight, not an iron cage for keeping the poor where they are.

The problem with Dead Aid is that it does nothing to advance the debate on development assistance. This is partly because the author is bent on tilting at windmills. Most advocates for increased development assistance recognize that aid is not a cure-all for poverty and that trade is critically important (most of Moyo's evidence on trade is actually lifted from Oxfam). They also recognize that corruption is a serious problem, that aid is often less effective than it should be, and that aid flows have to be managed to prevent economic distortions that can harm growth prospects. Compared with Moyo, Bob Geldof is a model of nuance and cautious realism.

The more serious difficulty with Dead Aid is the evidence base. Take the argument three decades of aid have served only to increase poverty and reduced economic growth. In fact, there is a large body of academic work pointing in the opposite direction: on average, aid tends to raise growth levels. Establishing causality from aid to growth, or vice versa, is inherently difficult. But Moyo is apparently oblivious to the causality problem. Using her logic, you could argue that fire engines cause fires because you find them near burning houses.

The difficulties don't end there. Thirty years ago, much of what passed as aid was directed not towards African growth and poverty reduction, but to Cold War priorities. Why would you expect aid replenishments to the Swiss bank accounts of Daniel Arap Moi or Mobuto Sese Seko to help Africa's poor?

One of the most disconcerting aspects of Dead Aid is its failure to explore why past aid has delivered so little. The impact of the debt crisis in undermining economic growth, reinforcing poverty, and eroding health and education systems is ignored. Structural adjustment programs which made aid conditional on governments signing up for stringent deflation and damaging experiments in 'big-bang' market liberalization barely get a mention. This is despite the fact that Moyo's home country, Zambia, was one of the worst affected countries, with the agricultural sector left devastated by a botched liberalization of food marketing.

Whatever the factors behind the failures of the 1980s and 1990s, recent evidence points in a more positive direction. Before the economic crisis struck, eighteen non-oil exporting economies in Africa--from Burkina Faso and Mali to Ghana, Tanzania and Mozambique--were growing at more than 5 per cent a year. For the record, all of these countries are highly aid-dependent. Higher growth has brought with it some fragile gains in poverty reduction. Since 2000, for the first time in over three decades, the incidence of poverty in Africa has been falling--from 58 per cent to 51 per cent. Moyo turns a blind-eye to evidence for an obvious reason: it doesn't back her prejudices.

It's not just the economic growth and poverty story that Moyo misrepresents. Throughout the book, Africa is represented as a basket case for human development--a "zero-progress" zone for the targets set under the Millennium Development Goals (MDGs). This is a caricature.

Consider first the record on education. Since 2000, the primary school enrollment rates have been growing at six times the rate of the 1990s. In Tanzania, to take one example, aid finance has supported policies that include the removal of school fees, classroom construction in remote areas, and the provision of textbooks. The result: another 3 million kids in school. Countries such as Senegal and Zambia have made dramatic progress in cutting out-of-school numbers, with aid finance playing an important role.

In the health sector international aid initiatives are saving lives. Today, there are just over two million HIV/AIDS sufferers in Africa receiving antiretroviral drugs. Six years ago that figure was 50,000. Childhood deaths from malaria have also fallen sharply in countries such as Ethiopia, Rwanda and Tanzania, thanks in part to a rapid scaling-up of insecticide-treated bed net provision and anti-malarial drugs.

None of this is to suggest that aid is an unmitigated success story. It patently is not. But to suggest that shock therapy aid cuts are the answer is unwarranted and frankly irresponsible. Try telling a mother whose kid is sleeping under an anti-malarial bed net, or has just got a chance to go to school, that cold-turkey is the best option.

The real debate should be over how to increase aid effectiveness. Aid works best when governments put in place sensible economic policies, effective strategies for poverty reduction, budget transparency and measures for tackling corruption. Many African governments fail these tests with impunity, partly because they lack accountability to their citizens. That's why Moyo is wrong to argue for democracy to be put on the back-burner. But not all of these problems can be laid at the door of aid recipients. As Michela Wrong demonstrates in her extraordinary book on Kenya, Its Our Turn to Eat, it takes two to tango on corruption--and northern governments (including Britain) are often complicit.

When it comes to aid effectiveness donors have a mixed record. In their public statements, they repeatedly stress their collective commitment to improve coordination, work through national reporting systems, and support nationally-owned plans. These things matter. When donors fail to coordinate or use national systems, the transaction costs of aid go up, and the benefits go down. Yet too often, donors continue to create parallel aid structures and to duplicate their efforts. Does Niger really need over 600 separate donor missions each year? And for all the talk of national ownership, aid provided through the IMF continues to come with more strings attached than your average marionette.

In one respect, Moyo is a victim of bad timing. Before the financial crisis, a few African governments were starting to raise money on international bond markets. These markets were never going to replace aid. But the global credit collapse has now firmly closed the door to bond markets for Africa. It has also served to underline the lesson that African governments, like all governments, should think twice about taking advice from international investment banks.

In the last analysis, Africa's future does not depend on aid. It depends on its people and its governments. Yet aid can make a difference. At a time when the future of millions people in Africa is threatened by a crisis the region played no part in creating, human solidarity and social justice demand that we call on rich country governments to increase aid - and to act now.

More Moyo and a lot less Bono? Thanks, but no thanks.