The G-20 & Africa: Rethinking the Aid Model

Long before Detroit's CEOs flew their corporate jets to D.C. to ask for a bailout, Pres. Mobutu regularly chartered Concordes to court Western donors to increase aid for Zaire.

The response in Washington to the automakers was an outcry of hypocrisy and a re-examination of the prospects of the auto industry at large.

The response in Washington to the African dictator was renewed support for World Bank loans and IMF credit lines for more budget aid in the late 1970s and throughout the 1980s.

Though the comparison between private industry and a cold war political-play may be imperfect, the point is that lenders to Africa are still not critically evaluating how well yet another round of aid will work, even after more than $1 trillion in aid, given over the past 60 years, has largely failed to achieve its intended effects on the continent.

Just consider the following: between 1970 and 1998, while aid flows were at their peak, poverty in Africa actually rose from 11 percent to 66 percent.

Furthermore, African leaders are seldom asked to return with a more credible agenda for how they'll spend the money.

In "Dead Aid" Dambisa Moyo, a Zambian-born economist and Goldman Sachs banker, uses these statistics, among many, to argue that the Western-style aid development model has actually undermined Africa in the long-run, paralyzing its ability to generate indigenous growth.

According to Moyo, the economies of the most aid-dependent countries have on average shrank .2% over the past 30 years. "Aid has been, and continues to be an unmitigated political, economic and humanitarian disaster for most parts of the developing world," she writes.

The aid that will be asked for at the G-20 this week is emergency aid to be sure, not the type of general budget aid doled out for decades by the international financial institutions. Nonetheless, the conference should be used to raise wider concerns about the aid model of development in Africa, particularly as governments discuss reforming the IMF.

The failures of donor aid have been rampant, and documented, even by the World Bank itself, one of Africa's major lenders. For Moyo these failures reflect fundamental systemic flaws:

First of all, handouts create the wrong incentives. Secondly, dumping money into a developing economy will raise its currency and kill exports, as well as encourage bureaucracy.

Aid in Africa has spawned crippling amounts of corruption because weak conditionalities make donor money easy to steal. More importantly, when NGOs take over the provision of public services (such as health and education) the government is no longer accountable to its people. (Mobutu alone looted about $5 billion from Zaire's coffers, according to Transparency International).

Sadly, an African government's level of corruption also tends to have little impact on its ability to get more loans. For example, the World Bank estimated that only 20 cents of very $1 dollar of Uganda's government spending on education reached its targeted primary local school in the 1990s, while they providing vast amounts of budget aid. At the present, Zimbabwe is seeking roughly $10 billion more in assistance loans to re-build its incinerated economy - a country where corruption can only be matched by it inflation.

Instead of extending credit lines, and throwing celebrity rock concerts to cancel those debts, perhaps it is time to re-examine what has worked and where that help is likely to come from.

Smart trade, foreign investment and access to capital markets provide robust opportunities for growth.

As the G-20 debates protectionism, now is the time to address one of the most egregious examples of unfair trade - agricultural subsidies in the United States, European Union and Japan that rob developing nations of agriculture export industries.

Africa in particular boasts certain comparative advantage for exporting primary products, but cannot compete against the distortions created by the Common Agriculture Policy (which still eats up more than 40% of the E.U.'s budget [PDF]) and U.S. subsides against crops such as cotton. Africa loses up to $500 billion per year because of trade embargos, according to some estimates.

Interestingly, on this point Moyo also notes, that China has now become the most practical market for African produce, with huge potential for growth.

With IMF reform on the table this week, China has good reason to insist on changes before handing over another $50 billion. Not only does their low voting quota marginalize their influence, but they're also pouring money into Africa through other institutions and avenues.

In an op-ed published in the London Times last week, titled "G20 Must Look Beyond the Needs of the Top 20," Vice Premier Wang Qishan pointed out China's contributions to Africa via South-South co-operation and made a convincing case to reform the IMF quota system to one weighted to GDP per capita, not foreign exchange reserves.

The problems with China's investments in Africa, and their lack of political contingencies, are well-known. The recent plunge in commodity prices has made them more salient. For example, a sharp pullback has devastated Zambia as their copper mining industry implodes.

The need for internationally regulated responsible investment makes reforming the IMF urgent. It is critical to look beyond just the short-term credit crisis band-aid strategy though to long-term alternatives to aid: sustainable investment in growth.

Comments

[stell]

Ms. Sterns send a message to Blair for me. Tell him to hold up his end of the bargain and pay for the farms per the Lancaster Agreement in Zimbabwe. That situation has always been about land. Land is about people. Poverty is the worst form of violence, and the global financial wizards are wreaking havoc on the world. Forget the good intentions of micro-finance, start real global movement to relieve Africa of all of this illegitimate, unrepresentative, exploitative, usurious, IMF/World Bank debt that these Lords of finance are holding. Africa pays more to pay back this illegitimate debt than they receive in aid!

[stell]

But most importantly influence Prime Minister Brown to collaborate with the EU to eliminate ZIDERA sanctions against the country put in place under George W. Bush. Right now Anglo-American and Chinese business interests are duking it out over Zimbabwe's vast mineral wealth:

http://www.globalresearch.ca/index.php?context=va&aid=9707

Zimbabweans can take care of themselves without sabotage from the West and the beards and buffers used to infiltrate.

http://www.counterpunch.org/elich05072005.html

You can learn a lot about the truth in Zimbabwe with just these two links.

[stell]

Cancel ALL of the illegitimate IMF/World Bank "debt". After centuries of exploitation by the West who really owes whom?

http://skepticalbrotha.wordpress.com/2009/02/15/barack-obamas-fantasy-island/

Ms. Moyo's book was written with and influenced by Niall Ferguson. Be his refined exterior has contempt for the average African, I've read what he has written. It's about proving that black people cannot govern themselves or thrive without the help of the West, which is at the heart paternalistic, stereotypical and patronizing all at once. The issue has always been sabotage, and will there are MANY people to blame, the people who are MOST to blame are hiding in plain sight. They are the same people who have thrown the world economy into turmoil.

[stell]

**Beneath the refined exterior** **while there are MANY people to blame, the people who are MOST to blame are hiding in plain sight.

[Renee27]

Thank you for the article Ms. Sterns.

Some people have been misquoting her, but her message it very empowering for Africans. I would love to see an article from her on the Huffingtonpost.

Her twitter account: http://twitter.com/dambisamoyo

Dambisa Moyo on Aid to Africa: In Her Own Words (Videos) -

http://www.youtube.com/watch?v=JD8o30b63bg (on Fox Business)

http://www.youtube.com/watch?v=UtpiuQ0uR7s (on Bloomberg)

http://www.cnbc.com/id/15840232?video=1072086447&play=1 (on CNBC)

http://www.youtube.com/watch?v=gBH47mByATc (UK)

[EgyptianMysterySchool]

Since "aid" from the WHO is the reason A.I.D.S. was spread though out Africa I have to agree that it's been a poison.

Under the guise of benevolence, aid has been used to supplant Africa of its mineral rights, self-sufficiency, self-determination and sovereignty. Africa is the most resource rich continent on earth, it's only a de facto colonialism that keeps it from being the financial center of the planet. It's things like France's control over the currency of most of west and central Africa that is a backdoor to keeping Africa poor under the guise of helping.

Just last year "they" (western scientists) found a forested area of land in the D.R.C. the size of Switzerland that contained over 125,000 low land gorillas that were previously unknown to exist. There's more land, culture, history and resources in Africa than the mind can imagine, these are the markers of true wealth so there's no financial reason for Africa to be so weak.

It's only politics and religion and the CIA (colonial hold overs in most cases) that keeps Africa infighting and lacking significant progress.

While outright revolution or it's threat may have wrestled direct control from empire building colonists, the de facto control over currency, minerals and politics has left the colonists in power. Not every aid group seeks to keep Africa weak, but the overall effect has been to kill the real power of Africa. Africa should take unconditional control over its destiny.

[stell]

Could you explain for the others how the World Health Organization spread A.I.D.S. throughout Africa? The Reverend Dr. Jeremiah A. Wright Jr. was discredited for making this very comment.

[EgyptianMysterySchool]

Yes, but I think their are sources that can do a much better and more thorough job than I can in this limited space. One of the two best sources is the book "Behold A Pale Horse" online here...http://www.scribd.com/doc/6272711/eBook-Cooper-Milton-William-Behold-a-Pale-Horse-1-Underground-Bestseller-of-All-Times-UFO-NWO-Illuminati-David-Icke-Alex-Jones-Jan-Van-He... (chapt, 9 around page 171)

and The Dr. Robert Strecker Memorandum...http://video.google.com/videoplay?docid=-1349285080949254539&hl=en

and here are some others...

http://www.prisonplanet.com/articles/october2005/271005madeinusa.htm

http://www.wanttoknow.info/870511vaccineaids

http://www.melanet.com/clegg_series/hoax.html

http://www.cultural-expressions.com/thesis/aidstheory.htm

http://sonic.net/sentinel/gvcon1.html

http://newsblaze.com/story/20060110090051nnnn.nb/topstory.html

http://www.biblebelievers.org.au/aidsplot.htm (Aids as a Weapon)

[LyndseyMedora]

Culture and corruption doesn't make up the whole picture of Africa's failure to use aid to their benefit. The World Bank and the IMF surely deserve a hefty burden of the blame for manipulating many African leaders into privatizing burgeoning public programs in order to receive their loans and aid. The billions of US dollars owed by African countries as a result of failed structural adjustment programs surely account for some of their struggles. Surprise! Funky Reaganomics didn't work for fragile democracies in Africa. Now some of the poorest countries in the world owe nearly as much money as they receive in aid. No wonder it's a sinking ship. Rather than promise more aid, the G20 should resolve to cancel the debts created by the World Bank and IMF 20+ years ago.

[jinsei]

That still wouldn't solve any problems. Most African countries need to redevelop from the ground up.

[stell]

You mean like the U.S. with their investments in infrastructure, health, education, energy? It is the same thing worldwide, just to varying degrees.

[stell]

I agree 100%. Debt cancellation is the only real step. The countries pay out more to service the debt than they receive in aid!

[AhnAmuru]

The article did not bother to research reduced dependence of foreign aid i.e. the ration of aid to revenue in annual budgetary plannning.

The writer would have noticed that more African countries fund over 50% of their own annual budgtes from local revenue sources (FDI, tourism & taxation)as compared to aid over the last 20 years.

However, the current global economic crisis is affecting this. Though who isn't suffering?

Regarding non - prioritized expenditures, the article would recognize that developing nations are infamous for having outrageously large governments. Public sector (government jobs) are twice as many in the private industry. Expense on public administration and the military dwarfs most other expenditure including health and education.

The result? Kleptocracy, patronage ... tools dictators use to cling to power. In fact, fiscal prudence in known to be abandoned during election years or generally in the event of any real or perceived threat to power.

[FebM]

Moyo has a strong point. And America needs to step in with radical ways of stimulating growth. The only area left for capitalistic expansion is at the bottom of the pyramid (BOP), where poor people gradually get purchasing power through fair trade. Unfortunately China is all over the map in Africa leaping the natural resources and turning a blind eye to governance or human rights.

Our only chance to beat China is to expand and build a middle class in :Africa and Latin America through progressive programs and fair trade. The people in these regions are still friendly to America but it wont be for long with China dangling all the carrots

[papapj]

"Unfortunately China is all over the map in Africa leaping the natural resources and turning a blind eye to governance or human rights."

HAHAHA! Like Uncle Sam has ever given a hoot about them, either...The only reason apartheid survived so lone was because it was propped up by US and Britain....doh!

Chinese carrots are juicier than ours, it seems.....

[EgyptianMysterySchool]

Exactly, it's only evil when the other guy is doing it. U.S. and British companies didn't get a conscience until protesters hit them in the pockets.

[stell]

Why wouldn't their carrots appear juicier? The Chinese after all were British subjects.

[texasaggie]

Excellent story, which is probably why there are no comments here. I first learned of "Dead Aid" and Ms Moyo about three weeks ago in one of the leading British newspapers, and can't wait to read the book. We need to allow the African countries to be open to investment from whomever they wish - including the Arab/Islam­ic/Chinese worlds. Sudan's problems could be solved almost immediately if we would just get out of their way and allow them to make peace and do business. We actually blocked peace in October of '07 because we want more separation between Khartoum and Darfur/South Sudan. Investment, not destructive aid. But this means getting out of the way and allowing sovereign nations to practice sovereignty. It's so refreshing to hear from a brilliant African woman on the subject of Africa rather than some simplistic movie star.

[stell]

Which begs the question why didn't this nation invest in Africa decades ago, like when it was busy making fun of Ethiopians during their famine in the 1980s?