Wednesday, November 11, 2009

Dead Aid: A Review

A good book is not necessarily one you agree with, but one that makes you think and presents idea which, although perhaps contradicts your personal views causes you to evaluate, re-evaluate and generally consider the ideas brought forth by the author. If the author seems to be writing against convention, so much the better.

The book "Dead Aid: Why Aid is not working and How there is a better way for Africa" considers the subject of the abject poverty of the African continent and asks the question that doesn't seemed to be ask, why hasn't things improved? The author Dr. Dambisa Moyo has written what has to be a scathing review of the "Aid Business" and points out the flaws of funneling over 1 Trillion Dollars in aid over the past 50 years.

She is not an armchair quarterback, she was born in Zambia and although a great deal of her education has taken place off the continent, she does not forget where she has come from, she is an African who desires to bring her continent out of the mire of poverty and into prosperity. I should point out that she has garnered as much criticism as she has praise. Some have gone so far to point out the irony of her criticism when in fact, they say, her education has put her in the catagory of enjoying aid. To be fair, this is rather unfair, in that she has only enjoyed what many others from other nations have been able to take hold of, and that is scholarships. It has opened her eyes to a broader way of looking at life and with her degrees in economics, she has been able to bring this teaching to the question of aid.

So what is wrong with aid? That is the start of the book. There are three points to her thesis
1) it leads to a dependency of aid
2) it stifles growth of industry, business and entrepreneurship
3) it leads to corruption.

The last point is one that has gripped the continent of Africa, we are all aware of the stories of dictators pocketing huge sums of money that were supposed to be used to feed the people. Or the stories of only the people belonging to the leaders tribe being able to enjoy the aid, while the rest of the nation starves. She lists the main culprits and how they enjoyed the spoils of aid.

Perhaps the middle point is one that gets forgetting, Dr. Moyo tells the story of a man who developed a business of making mosquito nettings. For nations that deal with the scrourge of malaria, this is vital. His business employed some 15 others and Dr. Moyo reckoned 150 people were dependent upon this business for their livelihood. While it was a challenge to keep up to the demand, it was still a thriving business. It was going well, until some celebrity decided to make mosquito netting a major cause and began to fund raise for the netting. The appeal was a success and the nation benefitted from thousands of mosquito nets being brought into the country. However, with all these free nets, the business quickly went under. The owner had to lay off his entire staff and close shop. The result was, in the short run, netting for all, but they began to tear and quickly became ineffective. The long term was an rather successful business was closed. While this is one example, it could be repeated over and over in Africa. Just one has to consider the effect of sending our used clothes to Africa has dismantled the local garment industry, again, how does the local business compete against free.

To Dr. Moyo the aid has not helped, she points out that at one points there were nations in Africa that had better GNP then China or India, but that is no more, as those nations expanded, African nations either stagnated or retreated. The problem with aid is that it does stifle development, why develop she suggests, when all you have to do is bank the cheques.

There is an interesting video of her on youtube:

The title of her book, no doubt is a direct criticism of the famous Live Aid concerts of the mid 80s which started the golden age of aid giving to Africa. Although to be fair, Live Aid was about getting people food, not an unending supply of aid.

So she opposes aid, the question then needs to be asked, what can replace aid. She gives three major suggestions.

1) establishment of a bonds market
2) China
3) the concept of microbanking and microloans.

A brief word on all three. Instead of aid, African nations need to raise funds for development by floating bonds. That is, borrow money at rates of return and interest that would be establish by the bond markets. To her way of thinking, this would put the nations on the road of development because they would use such funds for infrastructure renewal and growth as well as modernizing industry and the economies of the nation. She points out that such a market would ensure no corruption, since if the money is squandered then the next time the nation tries to float a bond, it would be severerly punished by the bonds market by its rating and the fact no one will invest. So investment is part of the key. She points out the natural wealth of resources possessed by many African nations.

The second point has to do with the huge investment China has given to Africa over the years. There has been some criticism, especially Chinese development in Sudan, which some has said has led to the disaster of Darfur. To prove the size of the investment China is making into the infrastructure and industry, she tells a story of a man who rode a motorcycle to South Africa. What impressed the man was the fact he was able to ride on paved roads, not the dirt ones only that he had thought. Often he saw signs speaking of the assistance given by China for the building of the road. If you google Chinese Aid to Africa, you will have many hits and a lot of them ask the question is Chinese aid good or bad for Africa. One article from the BBC discusses the growth of aid from China and how there are drawbacks, in that Chinese aid some times have no strings to it, so it too can be used for corruption, although with the Chinese acumen for business and investment it is unlikely they would tolerate abuse of their aid for very long.

The third is one that excites many people, microbanking is growing. Since its inception in Bangladesh and the development of the Grameen Bank has brought dignity and lifted many from the grip of poverty. These loans are small ones that encourage people to invest in industry, buying a sewing machine, farming, buying a few goats and making money. It has been a boon to many, receiving loans when conventional banks would not even consider.

These to Dr. Moyo are the tools to a growing Africa, one in which people are no longer imprisoned by poverty but are building a brighter future for themselves and their nation.

The question of course, is she right. I noticed in the interview above she talked about the aid industry and the fact that the problem is not all aid, but the wrong type of aid. I suspect aid that has built schools and established health clinics would be considered the right aid to her, since they have been helpful in helping lives and educating the youth of Africa. She also encourages the nations of Africa to begin to ween themselves off aid, but lowering it, not taking as much and not making it such an important part of the economy. So not all aid is bad, it just too much of it, can be very bad.

Does that mean we stop writing cheques to charities that support aid and relief efforts to African nations. Probably not, but perhaps a more careful consideration as to the type of aid is what is needed.

I suggest looking for this book and reading it.

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