Tuesday, February 2, 2010

Review of Dead Aid

Here is my review of the book "Dead Aid" by Zambian economist Dambisa Moyo. The book is no longer hot off the press and I've been sitting on this review for a couple of months, but I still want to add my take to the fray.

Conventional wisdom often assumes that foreign aid to Africa is an unassailable necessity. Trumpeted by popstars and politicians alike, foreign aid is usually offered as the essential tool to lift the neediest out of poverty.

The 2008 presidential election brought aid to the table as a salient foreign policy issue. Activists lobbied for increased aid to Africa while the democratic and republican presidential candidates competed with each other to make the grandest promises. There was talk of doubling, even tripling the amount of aid given to Africa. Meanwhile, little or no debate occurred in the mainstream media about what type of aid should be provided or even how to ensure that the money had a positive impact on the lives of those it was intended to reach. All that mattered was the scale of the figures. The more aid, it seemed, the better.

Occasionally, a brave soul or two in the foreign policy world speaks up and questions the manner and scale with which aid is being distributed to Africa. It's usually not long however, before those dissenting voices are forgotten and it's back to business as usual; aid's place in international politics safely secured. The public conscience rests easily then, with the thought of simply throwing money in the general direction of the poor. Recently however, a new voice has emerged on the scene that has been hard to ignore. With the publication of her book Dead Aid, Dambisa Moyo, has reignited the foreign aid debate and this time it appears, the aid supporters are on the defensive. Ms. Moyo, an economist and trenchant critic of aid, lays a new round of criticisms on the aid establishment and behind her impressive resumé, which includes stints at the World Bank and the firm Goldman Sachs, she has a secret weapon, she's an African.

Dead Aid begins by taking a brief sojourn through the history of foreign aid to Africa, it moves from the early days of white elephant infrastructure projects to the ill-fated “structural adjustment” of economic policy, all the way up to the current focus on agricultural development, good governance and large aid packages heralded by celebrities in dark sunglasses. In the heart of the book, Moyo points out some of the many flaws of aid, followed by what she considers to be the more favorable options African governments have if they want to attract investment, create jobs and raise income levels. In Moyo's view, aid agencies delivering financial assistance to Africa have had plenty of time to produce auspicious results, yet have consistently failed to deliver. It's time, says Moyo, to close the aid tap.

Corruption, conflict, aid dependence and bad policy have prevented many African states from solidly establishing the legal institutions that are essential for the realization of economic growth and sustainable development, writes Moyo. Her prescription for economic development is a cocktail of microfinance, economic policy reform, superior aid evaluation, Eastern investment, remittances, utilization of mobile and information technology and bond issuing. All this, coupled with a reduction, not an increase in aid, is what Moyo predicts will brighten Africa's economic future. She even goes as far as proposing a scenario that would encourage African governments to be more self-sufficient. Her scenario is radical, yet simple. Suppose African governments are informed that in five years they will no longer receive any aid. Moyo argues fervently that those circumstances would necessarily bring about a climate of reform that would influence governments to budget more efficiently, root out corruption and alter their policies to be more accommodating to domestic and foreign business. Through this policy of tough love, Moyo claims, Africa just might be able to abandon its aid addiction.

Moyo's suggestions about how to achieve greater economic growth are a mixed bag, not everything seems to hit the mark. The allure of Asian investors is tricky. China, especially, is pouring barrels of dollars into raw natural resource extraction. Those types of deals sound good at first and often result in improved infrastructure, yet they can discourage the local production of value added products, retard policy reform and cause serious environmental harm. Corporate social responsibility by Asian firms often leaves something to be desired. China in particular has made it clear that it will invest wherever it wants in order to maintain its breakneck pace of growth, even in places with oppressive, undemocratic regimes. Asian investments without social responsibility, while attractive, seem then to undermine good governance and discourage local innovation. Policy changes aimed at making African economies more liberal and competitive are a good idea in theory, but unfavorable deals and tax breaks encouraged by foreign firms must be avoided because of their plundering neo-colonial nature. Moyo also touts remittances as a beneficial way access foreign capital. Unfortunately, she overly simplifies the issue of international migration, by looking at it through a strictly economic lens. The social implications of remittances, especially the negative ones, are quite apparent in The Gambia and can been observed in the form of dependent families and a lack of interest by the youth in developing their nation, among others. It's difficult to be convinced as well, that upon the removal of aid, essential development sectors like health and education would be able to maintain the range and quality of their services in every African country, even if they did away with corruption and inefficiency. The costs just seem too high. While shedding light on some salient development concepts, clearly Moyo has not concocted the perfect aid cure.

The book has its shortcomings for sure, yet the life that Moyo breathes into the aid debate is refreshing. The topic of aid effectiveness was one that desperately needed resuscitation. At a time when developed countries regularly gather at meetings like the G8 to make grandiose financial promises, more energy certainly must be focused on how to achieve results. Moyo is correct in asserting the importance of solid accountable institutions in the development process. The epidemic of corruption must be confronted seriously. Mobile technology could be used effectively as well, as an information gathering and communication tool that can bring market data and people together. Improvement of credit ratings by countries would indeed improve investor confidence. Finally, microfinance, as Moyo mentions, is another valuable tool for small businesses, but only if it is administered in a way that encourages loan takers to stick to business plans.

While many of the concepts are not new, the book is still worth a read to understand the scale of the aid establishment in its current form. Getting a sense of the sentiment behind the anti-aid movement presented by Moyo in Dead Aid will be valuable for those interested in development.

No comments: