Over the past 60 years at least $1 trillion in aid was sent to Africa - yet, calls for even more grow steadily louder. Moyo - a native of Zambia, contends that evidence demonstrates that this aid has made the poor poorer. Real per-capita income today is lower than it was in the 1970s. In other words, aid is not part of the solution, it is part of the problem.
Even after aggressive debt-relief campaigns in the 1990s, African countries still pay close to $20 billion in debt repayments per year - at the expense of education and health care. Moyo also asserts that the roughly 500,000 individuals in the "aid business" have no motivation for that aid to succeed; meanwhile, well-meaning individuals such as Bono have choked off debate of its efficacy.
The author claims that the most obvious criticism of aid is that it enables rampant corruption and bloated bureaucracies. In 2002, the African Union, an organization of African nations, estimated that corruption was costing $150 billion/year. Transparency International, a corruption watchdog, states that Zaire's former president is reputed to have stolen at least $5 billion from the country. Across Africa, over 70% of government funding comes from foreign aid - enabling those governments to avoid accountability to local citizens since they pay so little.
In Cameroon, it takes a potential investor about 426 days to gain a business license, vs. 17 in South Korea. Under the auspices of the U.S. Food for Peace program, each year millions are used to buy American-grown food that is then shipped to Africa where it puts local farmers out of business.
Moyo's bottom-line is that other regions should stop the largess towards Africa, and Africa should focus on becoming more attractive to private investment. This includes ceasing to be the source of the world's greatest number of armed conflicts.
on November 23, 2010
Dambisa Moyo's masterpiece is an economic blueprint intended to serve as a paradigm for weaning Africa off the debilitating aid-dependency syndrome that has kept the continent in perpetual economic stagnancy for decades. Using dependable statistics, Moyo argues that government-to-government or bilateral aid (which should be distinguished from charity-based aid) to Africa undermines the ability of Africans to conceptualize their own best economic and political policies. As she puts it: "The net result of aid-dependency is that instead of having a functioning Africa, managed by Africans, for Africans, what is left is one where outsiders attempt to map its destiny and call the shots."(66) Foreign aid does not only undermine economic growth, it keeps recipient countries in a state of endemic poverty. It is itself an underlying cause of social unrest and possibly even civil war.
Moyo notes that the "prospect of seizing power and gaining access to unlimited aid wealth is irresistible."(59) To buttress her argument, she refers to Grossman (1992) who contends that the underlying purpose of rebellion is the capture of the state for financial advantage, and that aid makes such conflict more likely. In the past fifty years, Moyo observes, over US$1trillion in development-related aid has been transferred from the rich countries of the West to Africa. Yet, aid has helped make the poor poorer; economic growth slower.
According to Moyo, the notion that foreign aid can alleviate systemic poverty, and has done so in Africa is tantamount to a myth. Millions in Africa, she notes, are poorer today on account of aid dependency. Indeed, aid has been and continues to be, an unmitigated political and economic and humanitarian disaster for Africa. Aid is not benign--it is malignant. In short, aid is not part of the solution; it is the problem. And here is how.
Aid breeds corruption in Africa. If the world has one picture of the African continent, it is one of corrupt statesmen. With very few exceptions, African leaders have crowned themselves in gold, seized land, handed over state businesses to relatives and friends, diverted billions of aid-money to foreign bank accounts, and generally treated their countries like giant personalized cash dispensers. According to Transparency International, Mobutu Sese Seko of erstwhile Zaire is estimated to have looted the State to the tune of US$5billion.
Roughly the same amount was stolen from Nigeria by President Sani Abacha and placed in Swiss private banks. The list of corrupt practices in Africa is endless. However, the point about corruption in Africa is not that it exists; the point is that foreign aid is one of its greatest aides. Aid creates a vicious cycle of dependency in Africa; a cycle that chokes off desperately needed investment, instills a culture of kleptomania, and facilitates rampant and systematic corruption, all with deleterious consequences for economic growth. It is this cycle, Moyo posits, that "perpetuates underdevelopment, and guarantees economic failure in the poorest aid-dependent countries" (49).
Aid creates a fertile ground for rent-seeking, that is, the use of governmental authority to take and make money without trade or production of wealth. Because foreign aid is fungible--easily stolen, redirected and extracted-- it facilitates corruption. At a very basic level, an example of this is where a government official with access to aid money set aside for public welfare takes the money for his own personal use. Examples are legion in Africa. Foreign aid programs, which tend to lack accountability, and check and balances, act as substitutes for tax revenues.
The tax receipts that aid releases are then diverted to unproductive and often wasteful purposes rather than the productive public expenditure (education, health infrastructure, etc) for which they were ostensibly intended. Moyo points out that in "Uganda, for example, aid-fueled corruption in the 1990s was thought to be so rampant that only 20 cents of every US$1 of government spending on education reached the targeted local primary school."(53)
Strangely enough, Larry Diamond (2004) observes, Western aid agencies, notably the International Monetary Fund and the World Bank, continue to give aid to African states, with notorious authoritarian and corrupt governments. His list includes Cameroon, Egypt, Zimbabwe, Gabon, Angola, Eritrea, Guinea and Mauritania. Africa is the region that receives the largest amount of foreign aid, receiving more per capita in official development assistance than any other region of the world.
Yet her social infrastructure is in a state of utter decrepitude! Moyo notes that any large influx of money into an economy, however robust, has the potential to create serious problems. With the relentless flow of unmitigated, substantial aid money to Africa, these problems are magnified, especially in economies that are, by their very nature, poorly managed, weak and susceptible to outside influence, over which domestic policymakers have little or no control.
Moyo contends that increases in foreign aid are correlated with declining domestic savings rates. As she puts it, "As foreign aid comes in, domestic savings decline; that is, investment falls."(61) She further observes that with all the tempting aid monies on offer, which are notoriously fungible, the relatively few people who have access to it, spend it on consumer goods instead of saving the cash. As savings decline, local banks have less money to lend for domestic investment.
Worse still, foreign aid has an equally damaging crowding-out effect: although aid is meant to encourage private investment by providing loan guarantees, subsidizing investment risks and supporting co-financing arrangements with private investors, in practice it discourages the inflow of such high-quality foreign monies. Moyo points out that empirical research has shown that higher aid-induced consumption leads to an environment where much more money is chasing fewer goods."(61) This almost invariably leads to price rises--inflation.
Over and above, aid chokes off the export sector. This phenomenon is known as the Dutch disease, as its effects were first observed when natural gas revenues flooded the Netherlands in the 1960s, devastating the Dutch export sector and increasing unemployment. Moyo argues that aid inflows have adverse effects on overall competitiveness, export sector (usually in the form of decline in the share of those in the manufacturing sector and ultimately growth).
In the oddest turn of events, the fact that aid reduces competitiveness, and thus the trading sector's ability to generate foreign-exchange earnings, makes countries even more dependent on aid, leaving them exposed to all the negative consequences of aid-dependency. In countries with weak financial systems, additional foreign resources do not translate into growth of stronger financially dependent industries.
So if foreign aid harbors such adverse effects for African economies why are donors bent on doling it out? And why aren't recipients sagacious enough to put an end to the lethal cycle of aid? Moyo's Dead Aid model provides solid answers to these intriguing questions. She notes that "Africa is addicted to aid. For the past sixty years, she says, Africa has been fed aid. Like any addict, Africa needs and depends on its regular fix, finding it hard, if not impossible to contemplate existence in an aid-less world."(75) Her book provides an antidote, a road map for riding Africa of aid dependency.
Arguing that the aid program in Africa has not worked precisely because it was never conceived with the intention of promoting the economic development of Africa, she proposes alternatives to foreign aid. She notes that like the challenges faced by someone addicted to drugs, the withdrawal is bound to be painful. Nonetheless, if implemented in the most efficient way, the solutions offered in Dead Aid will help to dramatically reduce Africa's reliance on aid money.
Moyo cites Botswana as an example of an economic success story in Africa. Botswana began with a high ratio of aid to GDP but used the aid wisely to provide important public goods that helped support good policies and sound governance and laid the foundation for robust economic growth for the country.
She says this stratagem can be replicated all over Africa. Her alternatives to aid, predicated on transparency and accountability, would provide the life-blood through which Africa's social capital and economies will grow. Her Dead Aid strategy leaves room for modest amounts of aid to be part of Africa's development financing strategy. Systematic aid will be a component of her Dead Aid Model, but only insofar as its presence decreases as other financing alternatives take hold. The ultimate goal, as far as Moyo is concerned, is an aid-free Africa.
In a nutshell, Dead Aid proposes radical solutions to the pressing economic problems of our time. It offers a new model for financing development in Africa's poorest countries, one that offers economic growth, promises to significantly reduce endemic poverty, and most importantly, does not rely on aid. Though Moyo is not the first economic pundit to take Western aid donors to task, never has the case against aid been made with such rigor and conviction. She does not pull her punches.
"In a perfect world," she writes, "what poor countries at the lowest rungs of economic development need is not a multi-party democracy, but in fact a decisive benevolent dictator to push through the reforms required to get the economy moving."(xi) Her most radical proposal comes in the form of a rhetorical question: "What if," she asks, "one by one, African countries each received a phone call...telling them that in exactly five years the aid taps would be shut off permanently?"(xi)
on April 2, 2009
Dead Aid is an interesting, provocative look at the foreign aid industry and its effects on Africa. Dambisa Moyo, who formerly worked for Goldman Sachs and the World Bank, draws a conclusion not unknown to others in the field: development aid (as differentiated from humanitarian aid) has not only done little good for the nations of Africa but has indeed caused great harm. While I don't necessarily disagree with her conclusion, I didn't find her arguments particularly convincing.
There is no question that much of the aid intended to build economies in Africa has been grossly wasted, stolen, and misused. There is little to show for the trillions of dollars that have been poured into the continent--a failure with numerous causes. But Moyo's main premise is that aid itself is the cause, that it creates a culture dependent on foreign handouts and rife with corruption that, according to the author, apparently wouldn't exist if aid weren't available. I find both arguments hard to swallow, especially since they are based mostly on the logical premise of cum hoc ergo propter hoc (with this, therefore because of this). In this thinking, when aid is given, the recipients don't develop other resources, therefore aid causes them to not try. It's the same argument that's been used for years to oppose welfare programs applied in this instance not to individuals, but to entire nations. I find that a little facile. I suspect aid fails more often because it is poorly structured and managed, an argument that Moyo essentially dismisses out of hand.
Whether you agree with Moyo's reasoning or not, you have to seriously question the solutions she proposes. While outlining a litany of worthwhile approaches to economic development including micro-lending, opening markets in the developed world to African products, and more foreign direct investment (FDI), her silver bullet is a solution only an investment banker could love: the bond market. Somehow, Moyo expects the magic of the free market financial system to end corruption in Africa, stop wasteful spending, and power the continent out of poverty. I react to that proposal the same way Jaime Talon, one of the lead characters in my novel, Heart of Diamonds: A Novel of Scandal, Love and Death in the Congo, did when confronted by a similar argument about a panhandler in New York: "What matters is that right now--today--that man over there is hungry. Somebody needs to do something about that, not just ignore it and hope the holy and all-powerful market economy will provide a solution."
I have to ask, given the brilliant performance of Wall Street and Fleet Street in providing structured finance for America and Europe, how can we expect them to solve the problems of Africa? These are the people who brought us sub-sub-prime mortgages wrapped in gilt-edged bond ratings and called gold. Their ability to assess risk and police wasteful government spending in Kinshasa is rather suspect, at least to me. I also fail to see how corrupt leaders and their minions will be any less likely to steal funds from private lenders than they are from the World Bank. Perhaps my most significant objection, though is when Moyo says the developing nations will be better served paying ten percent interest (the rate she quotes for emerging market debt in 2007) than the 0.75% they are charged by the World Bank. How does that work to anyone's advantage other than the investment bankers?
Don't misunderstand my review. I agree with many of Moyos' conclusions and her objections to the current approach to foreign aid. Mandating the purchase of American products with American aid dollars, for example, is enormously wasteful, self-serving, and undoubtedly harms the African farmers and manufacturers such aid could help. She's also dead on when she calls for an improved business climate in Africa so that direct investment, both foreign and local, stands a better chance to succeed.
Pulling Africa out of the swamp of poverty is a complex operation. I applaud Dambisa Moyo for presenting a provocative set of arguments in clear, understandable layman's prose. Dead Aid brings an important subject into the public eye.
on February 20, 2009
As I was not aware of the Aid programs bias and problems. I always complied with the current and unique trend: "Send more Monies to Africa. It will solve all of their problems". This book brought me a brand new look at the Aid system and to discover why it does not always work.
With Passion and Rigor Ms Moyo brings a lot of numbers and facts to the table. She also brings solutions and tools that may work in the future.
Sometimes, I was lost in numbers and redundant affirmations as some points are obvious from the beginning. I have to admit, I skipped some pages.
I learned a lot and this book allowed me to better understand the situation. Glad I read it
on August 8, 2009
First off, can someone explain to me why this woman is trying to discredit Bono and Bob Geldoff? What make this woman think she knows more than two great musicians, just because she has a PhD in Economics?
Take it easy, I'm just kidding.
With all the fanfare that Angelina Jolie and Bono are getting, with their big tours of the "third world", I began to wonder where the "locals" fit in. While all the celebrities are droning on about poverty in Africa, what do the Africans have to say? Africa has universities, so what do African academics think of foreign aid? Why aren't they the ones speaking on TV?
Dambisa Moyo is from Zambia, has a PhD in Economics, and worked in finance, so she writes with a bit more authority than Bono. She argues that "foreign aid" in the form of World Bank and IMF loans are hurting Africa. The money ends up in the hands of corrupt dictators, who misspend the money while the people starve. Look at Idi Amin, and Mbutu Sese Seku; they lived in high luxury while their nations lacked schools, hospitals, and paved roads. If you want more proof, look at Jean Bedel Bokassa of the Central African Republic; when the money ran out, he literally "ate" his countrymen (pun intended). It's not only Africa that suffers from World Bank loans. In the documentary "Life and Debt", Michael Manley talks about how World Bank loans damaged Jamaica too.
The success stories discussed in the book come from foreign investment, not loans. The investment, however, isn't in Africa's gold and diamond mines, which offer low pay and low skill. The best investment is in industry and technology. Computer chip factories generally pay more, and require more skill (in which the workers can be trained). Ghana, for instance, now has data-entry businesses that pay an hourly wage. The wage is far less than the US minimum, but a lot more than you'd earn in a diamond mine! Yet in this age, 40 years into Africa's independence, the continent is barely industrialized.
Look at the "diamond" issue in terms of labor; the miners get paid a pittance, but the diamond-cutters get paid thousands! Yet none of the diamond-cutters are in Africa; they're in New York, Tel Aviv, and Antwerp! Africa's diamond mines are of no real benefit to the continent because the only job they offer is unskilled labor.
Moyo considers China a friend of Africa. Thanks to Chinese investment, there are paved roads, factories, and businesses that give jobs and skill. But she faults the leaders in Africa as being a blockage to foreign investment. According to her, it takes months to get a business license in Cameroon, while in South Korea it takes a week. Who wants to invest in Africa when the governments make things too damn hard?
One thing Moyo doesn't dwell on is birth control. A woman who has children to take care of is held back. Putting off children can help women economically. Birth control is very popular in India, China, Taiwan, and Japan, and look at how well those countries are doing. When you put off marriage and children until you're 26, you have more time to work, go to school, and develop a career.
Those of us that read The Economist will know that "natural resources", particularly "mineral wealth", can be a ticket to poverty. Technology is what brought India out of poverty in the last decade and it can do the same for Africa. Remember how "King Cotton" dominated the American South and ruined it at the same time? That's what natural resources did to Africa; it attracted dangerous loans that put Africa in debt.
Maybe it's time we started listening to people like Moyo (who has a PhD), and not to people like Bono (who never finished school).
on February 18, 2014
This highly educated African woman dives into the heart (appropriate for a Moyo) of the aid predicament and her provocations serve the purpose of stirring up much useful debate on this old topic. As someone who has spent a lifetime (over 43 years) in every corner of Africa practicing development and humanitarian assistance, I read almost everything that comes out on this subject. Therefore, I could not wait to read Moyo’s book when it was published in 2009. Recently, I read it again with a cooler head.
Fortunately, while there is much tedious reading, it is a quick read at about 150 pages (not counting a 24-page bibliography). For me, this is not enough pages to cover such a complex topic, and I think the brevity has contributed to her overlooking some key points. I also wonder if this very academic book (treatise?)is well understood by those not connected to foreign aid. In this first book, Moyo has demonstrated to me that she is not a writer but a brainy economist with little hands-on field experience in rural Africa. Books on related subjects come out about every year or two, but they are usually written by academics who do not have in-depth field experience. To me, this reduces greatly their credibility.
I ask myself what solid connection this elitist, urbanized woman from Zambia, who was trained and is based abroad, has with the average African and their daily battle for survival.
Certainly, she does serve as an important role model for African women and others who would like to emulate her success. In this regard, Moyo’s book does not cover well important development challenges confronting many African countries. For example, what about fast population growth that is doubling populations every 25 years and producing a population structure where 65% of the people are under 25 years of age? How can any effort keep up with education, caring for, employing, etc. such a fast growing population? High fertility rates remain a central development challenge in many African countries, which have not yet had a demographic transition like most of the rest of the world.
It is well that she dedicates her book to Professor Peter Bauer who said over 40 years ago in his book, “Dissent and Development,” that “if a country really needs external aid to develop, it probably cannot develop.” But, does she really mean eliminating all aid or reforming aid so only those governments that are properly and honestly managed receive aid. I agree that we should not be assisting corrupt governments and greedy leaders who think of only enriching themselves, but we must not forget the needs of the poor, growing masses. How can deeply entrenched high levels of corruption be defeated? Simply eliminating external aid will not achieve this laudable objective.
How can we expect any country to progress if a large percentage of its children are stunted and over 50% of its population has not benefited from a quality education? How can we expect countries to remain stable if most of the young people who have diplomas cannot find work? What about institution and capacity building? What if a country has nothing that it can competitively trade? What about cultural values, particularly those that prevent women from fulfilling their full potential? Development can be defined as building up capacity so people (men and women) can manage their affairs competently without outside assistance. It can also be defined by the extent one participates in the market place by selling their goods or services. We need African leader and good governance that create the conditions needed for much of this to happen.
While I applaud Ms. Moyo and I share deeply her desire to see a better way forward for Africa, my feelings about her book are mixed. I find the arguments put forth in her book both right and wrong. I admire her courage in publishing such a book, and I am glad that it has served to wake many of us up, but globally her ideas are too simplistic. Nonetheless, I hope that many of the ideas put forth by the extraordinary African woman prevail over time and her book does not go on my shelf along with others as another flavor of the month.
Mark Wentling, author of “Africa’s Embrace”
on May 8, 2009
Dambisa Moyo is not the first to make the argument that the direct-to-government model of foreign aid has been a dismal failure over the last 50 years. She is one of the first African women that has done so in a highly visible way. The former Goldman-Sachs economist has taken a bit of heat for her willingness to question whether the Bob Geldof's and Bono's of the world, while well-intentioned, have helped to perpetuate a sense that Africa is a basket case and is (and will continue to be) a charity case that relies on the willingness and compassion of the developed world. Moyo asserts that Africa is capable of economic development only after the aid that has lined the pockets of dozens of despots, is cut off. She does make exception for NGO's and emergency relief, but believes that Africa's future lies in its ability to raise capital investment and function in a competitive market.
on March 20, 2009
While this book is about Africa, many of the overall insights, lessons, etc. Dambisa Moyo puts on paper here apply as much to the all but frozen state of postwar development and aid policies in many other parts of the world today. This is easily one of the most important, well-written and documented books on the chronic band-aid solutions to the Third World challenges promulgated not just by celebrities and philanthrocapitalists but First World governments, foundations and other institutions still stuck in the early part of the 20th century. Moyo's remarkable treatise should be required reading for public as well as private sector leaders.
on April 7, 2013
In `Dead Aid', the author, Dambisa Moyo, a former consultant at the World Bank, dispels the archaic political and social beliefs surrounding the effectiveness of African aid programs. Often regarded as taboo within the international economic community, corruption and the gross misappropriation of billions of dollars in aid by African governments have led many to question whether aid should continue. In the book, Moyo provides an expert analysis of an economic and developmental quagmire created from a cultural dependency on aid, and offers in depth solutions to mitigate and ultimately overcome decades of regression.
Moyo boldly asserts that rather than relying on aid--an economic nostrum which has failed to produce any sustainable development and has only helped to foster corrupt bureaucracy--African nations should instead seek foreign direct investment (FDI). Among the many solutions offered, Moyo advocates for the utilization of alternative efforts such as the Grameen Bank model, an award winning microfinance organization which makes small loans to the impoverished without requiring collateral, as a potential vehicle to overcoming some of Africa's many obstacles to economic development.
As an outsider with the purview of most Americans, I believe that if implemented the ideas in this book could produce many positive ramifications for the African contintent. However, until they are implemented in Africa on a suitable scale and found to be efficacious and sustainable, they remain just ideas.
Wow, what a breath of fresh air this woman is. Sure, some of the arguments that have been made in this book have been made before, but Ms. Moyo presents them in a startlingly fresh and direct way. Like many brilliant minds, Ms. Moyo can say a lot with a little and the brevity of this book only serves to aid its piercing--yet reasoned--arguments. This book is, quite simply, a frank assessment of where Africa is, how they got there, and a road map for the rise of Africa going forward--all in a little over 200 pages. I for one hope that the world follows her advice sooner rather than later. Africa is a beautiful place with beautiful people and I wish they could be allowed to rise without the constant tinkering of colonial powers, well-intentioned (yet misguided) liberals and celebrities. An unqualified 5/5 stars and I am a huge new-found fan of this woman.