Does aid work?
Dambisa Moyo says "No", Paddy Ashdown says "Yes".
Dambisa Moyo argues that as long as Africa remains aid-dependent, her people will suffer.
Every day, about a billion people go hungry in the world. Nearly a third of these – 300 million people – live in sub-Saharan Africa. Yet 60 per cent of the world’s untilled arable land is also in Africa. Theoretically, these statements suggest three things: first, that Africa should be able to feed itself; second, that Africa should be a net supplier of food to the rest of the world; and third, that we are dealing with a structural problem – market failure.
Despite these well-known facts, a culture of foreign aid dependency has led to a situation where African governments lose the incentive to implement necessary policy reforms that would remedy these problems.
Africa has received over $1trn in international aid over the past 50 years, intended for health care, education, infrastructure and agriculture, among other things. Unfortunately, despite good intentions, much of it has been ineffective in combating poverty and spurring economic growth in a sustained way, which it was meant to do. This is because most aid is given without effective conditions attached, but also because of the negative impact aid can have on an economy.
Consider this: food production, at its most basic level, depends on good physical infrastructure – roads, machinery, irrigation tools, legally enforceable property rights and land title – which has been largely absent across African states. Quite rationally, investors are unwilling to invest in these economies with such constraints in place.
This leaves much of Africa, the largest recipient of aid, caught in a nexus of being long-term aid-dependent while her governments are deprived of the incentive to carry out essential reforms to attract much-needed investment, spur growth and meaningfully reduce poverty. Look at the evidence: of the 48 countries in sub-Saharan Africa, only 20 are rated by any of the three big rating agencies, yet a rating is a prerequisite for governments and corporations to get access to other, better sources of private capital in order to finance development.
In addition, African countries remain among the most difficult places to conduct business. This year’s World Bank Doing Business in a More Transparent World survey finds that, out of the 50 worst-performing countries, 33 are in sub-Saharan Africa. What’s more, African countries remain ranked among the most corrupt economies anywhere in the world. In the 2011 Transparency International Corruption Perceptions Index, 44 of the countries in sub-Saharan Africa scored below five on a scale where a rank of zero is perceived to be highly corrupt and ten is perceived to have low levels of corruption. It should come as no surprise that Africa is – to quote the eminent economist Paul Collier – sheering off from the rest of the global economy.
The Nobel laureate economist Amartya Sen has observed that “there is no such thing as an apolitical food problem”. This could in part explain why, around the world, governments use policy levers to influence both the demand and the supply of food. In China, the one-child policy limits future demand for food, whereas subsidy policies in the United States and Europe around agricultural protection encourage greater food supply, to the great detriment of African economies.
Across many countries in Africa, policy inertia has had negative consequences in relation to food policy. Because the international community underwrites public goods across the board – education, health care, national security and infrastructure – African governments are able to abdicate their responsibilities in food production. Furthermore, the pervasive culture of aid dependency makes it near impossible for Africans to hold their governments to account for failing to provide the basic requirements to enable food production, and to penalise them for bad behaviour such as corruption.
As we all know, in more developed countries a “sovereignty” contract exists between governments and citizens. In return for paying taxes, the governments provide a suite of public goods to their citizens. If the incumbent fails to deliver on his promise, he is voted out of office. Put another way, driven by the desire to stay in office, the governments are motivated to deliver the public goods.
Consider what happens when foreign aid replaces a government’s need to depend on taxpayer receipts. African governments rationally spend more time courting and catering to their donors than on their constituents. In essence, aid severs the connection between the individual and his or her government and undermines the veracity of the contract between them. More importantly, the international community has become conditioned to approach food security (as well as the broader question of Africa’s development) as a recurring emergency concern, rather than the structural problem that it is.
Naturally, in emergencies such as the floods in Mozambique, or droughts in Ethiopia, there is a moral imperative for the international community to act. But until African governments come to regard aid as temporary support, as opposed to a right in perpetuity, they will continue to fail to implement the necessary measures for self-sufficiency, including food production.
There are some countries across Africa that are setting themselves apart from the pack by implementing the growth-enhancing policies outlined above. In 2009, weeks after the World Bank named Rwanda the “world’s top reformer”, the country attracted hundreds of millions of dollars in foreign capital for investment across key sectors. And Ghana continues to be viewed as an investment destination by many international investors, particularly after her $750m debut bond offering in 2007, which was heavily oversubscribed.
In the political arena, African countries have made strides. Today, the continent boasts that over 50 per cent of the 48 countries in
sub-Saharan Africa hold regular, democratic elections that can be deemed free and fair. Not surprisingly, those countries that have worked most aggressively to put in place well-designed and transparent policies that drive growth, spur entrepreneurs and stimulate job creation have reaped the greatest economic rewards.
And yet still sub-Saharan Africa remains the poorest region of the world, with annual per-capita incomes hovering around the $500 mark. Overall, the continent represents less than 2 per cent of global trade and the vital foreign direct investment.
Roughly 60 per cent of Africans are under the age of 24, so creating jobs will be critical for the continent’s prospects and future success. No aid-driven approach will create the jobs so desperately needed. There is no country today or in the history of the world that has achieved sustainable economic growth and slashed poverty by relying on aid to the extent that many African countries do today. So why does the world continue to lead with an aid-based approach to Africa when we know that trade, investment (domestic and foreign) as well as transparent and effective capital markets are essential for economic success? There is a sense in which there is one set of policies designed for Africa, and another for the rest of the world.
Against this backdrop, what ideas should we consider to reverse the present unfortunate state of affairs? Here are three. First, if one accepts the link between aid flows and disincentivisation, clearly aid to Africa needs to be phased out in a considered and systematic way. Stresses on donors’ public finances, particularly as the euro crisis rages on, has made this shift in thinking even more urgent. As donor nations continue to prioritise getting their own house in order, Africa will slide down the ranks of priorities.
Past initiatives such as the Marshall Plan and the Green Revolution rested on short, sharp and finite interventions, rather than open-ended commitments as we see across much of Africa today. Phasing out aid to Africa, in favour of more sustainable forms of development financing, will be critical if the continent is to turn the corner.
Second, better conditions must be attached to continuing donations. Although the political imperative for this is weak, obtaining credit ratings and improving the business environment are clear and measurable objectives that recipient countries should be required to implement. China’s foray around the world, including Africa, has been a net good in this regard.
Finally, a lot of work needs to be devoted to changing people’s perceptions, particularly potential investors abroad, about the African continent. It is critical for advocates and champions of the Africa story to transform the message from one of dependency and despair to one that posits Africa as a potential source of food and an important contributor to the global economy. Here is one place where politicians and policymakers, at home and abroad, have much to do. Vested interests will always prefer to maintain the status quo.
It may sound fantastical that one day Africa might feed itself and the rest of the world, but there is every reason to believe that, if we lose a predilection for aid, this can become a reality.
Dambisa Moyo is the author of “Winner Take All: China’s Race for Resources and What It Means for Us”, which will be published by Allen Lane on 28 June (£20)
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