Does aid work?

Dambisa Moyo says "No", Paddy Ashdown says "Yes".

A young boy in northern Uganda. Photo: Eyevine

Dambisa Moyo: NO | Paddy Ashdown: 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.

Only connect

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.

Phase out

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)

Dambisa Moyo: NO | Paddy Ashdown: YES

 

Paddy Ashdown says aid is both practical and morally right.

The pros and cons of foreign aid have been subjected to endless argument, and it is difficult to engage in this conversation without becoming mired in cliché and turning it into a shouting match. Newspaper front pages scream about the UK aid budget, while committed humanitarians fire back and dig in.

It is right and proper to debate such an important issue, especially at a time of economic hardship. But before tackling the practicalities and politics of aid we should take a step back and look at exactly what we are committing to.

Many believe, as I do, that providing long-term development aid is the moral thing to do. Yet we should also recognise that it is, from a practical point of view, the right thing to do.

The Diamond Jubilee celebrations sparked a wave of national pride, but one of the reasons we are “Great” Britain is the international moral leadership we have shown on foreign aid. You know the quality of a country by its ability to help the most disadvantaged, and the government is entirely right in saying that we shouldn’t balance our books on the backs of the poorest in the world. Compassion is part of the quality of a nation and I am very proud of the current commitment to meet our aid targets at a time of hardship at home.

The moral argument is clear. But there is also enlightened self-interest here. People think that armies give leadership and that guns and bombs supply power. They aren’t as ready to recognise that our aid policy also increases our international influence.

On my last visit to the UN in New York, the secretary general went out of his way to stress how often he used Britain’s example to encourage other countries to fulfil their promises on aid, as we have done. “You have set the agenda,” he said, “and this has given your country great influence.” At a time when the world order is changing rapidly, with the rise of China, India and Brazil, one should not underestimate the soft power that Britain achieves by taking a strong moral position on aid.

Critics of development aid are right, however, to attack aid that creates dependency. As the president of Unicef UK and a politician, I know that foreign aid needs to be a hand-up, not a handout. In the long term, it needs to help develop trade and economies and give people the opportunity to stand on their own two feet.

I have recently returned from Liberia, where I saw just this type of aid in action. Nine years after the fact, the population of just four million people still bears the scars of a country where a vicious war has raged. Here, Unicef funds a remarkable cash transfer scheme for households headed by children which has so far helped 2,000 youngsters. The fund gives out $60,000 a month in total, which equates to $25 a month for the most vulnerable children.  Ninety-seven per cent of the families benefiting from the scheme take their child to a health centre when they are ill and 90 per cent have increased food security. Children in the participating families are also two-thirds less likely to be involved in child labour than children even from similarly poor households.

Undoubtedly, aid can only work in the long term with good governance. If I could do one thing to support this it would be to create an agency called “Auditeurs Sans Frontières – Have Double-Entry Ledger, Will Travel!”. During my time in Bosnia, I saw how accountants can get at corruption and root it out, putting in place the framework for accountable, open government. Leaders such as Ellen Johnson Sirleaf, the president of Liberia, need to be supported and the UK has a role in promoting good governance under its foreign aid programme.

Lifesavers

But development is working and aid has played a huge part in that. Globally, compared to 20 years ago, four million fewer children will die this year, three million children have got the chance to go to school for the first time and four million more people have access to live-saving drugs for HIV/Aids.

The right type of development aid not only helps countries grow and gives children a better future but is also hugely important in helping to prevent great humanitarian crises. In the future, poverty and lack of access to resources will be two of the greatest drivers of conflict. Aid, which lifts countries out of hopelessness and poverty, is one of the best ways to prevent these conflicts. If you think aid is expensive, try war as an alternative. One thing that has always puzzled me is why we are prepared to spend so much on fighting wars and yet so little on taking the steps that would have prevented them in the first place.

Last year is estimated to have been the most expensive on record in terms of clearing up after major disasters. Predictions indicate that the scale, frequency and severity of rapid-onset humanitarian catastrophes will continue to grow in the coming years, and at an accelerating pace. And, as the Stern review (2006) noted, if climate change goes unchecked, it could cause between 60,000 and 250,000 additional child deaths in south Asia and sub-Saharan Africa alone. Helping children prepare and adapt for climate change needs to be an important focus so that we can prevent floods, droughts and hurricanes damaging lives of people in some of the world’s poorest countries.

The best way to cope with future disasters is to use aid to build resilience in the countries that are most vulnerable. We should act ahead of the catastrophe, rather than respond to it afterwards – be ahead of events, not always trail along behind them with the emergency relief.

Aid isn’t perfect but neither are governments or people. Our moral stand on foreign aid is the right one for vulnerable children, for the global economy and for shaping the type of world we want to live in. Yet in a world that is growing increasingly turbulent, increasingly interconnected and increasingly violent, helping others to break out of the cycle of poverty, disease and hopelessness is not only morally right, it is also in our own enlightened self-interest.

Paddy Ashdown is a Liberal Democrat peer and a former UN high representative for Bosnia and Herzegovina