Sunday, November 8, 2009

Dead Aid: Should African govts continue to receive Aid?


In the past fifty years, more than $1 trillion in development-related aid has been transferred from rich countries to Africa. Has this assistance improved the lives of Africans? Across the continent, the recipients of this aid are not better off as a result of it, but worse, much worse.

In Dead Aid, Dambisa Moyo describes the state of postwar development policy in Africa today and unflinchingly confronts one of the greatest myths of our time: that billions of dollars in aid sent from wealthy countries to developing African nations has helped to reduce poverty and increase growth. In fact, poverty levels continue to escalate and growth rates have steadily declined and millions continue to suffer.

Provocatively drawing a sharp contrast between African countries that have rejected the aid route and prospered and others that have become aid-dependent and seen poverty increase, Moyo illuminates the way in which overreliance on aid has trapped developing nations in a vicious circle of aid dependency, corruption, market distortion, and further poverty, leaving them with nothing but the “need” for more aid. Debunking the current model of international aid promoted by both Hollywood celebrities and policy makers, Moyo offers a bold new road map for financing development of the world’s poorest countries that guarantees economic growth and a significant decline in poverty without reliance on foreign aid or aid-related assistance.

Dead Aid is an unsettling yet optimistic work, a powerful challenge to the assumptions and arguments that support a profoundly misguided development policy in Africa. And it is a clarion call to a new, more hopeful vision of how to address the desperate poverty that plagues millions.

Dambisa Moyo is to aid what Ayaan Hirsi Ali is to Islam. Here is an African woman, articulate, smart, glamorous, delivering a message of brazen political incorrectness: cut aid to Africa. Aid, she argues, has not merely failed to work; it has compounded Africa's problems.

The first stage in her argument is that aid is easy money. If governments had to rely upon private financial markets they would become accountable to lenders, and if they had to rely upon taxation they would become accountable to voters. Aid is like oil, enabling powerful elites to embezzle public revenues. She catalogues evidence, both statistical and anecdotal. But the core of her argument is that there is a better alternative. Governments could find money for development through financial markets, both international and domestic. Historically, the governments of those countries that have successfully developed funded investment by recourse to international markets. In order to borrow, they needed decent credit ratings; to get the ratings, they had to be transparent and prudent. The discipline of transparency and prudence were as important as the money in promoting development. Some of the stronger African governments have at last started down this road. She also sees huge scope for innovations in micro-finance, such as the group borrowing pioneered by the Grameen Bank in Bangladesh.

What should we make of these arguments? Paul Collier, a professor of economics at Oxford University and author of 'The Bottom Billion' says “I think that they deserve to be taken seriously. The function of aid is not to make us feel better about ourselves; it is to promote development, and if a well-informed African tells us that we are inadvertently having the opposite effect, we had better take heed. So is there solid evidence to refute her claim that aid worsens governance and so impoverishes? Unfortunately, the research on whether aid is effective is frankly shambolic. At the level of an individual project we can often show it is effective, but this misses Moyo's point: that what matters is the overall impact on the society. There is indeed some evidence that aid tends to worsen governance, though whether enough to offset its beneficial effects is unresolved. Certainly, the evidence is sufficiently troubling that respected experts share her concerns. However, cutting aid may not be the best response. My preferred alternative is to strengthen its potential for "governance conditionality": aid agencies should insist on both transparent budgeting and free and fair elections. That said, I have to admit that Moyo has a good retort. She shows how feeble aid agencies have been: when occasionally one gets tough, others compensate. Within aid agencies, performance is judged predominantly by short-term criteria such as how much aid is disbursed, rather than longer-term effects on accountability. Based on past behaviour, a government could assume that the aid would keep flowing more or less regardless of what it did.”

Moyo implies that, were aid cut, African governments would respond by turning to other sources of finance that would make them more accountable.



Dambisa Moyo was born and raised in Zambia, Southern Africa. She completed a PhD in Economics at Oxford University and holds a Masters from Harvard University. She completed a Bachelors degree in Chemistry and MBA in Finance at the American University in Washington D.C. She worked at Goldman Sachs for 8 years in the debt capital markets, hedge fund coverage and in global macroeconomics teams. Previously she worked at the World Bank in Washington D.C. Dambisa is a member of the Board of Lundin Petroleum. Dambisa is a Patron for Absolute Return for Kids (ARK), a hedge fund supported children’s charity. She serves on the Boards of the Lundin for Africa Foundation and Room to Read, an educational charity.

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