Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa [Hardcover]

Excellent book.

Dambisa Moyo was born and raised in Lusaka, Zambia. Her mother is chairwoman of a bank called Indo-Zambia Bank. Her father, the son of a South African mine worker, runs Integrity Foundation, an anti-corruption organization. Moyo is the former Head of Economic Research and Strategy for Sub-Saharan Africa at Goldman Sachs in London, where she worked for eight years. Moyo has also worked at the World Bank in D.C., where she was a co-author of its annual World Development Report.

Moyo is the author of "Dead Aid", an indictment of the foreign aid industry which was released spring 2009. She argues that Western aid to Africa has not only perpetuated poverty but also worsened it. In the book, she calls for all development aid to Africa to be halted within five years because it has brought dependency.

She insists that largely aid has held back Africans. "You get the corruption -- historically, leaders have stolen the money without penalty --and you get the dependency, which kills entrepreneurship. You also disenfranchise African citizens, because the government is beholden to foreign donors and not accountable to its people", she says.

Because they can count on aid, Moyo argues, most sub-Saharan African countries don't even bother to issue bonds. That would require a country's president and cabinet minister to sell their countries to investors. Moyo has a Ph.D. in economics from Oxford University, and her Master's Degree is from Harvard University's Kennedy School of Government. In addition, she holds a Bachelor of Science in Chemistry and an MBA in Finance from American University. She lives in London.

Matthew Rees (WSJ March 17, 2009) points out that it is one of the great conundrums of the modern age: More than 300 million people living across the continent of Africa are still mired in poverty after decades of effort -- by the World Bank, foreign governments and charitable organizations -- to lift them out if it. While a few African countries have achieved notable rates of economic growth in recent years, per-capita income in Africa as a whole has inched up only slightly since 1960. In that year, the region's gross domestic product was about equal to that of East Asia. By 2005, East Asia's GDP was five times higher. The total aid package to Africa, over the past 50 years, exceeds $1 trillion. There is far too little to show for it.

Ms Moyo believes aid money pouring into Africa, underwrites brutal and corrupt regimes; stifles investment; and leads to higher rates of poverty -- all of which, in turn, creates a demand for yet more aid. Africa, Ms Moyo notes, seems hopelessly trapped in this spiral, and she wants to see it break free. Over the past 30 years, she says, the most aid-dependent countries in Africa have experienced economic contraction averaging 0.2% a year.

America's policy toward postwar Europe is often cited as the model for African assistance, but Ms. Moyo reminds us that the vaunted Marshall Plan was limited to five years and was focused on reconstructing societies ravaged by war. In Africa, she says, the aid spigot never stops flowing. "There is no incentive for long-term financial planning," she observes, "no reason to seek alternatives to fund development, when all you have to do is sit back and bank the cheques."

Ms Moyo is not alone in asking tough questions about good intentions gone awry. Rwanda's president, Paul Kagame, has said of the $300 billion in aid given to Africa since the 1970s that "there is little to show for it in terms of economic growth and human development." Senegal's president, Abdoulaye Wade, has expressed similar sentiments.

Much of "Dead Aid" outlines an agenda for Africa's economic development, such as expanding its trade and developing its banking sector -- that is, creating a reliable system of credit that will allow individuals to earn interest on their savings and businesses to receive the loans they need to grow. While criticizing outsiders for their misguided ideas, she does not ignore Africa's self-inflicted wounds. She notes there are steep obstacles to doing business there. According to the World Bank, nine of the world's 10 most hostile business environments are in Africa.

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.

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.