In Dead Aid, Zambian economist Dambisa Moyo makes a passionate case that the West’s efforts to aid Africa over the past 50 years have done more harm than good, and that it is time to look at alternate solutions if we are to have any hope of lifting Africa out of its persistent poverty.

The Problem

The first half of the book is devoted to illuminating all the ways that aid has made Africa worse off. Since much of the continent gained independence in the 60s, the news has been consistently bad: war, poverty, disease, corruption. Western aid to Africa, inspired initially by the success of the Marshall Plan in Europe after the second world war, has grown from a few hundred million dollars in the early sixties to the billions that it is today.

This would be acceptable if there was something to show for it, but there isn’t. The average African is poorer today than they were decades ago, while much of the developing world, and in particular certain countries in Asia, have posted amazing growth, lifting millions out of poverty.

The reasons for aid’s ineffectiveness are many: It encourages corruption and exacerbates armed conflicts because the rewards for holding power are that much greater when you can siphon what you want from the incoming cash. Aid causes inflation by increasing the money supply while simultaneously depressing exports by strengthening the local currency. Aid erodes trust and social capital by increasing rent-seeking behaviour instead of mutual support. The list goes on.

The most tactile image of aid’s pernicious effects is illustrated through the story of a mosquito net manufacturer who, under the onslaught of freely donated foreign-made nets, is driven out of business, cutting off a web of income that supported over 100 individuals and families. It also eliminates a source of local production that will need to be rebuilt once the aid dries up.

A Solution

The first step towards a self-sufficient Africa is reducing its dependence on aid. Moyo conjectures an imaginary phone call where Western benefactors give aid-ravaged countries 5 years before the taps would be turned off. This kick in the pants might be all governments would need to focus their efforts on strategies that would lead to real, sustainable growth.

Moyo suggests four alternatives to aid: Bond markets, foreign direct investment (FDI), trade and microfinance. Of these, the most controversial is likely FDI, mainly because of China’s rising involvement in African affairs. While the Chinese are rapidly building badly needed infrastructure everywhere they go, critics charge that they are blind to human rights abuses, and are only there to extract Africa’s natural resources as efficiently as they can. Africans respond by observing that at least they are being treated as a business partner, and not as a basket case.

Much of the second half of the book is a technical analysis of how various forms of financing could be structured and implemented. The essence, however, is this: money that comes from markets is better than money that comes from handouts. We think and behave differently about it. Markets operate on the balance between trust, accountability and risk, elements that are absent when the cash has no strings attached, and the flow has no end in sight.

Responses

Dambisa Moyo’s ideas have sparked a lively conversation about what does and does not help Africa. She has detractors who say some of her claims are unsubstantiated, or that her faith in market-based finance is misplaced or overstated. Most, however, welcome her voice. That an African economist is taking the lead in a global debate on how to best help Africa is a welcome change from everything that has come before.