Why Foreign Aid is Hurting Africa (WSJ)

DAMBISA MOYO in today’s Wall Street Journal: Why Foreign Aid is Hurting Africa

Money from rich countries has trapped many African nations in a cycle of corruption, slower economic growth and poverty. Cutting off the flow would be far more beneficial

[After a lead-in describing Kibera] . . . Giving alms to Africa remains one of the biggest ideas of our time — millions march for it, governments are judged by it, celebrities proselytize the need for it. Calls for more aid to Africa are growing louder, with advocates pushing for doubling the roughly $50 billion of international assistance that already goes to Africa each year.

Yet evidence overwhelmingly demonstrates that aid to Africa has made the poor poorer, and the growth slower. The insidious aid culture has left African countries more debt-laden, more inflation-prone, more vulnerable to the vagaries of the currency markets and more unattractive to higher-quality investment. It’s increased the risk of civil conflict and unrest (the fact that over 60% of sub-Saharan Africa’s population is under the age of 24 with few economic prospects is a cause for worry). Aid is an unmitigated political, economic and humanitarian disaster. . . .

. . .  Aid-supported scholarships have certainly helped send African girls to school (never mind that they won’t be able to find a job in their own countries once they have graduated). This kind of aid can provide band-aid solutions to alleviate immediate suffering, but by its very nature cannot

be the platform for long-term sustainable growth.

Whatever its strengths and weaknesses, such charity-based aid is relatively small beer when compared to the sea of money that floods Africa each year in government-to-government aid or aid from large development institutions such as the World Bank.

Over the past 60 years at least $1 trillion of development-related aid has been transferred from rich countries to Africa. Yet real per-capita income today is lower than it was in the 1970s, and more than 50% of the population — over 350 million people — live on less than a dollar a day, a figure that has nearly doubled in two decades. . . [Just another (unrelated?) thought-not part of the WSJ article: I wonder how the population explosions figure into these stats. If Kenya was 6 million people in the 1960s, and now is in the mid 30s . . . what about the rest of Africa? What impact has that had on poverty?]

. . . The most obvious criticism of aid is its links to rampant corruption. . . the World Bank had participated in the corruption of roughly $100 billion of its loan funds intended for development. . .

. . . A constant stream of “free” money is a perfect way to keep an inefficient or simply bad government in power. As aid flows in, there is nothing more for the government to do — it doesn’t need to raise taxes, and as long as it pays the army, it doesn’t have to take account of its disgruntled citizens. No matter that its citizens are disenfranchised (as with no taxation there can be no representation). All the government really needs to do is to court and cater to its foreign donors to stay in power.

Stuck in an aid world of no incentives, there is no reason for governments to seek other, better, more transparent ways of raising development finance . .

[Ghana is a great counter example]

. . . Even what may appear as a benign intervention on the surface can have damning consequences. Say there is a mosquito-net maker in small-town Africa. Say he employs 10 people who together manufacture 500 nets a week. Typically, these 10 employees support upward of 15 relatives each. A Western government-inspired program generously supplies the affected region with 100,000 free mosquito nets. This promptly puts the mosquito net manufacturer out of business, and now his 10 employees can no longer support their 150 dependents. In a couple of years, most of the donated nets will be torn and useless, but now there is no mosquito net maker to go to. They’ll have to get more aid. And African governments once again get to abdicate their responsibilities.

In a similar vein has been the approach to food aid, which historically has done little to support African farmers. Under the auspices of the U.S. Food for Peace program, each year millions of dollars are used to buy American-grown food that has to then be shipped across oceans. One wonders how a system of flooding foreign markets with American food, which puts local farmers out of business, actually helps better Africa. A better strategy would be to use aid money to buy food from farmers within the country, and then distribute that food to the local citizens in need. . .

. . . The good news is we know what works; what delivers growth and reduces poverty. We know that economies that rely on open-ended commitments of aid almost universally fail, and those that do not depend on aid succeed. The latter is true for economically successful countries such as China and India, and even closer to home, in South Africa and Botswana. Their strategy of development finance emphasizes the important role of entrepreneurship and markets over a staid aid-system of development that preaches hand-outs.

Read the whole article (it’s quite long): Why Foreign Aid is Hurting Africa

Comments please.

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6 thoughts on “Why Foreign Aid is Hurting Africa (WSJ)

  1. Hopefully, when the United States of Africa, which is projected for 2017, take effect, then international abuses , uses, and exploitations of Africa, coming from the West, in particular, and more recently china, will be dismissed on the continent. Africa will rise again when African nations unite !

  2. So could it be that aid is considerably more damaging to Africa than (British) Colonialism ever was?
    Of course you couldn’t ever argue that today, since it’s absolutely politically incorrect. But what I can see as the effects of British Colonialism (in both India and Africa) are national institutions and infrastructure built and an elite of civil servants educated and equipped for running society. (Of course, anyone familiar with “Yes, Minister” knows that civil servants are the goal and glory of any true civilisation.) Perhaps actually Livingstone’s much maligned goal of establishing “Civilisation, Commerce and Christianity” to replace the slave trade has something to recommend it in opposition to the contemporary cry of “Cash”.
    Perhaps as Western Christians we need to consider how we may be guilty of making the same mistakes flooding the churches of Africa with aid in whatever ways. And maybe rich African city-bred Christians need to consider the same with regard to their brothers and sisters ‘up country’. But I’ll shut up now.

  3. […] Ben and Eddie, quoting an article from the Wall Street Journal, raised the issue if sending nets to Africa does not ruin the local businesses that could produce these mosquito nets and therefore perpetuates a cycle of dependency from the West. […]

  4. adam says:

    This article does a great job showing how cash handouts can undermine growth, productivity, and competition.

    However,

    Africa has a host of problems (AIDS, malaria, landlocked countries, lack of access to clean water, poor crop yields, corrupt governments, and civil war) that it will prevent African countries from ever being able to rise out of their poverty traps.

    Foreign aid does not need to be abandoned. Too many people would die needlessly.

    Instead, rework the current system of financial aid using carrots and sticks to transform poor governments into better ones. Carrots be sustainable investments (water technology, disease control, high yield seeds, schools, roads. Sticks can be military intervention (in cases such as Rwanda and Sudan).

    Just because foreign aid has not worked that well in the past does not mean it has no future. The MCC has developed a tiered system of aid the gives more money depending on certain indicators.

    Financial aid can help Africa rise out of poverty, disease, and corruption if applied correctly.

  5. Immigration reform, an alternative to Foreign aid? http://bit.ly/bYJOFo

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