The Aid Debate

Dambisa Moyo's critique of the aid model in her recent book Dead Aid has generated a timely, if sometimes ill-mannered, debate on the subject of aid, particularly to Africa. Firstly, a disclaimer: I haven't yet read her book in full. But I have read the extensive exchanges that have since emerged by people better qualified than I to speak on the subject. I also happen to disagree with plenty of them, and strongly sympathise with Moyo's position.

You can find an exchange opened by Jeffrey Sachs made at the Huffington Post. Moyo responded as did William Easterly, who was also attacked in Sachs' post. It's blown up across the blogosphere and even mainstream media, and this has generated a healthy debate. A decent overview of a range of opinions on this matter can be found at the Financial Times blog, while one of the best exchanges I've seen was on BBC Hard Talk with the Overseas Development Institute's Alison Evans.

So let's look at Moyo's main argument. She writes:

"What the most vociferous aid proponents never seem to ask themselves is what sort of society is their aid-approach producing?

In their blinkered view of the African continent they are happy to ignore the fact that in the worst case scenario aid continues to feed corruption (never mind fuelling inflation, increasing the debt burden unsustainably, and disenfranchising Africans). Even in the best case scenario, many African governments have nearly abdicated wholesale their responsibility to provide public goods to their citizens; instead, unlike anywhere else in the world, education, healthcare, infrastructure, and even security are handed over to aid-agencies around the world." (source)

It's important to note that she is not aiming her guns at all aid, but certain types. Among those she rules out are emergency humanitarian aid, charity-type work (which she herself is involved in) or small-scale gifts like scholarships. She has been quoted selectively several times with ringing denunciations of aid making Africa poorer, and while superficially she has said those things, I think a charitable explanation demands we examine what she means by that.

She does acknowledge that aid can have positive effects. But the at a systemic, macroeconomic level, it creates distorted priorities that removes accountability from governments away from their people and towards their donors. While donors vehemently insist that there are adequate checks and rigorous oversight to the aid they give, this kind of state-to-state aid has had enormous negative externalities (economics-speak for "bad side effects") that have prevented Africa from growing. Worst still, it crowds out entrepreneurial activity, and this is the most damning insight and least acknowledged problem by her critics, who have rattled off impressive figures as evidence for the efficacy of aid.

I would opt for a more balanced view, and avoid some of Moyo's more radical language, though appreciative of the effect it has had to stir the debate - a timely one that is long overdue. In short, the problem isn't that aid has no beneficial effects, the problem is that its negative externalities outweigh those benefits.

The UNDP's Human Development Report 2003 noted:

"During the 1990s the share of people suffering from extreme income poverty fell from 30% to 23%. But with a growing world population, the number fell by just 123 million--a small fraction of the progress needed to eliminate poverty. And excluding China, the number of extremely poor people actually increased by 28 million. (my emphasis, p.5)"

Further down:

"The number of hungry people fell by nearly 20 million in the 1990s. But excluding China, the number of hungry people increased. (my emphasis, p.6)

The World Bank's World Development Indicators 2003 zoom us in further:

"Progress was far from uniform. The fastest economic growth and the greatest poverty reduction were in East Asia and Pacific, where GDP per capita rose by 75 percent while the share of people in extreme poverty fell from 31 percent to 16 percent. But in Sub-Saharan Africa, where GDP per capita fell by 5 percent, the poverty rate rose from 47 percent in 1990 to 49 percent in 1999, and the number of people living in extreme poverty increased by 74 million." (p.4)

According to the World Bank, total expenditure by governments in East Asia and Pacific went from 13.8 percent of GDP in 1990 to 15 percent in 2000. In Sub-Saharan Africa, total expenditure went from 23.5 percent to 27.6 percent of GDP. Both regions' debt service ratio were similar - 4.7 percent in East Asia and 4.5 percent in Sub-Saharan Africa. In 2001, East Asia and Pacific's Official Development Assistance was $3.90 per person. Sub-Saharan Africa's was $20.6 per person. In gross terms, East Asia received $7.3 billion in 2001, compared to $13 billion for Sub-Saharan Africa. By the end of 2000, China was primed for massive growth which promptly dispensed with any talk about aid for good.

It is this context in which we have to examine the efficacy of aid, and Moyo is rightly fed up with the platitudes regarding aid. The very least question we have to be asking ourselves is: Why is aid delivery in Sub-Saharan Africa not working? (interestingly, on the criticisms regarding aid efficacy, most of Moyo's critics actually agree with her, but they think it can be salvaged) How is it that East Asia was able to spend so much less out of its budgets and with so much less aid, yet get so much better results? And what did China do to lift such enormous numbers out of poverty and hunger? It's not because Asians are harder working, Economics Nobel Laureate Paul Krugman demolished that myth decades ago. And it certainly wasn't from aid.

I'll look at some of the structural inefficiencies of aid in the next post.