Aiding and abetting

According to Dambisa Moyo, the policy of foreign aid to Africa constitutes "the single worst decision of modern developmental politics." Since the establishment of the Bretton Woods institutions in the 1940s, approximately $1 trillion has been thrown at the problem of African development, during which time the continent as a whole has failed to progress. In the last 30 years, the worst economies have actually shrunk, and even as the torrent of aid reached its high-water mark the poverty rate was increasing six-fold.

Moyo, a former World Bank consultant and Goldman Sachs employee, made her argument in "Dead Aid" (Allen Lane), published earlier this year to considerable attention ( Prospect's review is here). Far from bolstering African economies, she claimed, aid money has made matters worse. It has stunted economic growth, encouraged graft, and removed entrepreneurial incentives at both state and personal levels. And, almost from the outset, the servicing of old debts has demanded the acquisition of newer, bigger ones.



Moyo's solution was stark. In five years, all aid to Africa must stop. In its place, African nations will need to implement new economic policies including micro-loans, improved remittances and formalised domestic savings schemes, as well as, internationally, improving foreign direct investment, borrowing responsibly and securing more equitable trading arrangements with the west.

The debate sparked by Moyo's tough-love prescription has raged unceasingly since its publication, culminating, last month, in her nomination by Time magazine as one of the world's 100 most influential people. I spoke to her about why she thinks development is simple, when good governance should come second to financial stability, and how the credit crunch may, in the long run, be good for African economies.

In recent years there have been several books on the failure of aid. What makes "Dead Aid" different?

Essentially, it's because I'm offering solutions. Most people who are interested in the subject of development are pretty convinced that aid doesn't work. (We're talking about billion-dollar government-to-government packages, not humanitarian aid or charity aid: they both have their own problems, but that's outside the scope of the book.) But a lot of African policymakers and other interested people that I've spoken to have said, "We know that won't work; but what can we do instead?"

I feel my book takes over from the normal critique of aid and says "Here's a list of things–very, very tangible options–that government can and should do to finance economic development."

In his foreword to your book, Niall Ferguson calls it "an African view of Africa's economic problems," presumably to distinguish it from one written by a white man. But you must have studied at the same colleges and departments as economists like Paul Collier [author of "The Bottom Billion"]—

He was my PhD supervisor at Oxford and a professor at Harvard when I was there —
So what makes your viewpoint different, beyond accidents of gender and colour?

There's probably very little difference. I certainly wouldn't want to belittle the work of Paul Collier and Bill Easterly [author of "The White Man's Burden"]; a lot of the arguments I make against aid are well known in the academic literature, but I wanted to pool them in a book for the average person.

If you ask the average person what's wrong with aid to Africa often they'll jump at corruption—which is a big problem, the aid problem is linked to corruption, but I wanted people to understand that even if corruption were eliminated there are still fundamental problems that emerge from an aid-dependency model.

I have been asked this question about whether it matters that I'm an African. I hope people can look past my race and gender and focus on the message.

To reverse the question, then, is it more of a struggle these days for fiftysomething white males to make themselves heard on African problems?

No, I think that category of people have been incredibly successful, certainly in capturing the imagination of the public. Policymakers in Africa are very familiar with their arguments: they know the work of Bill Easterly, Paul Collier and Jeffrey Sachs. And their books—like Sachs's "The End of Poverty"—have been bestsellers. Beyond that, by and large the policies that emerge from Sachs' work have actually been implemented.

One of the complaints you make is that the west tried to transpose a version of the Marshall plan onto Africa without considering whether the circumstances were conducive. But why did we decide to throw millions of dollars at the continent in the first place? Colonial guilt?

"Colonial guilt" is something I struggle to understand. It's been at least fifty years: it's time to move on!

I believe the architects of the aid model in the 1960s put it into effect because they thought it would work. The Marshall plan was undoubtedly successful, and economic theory also supported this idea of injecting cash: the idea that savings lead to investment, which leads to growth. If you don't have savings–which, ostensibly, a lot of African countries didn't at that time–the idea was that that aid money would be a substitute. It was grounded very much in logic and in experience.

But it's now been 60 years and over a trillion dollars has gone to Africa. It hasn't worked.

Six decades is a long enough trial period?

Absolutely. We wouldn't give a political party or a business 60 years to flounder. And so I'm highlighting the fact that it's been 60 years of a failed model, especially given the fact that we now know what works: evidence from the rapidly developing countries of China and India has shown what really works—and those are not aid-dependent countries.

If you were of your parents' generation, amid the great optimism of newly-independent Africa, would you really advocate the policies you're advocating now—appealing for your country not to be showered with aid money?

First, I would hope the answer is yes. Peter Bauer, to whom my book is dedicated, was a big anti-aid advocate during that period and he wasn't listened to. He had very strong theoretical views on why aid doesn't work, and by and large he was right.

Second, if you look at the 1960s, there are countries that deliberately chose not to take the aid route. Botswana is one. They are an "aid graduate": they quickly weaned themselves off aid and onto market-friendly practices. A lot of what I'm proposing, they implemented from the very beginning. So, rejecting aid money wouldn't have been so far-fetched if people had really thought there was another model.

There's a proverb I quote in the book: "The best time to plant a tree is twenty years ago. The second-best time is now." I would have hoped that 20 years ago we'd have been a bit more thoughtful; but there were also political problems, like the cold war, which might have made better practices hard to implement… Ultimately, I'd like to think we could have made the right decision.

You raised Botswana there, which in many regards is seen as a beacon of sensible governance. Was it a fluke? Did they have a few good economists who were smart enough to see where things were heading, or were they blessed with enough resources just not to need the aid as badly as, say, Mali?

Commodities are used sometimes to a country's benefit, sometimes to its detriment. Botswana heavily depends on mining—diamonds, mostly—but so do many other African countries. I believe that the early policymakers in Botswana were visionaries: they chose to implement what was at that time a unique model, which has proven to be the successful one for economic development.

Since the cycle of debt-begetting-more-debt became evident pretty early on, why didn't other African countries follow their example?

I actually believe that development is easy—now that we know what works and what doesn't. But in a sense it was kind of a crap-shoot for Botswana to opt for a particular, innovative method of economic planning. I don't know why other countries chose a different route. There's a whole host of reasons I can think of why it might be the case. It's easier: it's hard work to convince foreign investors that your country is a good bet; whereas you can just say to the World Bank, "Give us more money: we're poor!" And it's free money, really.

But the thing about the bond market is that if a government squanders the money then they will be penalised: you can't go back to the same investors. You also have a situation where, if you borrow money, you have to figure out ways to grow your economy and pay the money back. If it's aid, who cares? You don't have to worry about paying it back. For me, that focus on growing the economy is very important.

You make reference to Zambia's president [Kenneth Kaunda, in 1991] being the first head of state in a former British colony to be "removed by ballot rather than bullet." But that was a quarter-century after independence. Even if cold war politics clearly led to the backing of crooks like Mobutu, surely western aid cannot be held responsible for making African leaders corrupt, starting civil wars, or any of the other misfortunes which have retarded development?

I assume we all have the same goal, which is that we want to see Africa as an equal partner on the global stage. We know that to have this—an Africa that is growing and not a recipient or a second-class citizen—you need to have accountable government. And we have enough evidence that bad governments have been supported by the aid machine.

That's not to say that it's the donors' fault. It's saying that in the aid system, it's almost impossible for the African citizen to get rid of a badly-behaved leader.

Let's contrast the two. My non-aid model would envisage a situation where when you have a bad government, when the guy borrows money from the capital markets and behaves in a despicable way, he's going to get thrown out of office because he can't pay the military, because he can't go back to get more money to keep his regime going. It's very different from an aid-dependent model where the guy is bad, we know he's bad, but he continues to get more aid. I give the example of Zimbabwe in the book [as late as 2006, Mugabe was receiving $300m in foreign aid], but there are countless other examples where we're quick to criticise the leadership, but at the end of the day they're still being bankrolled.

I don't believe societies should blame other societies for their own predicaments. (That's why I don't like the colonial argument. It will always be part of Africa's history that we were colonised, but it's time to move on.) On that basis, I'm not blaming the donors; I'm blaming the aid model. It supports despots and kleptocrats.

How does this sit with your view that, when obliged to prioritise, generating economic stability comes before propounding democracy?

I think we have enough evidence that some of the leaderships with the worst reputations have been able to deliver economic growth [In "Dead Aid," Moyo cites the examples of Sudan, Equatorial Guinea and Gabon, all doing well exporting oil to China].

I come to economic development from an economist's perspective: I do want a society where everyone is free and equal, but in the interim we have people starving to death. That's the immediate thing that has to be dealt with. So quibbling about political structure while people don't have jobs and can't send their kids to school seems to me foolhardy. Why not focus on the more pressing matter?

You can't vote if you starve on the way to the polling station?

Absolutely. And that debate is not unique to Africa. The fastest-growing economies in our lifetimes have been in countries where the debate about democracy is ongoing—China, Singapore and so on.

But you're never going to get a strong political system in place until you have a middle class that's there to force the government to defend property rights, for example. So the focus on the economics, I believe, is correct, and a sensible political system will be born out of it when a strong middle class emerges.

The middle class have something to lose?

And they have something to defend. And very often it's the right things: they want better healthcare and schools for their families. Contrast that to an elitist environment—a consequence of the aid environment—where it doesn't matter if there are bad schools because they just send their kids to school in South Africa instead. You're trying to incentivise the population to make sure they choose the right man. [Moyo writes that this "right man" may have to be "a benevolent dictator": someone who will force through the necessary, perhaps painful, economic reforms.]

To the western liberal democrat, free trade, free association, free speech and free elections are all one and the same. So what sort of reaction have you had to your relatively pro-Chinese stance?

A number of people – primarily non-African – have brought up the neo-colonialism issue. But, from an economic perspective, it's very hard to argue that the Chinese haven't done anything good in the past five to seven years. There are now roads in Africa where there have not been roads for 60 years. People have jobs.

Nobody has focused on the fact that the Chinese are diversifying their portfolio away from mining assets—they're investing in agriculture; they've bought up 20 per cent of one of the big banks in Africa. There is scope for an evolution, if you will, in their participation in Africa's development.

What it boils down to is that getting something for nothing is a bad proposition. The Chinese are in Africa, but they're getting something in return. Therefore the business relationship is one in which Africa is on a relatively equal footing. In the donor-recipient model, the Africans are always the lesser partner in the debate.

You rail against the conditionalities imposed by donor countries. But why shouldn't donors set conditions on loans? It's their money, after all.

I don't object to the conditions in and of themselves. They just haven't worked. I probably wouldn't have written the book if the conditions had been enforced (and, also, in some cases, if they had been in the interest of Africans).

If you go to a bank and the bank says they will give you a loan but only on certain terms, that's the deal. But what's the point of putting a gun to somebody's head and saying "You have to behave in an appropriate manner to support your people" and then when they behave despicably still giving them aid? It comes back to accountability and transparency.

Presumably you need "Dead Aid" to be taken on board by policymakers in Washington as well as in Africa. Is there an ironic possibility that the donors who would once only give aid if, say, a country made moves towards democracy, will now try to apply similar conditions to stopping the flow of money?

Again, what is the goal here? The goal is growth and reduction of poverty. I don't believe in setting out conditionalities. If we do all have the same goal, there don't need to be any gimmicks or tricks. So if donors say, "We're going to turn off the taps, but we would like you to trade in certain ways…" I would hope that policymakers in Africa would do the right thing.

And governments in Africa have started to do this. A policy-maker in Ghana told me that they'd been cautioned against going to the international markets – but they went anyway, against the World Bank. And in Rwanda they're very keen to break out of the aid cycle. They haven't needed a threat from anyone. If anything, they're the ones who've taken the initiative.

I hope that other governments will take that step. And, if not, I hope the donors realise that the international community can participate in Africa's development; it just doesn't have to be through aid.

You seem to chastise the west for losing interest in Africa in the post-cold war era. But if aid is so damaging, a drop in donor enthusiasm is surely a good thing?

I think that is a good thing. It's similar to the credit crisis, which could also be a good thing for Africa. However accidentally, it primes the pumps for innovation and recovery. If you know that western aid budgets are going to fall, as a policymaker you have to start looking at other options.

My issue with the post-cold war era is that it allowed a lack of agenda where there could have been a very strong agenda. Donors could have said, "We're not going to give you any more aid, but we want you to be our partners, and therefore we're going to help you come to the international markets because we've got lots of experience in that; or we'll help you with micro-finance, encourage our individual citizens to invest; or we're going to do more trade with you."

But that's not what has happened. There has been a sort of vacuum that's been filled with "glamour aid" where celebrities are trying to raise even more money to send to Africa.

Isn't there a risk that the Malawian in the street will feel abandoned if he reads in the paper that the west is stopping the flow of aid?

Quite the contrary. Most Africans never see aid money. I don't think it would matter that much to them on an individual level. And if I read that in an African paper I think I might run off and get a business licence! It takes two years now, but without aid money the government would actually need the country to grow, so they could tax the population…

Aid, as you've pointed out, is an industry, with employees and overheads. How do your colleagues feel about a plan that might put them out of a job?

We'll find something else to do! We're trained to do more than just dole out aid, I'd hope. I've not suffered a backlash, perhaps because most economists agree with me.

Everyone already understood the problem, but no one knew what to do instead?

It's not even that they didn't know what to do instead. It's just that no one wanted to pull the trigger. One of my sections is called "Who will bell the cat?" We all know it's going to be hard but who's going to do it? Who's going to stand up and say, "Actually, I'm not taking that $500m. I'm going to have to tighten my belt. But, longer term, I know this country can grow at 10 per cent."

That sounds like the people who need to pull the trigger are the African leaders.

It may be the African leaders. Obviously there are interests on both sides. It's easier if you're an African leader to sit on your laurels and wait for aid to come in. It's easier for donors to continue to hand out aid instead of trying to overhaul state policies.

Is it unfair to point out that, in terms of your policy prescriptions, the odds are heavily in your favour? The aid situation could hardly get any worse, so the only way is up.

So why are we still continuing to give out aid? Why are we fighting to give another $50bn to Africa?

I agree with you. And that's the essence of the book: here's an opportunity that is only upside.