Review: Dead Aid by Dambisa Moyo
Author: Moyo, Dambisa
Length: 208 pages
Genre: Non-Fiction, Development
Source: Chapters Indigo, Edmonton Airport
Why I Read It: It was recommended by a lady I sat beside at dinner one night.
Date Read: 11/04/10
Everybody should read this book.
If I thought that would convince you, I would make that the full review. The last time I felt this strongly about an international development book was with The Bottom Billion, by Paul Collier, which, interestingly enough, is actually quoted in this book. You should read it as well :)
Dead Aid is a book that talks about the issues with Aid but it is also a book that offers solutions. It is written by an African woman, about Africa. Dambisa Moyo grew up in Zambia. She went to Harvard and Oxford. She worked as a consultant for the World Bank and at Goldman Sachs. If anyone has the credentials to write a book about aid and financing in Africa, this is her. No offense, but it sounds to me like she has better credentials than either Bono or Bob Geldof. As she says herself on page 27:
Scarcely does one see Africa’s (elected) officials or those African policymakers charged with the development portfolio offer an opinion on what should be done, or what might actually work to save the continent from its regression. This very important responsibility has, for all intents and purposes, and to the bewilderment and chagrin of many an African, been left to musicians who reside outside Africa… As one critic of the aid model remarked, “my voice can’t compete with an electric guitar”.
We hear all the time how we need to give more money to the developing world and that our governments need to give more aid. What we don’t hear are the negative consequences of aid or, as the author states, any kind of meaningful discussion about the situation and why the continent is failing. In Part 1: The World of Aid Moyo gives us the history of aid from its inception as a means to jump-start the European economies after WWII through to the modern handouts to governments, especially in Africa.
The truth is that aid is not working, and the author lays out the causes of this very well. One main point is that although aid worked in Europe, that was because it was for a short period of time and with a clear end date, whereas aid in Africa now is and endless cycle of ever more aid to payback the original aid. Also, the aid in Europe was for where the infrastructure already existed. The aid was to get things working again, rather than to build from scratch. Another issue is that even though conditionalities are placed on aid, they are never actually followed… and even when they are blatantly ignored, more aid is given. Even a prerequisite of a democratic government isn’t necessarily a good thing. From pg 42:
The uncomfortable truth is that far from being a prerequisite for economic growth, democracy can hamper development as democratic regimes find it difficult to push through economically beneficial legislation amid rival parties and jockeying interests. In a perfect world, what poor countries at the lowest rung of economic development need is not a multi-party democracy, but in fact a decisive benevolent dictator to push through the reforms required to get the economy moving (unfortunately, too often countries end up with more dictator and less benevolence).
Possibly a shock if you had never thought of it that way. No matter what kind of government a country has, the sad fact is that aid is shockingly easy to steal. Even when donor countries know that aid money is being stolen, more is still given. The mindset is that if aid is stopped then the poor in the country won’t see anything. But the poor don’t see a lot of benefits anyway. And when it comes down to it, knowing there is a large supply of ‘hardly any strings attached’ money flowing in to the country is a large incentive to stay in power. It causes coups to happen more frequently, it causes more civil wars (because that is a lot of money to fight for), and it causes dictators to stay in power.
Another issue with aid is that it creates increased demand – supply is still the same though. This causes inflation. From page 62:
…in order to combat the cycle of inflation, domestic policymakers raise interest rates. But, at a very basic level, higher interest rages mean less investment (it becomes to costly to borrow to invest); less investment means fewer jobs; fewer jobs mean more poverty; and more poverty means more aid.
See where this cycle is leading? This is how we get aid dependency. And as if that weren’t enough, aid works like a natural resource in causing ‘Dutch disease’. The aid money flowing in can cause the currency to strengthen which in turn increases the cost of exports. At these increased costs they can no longer compete, so the sector slows down. As long-term growth comes from manufacturing exports, there are less possibilities for long-term growth.
The good news? In Part 2: A World Without Aid Moyo gives clear solutions to the problems. Cut off aid flows over a set number of years (and a set small number of years), and have developing countries turn to other tried and tested financing options. These include:
- Issuing Bonds on the international market. Ghana has already done this, and others can easily follow suit.
- Work to attract more FDI (foreign direct investment).
- Increase trade, both internationally with China, India, Europe, and others, but also within Africa. Lower trade barriers and tariffs.
- Make it easier to do banking by providing more micro-credit options, making it easier to save money, and lowering the costs of sending remittances.
Moyo discusses each of these solutions in great detail. She gives facts and examples, and even creates a case study for an example. I won’t go in to the details here but she makes a very convincing point, and I highly recommend that you read this book if you are interested in international politics and policies. None of these options are overly difficult. The obstacle is in convincing donor countries to stop giving, or convincing receiving countries to stop receiving. Neither will be easy, but it is readily apparent that it needs to be done, and it needs to be done soon.