28 April 2011

Dead Aid

Dambisa Moyo's book Dead Aid: Why Aid Is Not Working and How There Is Another Way for Africa challenges the accepted dogma that aid is an effective weapon against poverty. Moyo rightly differentiates between emergency aid, charity aid, and systematic aid. Her aim in the book is to demonstrate the downfalls of systematic aid, the type of aid given to governments by other governments or international financial institutions like the World Bank.

Moyo argues that systematic aid

  • feeds corruption
  • encourages civil war
  • reduces savings and investment
  • causes inflation
  • chokes exports
  • creates dependency
Her solution is to reduce the flow of systematic aid to countries over a few years and to replace the cash flow by increasing

  • access to capital markets (nations raise funds through issue of bonds)
    • Moyo recognizes the difficulty of non-credit-worthy nations issuing bonds, but suggests that a new structures, such as pooled risk and bond underwriters, can lower barriers 
  • foreign direct investment
    • FDI is what happens when US and China fund projects abroad - like road construction in Kenya - that serve the interests of both host and investor
    • China is a leader in this type of project in Africa. For example, the Chinese constructed a railroad to connect a land-locked Zambia to a port in Dar es Salaam, Tanzania (the Zamtan), reducing Zambian dependence on South African railways and opening a new market for trade. 
  • trade
  • microfinance and other financial services for the poor
    • M-pesa in Kenya allows people to transfer large sums of money via cellphones. Since the vast majority of people do not have access to banks, this helps people stay in control of their money.  
  • monetising assets for to bolster personal savings and enable lending
  • remittances
    • When ex-patriots send money back to their families, did you know governments take a cut? Moyo suggests lowering the remittance tax.
The book concludes with an appropriate African proverb:
The best time to plant a tree is twenty years ago. The second best time is now.

1 comment:

  1. I should say that my review of Dead Aid is not necessarily an endorsement of the message. However, I think Moyo makes many good points and her position should be considered in the broader aid debate.

    For those who are familiar - Moyo is a lot more Easterly than she is Sachs.