AFRICA: The nettlesome question of aid

Wednesday, March 11, 2009

Dead Aid, a controversial new book by economist Dambisa Moyo, argues that cutting off all non-emergency assistance to Africa within five years "would help stimulate growth". But in countries like Zambia, the author's homeland, such a prescription could prove problematic, given the global financial turndown.

Zambia went from being a middle-income country in the 1970s to consistently appearing among the bottom 20 nations on the UN Development Programme's Human Development Index from 1990 onwards, in spite of receiving over US$10 billion in development assistance between 1990 and 2005 - equivalent to 23 percent of GDP over the same period.

It is statistics like these that drove Moyo, a former World Bank consultant and debt capital market analyst for Goldman Sachs, to write Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa.

"Growing up in Zambia, and then coming abroad and seeing that the world seemed to be moving along and growing very rapidly, yet every time I went home - year in, year out - things were getting worse. To me, this was an ongoing recognition that aid just wasn't working."

Problem or solution?

Moyo argues that rather than bilateral and multilateral aid being part of the solution, they are in fact part of the problem. "The two goals of aid are to stimulate higher growth and reduce poverty. Yet what has happened is that despite the trillion dollars of aid that has gone to Africa in the past 60 years, you've seen a decrease in growth and an increase in poverty," she told IRIN.

"You essentially have a problem whereby African governments are getting aid because they, the donors, are worried about the levels of poverty in those countries. But that aid then tends to spew out a lot of corruption, it creates a lot of bureaucracy, it kills off entrepreneurship, and it disenfranchises voters in those countries."

Moyo is not the first person to criticize the effectiveness of aid programmes in Africa; a growing number of donors are undertaking studies to investigate their real worth. In 2007, the Norwegian Agency for Development Cooperation (NORAD) released one such study: Norwegian Aid Works – But Not Well Enough. 

Norwegian aid

"Norwegian aid constitutes 3 percent of the total aid to Zambia, which was equal to 0.8 percent of Zambia's GDP in 2005. Our report showed that aid is more successful when it is channelled towards technical support. So the dialogue between NORAD and Zambia has become less political and more technical," NORAD's Ase Seim, coordinator of the report, told IRIN. A follow-up report is due to be released in 2009.

An example of a technical programme was computerizing Zambia's Office of the Auditor General, which received $1.6 million between 1997 and 2008, with support for restructuring and staff training, which means there are now regular audits of government activities - making a direct improvement in governance.

The financial downturn has hit Zambia hard in recent months, with copper prices - the mainstay of the economy - dropping dramatically on the back of falling global demand. Shrinking government revenues mean less state spending.

"Right now we are doing the annual audit. However, our budget has been cut by 17 percent by the government because they have less money than last year. So, yes, we have improved our audit methodology through the creation of manuals and computerization in the past few years; in the long term we still have areas that are not fully sustainable without consistent funds," Louis Mwanga, deputy director of Planning at the Office of the Auditor General, told IRIN.

Prescription to African governments

While Dead Aid criticises bilateral and multilateral aid, it also offers some alternatives to prevailing policy, such as the increased use of global capital markets by African policy-makers to raise investment funds: Moyo does not believe that the current financial environment should be a deterrent.

"In the current climate, my prescription to African governments is to focus on ensuring that when the market bounces back, which it will, then they need to be ready to go into the international marketplace to raise bonds. My view is that there is a lot of preparatory work that needs to be done to get bond ratings and to familiarize their countries with international investors."

Ghana did just that after undergoing economic reforms from 2000 onwards. However, these reforms were made possible by a period of political stability combined with support from international partners.

"Ghana showed maturity by utilizing the global bond market in the way that it did, but it could only do so because of the economic reforms that were achieved there, largely through aid. To deny this would be wrong," noted Alison Evans, programme director of the UK-based Overseas Development Institute.

"By contrast, Zambia is in no position to do the same as yet. In fact, Zambia serves as a good example of how Africa is being affected by the current financial situation: a cut in aid budgets in donor countries is set to have negative consequences, a reduction in the amount of remittances is also setting in, plus a sizable drop in commodity prices is having severe effects on the copper industry."

For low-income countries like Zambia, turning their backs on aid in favour of the capital markets in the current global recession may not be the best option.