A New Darling of the Right: African Author Pans Foreign Aid to Africa

Posted by Joshua Holland, AlterNet at 2:52 PM on April 8, 2009.

I'm going to weigh in briefly on a book I haven't read, Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa. Yes, that seems like the worst kind of uninformed post, but I'm going to take the liberty because the argument made by author Dambisa Moyo is a familiar one to anyone who's taken a hard look at international development issues.

Moyo, a former World Bank official who spent 8 years at Goldman Sachs working in "the debt capital markets, hedge fund coverage and in global macroeconomics teams," is the Right's latest darling. A Zambian native, she can advocate slashing direct aid to the developing world with some degree of insulation from the kind of criticism others might receive if they were to make the same argument.

In a nutshell, it goes like this: with the exception of emergency disaster relief, foreign aid has failed. It hasn't brought the developing world out of poverty and we should therefore consider it a well-intentioned but demonstrably ineffective tool and instead focus on unleashing the miracle of the free markets -- by fighting corruption, increasing micro-lending, strengthening capital markets and etc. (none of which is necessarily bad).

There are a number of problems with this, but foremost among them is that it starts with the assumption that foreign aid is intended primarily to decrease poverty. That's simply not the case; foreign aid has always been first and foremost a geopolitical tool. As such, "best practices" in terms of what would bring real and sustainable development are routinely relegated to an afterthought. Big, flashy projects that bring esteem to a country's elite and put cash into the pockets of foreign contractors are routine. The imperative to create projects with local "ownership" -- considered vital to an aid program's success -- is too often dismissed.

A former professor of mine tells the story of wandering through the Egyptian desert at the height of the Cold War -- when Egypt was playing the U.S. against the USSR for ever more aid. He stumbled upon a dam project financed by the World Bank and the U.S., and was surprised to see the Egyptian workers using donkeys to haul gravel out of a pit, at the bottom of which sat several dozen relatively new tractors. "Why are they using donkeys instead of those John Deere tractors?" he asked his guide. "Because the sand destroyed their engines within a few weeks," was the response. "We told them it would happen, but they were all excited about 'mechanization'." 

It's not an unusual tale. Consider some of the problems that Anup Shaw describes ...

Evan Osbourne, writing for the Cato Institute, also questioning the effectiveness of foreign aid and noted the interests of a number of other donor countries, as well as the U.S., in their aid strategies in past years. For example:

• The US has directed aid to regions where it has concerns related to its national security, e.g. Middle East, and in Cold War times in particular, Central America and the Caribbean;

• Sweden has targeted aid to “progressive societies”;

• France has sought to promote maintenance or preserve and spread of French culture, language, and influence, especially in West Africa, while disproportionately giving aid to those that have extensive commercial ties with France;

• Japan has also heavily skewed aid towards those in East Asia with extensive commercial ties together with conditions of Japanese purchases;

Osbourne also added that domestic pressure groups (corporate lobby groups, etc) “have also proven quite adept at steering aid to their favored recipients.” And so, “If aid is not particularly given with the intention to foster economic growth, it is perhaps not surprising that it does not achieve it.”

Aid And Militarism

IPS noted that recent US aid has taken on militaristic angles as well, following similar patterns to aid during the cold war. The war on terrorism is also having an effect as to what aid goes where and how much is spent.

For example:

• “Credits for foreign militaries to buy US weapons and equipment would increase by some 700 million dollars to nearly five billion dollars, the highest total in well over a decade.” (This is also an example of aid benefiting the donor!)

• “The total foreign aid proposal … amounts to a mere five percent of what Bush is requesting for the Pentagon next year.”

• “Bush’s foreign-aid plan [for 2005] actually marks an increase over 2004 levels, although much of the additional money is explained by greater spending on security for US embassies and personnel overseas.”

• “As in previous years, Israel and Egypt are the biggest bilateral recipients under the request, accounting for nearly five billion dollars in aid between them. Of the nearly three billion dollars earmarked for Israel, most is for military credits.”

• This militaristic aid will come “largely at the expense of humanitarian and development assistance.”

The European Union is linking aid to fighting terrorism as well, with European ministers warning countries that their relations with the economically powerful bloc will suffer if they fail to cooperate in the fight against terrorism.

It goes on ...

As a condition for aid money, many donors apply conditions that tie the recipient to purchase products only from that donor. In a way this might seem fair and “balanced”, because the donor gets something out of the relationship as well, but on the other hand, for the poorer country, it can mean precious resources are used buying more expensive options, which could otherwise have been used in other situations. Furthermore, the recipient then has less control and decision-making on how aid money is spent. In addition the very nations that typically promote free-markets and less government involvement in trade, commerce, etc., ensure some notion of welfare for some of their industries.

IPS noted that aid tied with conditions cut the value of aid to recipient countries by some 25-40 percent, because it obliges them to purchase uncompetitively priced imports from the richer nations. IPS was citing a UN Economic Council for Africa study which also noted that just four countries (Norway, Denmark, the Netherlands and the United Kingdom) were breaking away from the idea of “tied aid” with more than 90 percent of their aid “untied”.

And, the topper: more money flows from poor countries to wealthy states than vice versa. Kofi Annan noted the startling reality in an address to the UN General Assembly a few years ago:

United Nations Secretary-General Kofi Annan today challenged the General Assembly to face the stark fact that, "even taking all subtlety and nuance into account," developing countries made the sixth consecutive and largest ever transfer of funds to "other countries" in 2002, a sum totalling "almost $200 billion."

"Funds should be moving from developed countries to developing countries, but these numbers tell us the opposite is happening," he told the Assembly, as well as heads of the affiliated international financial institutions, on the second day of its high-level dialogue on financing for development.

"Funds that should be promoting investment and growth in developing countries, or building schools and hospitals, or supporting other steps towards the Millennium Development Goals, are, instead, being transferred abroad."

So, the quick and easy answer to those who say foreign aid doesn't do much in terms of poverty relief is this: that may be true, but we won't know until we try to use it for that purpose.

As a reward for making it this far through a post about foreign aid, here's Moyo on The Colbert Report:

Tagged as: aid, dead aid, moyo

Joshua Holland is an editor and senior writer at AlterNet.