When holding a hammer in your hand, every problem can look like a nail. Dambisa Moyo’s book Dead Aid gives fresh meaning to this old adage, applying the perspective of a top-tier investment banker to the plight of the poorest people in Sub-Saharan Africa. The Economist recently panned the book by likening it to caricature. The underlying weaknesses are found in both its diagnosis and prescription.
On the diagnostic side, Moyo’s very selective use and misuse of evidence leads to a blanket condemnation of the entire aid process. The book flogs the time-honored marketing technique of throwing out big aggregate numbers to try to intimidate readers. “A trillion dollars” are said to have been wasted in Africa over the past 60 years, with no results to show. The analytical rigor is roughly equivalent to writing a history of the countless billions of dollars worth of shady Pentagon contracts over the decades, and then drawing the conclusion that the U.S. military should be disbanded.
A couple of key faults in the logic stand out. The first lies in the trillion dollar number itself. Any reference point going back to the year 1949 is odd, to say the least. More importantly, the historical foreign aid numbers are small by any reasonable unit of measure. According to the official data maintained by statisticians at the OECD, when we add up all global aid to sub-Saharan Africa net of debt cancellation since 1960, the sum is roughly $800 billion in today’s dollars. When we divide all the aid across the population of Africa and convert it to annual flows, it works out to approximately $35 per African per year. This includes all the politically motivated Cold War dollars, and can hardly be considered a large number.
Nor can the aid flows be considered large when total worldwide aid to Africa now equals roughly $35 billion per year alongside a $600 billion annual Pentagon budget and a multi-trillion dollar government program to stimulate the US economy and subsidize “toxic” bank assets. The entire US bilateral aid budget to Africa is itself only $6 billion per year, a figure comparable to recent annual bonus pools at some investment banks (e.g., $3.6 billion in publicly subsidized December bonuses at Merrill Lynch).
Second, the book overlooks the fact that foreign aid has supported enormous successes, most notably since 2000. International support to cut school fees has resulted in more than 30 million more children in school since the turn of the decade. UNICEF and the Red Cross worked together to help cut measles deaths by 90 percent in the six years from 2000 to 2006, saving more than 1,000 children’s lives per day. The Global Fund to Fight AIDS, TB, and Malaria and the US President’s Emergency Fund for AIDS Relief (PEPFAR) have together turned the tide on the AIDS pandemic by increasing the number of Africans on modern treatment from less than 10,000 in 2001 to more than 2 million today. Malawi has received support to finance fertilizer and seeds for 2 million farmers, helping the country to nearly double food production, now three years in a row. Meanwhile, foreign aid has supported the distribution of tens of millions of modern bednets in countries like Ethiopia, Kenya, and Rwanda, typically producing a 50 percent reduction in morbidity or more.
And while foreign aid for targeted, outcome-driven programs has increased in recent years, African economies have also enjoyed a boost in macroeconomic performance. IMF data show that countries are averaging more than 5 percent real economic growth in recent years while inflation is down, foreign reserves are up, and governments are making major strides in increasing their domestic revenue base.
Indeed one of Moyo’s most remarkable claims is that, “In the 1970s 10 percent of the population [in Africa] was living in dire poverty. That number is now over 70 percent” (e.g., on March 25 Charlie Rose show). The source for this statement is unclear. The most rigorous international poverty estimates are produced by Shaohua Chen and Martin Ravallion (2008), who trace the data back to 1981. They indicate that poverty rates in Sub-Saharan Africa have barely changed since 1981, although with slight improvements in the years since roughly 1999 (see table).
Unfortunately, the book fully skips the most central question regarding foreign aid: What makes some programs so successful and others less so? In turn, how can we increase funding to scale up the ones that work well? Citing the inefficacy of Cold War payouts to Mobutu is banal. But among the many nuances across the landscape of successful foreign aid programs, a few key points of diagnosis stand out. Programs have worked well when African technical, political, and community leaders craft and implement clear and accountable plans on which the international community provides objective technical evaluation and which rich countries then help to co-finance.
On the prescriptive side, the book is equally problematic. It highlights the benefits of trade but confuses the crop-specific issues around agricultural subsidies and overlooks the considerable literature pointing to the small scale of gains to trade liberalization in countries with very limited productive capacity (see, for example, the review of evidence on pp. 176-182 of “Ending Africa’s Poverty Trap.”)
The book is right to highlight the merits of foreign direct investment (FDI) and the potential of China to increase its activity in this area, but here it meets two core issues. One is that FDI in Africa goes overwhelmingly to the select locations with natural resource wealth. The evidence shows that companies will go almost anywhere to extract minerals, irrespective of governance. But there are very few locations where the per capita value of this natural resource wealth is significant, so other parts of Africa need a solution too. The other issue is that Moyo is a big fan of Chinese investment and foreign aid. In effect she is refuting her own argument by advocating for increased foreign aid, but from China rather than from “the West.” (My own view is neutral on the sources of foreign aid. As long as it meets core standards of human rights, transparency, and results, all credit to those who are practical.)
The book’s most novel recommendation is that poor African countries should cut themselves off from almost all foreign aid and switch to debt-based financing. Although one can only be positive on the long-term goal for countries to develop to market-based financial structures, there are several key problems with the book’s prescription.
- It is a recommendation to saddle the poorest countries and people in the world with vastly more debt, in effect advocating sub-sub-sub-prime lending. We have learned the risks to sub-prime lending in the rich world. Do we really want to engage full scale in extending the predictable risk in the poorest parts of the planet?
- The book cites Ghana and Rwanda as models of modern African leadership. Ghana’s 2007 debt issuance amidst the global credit bubble is cited as a success story to be emulated everywhere. The reality is that Ghana and Rwanda receive some of the most annual foreign aid per capita in Africa. In 2006, the most recent year for which official statistics are available, Ghana received $56 of aid per capita and Rwanda received more than $62 per capita, at the same time as they pursued private investment and fundraising strategies. Both have received billions of dollars of aid in recent years. Both rightly avoid Moyo’s false choice by pursuing aid and private investment and trade.More broadly, Moyo writes that many African leaders have a desire to see their countries excel (p. 78). Many of those same leaders are putting aid to good use, thereby contradicting the book’s other point that aid is making leaders worse and countries poorer.
- The world is in the middle of a prolonged global credit crisis when even the bluest of blue chip companies cannot issue debt. Which low-income African countries would possibly be able to issue low priced bonds in such an environment? And do we tell the AIDS and malaria patients in Africa that they have to stop taking medicine to stay alive in the years when investment bankers make big mistakes and credit dries up?
- The book repeatedly uses the term “emerging markets” to refer to all developing countries. This falsely bundles typical low-income countries that have per capita GDP of perhaps $300-$500 with middle-income countries like Brazil and Turkey that have per capita GDP of more than 10 times that amount. The fundamental differences are (a) ability to repay, and (b) ability to withstand negative shocks.
- The bond prescription overlooks the fundamental nature of extreme poverty and the lack of ability to repay in core social sector investments, which are different from infrastructure investments that have a more direct economic return. If a country needs to borrow money to pay for primary school, do we expect the children to earn enough income to repay the school fee five years later? Do we ask their parents to pay off the cost five years later? Issuing bonds for social programs is in effect asking poor people to repay the cost, plus interest, in the future.
- We have been down the path of poor countries taking private loans before. The most poignant lesson came in 1982, when U.S. Federal Reserve chairman Paul Volcker raised U.S. interest rates to tame inflation, triggering a global debt crisis. At the rate of current monetary expansion, it is very likely that interest rate hikes will be needed to tame global inflation in the next few years. Should the world’s poorest people be asked to bear that cost?
As a final point, the book reveals a fundamental gap in homework by repeating a vignette about a local artisan making bednets whose business is hurt by foreign aid-financed imports. This highlights a lack of knowledge on the basics of malaria control, which has been one of the most important and broadly researched aid-financed policy breakthroughs of the past five years. The modern norm of life-saving bednets is something called a “long-lasting insecticide treated net.” It is powerful and cheap due to a sophisticated manufacturing process that embeds insecticide into the weave of the nets. They cost roughly $8, cover two people in a sleeping site, and last five years. Sumitomo is the largest manufacturer and has a major production facility in China in addition to a joint venture facility with AtoZ Textile Mills in Arusha, Tanzania (another is planned for West Africa).
Suggesting that rural Africans should buy bednets made by their village neighbors is analogous to saying that they should buy antiretroviral medicines made by their neighbors. Some modern goods require modern technology and, in order to be as affordable and effective as possible in saving lives, require mass production in specialized sites. As with so much of the book, a bit more review of basic evidence would illuminate a much more important story.
Amidst the global economic crisis, the poorest countries of the world are reeling – losing export earnings, bank credits, foreign investment projects, remittances, and other sources of income. They are suffering extreme duress caused by shocks emanating from Wall Street. In such times of economic and political crisis, when so much damage has been caused by such a small share of the world’s richest and most powerful people, let us resist the simplistic headlines to ensure that evidence and clear heads prevail.
The problem with the book and Moyo’s view is that it fundamentally misunderstands the problems the world’s poor is facing. I liken her perspective to Booker T. Washington’s “up by our bootstraps” method memorialized in the Atlanta Exposition Address. She has put the cart before the horse. African nations and the poorest of the people in those nations require more foreign aid to become competitive in the global market.
The fundamental question is how to create an environment of sustainable independence? The empirical answer is infrastructure. The fleecing of African natural resources without investment in their infrastructure has led to a rising tide capsizing smaller boats. African nations must develop industry and inter and intra-continental trade. The greatest obstacle to this goal is the logistics. Western societies have the ability to move goods and services efficiently over great distances. Infrastructure projects require capital. In the U.S. when a municipality, school, or state requires improvements to its infrastructure it can issue debt because the bond purchaser can rely on the institution’s ability to tax as a stable source of repayment.
This is not the case in Bonsaaso, Ghana. The idea of taxing the people of Bonsaaso, for their road is nonsensical. Taxing them is less efficient than having them pay for the road themselves with cash. They also cannot afford the interest the market requires, which makes borrowing cost-prohibitive. Without direct aid, the people would be required to pay for their roads themselves. To even the best of gated communities in the U.S. the idea is impalpable.
The nations are faced with the same problem that localities have around the world, but without the same choices. Neither borrowing nor raising the funds is an option because they communities do not have access to capital. In Moyo’s case, the prescription is much worse than the cure. She suggests African nations leverage themselves with insurmountable debt to make themselves more creditworthy. This is no more of a solution than prescribing an AIDS patient drink rat poison because it will surely kill the disease. Moyo fails to add the small footnote that it will most certainly kill the patient in the process.
In response to Mr. McArthur’s point that Ms. Moyo fails to investigate why are some programs successful while others fail, she simply cannot. To do so would be the most obvious affront to the premise of the book. The projects are successful because they are directed toward building independence and self-sufficiency. Be they in health education, better built schools or higher yield crops, the examples that ring truest are those where initial aid jumpstarts self-help.
The poorest people of Africa know that they are poor and want a better life for themselves. They are however, without the means to provide it for themselves. Moyo is correct in her assertion that the solution for Africa is not aid that creates dependency. She errs by suggesting that there is no aid that does not create dependency. The most reasonable solution is to provide aid that ‘teaches African people to fish.” Moyo suggests we loan African people our fishing pole, but charge them their day’s catch to borrow it. This would lead African nations to the success levels of sharecroppers in the American south.
The solution to sustainability is providing an efficient road to be independence. That road must travel through infrastructure developments. In an effort to her give a full appreciation for the state of some African infrastructure, I would propose Ms. Moyo take the thirty-two hour trip from JFK to Blantyre, Malawi and drive the difficult terrain to Mwandama. There she should conduct interviews with the farmers who have received aid. Their current successes and previous challenges might enlighten her position.
Dr. MacArthur: Are you citing exclusively government aid, and not private? Did Moto make that distinction? It might be apples-to-oranges until the government aid vs. private charity is clarified. I’m sending over $100 in aid monthly to Africa to support 4 children, and I don’t think you are including that in your post above.
I second caveat bettor.
Why is “aid” always equated with government aid in these discussions? It’s as if the millions of us who donate our own money in our own way don’t count.
As for the Pentagon thing – at least the Pentagon can point to some successes to offset the waste. Like being on the winning side in WWII.
[…] John McArthur says that Dambisa Moyo has claimed that “in the 1970s 10 percent of the population [in Africa] was […]
I think the debate should not be reduced to an accounting exercise or a vote for or against aid. The debate is simply two or three things: 1) What is aid supposed to accomplished over the years? 2) Did aid actually accomplished those stated goals? What are the accomplishments? 3) is aid opened ended? If not what is the target date for it to end so that it can be held accountable by that date.
As long as the answer to point 1 is NOT “Sustainable economic growth”, then you in fact agree with Moyo with almost all respect. Otherwise we need to bring answers to 2) and 3).
Even though a clear counterfactual is not there to help answer those questions properly, the existing evidences lean against aid.
John,
That is an excellent review of the issues the book makes and I use it in my Development and Practice class here at the Australian National University. I myself attempted a slghtly less comprehensive review than yours, which can be found at: http://peopleanddevelopment.weblogs.anu.edu.au/2009/03/30/dambisa-moyo-dead-aid/
I second caveat bettor.
Why is “aid” always equated with government aid in these discussions? It’s as if the millions of us who donate our own money in our own way don’t count.
As for the Pentagon thing – at least the Pentagon can point to some successes to offset the waste. Like being on the winning side in WWII.
Dr. MacArthur: Are you citing exclusively government aid, and not private? Did Moto make that distinction? It might be apples-to-oranges until the government aid vs. private charity is clarified. I’m sending over $100 in aid monthly to Africa to support 4 children, and I don’t think you are including that in your post above.
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I agree with you. Individuals should provide more aid instead of waiting for governments until it is too late.
Furthermore if we were to provide aid in this manner the money would actually go where it is needed rather than be lost in administrative costs and corruption.
Adult education is evolving – not just in the US but also in Europe with lifelong learning. It is encouraging overall.
i completely agree that more aid by individuals is a good idea but it will never be able to replace aid given by the governments. what is needed is a transparent auditable system measuring the use of aid. the internet should be harnessed to its full capacity for tracking purpose. infact there will be enough volunteers for tracking the aid process.
Aids has always been a big threat to the mankind. Education is the only way by which we can prevent this dangerous disease from spreading. Many steps has been taking for this dreadful disease and they have always come out handy. Thanks to the government for giving such a hand in this category.
yea it is good to see that adult are interested in educating themselves especially way back there in the very poor countries.
The idea of reducing help to Africa is not good. Developed countries should in fact increase it. However the distribution of the help and political benefits from delivering it are to be subject of further work – why can’t UN require full disbanding of local armed forces and confiscation of all military-pattern guns? UN and developed countries feed Africa and in exchange they can “ask” people like Mugabe to stop wasting resources on rifles and tanks – and start paying for tractors and penicillin instead.
The best review of the book.
Aids is a deadly disease and it needs to be cured. Education is the best way to spread information to the people and aware them about this horrible disease.
The developed countries should extend a helping hand.
Prevention is better than cure.Need spread information and knowledge about AIDS,than public can understand what is AIDS!?and how to defeat it??Education is only one way for stop and save more lives.
I agree with the person above who said that individuals will never be able to match the aid given by governments. Won’t stop me helping, though…
@Coole-stuehle: that is exactly the same that I often think when it comes to this subject.
But on the other hand – as long as there is help, not matter by whom – things can only get better! 🙂
I agree with the person above who said that individuals will never be able to match the aid given by governments. Won’t stop me helping, though…
@thaiseoweb I agree with the person above who said that individuals will never be able to match the aid given by governments. Won’t stop me helping, though…
Totaly corect , more aid should be provided , loads of money are waisted when could help others in poor countries.
I agree with you. Individuals should provide more aid instead of waiting for governments until it is too late.
Furthermore if we were to provide aid in this manner the money would actually go where it is needed rather than be lost in administrative costs and corruption.
What are your thoughts on improving the lives of Africans and solar energy? It would seem that Africa could produce HUGE solar power stations and pipe that energy all over Europe. These could be really good paying jobs also. Africa has the wonderful commodity of the Sun. I hope they do this for the people and don’t just kick people off their land and ship in workers from other countries to do this.
Why is “aid” always equated with government aid in these discussions? It’s as if the millions of us who donate our own money in our own way don’t count.
As for the Pentagon thing – at least the Pentagon can point to some successes to offset the waste. Like being on the winning side in WWII.
we should not stop helping. the growth of the human society depends on every individual; not only from a nation’s government.
I have read this book. It makes its case almost clinically, backed up by statistics and research papers from an entire spectrum of economists. Dead Aid is divided in two sections, The World of Aid, which examines the ‘aid-economy’, the players and the harmful affects on African countries’ dependence on western aid. The second section, A World Without Aid proposes several venues open to the developing countries in Africa to raise money and be independent – the most important being trade and raising capital from the markets.
In Latin American countries, including mine-Mexico-we have the idea of the enormous poverty in the African continent. And we have in mind is the “measure” of what it means poverty.
But there is one constant that also makes my country like such poverty. The FULL disinterest of governments. These governments, profit from poverty!
I would say that we are much better than fellow Africans … But you only have to look to the Sierra Tarahumara, the Chiapas jungle …
Anyway … Awareness … That is what is missing here.
Educating third world countries about what AIDs is and how it can be prevented is the best option for the current situation which we face. A cure would be wonderful, however, the more practical action we can immediately take steps towards is to spread knowledge and information to increase prevention. Enlightenment is the goal however daunting that may be.
SteveH. Im just replying to your question if I may. Certain countries in Africa have one of the best conditions for direct coupled solar power in the world. I think the African union needs help from Europe to establish a large Solar Thermal project in Northern Africa and export its power throughout Africa and Europe. It would encourage foreign investment and offer the people employment
Sorry, I forget to mention also, that by educating the people in these regions you would help harvest a domestic/international workforce that can help their own. Just my 2c!
I agree with you. Individuals should provide more aid instead of waiting for governments until it is too late.
Furthermore if we were to provide aid in this manner the money would actually go where it is needed rather than be lost in administrative costs and corruption.
Thanks for your information,
In Latin American countries, including mine-Mexico-we have the idea of the enormous poverty in the African continent. And we have in mind is the “measure” of what it means poverty.
But there is one constant that also makes my country like such poverty. The FULL disinterest of governments. These governments, profit from poverty!
have a nice day.
While I don’t disagree with providing aid, education amount adults and children is the key to freeing these countries from this disease.
I also agree with you that people should not rely only on goverment. I belive educating the people in these regions would be best for long term results.
Education is in the first place for everything.Before sending money or food we have to concentrate on education
@Arshad Cini, I could not agree more, many of the non-profit organizations today are not addressing the true problem, sure they are doing good by giving hungry people food and thirsty people water but what happens when aid runs out, these people go back to how they were before and no change has really been made.
i agree with the person above who said that individuals will never be able to match the aid given by governments Won’t stop me helping, though…
Although a cure for deadly diseases like AIDS, I wish the medical industry. Our people are dying in vain. Thank you for this useful post …
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Why is “aid” always equated with government aid in these discussions? It’s as if the millions of us who donate our own money in our own way don’t count.
I definitely agree that education is the key here. Supplying bednets is like putting a bandaid over a bullet wound. It gives a facade that we are doing something good, but the focus should be on education and government in order to give these people hope of truly rising above these issues.
The idea of reducing help to Africa is not good. Developed countries should in fact increase it. However the distribution of the help and political benefits from delivering it are to be subject of further work – why can’t UN require full disbanding of local armed forces and confiscation of all military-pattern guns? UN and developed countries feed Africa and in exchange they can “ask” people like Mugabe to stop wasting resources on rifles and tanks – and start paying for tractors and penicillin instead.
Hate the fact that a lot of money gets wasted when it should be used for aid.
Also agree that education comes first which is why more institutes are needed in order to make it a better future.
I think education comes first which is why more institutes are needed
The idea of reducing help to Africa is not good. Developed countries should in fact increase it. However the distribution of the help and political benefits from delivering it are to be subject of further work – why can’t UN require full disbanding of local armed forces and confiscation of all military-pattern guns? UN and developed countries feed Africa and in exchange they can “ask” people like Mugabe to stop wasting resources on rifles and tanks – and start paying for tractors and penicillin instead.
Second, the book overlooks the fact that foreign aid has supported enormous successes, most notably since 2000. International support to cut school fees has resulted in more than 30 million more children in school since the turn of the decade. UNICEF and the Red Cross worked together to help cut measles deaths by 90 percent in the six years from 2000 to 2006, saving more than 1,000 children’s lives per day. The Global Fund to Fight AIDS, TB, and Malaria and the US President’s Emergency Fund for AIDS Relief (PEPFAR) have together turned the tide on the AIDS pandemic by increasing the number of Africans on modern treatment from less than 10,000 in 2001 to more than 2 million today. Malawi has received support to finance fertilizer and seeds for 2 million farmers, helping the country to nearly double food production, now three years in a row. Meanwhile, foreign aid has supported the distribution of tens of millions of modern bednets in countries like Ethiopia, Kenya, and Rwanda, typically producing a 50 percent reduction in morbidity or more.
The idea of reducing help to Africa is not good. Developed countries should in fact increase it. However the distribution of the help and political benefits from delivering it are to be subject of further work – why can’t UN require full disbanding of local armed forces and confiscation of all military-pattern guns? UN and developed countries feed Africa and in exchange they can “ask” people like Mugabe to stop wasting resources on rifles and tanks – and start paying for tractors and penicillin instead.
African countries are also still fighting against the unfair practices in the international pharmaceutical industry. Medical experimentation occurs in Africa on many medications, but once approved, access to the drug is difficult. Drug companies are often concerned with making a return on the money they invested on the research and obtain patents that keep the prices of the medications high. Patents on medications have prevented access to medications as well as the growth in research for more affordable alternatives. These pharmaceuticals insist that drugs should be purchased through them. South African scientists in a combined effort with American scientists from Gilead recently came up with an AIDS gel that is 40% effective in women as announced in a study conducted at the University of KwaZulu-Natal in Durban, South Africa. This is a groundbreaking drug and will soon be made available to Africans and people abroad. The South African government has indicated its willingness to make it widely available. The FDA in the US is in the process of reviewing the drug for approval for US use…The AIDS/HIV epidemic has led to the rise in unethical medical Experimentation in Africa.Since the epidemic is widespread, African governments relax their laws in order to get research conducted in their countries which they would otherwise not afford.
I understand we are making big strides in the poverty level and the fighting of disease such as HIV. I applaud all the volunteers, companies and whomever gives of their time and money to help these much afflicted people. Thank you for posting this. This will be of benefit to all your readers as much as it has been to me.