Let’s step back a bit. Recall the August 1982 phone call when the Mexican Finance Minister telephoned the IMF, the US Treasury, et al. to inform them that Mexico would be unable to pay its debt. What if, in Africa’s case, the scene were reversed?
What if, one by one, African countries each received a phone call (agreed upon by all their major aid donors – the World Bank, Western countries, etc.), telling them that in exactly five years the aid taps would be shut off – permanently? Although exceptions would be made for isolated emergency relief such as famine and natural disasters, aid would no longer attempt to address Africa’s generic economic plight.
What would happen?
Would many more millions in Africa die from poverty and hunger? Probably not – the reality is that Africa’s poverty-stricken don’t see the aid flows anyway. Would there be more wars, more coups, more despots? Doubtful – without aid, you are taking away a big incentive for conflict. Would roads, schools and hospitals cease being built? Unlikely.
What do you think Africans would do if aid were stopped, simply carry on as usual? Too many African countries have already hit rock bottom – ungoverned, poverty-stricken, and lagging further and further behind the rest of the world each day; there is nowhere further down to go.
Isn’t it more likely that in a world freed of aid, economic life for the majority of Africans might actually improve, that corruption would fall, entrepreneurs would rise, and Africa’s growth engine would start chugging? This is the most probable outcome – that where the real chance exists to make a better life for themselves, their children and Africa’s future generations, Africans would grab it and go.
If other countries around the developing world have done it sans aid (generated consistent growth, raised incomes and rescued billions from the brink of poverty), why not Africa? Remember that just thirty years ago Malawi, Burundi and Burkina Faso were economically ahead of China on a per capita income basis. A dramatic turnaround is always possible.
Grasping the nettle
How do we put the Dead Aid proposals into practice, and help to ensure that Africa gains a firm economic footing? There are three interlinked stages after the phone call.
First comes an economic plan which reduces a country’s reliance on aid year on year. In Dongo’s case, aid would fall 14 per cent every year – taking it down from the 75 per cent of income it receives today to 5 per cent in five years’ time. For the first year, instead of 75 per cent, Dongo is now getting only 61 per cent of its income from aid. It now has to find the extra 14 per cent of money it requires from other Dead Aid means. In the second year, Dongo will have to find 28 per cent of its financial capital outside aid, and the year following, 42 per cent – nearly half of its needs.
We have offered an array of financing alternatives: trade, FDI, the capital markets, remittances, micro-finance and savings. It should come as no surprise that the Dead Aid prescriptions are market-based, since no economic ideology other than one rooted in the movement of capital and competition has succeeded in getting the greatest numbers of people out of poverty, in the fastest time.
Ultimately, where a country goes for its cash depends on its particular circumstances. For example, trade-oriented commodity-driven economies such as Zambia, Kenya and Uganda (actually the majority of African countries) should look at boosting trade with China and other emerging nations. And certainly the fifteen African countries which have recently acquired credit ratings should consider following Gabon and Ghana’s lead in drawing on the capital markets.
Once the financing plan is in place, and Dongo knows how much it has to find, it must enforce rules of prudence and not live beyond its means. Like a family whose income has fallen, Dongo has two choices. It can either cut back on its expenditure or raise funds elsewhere to support the same level of spending. One would hope that any cutbacks would be on the non-essential, frivolous items (palaces, private jets and shopping trips to the Champs-Elysées in Paris), rather than schools, hospitals and infrastructure. With different forms of financing, without the same opportunity for corruption, the provision of schools, hospitals and infrastructure will anyway become cheaper. But in order to sustain the same degree of spending, Dongo would need to tap other sources of income. Using the Dead Aid proposals, the channels of money available will not only help maintain the same level of spending, but will of themselves encourage economic growth and increase the taxable middle classes, thereby broadening Dongo’s financial alternatives.
Of course, nothing can stop a bad government from using the new money for old tricks. Some African leaders have been notoriously susceptible to shopping trips (Grace Mugabe, wife of Zimbabwe’s president, is known for a penchant for shopping at London’s exclusive Harrods department store), and some may be tempted again. But whereas the open purse of aid permits them to do this every year, if they use the private cash of the Dead Aid proposal for such ends, they will only get away with it once. If, for instance, a government were to steal the proceeds of a bond, or impose punitive taxes on its exporters, lenders would never lend again, and exporters would stop exporting. Over time, the economic pie that could be eaten into would grow smaller and smaller – and ultimately shrink into oblivion. Indeed, one could argue that the reason why Zimbabwe’s Mugabe has lasted so long is because he has been propped up by massive foreign aid receipts; it certainly isn’t Zimbabwe’s burgeoning economy – US$300 million in foreign aid was sent there in 2006. In fact, without aid, the likelihood is that Mugabe might have been long gone. And regarding FDI, the Chinese expect something in return. Even if 80 per cent of their cash transfer is stolen, they still require that roads be built and the commodity extracted. Having amounts stolen is nowhere near a perfect solution, but at least a part of the cash benefit must accrue to the country.
The third stage in the Dead Aid model is the strengthening of institutions. At the core of the Dead Aid proposal is accountability. Those charged with the responsibility of providing public goods and ensuring the transparency and health of an environment within which the private sector can flourish must be held accountable when they fail to deliver. This has been the aid model’s Achilles heel.
In The Wealth and Poverty of Nations, David Landes suggests that ‘the ideal growth and development’ government would:
secure rights of private property, the better to encourage saving and investment; secure rights of personal liberty . . . against both the abuses of tyranny and . . . crime and corruption; enforce rights of contract . . . provide stable government . . . governed by publicly known rules . . . provide responsive government . . . provide honest government . . . [with] no rents to favour and position; provide moderate, efficient un-greedy government . . . to hold taxes down [and] reduce the government’s claim on the social surplus.1
Yet this is not the world in which most Africans live. In their world of aid-dependence, governments have failed at all these tasks, and failed spectacularly.
But is all this as easy as it sounds? One phone call, and it all slots into place? Why not? Development is not a mystery; each of the elements of the Dead Aid proposal has been tried and tested and yielded success – and governments and policy-makers know it.
The aid regime has been in place (in one form or another) for sixty years and demonstrably failed to generate economic growth and alleviate poverty. Given that in no other sphere (business, politics) has such a poor record been allowed to persist, why has the phone call not been made?
Who will bell the cat?
The Dead Aid proposal is dead easy to implement. What it needs, and what is lacking, is political will. Political incentives are stacked against making the call.
Western donors have an aid industry to feed, farmers to placate (vulnerable when trade barriers are removed), liberal constituencies with ‘altruistic’ intentions to allay, and, facing their own economic challenges, very little time to worry about Africa’s demise. For the Western politician maintaining the status quo of aid, it is much easier just to sign a cheque.
For African leaders too there is no immediate incentive to abandon the aid model – apart, of course, from the obvious one that were they to do so their countries’ economic position would quickly improve. To appreciate the economic prospects in a non-aid environment, however, requires a long-term and selfless vision, and not the myopia so many policymakers (at home and abroad) are afficted with today.
Unfortunately, there are still only a handful of (African) policy-makers critical of aid’s dismal performance. In a September 2007 interview with Time magazine, Rwanda’s President Kagame commented:
Now, the question comes for our donors and partners: having spent so much money, what difference did it make? In the last 50 years, you’ve spent US$400 billion in aid to Africa. But what is there to show for it? And the donors should ask: what are we doing wrong, or, what are the people we are helping doing wrong? Obviously somebody’s not getting something right. Otherwise, you’d have something to show for your money.
The donors have also made a lot of mistakes. Many times they have assumed they are the ones who know what countries in Africa need. They want to be the ones to choose where to put this money, to be the ones to run it, without any accountability. In other cases, they have simply associated with the wrong people and money gets lost and ends up in people’s pockets. We should correct that.2
In a similar vein, Senegal’s President Wade remarked in 2002: ‘I’ve never seen a country develop itself through aid or credit. Countries that have developed – in Europe, America, Japan, Asian countries like Taiwan, Korea and Singapore – have all believed in free markets. There is no mystery there. Africa took the wrong road after independence.’3 Indeed, now is the time to correct, and not be swayed by media hype and populist and ill-conceived banter.
Ordinary people across Africa, the millions who bear the brunt of the economic catastrophe, have an incentive to change the aid regime of course. They would, if they could – who wouldn’t? But they eke out their existence under a veiled (and often not so veiled) threat of intimidation, punishment and even death. In order to overturn the state aid-dependency, Africans need the gritty defiance of the unknown man who stood against the Chinese tanks in Tiananmen Square in June 1989. But such rebellion carries enormous risk, and when pitted against the omnipotent state, more likely than not, will fail.
This leaves it to Western citizens. They have power, and could hold the key to reform. It was, after all, thanks to the 60,000 ordinary Americans who wrote to the US Congress laying out their desire for freer trade access for African countries that the AGOA was born.4 It is this type of activism that is needed to help jump-start Africa’s development agenda, and set it on the right track.
Aid came from the West (and continues to do so), and it’s up to the West to take it back. Why have people in the West not demanded that something be done? It is, after all, their money being poured down the drain. Maybe some have, but it’s nearly impossible to be heard above the hectoring din of the purveyors of the ‘Africa’s glass is half empty’ view of this world.
They say that aid worked – that the true test of aid’s success is that millions of other Africans would have died were it not for aid. We can never really know if this is true (though we do know for sure that countries that have not relied on aid, including those in Africa like South Africa and Botswana, have consistently done better), and this justification for aid is changing the rules of the game. Aid was not originally designed or intended to be a stickingplaster solution simply aimed at keeping people alive. The goals of aid, as originally set out by the forefathers in the New Hampshire hotel all those years ago, were sustainable economic growth and poverty alleviation, and it is against these goals that aid’s efficacy should be judged, and against these that it has spectacularly failed.
Is there a moral obligation for Western societies to help poor countries? Clearly morality claims hold sway, but surely one would expect Western moralizers to adopt policies which help those in need rather than hinder them in the long run and keep them in a perilous state of economic despair. One solution that the aid proselytizers could adopt would be an egalitarian approach to donor donations. Instead of writing out a single US$250 million cheque to a country’s government, why not distribute the money equally among its population. So in a country of 10 million people (roughly the population of Zambia) each citizen would get US$25 – a tenth of Zambia’s current per capita income. In line with the Dead Aid proposals, this would in effect be a remittance ‘donor-style’.
Indefinite grant transfers, however dressed up, are not something Dead Aid favours, but one could envisage how such remittances could be part of an effective financing package were the notions of accountability and repayment incorporated.
It is worth pointing out that there has been some notable success with a concept known as ‘conditional cash transfers’; these are cash payments (in a sense, bonuses) made to give the poor an incentive to perform tasks that could help them escape poverty (for example, good school attendance, working a certain number of hours, improving test scores, seeing a doctor). The idea of conditional cash transfers has met with much success in developing countries such as Brazil, Mexico, Nicaragua and Peru (a similar programme is now being tested in the boroughs of New York City). Studies show the schemes have been instrumental in decreasing malnutrition, increasing school attendance and decreasing child labour.5
The genius of conditional cash transfer programmes (certainly in the context of developing countries) is threefold: they circumvent the government (bureaucracy and corruption are averted); payments are made for actually doing something rather than for doing nothing, which has often been the case with aid (quite simply, if you don’t meet certain standards of behaviour, do certain things, meet specified criteria, you don’t get paid); and the money actually ends up in the hands of the people that truly need it. The scheme has met with a resounding success in developing countries, so why has this type of programme not been rolled out aggressively across Africa? It would seem the logical thing to do given the failure of government-to-government aid.
Leaving the question of morality aside, there are good reasons based on national interest for the West to help. In the fractured world of Iran, Iraq and Afghanistan, Africa’s fragile and impoverished states are a natural haven for global terrorists. Porous borders, weak law enforcement and security institutions, plentiful and portable natural resources, disaffected populations, and conflict zones make perfect breeding grounds for all sorts of global terrorist organizations.
The four horses of Africa’s apocalypse – corruption, disease, poverty and war – can easily ride across international borders, putting Westerners at just as much risk as Africans. Of course, stolen money sent to European bank accounts can fund terrorist activities; disease, poverty and war induce waves of disenfranchised refugees and unchecked immigration, which can place inordinate burdens on Western economies.
The West can choose to ignore all of this, but, like it or not, the Chinese are coming. And it is in Africa that their campaign for global dominance will be solidified. Economics comes first, and when they own the banks, the land and the resources across Africa, their crusade will be over. They will have won.
Whether or not Chinese domination is in the interest of the average African today is irrelevant. This is not to underestimate how much Africans care about freedom and rights – they do. But in the immediate term a woman in rural Dongo cares less about the risk to her democratic freedom in forty years’ time than about putting food on her table tonight. China promises food on the table today, education for her children tomorrow and an infrastructure she can rely on to support her business in the foreseeable future.
The mistake the West made was giving something for nothing. The secret of China’s success is that its foray into Africa is all business. The West sent aid to Africa and ultimately did not care about the outcome; this created a coterie of elites and, because the vast majority of people were excluded from wealth, political instabili
ty has ensued.
China, on the other hand, sends cash to Africa and demands returns. With returns Africans get jobs, get roads, get food, making more Africans better off, and (at least in the interim) the promise of some semblance of political stability. It is the economy that matters. Places like Singapore have shown that, even in the absence of democracy, peace prevails when the median citizen is economically better off. In Africa, the 2008 fracas in Kenya may have been much more protracted had the average Kenyan had a lesser stake and vested interest in the economy. The situation may have gone on for as long as it did because, like any other society, there are, unfortunately, always people at the fringe who have yet to become fully fledged economic stakeholders and garner the benefits of a growing economy. The China movement in Africa is on the march – the West ignores it at its own peril.
Is there a role for the staid development formulas and old institutions of yesteryear? Surely, not to help Africa truly achieve sustainable growth and alleviate poverty as has so often been claimed. To support Africa in achieving this goal requires severing the Faustian bargain of current aid-driven development policy, and doing away with the ossified policies (and processes) that reign supreme in today’s development debate. Fortunately, there has been some, albeit slow, movement in the right direction. Perhaps heeding the proverbial writing on the wall, or fearing their growing irrelevance in the development game where they were once the protagonist, international organizations are changing their tune.
There is a push towards greater inclusion of perspectives (from technocrats and policymakers) from the emerging world in the upper echelons of development agencies – who better to help shape the direction of the new development path? In 2008, for instance, the World Bank elected Justin Lin Yifu to the position of Chief Economist (considered the number two job at the international economic institution), which until this point had been occupied only by Americans or Europeans.
Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa Page 17