How crippling is foreign aid to Africa?

March 23, 2009

In last week’s Wall Street Journal, there’s a provoking essay by Dambisa Moyo, a former Goldman Sachs economist, on whether aid to sub-Saharan countries is productive in the long run. At first the piece’s assertion seems counterintuitive, but the argument—that aid enables autocratic regimes to maintain their hold on power and provides little incentive for economic initiative—isn’t entirely new.

One thing about the article I found lacking was the absence of details on the extent to which aid is tied to loans, or even what percentage of aid is in fact not aid at all, but loans under a different name. Moyo takes a stab at it with this:

Whatever its strengths and weaknesses, such charity-based aid is relatively small beer when compared to the sea of money that floods Africa each year in government-to-government aid or aid from large development institutions such as the World Bank.

Over the past 60 years at least $1 trillion of development-related aid has been transferred from rich countries to Africa. Yet real per-capita income today is lower than it was in the 1970s, and more than 50% of the population — over 350 million people — live on less than a dollar a day, a figure that has nearly doubled in two decades.

Even after the very aggressive debt-relief campaigns in the 1990s, African countries still pay close to $20 billion in debt repayments per annum, a stark reminder that aid is not free. In order to keep the system going, debt is repaid at the expense of African education and health care. Well-meaning calls to cancel debt mean little when the cancellation is met with the fresh infusion of aid, and the vicious cycle starts up once again.

It would be intellectually lazy to assess Moyo’s ideas with a shoot-the-messenger approach. Some governmental improvements Moyo touts as integral to reform are issuing bonds, participating more actively in capital markets, and attracting foreign investment by altering tax structures and streamlining bureaucracy.  

Whether this is the most effective route to weaning African governments off their dependence on aid is debatable, but doesn’t detract from the overall argument that by perpetuating never-ending monetary infusions, Western governments, NGOs, and their advocates become complicit in limiting the potential of much of sub-Saharan Africa and its peoples.


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