Consider this: in the past forty years at least a dozen developing countries have experienced phenomenal economic growth. Many of these, mostly Asian, countries have grown by almost 10 per cent of GDP per year, surpassing the growth rates of leading industrialized economies, and significantly reducing poverty. In some instances, poorer countries have leap-frogged the per capita income levels of leading developed economies, and this trend is set to continue: by some estimates, star emerging-market performers such as Brazil, Russia, India and China are projected to exceed the economic growth rates of nearly all industrialized economies by the year 2050. Yet, over the same period, as many as thirty other developing countries, mainly aid-dependent in sub-Saharan Africa, have failed to generate consistent economic growth, and have even regressed.
Many reasons have been offered to account for why African countries are not working: in particular, geographical, historical, cultural, tribal and institutional. While each of them is convincing in explaining Africa’s poor showing, they do not tell the whole story.
One argument, advanced by geographical determinists such as Jared Diamond in Guns, Germs and Steel (1997), is that a country’s wealth and success depend on its geographical environment and topography. Certain environments are easier to manipulate than others and, as such, societies that can domesticate plants and animals with relative ease are likely to be more prosperous. At a minimum, a country’s climate, location, flora, fauna and terrain affect the ability of people to provide food for consumption and for export, which ultimately has an impact on a country’s economic growth. Diamond notes that all societies and cultures have had approximately similar abilities to manipulate nature, but the raw materials with which they had to start were different.
Africa’s broad economic experience shows that the abundance of land and natural resources does not guarantee economic success, however. In the second half of the twentieth century, natural-resource dependence has proved to be a developmental curse, rather than a blessing. For example, many African countries were unable to capitalize on commodity windfalls of the 1970s, leaving their economies in a state of economic disaster (the good news is that at least five African countries – Chad, Equatorial Guinea, Gabon, Nigeria and Sudan – have had the good sense this time around to establish savings funds and to put aside some of their commodity windfalls). Having squandered much of their natural wealth through questionable investment and even, in some cases, outright theft, oil- and mineral-rich countries such as Nigeria, Angola, Cameroon and the Democratic Republic of Congo recorded dismal economic results in this period. They had nothing to show for it.
In ‘Africa: Geography and Growth’, an Oxford University and ex-World Bank economist, Paul Collier, adopts a nuanced approach to the endowments issue by classifying African countries in three groups: countries which are resource-poor but have coastline; those that are resource-poor and landlocked; and countries which are resource-rich (where it matters little whether the country is landlocked or has a coastline). The three groups have remarkably different growth patterns. Historically, on an economic performance basis, coastal resource-scarce countries performed significantly better than their resource-rich counterparts whether landlocked or coastal; leaving the landlocked, resource-scarce economies as the worst performers. Collier reckons that these factors cost these economies around one per centage point of growth. This is a pattern which exists globally as well as being true for the African continent. Unfortunately, Collier notes, Africa’s population is heavily pooled around the landlocked and resource-scarce countries.
Clearly one’s environment matters, and of course the conditions in parts of Africa are harsh – notably the climate and terrain. But, harsh as they may be, these aspects are not insurmountable. With average summer temperatures reaching 49°C (120°F) Saudi Arabia is rather hot, and, of course, Switzerland is landlocked, but these factors have not stopped them from getting on with it.
Historical factors, such as colonialism, have also often been put forward as explanations for Africa’s underachievement; the idea being that colonial powers delineated nations, established political structures and fashioned bureaucracies that were fundamentally incompatible with the way of life of indigenous populations. Forcing traditionally rival and warring ethnic groups to live together under the same flag would never make nation-building easy. The ill-conceived partitioning of Africa at the 1885 Berlin Conference did not help matters. The gathering of fourteen nations (including the United States, and with Germany, Britain, France and Portugal the most important participants) produced a map of Africa littered with small nations whose arbitrarily drawn borders would always make it difficult for them to stand on their own two feet – economically and politically.1
There is, of course, the largely unspoken and insidious view that the problem with Africa is Africans – that culturally, mentally and physically Africans are innately different. That, somehow, deeply embedded in their psyche is an inability to embrace development and improve their own lot in life without foreign guidance and help.
It is not the first time in history that cultural norms, social mores or religious beliefs have been cited as the reasons for differences in development between different peoples. The German political economist and sociologist Max Weber argued that a Protestant work ethic contributed to the speed of technological advancement and explained the development seen in industrial Britain and other European nations.
In his mind there were two broad groups: the Calvinists, who believed in predestination and, depending on their lot, may or may not acquire wealth; and the believers in the Protestant work ethic who could advance through the sweat of their brow. As with Weber, Africa’s development quandary offers two routes: one in which Africans are viewed as children, unable to develop on their own or grow without being shown how or made to; and another which offers a shot at sustainable economic development – but which requires Africans be treated as adults. The trouble with the aid-dependency model is, of course, that Africa is fundamentally kept in its perpetual childlike state.
Another argument posited for Africa’s economic failures is the continent’s disparate tribal groupings and ethno-linguistic makeup. There are roughly 1,000 tribes across sub-Saharan Africa, most with their own distinct language and customs. Nigeria with an estimated population of 150 million people has almost 400 tribes; and Botswana with just over one million inhabitants has at least eight large tribal groupings. To put this in context, assuming Nigeria’s ratio, imagine Britain with its population of 60 million divided into some 160 ethnically fragmented and distinct groupings.
At least two potential concerns face nations with strong tribal divisions. The most obvious is the risk that ethnic rivalry can lead to civil unrest and strife, sometimes culminating in full-blown civil war. In contemporary times the ghastly examples of Biafra in Nigeria (1967–70) and the ethnically motivated genocide in Rwanda in the 1990s loom large.
Paul Collier postulates that the more a country is ethnically divided, the greater the prospect of civil war. This is why, it is argued, Africa has a much higher incidence of civil war than other developing regions such as South Asia in the last thirty years. Very little can rival a civil war when it comes to ensuring a country’s (and potentially its neighbours’) decline – economically, socially, morally. In pure financial terms Collier has estimated that the typical civil war costs around four times annual GDP. In Africa, where small countries exist in close proximity with one another, the negative spillover cost of war onto neighbouring countries can be as much as half of their own GDP.
Even during peaceful times, ethnic heterogeneity can be seen to be an impediment to economic growth and development. According to Collier, the difficulty of reform in ethnically diverse small countries may account for why Africa persisted with poor policies for longer than other regions. Ethnically diverse societies are likely to be characterized by distrust between disparate groups, making collective action for public service provision difficult. This is particularly true in (even nominally) democratic societies, where the prospect of achieving policy consensus amongst fractious ethnically split groups can be challenging. Invariably, where there is infighting, an impasse or split across ethnic lines slows down the implementation of key policies that could spur economic growth. Kenya’s turbulent democratic elections in 2008 are a recent example where tribal tensions between the presidential incumbent Mwai Kibaki (a Kikuyu) and Raila Odinga (a Luo) seeped into and infected the political process and institutions (the compromise was a coalition government made from the two groupings).
No one can deny that Africa has had its fair share of tribal fracas. But by the same token it is also true that there are a number of African countries where disparate groups have managed to coexist perfectly peacefully (Botswana, Ghana, Zambia, to name three). In the quest for a solution to Africa’s economic woes, it is futile to cite ethnic differences as an excuse – born a Zulu, always a Zulu. But Zulus, like people from any other tribe, can and do intermarry; they live, work and play in integrated cities. In fact people in African cities live in a more integrated way than you might find in other cities – there are no ethnic zones such as exist in Belfast, London or New York, for that matter. Besides, once locked into the ethnic argument there is no obvious policy prescription: it’s a dead end. Better to look to a world where all citizens can freely participate in a country’s economic prosperity, and watch the divisive role of ethnicity evaporate.
Yet another explanation put forward for Africa’s poor economic showing is the absence of strong, transparent and credible public institutions – civil service, police, judiciary, etc.
In The Wealth and Poverty of Nations, David Landes argues that the ideal growth and development model is one guaranteed by political institutions. Secure personal liberty, private property and contractual rights, enforced rule of law (not necessarily through democracy), an ombudsman-type of government, intolerance towards private rent-seeking and optimally sized government are mandatory.
In Empire: How Britain Made the Modern World, Niall Ferguson points to the common-law system and the British-type civil administration as two institutions that promoted development. Ferguson also notes that it is a country’s underlying legal and political institutions that make it conducive to investment (and counter-disinvestment through less capital flight) and innovation. This necessarily includes enforcement of the rule of law, avoidance of excessive government expenditures and constraints on the executive. In turn, this yields a transparent fiscal system, an independent monetary authority and a regular securities market that foster the growth in size and number of corporations.
Professor Dani Rodrik from Harvard University is equally adamant in arguing that institutions that provide dependable property rights, manage conflict, maintain law and order, and align economic incentives with social costs and benefits are the foundation of long-term growth. In his book In Search of Prosperity, Rodrik points to China, Botswana and Mauritius as examples of countries which largely owe their economic success to the presence (or creation) of institutions that have generated market-oriented incentives, protected the property rights of current and future investors, and deterred social and political instability. (Botswana had a GDP per capita of US$8,170 in 2002, more than four times the sub-Saharan-Africa average, US$1,780, much of its success attributed to the probity of its political institutions.)2
Conversely, he suggests, Indonesia and Pakistan are countries where, in the absence of good public institutions, growth has been difficult to achieve on a sustained basis. Even when growth has occurred intermittently it has been fragile (as in post-1997 Indonesia) or incapable of delivering high levels of social outcomes in areas such as health or education (as in the case of Pakistan). Rodrik’s estimates imply that changes in institutions can close as much as three quarters of the income gap between the nations with the best and those with the worst institutions.
While public institutions – the executive, the legislature and the judiciary – exist in some form or fashion in most African countries (artefacts of the colonial period), apart from the office of the president their real power is minimal, and subject to capricious change. In strong and stable economic environments political institutions are the backbone of a nation’s development, but in a weak setting – one in which corruption and economic graft reign supreme – they often prove worthless.
Africa’s failure to generate any meaningful or sustainable long-run growth must, ostensibly, be a confluence of factors: geographical, historical, cultural, tribal and institutional. Indeed, it would be naive to discount outright any of the above arguments as contributing to Africa’s poor growth history. However, it is also fair to say that no factor should condemn Africa to a permanent failure to grow. This is an indictment Africa does not deserve. While each of these factors may be part of the explanation in differing degrees, in different countries, for the most part African countries have one thing in common – they all depend on aid.
Does aid work?
Since the 1940s, approximately US$1 trillion of aid has been transferred from rich countries to Africa. This is nearly US$1,000 for every man, woman and child on the planet today. Does aid work? Proponents of aid point to six proofs that it can.
The Marshall Plan
First, there is the Marshall Plan. As discussed earlier, between 1948 and 1952 the United States transferred over US$13 billion (around US$100 billion in today’s terms) to aid in the reconstruction of post-Second World War Europe. By most historical accounts the Marshall Plan was an overwhelming success in rebuilding the economies of war-torn Europe. The Marshall Plan not only guaranteed economic success, but many credit the programme with the re-establishment of political and social institutions crucial for Western Europe’s on-going peace and prosperity. Although the idea of aid to Africa was born out of the success of the Marshall Plan in Europe, in practical terms the two are completely different. Pointing to the Marshall Plan’s achievements as a blueprint for a similar outcome for Africa tomorrow is simply wrong.
Why?
For one thing, European countries were not wholly dependent on aid. Despite the ravages of war, Western Europe’s economic recovery was already underway, and its economies had other resources to call upon. At their peak, Marshall Plan flows were only 2.5 per cent of the GDP of the larger recipients like France and Germany, while never amounting to more than 3 per cent of GDP for any country for the five-year life of the programme. In marked contrast, Africa has already been flooded with aid. Presently, Africa receives development assistance worth almost 15 per cent of its GDP – or more than four times the Marshall Plan at its height. Given Africa’s poor economic performance in the past fifty years, while billions of dollars of aid have poured in, it is hard to grasp how another swathe of billions will somehow turn Africa’s aid experience into one of success.
The Marshall Plan was also finite. The US had a goal, countries accepted the terms, signed on the dotted line, money flowed in, and at the end of five years the money stopped. In contrast to the Marshall Plan’s short, sharp injection of cash, much of Africa has received aid continually for at least fifty years. Aid has been constant and relentless, and with no time limit to work against. Without the inbuilt threat that aid might be cut, and without the sense that one day it could all be over, African governments view aid as a permanent, reliable, consistent source of income and have no reason to believe that the flows won’t continue into the indefinite future. There is no incentive for long-term financial planning, no reason to seek alternatives to fund development, when all you have to do is sit back and bank the cheques.
Crucially, the context of the Marshall Plan also differed greatly from that in Africa. All the war-torn European nations had had the relevant institutions in place in the run-up to the Second World War. They had experienced civil services, well-run businesses, and efficient legal and social institutions in place, all of which had worked. All that was needed after the war was a cash injection to get them working again. Marshall Plan aid was, therefore, a matter of reconstruction, and not economic development. However damaged, Europe had an existing framework – political, economic and physical; whereas despite the legacy of colonial infrastructure Africa was, effectively, undeveloped. Building, rather than rebuilding, political and social institutions requires much more than just cash. An influx of billions of dollars of aid, unchecked and unregulated, will actually have helped to undermine the establishment of such institutions – and sustainable longer-term growth. In a similar vein, the recent and successful experience of Ireland, which received vast sums of (mainly European) aid, is in no way evidence that aid could work in Africa. For, like post-war Europe, Ireland too had all the institutions and political infrastructure required for aid to be monitored and checked, thereby to make a meaningful economic impact.
Finally, whereas Marshall Plan aid was largely (specifically) targeted towards physical infrastructure, aid to Africa permeates virtually every aspect of the economy. In most poor countries today, aid is in the civil service, aid is in political institutions, aid is in the military, aid is in healthcare and education, aid is in infrastructure, aid is endemic. The more it infiltrates, the more it erodes, the greater the culture of aid-dependency.
The IDA graduates
Aid proponents point to the economic success of countries that have in the past relied on aid, but no longer do so. These countries are known as the International Development Association (IDA) graduates. They comprise twenty-two of some of the most economically successfully emerging countries of recent times – including, Chile, China, Colombia, South Korea, Thailand and Turkey, with only three from Africa: Botswana, Equatorial Guinea (its improvements mainly spurred by its oil find) and Swaziland.3Supporters of aid suggest that these countries have meaningfully lowered poverty, increased incomes and raised their standards of living, thanks to large-scale aid-driven interventions.
However, as in the case of the Marshall Plan, their aid flows have been relatively small – in this instance, generally less than 10 per cent of national income – and their duration short. Botswana, which is often touted as a prime example of the IDA graduate success story, did receive significant foreign assistance (nearly 20 per cent of the country’s national income) in the 1960s. It is true that between 1968 and 2001 Botswana’s average real per capita economic growth was 6.8 per cent, one of the highest growth rates in the world. However, aid is not responsible for this achievement. Botswana vigorously pursued numerous market economy options, which were key to the country’s success – trade policy left the economy open to competition, monetary policy was kept stable and the country maintained fiscal discipline. And crucially, by 2000, Botswana’s aid share of national income stood at a mere 1.6 per cent, a shadow of the proportion it commands in much of Africa today. Botswana succeeded by ceasing to depend on aid.
With conditionalities
Aid supporters also believe in conditionalities. This is the notion that the imposition of rules and regulations set by donors to govern the conditions under which aid is disbursed can ultimately determine its success or failure. In the 1980s conditionalities attached to African aid policies would become the mantra.
The notion of a quid pro quo around aid was not new. Marshall Plan recipients had been required to adhere to a strict set of conditions imposed upon them by the US. They had a choice . . . you take it or you leave it. African countries faced the same choice.
Donors have tended to tie aid in three ways. First, it is often tied to procurement. Countries that take aid have to spend it on specific goods and services which originated from the donor countries, or a group selected by them. This extends to staff as well: donors employ their own citizens even when suitable candidates for the job exist in the poor country. Second, the donor can reserve the right to preselect the sector and/or project that their aid would support. Third, aid flows only as long as the recipient country agrees to a set of economic and political policies.
With stabilization and structural adjustment in vogue, the adoption of market-based policies became the requirement upon which aid would be granted. Aid would be contingent on African countries’ willingness to change from statist, centrally planned economies towards market-driven policies – reducing the civil service, privatizing nationalized industries and removing trade barriers. Later democracy and governance would make their way onto the list, in the hope of limiting corruption in all its forms.
On paper, conditionalities made sense. Donors placed restrictions on the use of aid, and the recipients would adhere. In practice, however, conditionalities failed miserably. Paramount was their failure to constrain corruption and bad government.
A World Bank study found that as much as 85 per cent of aid flows were used for purposes other than that for which they were initially intended, very often diverted to unproductive, if not grotesque ventures. Even as far back as the 1940s, international donors were well aware of this diversion risk. In 1947, Paul Rosenstein-Rodin, the Deputy Director of the World Bank Economics Department, remarked that ‘when the World Bank thinks it is financing an electric power station, it is really financing a brothel’.
But the point here is that conditionalities were blatantly ignored, yet aid continued to flow (and a great deal of it), even when they were openly violated. In other research, Svensson found ‘no link between a country’s reform effort or fulfilment of conditionality and the disbursement rate of aid funds’, proving once again that though a central part of many aid agreements, conditionalities did not seem to matter much in practice.
Aid success in good policy environments
Faced with mounting evidence that aid has not worked, aid proponents have also argued that aid would work, and did work, when placed in good policy environments, i.e. countries with sound fiscal, monetary and trade policies. In other words, aid would do its best, when a country was in essentially good working order. This argument was formalized in a seminal paper published by World Bank economists Burnside and Dollar in 2000. (Quite why a country in working order would need aid, or not seek other better, more transparent forms of financing itself, remains a mystery.)
Donors soon latched onto the Burnside–Dollar result and were quick to put the findings into practice. In 2004, for example, the US government launched its US$5 billion Millennium Challenge Corporation aid campaign motivated by the idea that ‘economic development assistance can be successful only if it is linked to sound policies in developing countries’.4 In later empirical work, the Burnside–Dollar result failed to stand up to scrutiny, and it soon lost its allure. It was not long before the wider economic community concluded that the Burnside–Dollar findings were tenuous and certainly not robust; perhaps eventually coming to the obvious conclusion that countries with good policies – like Botswana – would tend to make progress unassisted, and that a key point of aid is to help countries with bad ones. But even setting aside empirical analysis, there are, as discussed later, valid concerns that, far from making any improvement, aid could make a good policy environment bad, and a bad policy environment worse.
On the subject of good policy environments, aid supporters are convinced that aid works when it targets democracy, because only a democratic environment can jump-start economic growth. From a Western perspective, democracy promises the lot.
There are, in fact, good reasons for believing that democracy is a leading determinant of economic growth, as almost invariably the body politic bleeds into economics. Liberal democracy (and the political freedoms it bestows) protects property rights, ensures checks and balances, defends a free press and guards contracts. Political scientists such as Douglass North have long asserted democracy’s essential links with a just and enforceable legal framework.
Democracy, the argument goes, gives a greater percentage of the population access to the political decision-making process, and this in turn ensures contract enforcement through an independent judiciary. Not only will democracy protect you, but it will also help you better yourself. Democracy promises that businesses, however small, will be protected under the democratic rule of law. Democracy also offers the poor and disadvantaged the opportunity to redress any unfair distribution via the state.
It is after all under democratic governments, the American economist and social scientist Mancur Olson posited, that the protection of property rights and the security of contracts, crucial for stimulating economic activity, were more likely. In essence, democracy engenders a peace dividend, introduces a form of political stability that makes it a precursor for economic growth. In Olson’s world, democratic regimes engage in activities that assist private production in two ways: either by maintaining a framework (regulatory, legal, etc.) for private activity or by directly supplying inputs which are not efficiently delivered by the market (for example, a road connecting a small remote village to a larger trading town). By their very nature, democracies have an incentive to provide public goods which benefit each and everyone, and wealth creation is more likely under democratic regimes than non-democracies, such as, say, autocratic or dictatorial regimes.
Under this sky, democracy is seen as Africa’s economic salvation: erasing corruption, economic cronyism, and anticompetitive and inefficient practices, and removing once and for all the ability for a sitting incumbent to capriciously seize wealth. Democracies pursue more equitable and transparent economic policies, the types of policies that are conducive to sustainable economic growth in the long run.
Moreover, the Nobel Laureate Amartya Sen argues that because democratically elected policymakers run the risk of losing political office, they are more vigilant about averting economic disasters.5 Among mainly developing economies another study found that democratically accountable governments met the basic needs of their citizens by ‘as much as 70 per cent more’ than non-democratic states.6 But, perhaps most of all, donors are convinced that across the political spectrum democracy (and only democracy) is positively correlated to economic growth.
Although the potential positive aspects of democracy have dominated discourse (and aid policy), Western donors and policymakers have essentially chosen to ignore the protests of those who argue that democracy, at the early stages of development, is irrelevant, and may even be harmful. In an aid-dependent environment such views are easy to envisage. Aid-funded democracy does not guard against a government bent on altering property rights for its own benefit. Of course, this lowers the incentive for investment and chokes off growth.
The uncomfortable truth is that far from being a prerequisite for economic growth, democracy can hamper development as democratic regimes find it difficult to push through economically beneficial legislation amid rival parties and jockeying interests. In a perfect world, what poor countries at the lowest rungs of economic development need is not a multi-party democracy, but in fact a decisive benevolent dictator to push through the reforms required to get the economy moving (unfortunately, too often countries end up with more dictator and less benevolence). The Western mindset erroneously equates a political system of multi-party democracy with high-quality institutions (for example, effective rule of law, respected property rights and an independent judiciary, etc.). But the two are not synonymous.
One only has to look to the history of Asian economies (China, Indonesia, Korea, Malaysia, Singapore, Taiwan and Thailand) to see how this is borne out. And even beyond Asia, Pinochet’s Chile and Fujimori’s Peru are examples of economic success in lands bereft of democracy. The reason for this ‘anomaly’ is that each of these dictators, whatever their faults (and there were many), was able to ensure some semblance of property rights, functioning institutions, growth-promoting economic policies (for example, in fiscal and monetary management) and an investment climate that buttressed growth – the things that democracy promises to do. This is not to say that Pinochet’s Chile was a great place to live; it does, however, demonstrate that democracy is not the only route to economic triumph. (Thanks to its economic success Chile has matured into a fully fledged democratic state, with the added accolade of, in 2006, installing South America’s first woman President – Michelle Bachelet.)
The obvious question to ask is, has foreign aid improved democracy in Africa? The answer to this is yes – certainly in terms of the number of African countries that hold elections, although still many of them are illiberal (people go the polls, but in some places the press remains restricted, and the rule of law fickle).
The real question to ask is, has the insertion of democracy via foreign aid economically benefited Africa? To this question the answer is not so clear. There are democratic countries in Africa that continue to struggle to post convincing growth numbers (Senegal, at just 3 per cent growth in 2006), and there are also decidedly undemocratic African countries that are seeing unprecedented economic growth (for example, Sudan).
What is clear is that democracy is not the prerequisite for economic growth that aid proponents maintain. On the contrary, it is economic growth that is a prerequisite for democracy; and the one thing economic growth does not need is aid.
In ‘What Makes Democracies Endure?’ Przeworski et al. offer this fascinating insight – ‘a democracy can be expected to last an average of about 8.5 years in a country with a per capita income under US$1,000 per annum, 16 years in one with income between US$1,000 and US $2,000, 33 years between US$2,000 and US$4,000 and 100 years between US$4,000 and US$6,000 . . . Above US$6,000, democracies are impregnable . . . [they are] certain to survive, come hell or high water.’ It is the economy, stupid.
No one is denying that democracy is of crucial value – it’s just a matter of timing.
In the early stages of development it matters little to a starving African family whether they can vote or not. Later they may care, but first of all they need food for today, and the tomorrows to come, and that requires an economy that is growing.
Aid effectiveness: a micro—macro paradox
There’s a mosquito net maker in Africa. He manufactures around 500 nets a week. He employs ten people, who (as with many African countries) each have to support upwards of fifteen relatives. However hard they work, they can’t make enough nets to combat the malaria-carrying mosquito.
Enter vociferous Hollywood movie star who rallies the masses, and goads Western governments to collect and send 100,000 mosquito nets to the a icted region, at a cost of a million dollars. The nets arrive, the nets are distributed, and a ‘good’ deed is done.
With the market flooded with foreign nets, however, our mosquito net maker is promptly put out of business. His ten workers can no longer support their 150 dependants (who are now forced to depend on handouts), and one mustn’t forget that in a maximum of five years the majority of the imported nets will be torn, damaged and of no further use.
This is the micro–macro paradox. A short-term efficacious intervention may have few discernible, sustainable long-term benefits. Worse still, it can unintentionally undermine whatever fragile chance for sustainable development may already be in play.
Certainly when viewed in close-up, aid appears to have worked. But viewed in its entirety it is obvious that the overall situation has not improved, and is indeed worse in the long run.
In nearly all cases, short-term aid evaluations give the erroneous impression of aid’s success. But short-term evaluations are scarcely relevant when trying to tackle Africa’s long-term problems. Aid effectiveness should be measured against its contribution to long-term sustainable growth, and whether it moves the greatest number of people out of poverty in a sustainable way. When seen through this lens, aid is found to be wanting.
That said, the approach to food aid (launched at the 2005 Food Aid conference in Kansas City7) has tried to push aid in a new direction, one which can potentially help African farmers. The proposal would allow a quarter of the food aid of the United States Food For Peace budget to be used to buy food in poor countries, rather than buying only American-grown food that has to then be shipped across oceans. Instead of flooding foreign markets with American food, which puts local farmers out of business, the strategy would be to use aid money to buy food from farmers within the country, and then distribute that food to the local citizens in need. In terms of the mosquito net example, instead of giving malaria nets, donors could buy from local producers of malaria nets then sell the nets on or donate them locally. There needs to be much more of this type of thinking.
Between 1950 and the 1980s, the US is estimated to have poured the equivalent of all the combined aid given to fifty-three African countries between 1957 and 1990 into just one country, South Korea. Some have alleged that this is the kind of financial lift that Africa will need; essentially an equivalent of its own Marshall Plan.
Advocates of aid argue that aid works – it’s just that richer countries have not given enough of it. They argue that with a ‘big push’ – a substantial increase in aid targeted at key investments – Africa can escape its persistent poverty trap; that what Africa needs is more aid, much more aid, in massive amounts. Only then will things start to truly get better.
In 2000, 189 countries signed up to the Millennium Development Goals (MDG).8 The eight-point action plan was aimed at health, education, environmental sustainability, child mortality, and alleviating poverty and hunger. In 2005, the programme was costed. An additional aid boost of US$130 billion a year would be needed to achieve the MDG in a number of countries. Two years after the MDG pledge the United Nations held an international conference on Financing for Development in Monterrey, Mexico, where donors promised to increase their aid contributions from an average of 0.25 per cent of their GNP to 0.7 per cent, in the belief that this additional US$200 billion annually would finally address Africa’s continuing problems. In practice, most of the donor pledges have gone unmet and proponents of aid have latched on to this failure to meet the pledged commitments as a reason for why Africa has been held back. But the big-push thinking brushes over one of the underlying problems of aid, that it is fungible – that monies set aside for one purpose are easily diverted towards another; not just any other purpose, but agendas that can be worthless, if not detrimental, to growth. Proponents of aid themselves have acknowledged that unconstrained aid flows always face the danger of being egregiously consumed rather than invested; of going into private pockets, instead of the public purse. When this happens, as it so often does, no real punishments or sanctions are ever imposed. So more grants mean more graft.
One of the most depressing aspects of the whole aid fiasco is that donors, policymakers, governments, academicians, economists and development specialists know, in their heart of hearts, that aid doesn’t work, hasn’t worked and won’t work. Commenting on at least one aid donor, the Chief Economist at the British Department of Trade and Industry remarked that ‘they know its crap, but it sells the T-shirts’.9
Study, after study, after study (many of them, the donors’ own) have shown that, after many decades and many millions of dollars, aid has had no appreciable impact on development. For example, Clemens et al. (2004) concede no long-term impact of aid on growth. Hadjimichael (1995) and Reichel (1995) find a negative relationship between savings and aid. Boone (1996) concludes that aid has financed consumption rather than investment; and foreign aid was shown to increase unproductive public consumption and fail to promote investment.
Even the most cursory look at data suggests that as aid has increased over time, Africa’s growth has decreased with an accompanying higher incidence of poverty. Over the past thirty years, the most aid-dependent countries have exhibited growth rates averagingminus 0.2 per cent per annum.
For most countries, a direct consequence of the aid-driven interventions has been a dramatic descent into poverty. Whereas prior to the 1970s most economic indicators had been on an upward trajectory, a decade later Zambia lay in economic ruin. Bill Easterly, a New York University professor and former World Bank economist, notes that had Zambia converted all the aid it had received since 1960 into investment, and all of that investment to growth, it would have had a per capita GDP of about US$20,000 by the early 1990s.10 Instead, Zambia’s per capita GDP was lower than in 1960, under US$500. In effect, Zambia’s GDP should have been at least thirty times what it is today. And between 1970 and 1998, when aid flows to Africa were at their peak, poverty in Africa rose from 11 per cent to a staggering 66 per cent. That is roughly 600 million of Africa’s billion people trapped in a quagmire of poverty – a truly shocking figure.
The evidence against aid is so strong and so compelling that even the IMF – a leading provider of aid – has warned aid supporters about placing more hope in aid as an instrument of development than it is capable of delivering. The IMF has also cautioned governments, donors and campaigners to be more modest in their claims that increased aid will solve Africa’s problems. If only these acknowledgements were a catalyst for real change.
What is perhaps most amazing is that there is no other sector, whether it be business or politics, where such proven failures are allowed to persist in the face of such stark and unassailable evidence.
So there we have it: sixty years, over US$1 trillion dollars of African aid, and not much good to show for it. Were aid simply innocuous – just not doing what it claimed it would do – this book would not have been written. The problem is that aid is not benign – it’s malignant. No longer part of the potential solution, it’s part of the problem – in fact aid is the problem.