Dead Aid: Another entrant in the Trade Vs. Aid Debate in Africa

It is a well known fact that the African continent is increasingly attracting more vocal supporters - within the Continent, in the Diaspora and even among former colonial masters- for its development. What is less well known is that many of these supporters passionately advance either of the following viewpoints: 1.) Africa needs aid and the rest of the world should be shamed into providing more aid and grants to Africans; 2.) Aid is practically useless and in fact encourages corruption in African Leaders as it doesn't promote the sort of monitoring and accountability that the financial markets and taxpayers dictate; and 3.) the middle of the road people, who think Africa needs a little of both to develop. I am happy to report that I fall into the 3rd Category, I am a passionate member of the "Middle Roaders club"!. I believe that Africa needs a combination of both free-market liberalism and plain old-fashioned handouts (the Politically Correct synonyms are Aid and Grants!) to develop in the short to medium term.

The newest entrant - and a loud one at that - is a new book titled "Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa" written by a former economist covering Sub-Saharan Africa at Goldman Sachs: Dambisa Moyo. A quite comprehensive and really critical summary of the book is given in the here. I am yet to get a copy of the book, but the summaries and commentaries which I have read indicate that the book was quite strident in its criticism of western aid in Africa. The crux of the book - from the summaries I have read - is that aid tends to make governments and political leaders corrupt; fund white elephant projects and avoids the sort of accountability which funding through taxation or through international debt markets demands from governments and politicians. She (i.e. the Author) has identified 3rd world countries which have been able to raise financing from international capital markets for their developmental projects and who have, as a result of improved macro-economic management, been able to improve their credit ratings. Which has in turn has led to lower borrowing costs on such bonds and the attention of a wider investor universe.

On the whole, while I believe that the whole "Trade not Aid" movement has many significant merits, I believe the efforts of celebrity "do-gooders" such as U2's Bono and Bob Geldof in increasing aid assistance to Africa is also not without some merits. I believe aid has a large role to play in the re-emergence of post-conflict states such as Liberia, Rwanda etc. I doubt that many purely profit motivated investors will be inclined to invest in such countries or buy bonds issued by them in the international capital markets. These countries can hardly be expected to get back on their feet without some assistance (i.e. Aid!) from the international community. In these sorts of situations, it will be quite difficult to make an informed argument against the provision of western aid.

However, providing aid to more established, mineral-rich and relatively stable countries such as Nigeria is a totally different matter. I believe a country like Nigeria does not deserve foreign aid, given our rich resource base; relatively developed domestic financial markets and large population. Foreign aid is only likely to compound our governance problems as it will only provide another "accountability-lite" source of funding for our already corrupt politicians. We need to subject ourselves to the disciplines of the international debt markets and the associated credit rating process which places considerable pressure on governments to pursue sound macro-economic policies. In the alternative, our government can seek to better finance itself by broadening the tax base, which will in turn constrain it to pursue sound economic policies which will improve citizen "wealth being" and subject politicians to the anger of taxpayers who would not like to see their hard earned money squandered or downright stolen.

I think the most strident view of the book was provided by a columnist writing in the Washington Post. However, the Oxford Don: Paul Collier (author of the book: "The Bottom Billion" and a well known Africa expert) gives a much more balanced view of the book and the "Trade Vs. Aid" debate which I am more inclined to align with.