00604-- DEAD AID—WHY AID IS NOT WORKING AND HOW THERE IS A BETTER WAY FOR AFRICA by DAMBISA MOYO Book review (summary)








DEAD AID—WHY AID IS NOT WORKING AND HOW THERE IS A BETTER WAY FOR AFRICA by DAMBISA MOYO  [Book review]

Title: DEAD AID—WHY AID IS NOT WORKING AND HOW THERE IS A BETTER WAY FOR AFRICA
Author: DAMBISA MOYO
Publisher: FARRAR, STRAUS AND GIROUX
Thesis
Dead Aid by Dambisa Moyo argues and proves that billions of dollars in aid sent from wealthy countries to developing African nations has NOT helped to reduce poverty and to increase growth. 

Author
Dambisa Moyo was born and raised in Zambia.  She has a Ph.D. in economics from Oxford University and a master’s from Havard University.  Moyo was a consultant for the World Bank, and worked at Goldman Sachs for eight years.



Dambisa Moyo
In the introduction Moyo writes: “This book is not a counsel of despair.  Far from it.  The book offers another road; a road less travelled in Africa.  Harder, more demanding, more difficult, but in the end the road to growth, prosperity, and independence for the continent.  This book is about the aid-free solution to development: why it is right, why it has worked, why it is the only way forward for the world’s poorest countries.”


The Myth of Aid

What makes Africa incapable of joining the rest of the globe in the twenty first century?  For Moyo the answer has its roots in aid.  There exist three types of aid: 1) humanitarian or emergency aid, 2) charity-based aid, and, 3) Systematic aid. 

The systematic aid means that the aid payment is made directly to governments either through government-to-government transfers (called bilateral aid) or transferred via institutions such as World Bank (multilateral aid).  Here Moyo concentrates on systematic aid because it is where billions of dollars are transferred each year directly to poor countries’ governments.  There are a number of drawbacks in the ways by which the first two types of aid are implemented.  But the charity and emergency aid are negligible in comparison with the billions transferred in systematic aid. Moyo states that there isn’t much difference between the loans and grants provided to Africa. She writes: “Therefore, for the purpose of this book, aid is defined as the sum total of both concessional loans and grants.  It is these billions that have hampered, stifled and retarded Africa’s development.  And it is these billions that Dead Aid will address.” 

A Brief History of Aid

The subtitles in this chapter are:
a)      The 1960s: the decade of industrialization
b)      The foreign aid agenda of the 1970s: the shift to a poverty focus
c)      The foreign aid agenda of the 1980s: the lost age of development
d)      The foreign aid agenda of the 1990s: a question of governance
e)      The foreign aid agenda of the 2000s: the rise of glamour aid
f)       We meant well

Under the subtitle We meant well Moyo writes: “It (aid) remains at the heart of the development agenda, despite the fact that there are very compelling reasons to show that it perpetuates the cycle of poverty and derails sustainable economic growth. […] Aid is not working. And here is why.”
In the next chapter Moyo explains why aid is not working.

Aid Is Not Working
The subtitles here are:
1.      Does aid work?
2.      The Marshall Plan
3.      The IDA graduates
4.      With conditionalities
5.      Aid success in good policy environments
6.      Aid effectiveness: a micro-macro paradox

The proponents of aid point to six proofs that aid can work effectively.  But Moyo, in this chapter, exposes the ways with which aid annihilates the possibilities of the emergence of a self-sufficient economy.  One by one Moyo successfully refutes the arguments in favour of aid.  She lays down examples that leave no ambiguity in the mind of the reader. 




She gives the example of a mosquito net maker in Africa.  He manufactures around 500 nets a week.  He employs 10 people, and each one of the supports upwards of 15 relatives.  But they can’t make enough nets needed in the market to combat the malaria-carrying mosquito.  Now enters the scene a Hollywood movie star who manages to collect and send 100, 000 mosquito nets to the afflicted region.  The nets arrive and are distributed.  But now the mosquito net maker is put out of business as the market is flooded with foreign nets.  His ten workers become unemployed and thus their 150 dependents now have to depend on hand-outs.   Moyo writes: “…and one must not 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 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.”


Towards the end of this chapter Moyo writes that this book would not have been written had the aid done what it claimed it would do. She concludes, “In fact aid is the problem.”

The Silent Killer of Growth
The title of the 4th chapter is self-explanatory.  The silent killer is none other than the aid.  The subtitles in this chapter are:
I.                    The vicious cycle of aid
II.                  Corruption and growth
III.                Aid and corruption
IV.                Aid goes to corrupt countries
V.                  Why give aid if it leads to corruption?
VI.                Corruption: positive or negative?
VII.              Aid and civil society
VIII.            Aid and social capital: a matter of trust
IX.                Aid and civil war
X.                  The economic limitations of aid
·         Aid reduces savings and investment
·         Aid can be inflationary
·         Aid chokes off the export sector
·         Aid causes bottlenecks: absorption capacity
XI.                Aid and aid-dependency
XII.              Aid objections

Moyo in this chapter introduces Peter Bauer who was one of the earliest critics of aid.  He was a Hungarian-born London School of Economics economist.  Bauer argued that aid interfered with development as the money always ended up in the hands of a small chosen few, making aid a ‘form of taxing the poor in the west to enrich the new elites in former colonies’. 

Part two of the book is titled A World without Aid. Moyo gives the example of The Republic of Dongo which as an African nation faces all kinds of threats varying from HIV-AIDS to civil war.  She believes Dongo will only change if its fundamental modal of aid-dependency is abandoned and the Dead Aid proposal of this book adopted wholesale, in its entirety.





A Radical Rethink of the Aid-Dependency Model
1.      Governments need cash
2.      Weaning off the addiction: no one said it would                                                                  be easy

A Capital Solution
1.      Rebounding from a default
2.      Can Dongo tap the markets



The Chinese Are Our Friends
1.      Why FDI does not flow to Africa
2.      What does Dongo need to do to attract FDI?
3.      The Chinese are our Friends
4.      Objections to China in Africa
5.      They’ve got what we want, and we’ve got what they need

Let’s Trade
1.      Dongo can benefit from trade
Banking on the Unbankable
1.      Remittances
2.      Savings
Making Development Happen
1.       Grasping the nettle
2.      Who will bell the cat?

In the Foreword Niall Ferguson writes:
Moyo offers four alternative sources of funding for African economies, none of which has the same deleterious side effects as aid.  First, African governments should follow Asian emerging markets in accessing the international bond markets and taking advantage of the falling yields paid by sovereign borrowers over the past decade.  Second, they should encourage the Chinese policy of large-scale direct investment in infrastructure.  (China invested US$900 million in Africa in 2004, compared with just US$ 20 million in 1975.)  Third, they should continue to press for genuine free trade in agricultural products, which means that the US, the EU and Japan must scrap the various subsidies they pay to their farmers, enabling African countries to increase their earnings from primary product exports.  Fourth, they should encourage financial intermediation.  Specifically, they need to foster the spread of microfinance institutions of the sort that have flourished in Asia and Latin America.  They should also follow the Peruvian economist Hernando de Soto’s advice and grant the inhabitants of shanty towns secure legal title to their homes, so that these can be used as collateral.  And they should make it cheaper for emigrants to send remittances back home.”


Moyo ends the book with an African proverb:
The best time to plant a tree is twenty years ago.
The second-best time is now.



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