Dead aid?

Former Goldman Sachs economist Dambisa Moyo has just published a new book entitled Dead Aid: Why Aid is Not Working and How There is Another Way for Africa. There’s an outline of the argument in this op-ed in The Independent from 2 February, e.g.

I have long believed that far from being a catalyst, foreign aid has been the biggest single inhibitor of Africa’s growth. Among its shortcomings, aid is correlated with corruption, fosters dependency, and invariably instils bureaucracy that hinders the emergence of an essential entrepreneurial class. For Africa to grow in a sustained way, foreign aid will have to be dramatically reduced over time, forcing countries to adopt more transparent strategies to finance development.  What the credit crunch has effectively done is to instigate this process by default …

The development finance policy that has been the hallmark of consistent growth across the world has almost universally comprised a mix of four essential elements: Trade and commerce, Foreign Direct Investment (FDI), microfinance, and access to international capital markets.

As such, despite negative headlines over China’s expanding role in Africa’s burgeoning economy, African governments should be minded to accelerate alliances with China and the rest of the rapidly emerging world. Rather than continue to spend millions of dollars each year attempting to gain greater access to Western trade markets, they should focus their attention on markets such as China, where, with 1.3bn people to feed and just seven per cent arable land, African produce is welcome.

And with roughly $4 trillion of foreign reserves, China is undoubtedly a better bet for much needed FDI in the foreseeable future than its Western competitors. Furthermore, the reserves profile of not just China but also the Middle East suggests a class of new investors with likely appetite to take on African risk via the bond markets.

As Moyo observes, the credit crunch is likely to have the effect of accelerating this debate, especially as publics in developed countries show lower enthusiasm for spending overseas as the full extent of spending cuts at home becomes evident in a couple of years’ time.

All this presents a major strategic challenge for the development community – where the orthodox narrative has arguably ossified in recent years, especially as no-one (donors, NGOs, developing country governments) has had much of an incentive to ask the really hard questions about aid.

The question now: will they all dig in for a defensive game, or is a serious process of strategic renewal finally in prospect?