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DEA D A ID

WHY A ID I S N OT W ORK IN G

AND H OW T H ER E I S

A B ETTER W AY F O R A FR IC A

Dam bis a M oyo

Farra r, S tr a us a nd G ir o ux

New Y ork

3 Conte n ts

Fore w ord b y N ia ll

Ferg uso n

Pre fa ce

In tr o ductio n

PA RT I

The W orld o f A id

1 T he M yth o f A id

2 A B rie f H is to ry o f

Aid

3 A id I s N ot W ork in g

4 T he S ile n t K ille r o f

Gro w th

PA RT I I

A W orld w ith out A id

The R ep ublic o f

Dongo

5 A R ad ic al R eth in k o f

th e

Aid -D ep en den cy

Model

6 A C ap ita l S olu tio n

7 T he C hin ese A re O ur

Frie n ds

8 L et’ s T ra d e

9 B an kin g o n t h e

Unban kab le

Dongo R ev is ite d

10 M ak in g D ev elo pm en t

Hap pen

7 Note s

Bib lio gra phy

Ackn ow le d gem en ts

In dex

8 PA RT I

The W orld o f A id

18 1. T he M yth o f A id

The s ta te o f A fr ic a

A d ecad e a g o, i t w as e asy t o p ain t a b le ak p ic tu re o f t h e A fric an c o ntin en t.

E co nom ic p ro sp ects w ere g rim , c o rru ptio n w as r a m pan t, s o cia l c ap ita l w as

d eb ilita te d , ty ra n nic al s ta te s w ere th e o rd er o f th e d ay , a n d in fra str u ctu re

l a y i n r u in s.

Over th e p ast fiv e y ears , th ere h av e b een s ig ns th at w arra n t a s liv er o f

o ptim is m . M an y A fric an eco nom ie s hav e poste d an nual gro w th ra te s

a ro und 5 per cen t, an d a num ber of co untr ie s now host dem ocra tic

e le ctio ns.

Thre e f a cto rs a re a t t h e c o re o f t h e A fric an r e v iv al.

Fir s t, t h e s u rg e i n c o m modity p ric es – o il, c o pper, g old , a n d f o odstu ffs –

i n th e la st s e v era l y ears h as fu elle d A fric an e x ports a n d in cre ase d e x port

r e v en ue. S eco nd, o n th e b ack o f th e m ark et- b ase d p olic ie s in stitu te d in th e

l a te 1980s, A fric an co untr ie s hav e ben efite d fro m a positiv e polic y

d iv id en d. T his h as le ft A fric a’s m acro eco nom ic fu ndam en ta ls o n th e u p

( g ro w th o n th e r is e , in fla tio n d ow n, m ore tr a n sp are n t, p ru den t, a n d s ta b le

m oneta ry a n d fis c al p erfo rm an ce). A nd d esp ite th e n ew s h ead lin es, th ere

h av e b een so m e n ote w orth y im pro vem en ts in so cia l in dic ato rs in so m e

c o untr ie s. In K en ya, fo r e x am ple , H IV p re v ale n ce ra te s h av e fa lle n fro m

1 5 p er c en t in 2 001 to 6 p er c en t a t th e e n d o f 2 006.

T hir d , th ere h av e

b een s o m e n ota b le s tr id es in th e p olitic al la n dsc ap e a cro ss th e c o ntin en t;

m ore th an ju st o n p ap er. F or e x am ple , o f f o rty -e ig ht s u b-S ah ara n A fric an

c o untr ie s, o ver 5 0 p er c en t h old re g ula r d em ocra tic e le ctio ns th at c an b e

d eem ed f re e a n d f a ir .

T he o ccu rre n ce o f d em ocra tic e le ctio ns a n d d eclin e

i n th e le v els of perc eiv ed co rru ptio n in a num ber of co untr ie s (fo r

e x am ple , A ngola , G han a, Sen eg al, T an zan ia , U gan da, an d, yes, ev en

N ig eria ) p oin t t o a v astly i m pro ved i n vestm en t c lim ate .

If you sim ply belie v e th e m ed ia head lin es, are ta k en in by th e

s o undbite s a n d q uip s, y ou w ould a lm ost f o r s u re h av e m is se d o ut o n s o m e

k ey m ile sto nes i n A fric a’s f in an cia l d ev elo pm en t.

Esta b lis h ed in 1 887, th e J o han nesb urg S to ck E xch an ge is s u b-S ah ara n

A fric a’s o ld est sto ck m ark et. Its o pen in g w as fo llo w ed b y B ula w ay o’s

e x ch an ge, in w hat w as th en th e c o lo ny o f R hodesia , in 1 896, a n d th en

19 Win dhoek ’s , in pre se n t- d ay N am ib ia , in 1910.

T oday six te en A fric an

co untr ie s boast fu nctio nin g an d tr a n sp are n t sto ck m ark ets (B ots w an a,

Cam ero on, G han a, K en ya, M ala w i, M au ritiu s, M ozam biq ue, N am ib ia ,

Nig eria , S outh A fric a, S w azila n d, R w an da, T an zan ia , U gan da, Z am bia a n d

Zim bab w e), w ith m ark et c ap ita liz atio n in 2 008 (e x clu din g S outh A fric a)

aro und U S$200 b illio n ( a ro und h alf o f t h e r e g io n’s G DP).

While it is tr u e th at sto ck m ark et liq uid ity – th e e ase w ith w hic h a n

in vesto r can buy or se ll sh are s – acro ss m ost A fric an ex ch an ges is

re la tiv ely lo w a t a n a n nual tu rn over r a tio o f 6 p er c en t in 2 008 ( v ers u s a n

av era g e o f 8 5 p er c en t in m ore -d ev elo ped e m erg in g e co nom ie s su ch a s

Bra zil, R ussia , In dia a n d C hin a), b etw een 2 005 a n d 2 006 th e g ro w th in

liq uid ity , m easu re d a s tu rn over, w as o ver 5 0 p er c en t. A ll th in gs b ein g

eq ual, liq uid ity a cro ss A fric an m ark ets sh ould m ark ed ly im pro ve in th e

near t e rm .

In th re e o f th e p ast fiv e y ears A fric an sto ck ex ch an ges h av e ra n ked

am ong th e b est p la ces to in vest, w ith lis te d s to ck r e tu rn s a v era g in g 4 0 p er

cen t. C om pan ie s lik e Z am beef (o ne o f A fric a’s la rg est ag ri- b usin esse s,

in volv ed in th e p ro ductio n, p ro cessin g, d is tr ib utio n a n d re ta ilin g o f b eef,

ch ic k en s, e g gs, m ilk a n d d air y p ro ducts ) r e tu rn ed 1 50 p er c en t i n r e al U S$

te rm s in 2 007, a n d b etw een 2 005 a n d e arly 2 008 th e N ig eria n b an kin g

se cto r h as r e tu rn ed a ro und 3 00 p er c en t.

Perfo rm an ce acro ss A fric a’s b ond m ark ets is als o im pre ssiv e. L ocal

deb t r e tu rn ed i n vesto rs 1 5 p er c en t i n 2 006, a n d 1 8 p er c en t i n 2 007. I n t h e

la st f iv e y ears a v era g e A fric an c re d it s p re ad s h av e c o lla p se d b y 2 50 b asis

poin ts . W hat th is m ean s is th at if a c o untr y is su es U S$100 m illio n in d eb t,

it is sa v in g its e lf U S$2.5 m illio n p er y ear re la tiv e to w here it w as fiv e

years ag o. A nd A fric an P riv ate

Equity in vestm en ts h av e h ad a ste ad y

re co rd , r e p ute d ly y ie ld in g a ro und 3 0 p er c en t o ver t h e p ast t e n y ears .

But, d esp ite t h ese i m porta n t r e cen t s tr id es i n t h e m acro eco nom y a n d t h e

politic al l a n dsc ap e, o vera ll th e p ic tu re in te rm s o f tr e n ds in A fric a r e m ain s

a c h alle n gin g o ne.

With a n a v era g e p er c ap ita in co m e o f r o ughly U S$1 a d ay , s u b-S ah ara n

Afric a re m ain s th e p oore st re g io n in th e w orld .

A fric a’s re al p er c ap ita

in co m e t o day i s l o w er t h an i n t h e 1 970s, l e av in g m an y A fric an c o untr ie s a t

le ast as p oor as th ey w ere fo rty y ears ag o. W ith o ver h alf o f th e 7 00

millio n A fric an s liv in g o n le ss th an a d olla r a d ay , s u b-S ah ara n A fric a h as

th e h ig hest p ro portio n o f p oor p eo ple in th e w orld – s o m e 5 0 p er c en t o f

th e w orld ’s p oor. A nd w hile th e n um ber o f th e w orld ’s p opula tio n a n d

pro portio n o f th e w orld ’s p eo ple in e x tr e m e p overty fe ll a fte r 1 980, th e

pro portio n of peo ple in su b-S ah ara n A fric a liv in g in ab je ct poverty

20 in cre ase d to a lm ost 5 0 p er c en t. B etw een 1 981 a n d 2 002, th e n um ber o f

peo ple in th e co ntin en t liv in g in poverty nearly double d , le av in g th e

av era g e A fric an p oore r to day th an ju st tw o d ecad es ag o. A nd lo okin g

ah ead , t h e 2 007 U nite d N atio ns H um an D ev elo pm en t R ep ort f o re casts t h at

su b-S ah ara n A fric a w ill a cco unt fo r a lm ost o ne th ir d o f w orld p overty in

2015, up fro m one fif th in 1990 (th is la rg ely due to th e dra m atic

dev elo pm en ta l s tr id es b ein g m ad e e ls e w here a ro und t h e e m erg in g w orld ).

Lif e e x pecta n cy h as s ta g nate d – A fric a is th e o nly c o ntin en t w here lif e

ex pecta n cy is le ss th an s ix ty y ears ; to day it h overs a ro und f if ty y ears , a n d

in so m e co untr ie s it h as fa lle n b ack to w hat it w as in th e 1 950s (lif e

ex pecta n cy in S w azila n d is a p altr y th ir ty y ears ). T he d ecre ase in lif e

ex pecta n cy is m ain ly a ttr ib ute d to th e ris e o f th e H IV — AID S p an dem ic .

One in s e v en c h ild re n a cro ss th e A fric an c o ntin en t d ie b efo re th e a g e o f

fiv e.

T hese s ta tis tic s a re p artic u la rly w orry in g in th at ( a s w ith m an y o th er

dev elo pin g re g io ns of th e w orld ), ro ughly 50 per cen t of A fric a’s

popula tio n i s y oung – b elo w t h e a g e o f f if te en y ears .

Adult lite ra cy a cro ss m ost A fric an c o untr ie s h as p lu m mete d b elo w p re -

1980 le v els . Lite ra cy ra te s, health in dic ato rs (m ala ria ,

wate r-b orn e

dis e ase s s u ch a s b ilh arz ia a n d c h ole ra ) a n d in co m e in eq uality a ll r e m ain a

cau se f o r w orry . A nd s till a cro ss i m porta n t i n dic ato rs , t h e t r e n d i n A fric a i s

not ju st d ow nw ard s: A fric a is (n eg ativ ely ) d eco uplin g fro m th e p ro gre ss

bein g m ad e a cro ss th e re st o f th e w orld . E ven w ith A fric an g ro w th ra te s

av era g in g 5 p er c en t a y ear o ver t h e p ast s e v era l y ears , t h e A fric a P ro gre ss

Pan el p oin te d o ut in 2 007 th at g ro w th is s till s h ort o f th e 7 p er c en t th at

need s t o b e s u sta in ed t o m ak e s u bsta n tia l i n ro ad s i n to p overty r e d uctio n.

On th e p olitic al s id e, s o m e 5 0 p er c en t o f th e c o ntin en t re m ain s u nder

non-d em ocra tic ru le . A cco rd in g to th e P olity IV d ata b ase , A fric a is still

hom e to at le ast ele v en fu lly au to cra tic re g im es (C ongo-B ra zzav ille ,

Equato ria l G uin ea, E ritr e a, G ab on, T he G am bia , M au rita n ia , R w an da,

Sudan , S w azila n d, U gan da a n d Z im bab w e). T hre e A fric an h ead s o f s ta te

(d os S an to s o f A ngola , O bia n g o f E quato ria l G uin ea a n d B ongo o f G ab on)

hav e b een in p ow er sin ce th e 1 970s (h av in g asc en ded to p ow er o n 2

Decem ber 1 967, P re sid en t B ongo h as r e cen tly c ele b ra te d h is f o rtie th y ear

in p ow er). F iv e o th er p re sid en ts h av e h ad a lo ck o n p ow er s in ce th e 1 980s

(C om pao re of B urk in a Faso , B iy a of C am ero on, C onte of G uin ea,

Muse v en i of U gan da an d M ugab e of Z im bab w e). S in ce 1996, ele v en

co untr ie s hav e been em bro ile d in civ il w ars (A ngola , B uru ndi, C had ,

Dem ocra tic R ep ublic of C ongo, R ep ublic of C ongo, G uin ea B is sa u ,

Lib eria , R w an da, S ie rra L eo ne, S udan a n d U gan da).

A nd a cco rd in g t o t h e

May 2 008 a n nual G lo bal P eace I n dex , o ut o f t h e t e n b otto m c o untr ie s f o ur

21 Afric an s ta te s a re a m ong th e le ast p eacefu l in th e w orld ( in o rd er, C en tr a l

Afric an R ep ublic , C had , S udan an d S om alia ) – th e m ost of an y one

co ntin en t.

Why i s i t t h at A fric a, a lo ne a m ong t h e c o ntin en ts o f t h e w orld , s e em s t o

be lo ck ed in to a cy cle of dysfu nctio n? W hy is it th at out of all th e

co ntin en ts i n t h e w orld A fric a s e em s u nab le t o c o nvin cin gly g et i ts f o ot o n

th e e co nom ic la d der? W hy in a r e cen t s u rv ey d id s e v en o ut o f th e to p te n

‘fa ile d sta te s’ h ail fro m th at c o ntin en t? A re A fric a’s p eo ple u niv ers a lly

more in cap ab le ? A re its le ad ers g en etic ally m ore v en al, m ore ru th le ss,

more c o rru pt? Its p olic y m ak ers m ore in nate ly fe ck le ss? W hat is it a b out

Afric a th at h old s

it b ack , th at s e em s to re n der it in cap ab le o f jo in in g th e

re st o f t h e g lo be i n t h e t w en ty -fir s t c en tu ry ?

The a n sw er h as i ts r o ots i n a id .

What i s a id ?

Bro ad ly s p eak in g t h ere e x is t t h re e t y pes o f a id : h um an ita ria n o r e m erg en cy

aid , w hic h is m obiliz ed an d d is p en se d in re sp onse to cata str o phes an d

cala m itie s – fo r e x am ple , a id in re sp onse to th e 2 004 A sia n ts u nam i, o r

monie s w hic h ta rg ete d th e c y clo ne-h it M yan m ar in 2 008; c h arity -b ase d

aid , w hic h i s d is b urs e d b y c h arit a b le o rg an iz atio ns t o i n stitu tio ns o r p eo ple

on th e g ro und; a n d s y ste m atic a id – th at is , a id p ay m en ts m ad e d ir e ctly to

govern m en ts e ith er t h ro ugh g overn m en t- to -g overn m en t t r a n sfe rs ( in w hic h

case it is te rm ed b ila te ra l a id ) o r tr a n sfe rre d v ia in stitu tio ns su ch a s th e

World B an k ( k now n a s m ultila te ra l a id ).

While th ere are obvio us an d fu ndam en ta l m erits to em erg en cy aid ,

critic is m s c an b e le v elle d a g ain st it a s w ell a s a g ain st c h arita b le g iv in g.

Charitie s are ofte n critic iz ed , with so m e ju stif ic atio n, fo r poor

im ple m en ta tio n, h ig h ad m in is tr a tiv e co sts an d th e fa ct th at th ey are o n

occasio n c o erc ed to d o th eir d onor g overn m en t’ s b id din g – d esp ite th e

obvio us la ck o f re le v an ce to a lo cal c o nte x t. F or e x am ple , in 2 005, th e

Unite d S ta te s p le d ged U S$15 b illio n o ver f iv e y ears t o f ig ht A ID S ( m ain ly

th ro ugh th e Pre sid en t’ s E m erg en cy Pla n fo r A ID S R elie f (P E PFA R)

la u nch ed in J a n uary 2 003).

B ut th is h ad s tr in gs a tta ch ed . T w o th ir d s o f

th e m oney h ad to g o to p ro -a b stin en ce p ro gra m mes, a n d w ould n ot b e

av aila b le t o a n y o rg an iz atio ns w ith c lin ic s t h at o ffe re d a b ortio n s e rv ic es o r

ev en co unse llin g. A nd nin e m onth s afte r th e 2004 A sia n ts u nam i, fo r

whate v er th e re aso n (b ure au cra cy , in stitu tio nal in effic ie n cie s or th e

ab se n ce o f s u ita b le o rg an iz atio ns o n th e g ro und to d is b urs e th e m onie s),

22 th e ch arity W orld V is io n h ad sp en t le ss th an a q uarte r o f th e U S$100

millio n i t h ad r a is e d .

But th is b ook is n ot c o ncern ed w ith e m erg en cy a n d c h arity -b ase d a id .

The s ig nif ic an t s u m s o f t h is t y pe o f a id t h at f lo w t o

Afric a s im ply d is g uis e

th e f u ndam en ta l ( y et e rro neo us) m in dse t th at p erv ad es th e W est – th at a id ,

whate v er its f o rm , is a g ood th in g. B esid es, c h arity a n d e m erg en cy a id a re

sm all b eer w hen c o m pare d w ith th e b illio ns tr a n sfe rre d e ach y ear d ir e ctly

to p oor c o untr ie s’ g overn m en ts .

Larg e sy ste m atic cash tr a n sfe rs fro m ric h co untr ie s to Afric an

govern m en ts h av e te n ded to b e in th e f o rm o f c o ncessio nal lo an s ( th at is ,

money le n t at b elo w m ark et in te re st ra te s, an d o fte n fo r m uch lo nger

le n din g p erio ds th an o rd in ary co m merc ia l m ark ets ) o r g ra n ts (w hic h is

esse n tia lly m oney g iv en f o r n oth in g i n r e tu rn ).

There is a s c h ool o f th ought w hic h a rg ues th at r e cip ie n t c o untr ie s v ie w

lo an s, w hic h carry th e burd en of fu tu re re p ay m en t, as dif fe re n t fro m

gra n ts . T hat t h e p ro sp ects o f r e p ay m en t m ean l o an s i n duce g overn m en ts t o

use fu nds w is e ly an d to m obiliz e ta x es an d m ain ta in cu rre n t le v els o f

re v en ue c o lle ctio n. W here as g ra n ts a re v ie w ed a s f re e r e so urc es a n d c o uld

th ere fo re p erfe ctly s u bstitu te f o r a g overn m en t’ s d om estic r e v en ues.

This d is tin ctio n h as le d m an y d onors to p ush fo r a p olic y o f g ra n ts

in ste ad o f l o an s t o p oor c o untr ie s. T he l o gic i s t h at m uch o f t h e i n vestm en t

th at p oor c o untr ie s n eed t o m ak e h as a l o ng g esta tio n p erio d b efo re i t s ta rts

to p ro duce th e k in ds o f c h an ges in G DP g ro w th th at w ill y ie ld th e ta x

re v en ues n eed ed to s e rv ic e lo an s. I n deed , m an y s c h ola rs h av e a rg ued th at

it w as p re cis e ly b ecau se m an y A fric an c o untr ie s h av e, o ver tim e, r e ceiv ed

(flo atin g r a te ) l o an s, a n d n ot g ra n ts , t o f in an ce p ublic i n vestm en ts t h at t h ey

becam e s o h eav ily in deb te d , a n d th at a id h as n ot h elp ed th em re ach th eir

dev elo pm en t o bje ctiv es.

Yet ultim ate ly th e questio n beco m es how str o ngly re cip ie n t

govern m en ts p erc eiv e lo an s a s b ein g d if fe re n t f ro m g ra n ts . I f a la rg e s h are

of f o re ig n lo an s a re p ro vid ed o n h ig hly c o ncessio nal te rm s, a n d lo an s a re

fre q uen tly fo rg iv en , p olic y m ak ers in p oor e co nom ie s m ay c o m e to v ie w

th em a s r o ughly e q uiv ale n t to g ra n ts , a n d a s s u ch th e d is tin ctio n b etw een

(a id ) lo an s a n d g ra n ts a s p ra ctic ally ir re le v an t. O ver re cen t d ecad es, th e

patte rn o f a id to A fric a s e em s to g el w ith th is v ie w o f th e w orld – o ne in

whic h l o an s a re n ot s e en a s d is tin ct f ro m g ra n ts .

There fo re , f o r th e p urp ose s o f th is b ook, a id is d efin ed a s th e s u m to ta l

of both co ncessio nal lo an s an d gra n ts . It is th ese billio ns th at hav e

ham pere d , stif le d an d re ta rd ed A fric a’s dev elo pm en t. A nd it is th ese

billio ns t h at

Dea d A id

w ill a d dre ss.

23 2. A B rie f H is to ry o f A id

T he ta le o f a id b eg in s in e arn est in th e f ir s t th re e w eek s o f J u ly 1 944, a t a

m eetin g h eld at th e M ount W ash in gto n H ote l in B re tto n W oods, N ew

H am psh ir e , U SA . A gain st th e b ack dro p o f th e S eco nd W orld W ar, o ver

7 00 dele g ate s fro m so m e fo rty -fo ur co untr ie s re so lv ed to esta b lis h a

f ra m ew ork f o r a g lo bal s y ste m o f f in an cia l a n d m oneta ry m an ag em en t.

A s

d is c u sse d la te r, it is fro m th is g ath erin g th at th e d om in an t fra m ew ork o f

a id -in fu se d d ev elo pm en t w ould e m erg e.

The o rig in s o f l a rg e-s c ale a id t r a n sfe rs d ate a s f a r b ack a s t h e n in ete en th

c en tu ry – w hen e v en in 1 896 th e U S p ro vid ed o vers e as a ssis ta n ce in th e

f o rm o f f o od a id . U nder t h e C olo nia l D ev elo pm en t A ct o f 1 929, t h e B ritis h

g overn m en t a d m in is te re d g ra n ts fo r in fra str u ctu re p ro je cts a cro ss p oore r

c o untr ie s. A id tr a n sfe rs in th ese e arly p erio ds w ere a s m uch a b out d onor

l a rg esse a s th ey w ere a b out p olitic al c o ntr o l o ver th e c o lo nia l d om ain , a n d

o nly l a te r, i n t h e 1 940 B ritis h C olo nia l D ev elo pm en t a n d W elf a re A ct, w as

t h e p ro gra m me e x pan ded t o a llo w f u ndin g o f s o cia l s e cto r a ctiv itie s.

Post- w ar a id c an b e b ro ken d ow n i n to s e v en b ro ad c ate g orie s: i ts b ir th a t

B re tto n W oods i n t h e 1 940s; t h e e ra o f t h e M ars h all P la n i n t h e 1 950s; t h e

d ecad e o f i n dustr ia liz atio n o f t h e 1 960s; t h e s h if t t o w ard s a id a s a n a n sw er

t o p overty in th e 1 970s; aid as th e to ol fo r sta b iliz atio n an d str u ctu ra l

a d ju stm en t in th e 1 980s; a id a s a b uttr e ss o f d em ocra cy a n d g overn an ce in

t h e 1 990s; c u lm in atin g in th e p re se n t- d ay o bse ssio n w ith a id a s th e o nly

s o lu tio n t o A fric a’s m yria d o f p ro ble m s.

The m ain a g en da o f th e B re tto n W oods c o nfe re n ce w as to re str u ctu re

i n te rn atio nal f in an ce, e sta b lis h a m ultila te ra l tr a d in g s y ste m a n d c o nstr u ct

a fra m ew ork fo r e co nom ic c o opera tio n th at w ould a v oid a re p eat o f th e

G re at D ep re ssio n o f t h e 1 930s. A s t h ey a n tic ip ate d t h e p ost- S eco nd W orld

W ar e ra , th e a rc h ite cts o f th e

1944 B re tto n W oods g ath erin g f o re sa w th at

i f E uro pe w ere to re g ain a n y se m bla n ce o f so cia l, p olitic al o r e co nom ic

s ta b ility , v ast in je ctio ns o f a id w ould h av e to b e p oure d in . T here w as a

c le ar re co gnitio n th at in th e post- w ar perio d th e fra ctu re d natio ns of

E uro pe w ould n eed a m assiv e cash in je ctio n to sp ur a re tu rn to th eir

p re v io us le v els o f d ev elo pm en t. D am ag ed th ough E uro pe w as, th is m oney

w as (fo rtu ito usly ) g oin g in to a lr e ad y e x is tin g p hysic al, le g al a n d so cia l

i n fra str u ctu re s w hic h s im ply n eed ed f ix in g.

24 Jo hn M ay nard K ey nes, th e p re -e m in en t B ritis h e co nom is t, a n d H arry

Dex te r W hite , a t th at tim e th e U S S ecre ta ry o f S ta te , le d th e d is c u ssio ns

whic h la id th e f o undatio ns f o r th re e o rg an iz atio ns: th e I n te rn atio nal B an k

fo r R eco nstr u ctio n an d D ev elo pm en t (c o m monly know n as th e W orld

Ban k), th e I n te rn atio nal M oneta ry F und ( IM F) a n d th e I n te rn atio nal T ra d e

Org an iz atio n.

At th e tim e o f th eir in cep tio n, th e e x act re sp onsib ilitie s o f th e W orld

Ban k a n d th e I M F w ere c le arly d elin eate d . I n v ery b ro ad te rm s, th e W orld

Ban k w as d esig ned to f a cilita te c ap ita l in vestm en t f o r r e co nstr u ctio n, a n d

in th e a fte rm ath o f th e w ar th e IM F w as to m an ag e th e g lo bal fin an cia l

sy ste m . I n l a te r y ears , b oth i n sti tu tio ns w ould c o m e t o o ccu py c en tr e -s ta g e

in th e dev elo pm en t dis c o urs e , but th e orig in al man date ta rg ete d

re co nstr u ctio n, r a th er t h an d ev elo pm en t p er s e .

At its co re , th e re co nstr u ctio n ag en da assu m ed th at th e d em an ds o n

post- w ar in vestm en t c o uld n ot b e m et w ith out so m e a d eq uate m ean s o f

poolin g th e in vestm en t ris k betw een co untr ie s. There was wid e

ack now le d gem en t th at fe w c o untr ie s w ould b e a b le to fu lf il th e ro le o f

fo re ig n le n der; an d th e b asic p rin cip le o f th e W orld B an k w as th at n o

matte r w hat c o untr y a ctu ally d id th e fo re ig n le n din g, a ll m em ber n atio ns

sh ould partic ip ate in underw ritin g th e ris k in volv ed . Early fin an cia l

tr a n sfe rs fro m in te rn atio nal in stitu tio ns in clu ded a US$250 m illio n

re co nstr u ctio n lo an to Fra n ce sig ned on 9 M ay 1946, fo llo w ed by

re co nstr u ctio n lo an s to th e N eth erla n ds, D en m ark an d L uxem bourg in

August 1 947. T hese aid tr a n sfe rs w ere u ndoubte d ly at th e h eart o f th e

re co nstr u ctio n p ro cess th at a lm ost c erta in ly c o ntr ib ute d to th e e co nom ic

pow erh ouse t h at E uro pe h as b eco m e t o day .

Alo ngsid e th e W orld B an k, th e IM F w as m an date d w ith th e sp ecif ic

re sp onsib ility o f p ro m otin g t h e s ta b ility o f t h e w orld e co nom y. A t t h e t im e

it beg an opera tio ns on 1 M arc h 1947, th e IM F w as ch arg ed w ith

pro m otin g an d su perv is in g in te rn atio nal m oneta ry co opera tio n am ongst

co untr ie s, a n d th us f o re sta llin g a n y p ossib le g lo bal f in an cia l c ris is . B y th e

en d o f th e 1 940s a n a id -le d e co nom ic f ra m ew ork w as f ir m ly in p la ce, b ut

it w as n ot u ntil la te r in th e d ecad e th at th e f ir s t la rg e-s c ale g overn m en t- to -

govern m en t a id t r a n sfe r o ccu rre d .

On 5 Ju ne 1 947, at H arv ard U niv ers ity , th e U S S ecre ta ry o f S ta te ,

Geo rg e C . M ars h all, o utlin ed a r a d ic al p ro posa l b y w hic h A m eric a w ould

pro vid e a re sc u e p ack ag e o f u p to U S$20 b illio n (o ver U S$100 b illio n in

to day ’s te rm s) fo r a ra v ag ed E uro pe.

A s E uro pe em erg ed fro m th e

dev asta tio n o f th e S eco nd W orld W ar w ith little to s e ll f o r h ard c u rre n cy ,

an d e x perie n cin g o ne o f th e w ors t w in te rs o n re co rd , G en era l M ars h all

25 arg ued fo r a n a g gre ssiv e fin an cia l in te rv en tio n b y th e U nite d S ta te s. In

re tu rn , E uro pean g overn m en ts w ould d ra w u p a n e co nom ic r e v iv al p la n .

Under th e M ars h all Pla n , th e U nite d Sta te s em bark ed on an aid

pro gra m me to fo urte en E uro pean co untr ie s w hic h sa w th e tr a n sfe r of

assis ta n ce w orth r o ughly U S$13 b illio n t h ro ughout t h e f iv e-y ear l if e o f t h e

pla n fro m 1948 to 1952. A m ong th e to p fiv e aid re cip ie n ts fro m th e

Mars h all P la n w ere G re at B rita in , w hic h r e ceiv ed t h e l io n’s s h are o f 2 4 p er

cen t, a n d F ra n ce, Ita ly a n d G erm an y, w hic h re ceiv ed 2 0, 1 1 a n d 1 0 p er

cen t, r e sp ectiv ely . I n p er c ap ita te rm s s m alle r E uro pean c o untr ie s r e ceiv ed

more su pport: N orw ay re ceiv ed U S$136 per pers o n, A ustr ia U S$131,

Gre ece U S$128 a n d t h e N eth erla n ds U S$111.

The id ea th at th e M ars h all P la n is h aile d a s a s u ccess h as r e m ain ed , to a

la rg e ex te n t, u nquestio ned . T he p la n w as cle arly su ccessfu l in b rin gin g

Weste rn E uro pe b ack o nto a s tr o ng e co nom ic fo otin g, p ro vid in g th e U S

with th e v eh ic le to in flu en ce fo re ig n p olic y , w in nin g it a llie s in W este rn

Euro pe a n d b uild in g a so lid fo undatio n fo r U S-le d m ultila te ra lis m . A id

had re sto re d bro ken in fra str u ctu re . A id had bro ught politic al sta b ility ,

re sto re d h ope a n d n ot o nly g iv en a f u tu re to d efe ate d p eo ple s, to b an kru pt

natio ns an d to b ro ken la n ds, b ut als o b en efite d th e d onor n atio n its e lf ,

keep in g t h e U S e co nom y a flo at w hile t h e w orld a ro und i t h ad c ru m ble d .

More im porta n tly , if a id w ork ed in E uro pe, if it g av e to E uro pe w hat

Euro pe n eed ed , w hy c o uld n’t it d o th e s a m e e v ery w here e ls e ? B y th e e n d

of th e 1950s, once re co nstr u ctio n in E uro pe w as se en to be w ork in g,

atte n tio n tu rn ed to w ard s o th er p arts o f th e w orld , a n d s p ecif ic ally , in th e

co nte x t o f a id , A fric a.

Afric a w as rip e fo r a id . T he c o ntin en t w as c h ara cte riz ed b y a la rg ely

uned ucate d p opula tio n, lo w -s a la rie d e m plo ym en t, a v ir tu ally n on-e x is te n t

ta x b ase , p oor a ccess to g lo bal m ark ets a n d d ere lic t in fra str u ctu re . A rm ed

with th e id eas a n d e x perie n ce o f th e M ars h all P la n , ric h er c o untr ie s s a w

Afric a a s a p rim e t a rg et f o r a id . S o a id b eg an t o a p pear.

As th e U S fu nnelle d la rg e s u m s to E uro pe th ro ugh th e M ars h all p la n ,

World B an k an d IM F re so urc es w ere fre ed u p. M onie s th at h ad b een

earm ark ed by th e B re tto n W oods in stitu tio ns fo r postw ar Euro pean

re co nstr u ctio n co uld now be dir e cte d to w ard s th e em erg in g (A fric an )

dev elo pm en t a g en da.

Perh ap s m ore cru cia lly fo r th e aid -b ase d ag en da th at en su ed , it w as

wid ely assu m ed th at p oor co untr ie s la ck ed th e fin an cia l cap ita l to sp ur

dev elo pm en t. I n t h e w ak e o f t h e M ars h all P la n s u ccess, i t b ecam e a w id ely

accep te d v ie w th at in vestm en t c ap ita l w as c ritic al f o r e co nom ic g ro w th . I n

th e a b se n ce o f a n y s ig nif ic an t d om estic s a v in gs a n d la ck in g th e p hysic al

26 an d h um an c ap ita l t o a ttr a ct p riv ate i n vestm en t, f o re ig n a id w as s e en a s t h e

only w ay to tr ig ger h ig her in vestm en t, w hic h w ould th us le ad to h ig her

eco nom ic g ro w th . A s f a r a s p olic y m ak ers c o uld s e e, th ere w as n o o bvio us

alte rn ativ e.

There w ere o f c o urs e o th er r e aso ns w hy B rita in , A m eric a a n d t o a l e sse r

ex te n t F ra n ce tu rn ed th eir a tte n tio n to A fric a. B y th e m id -1 950s A fric a

was u nderg oin g p ro fo und c h an ges – w ith W este rn p ow ers lo ose n in g th e

ch ain s o f c o lo nia lis m , m an y c o untr ie s w ere g ain in g th eir in dep en den ce.

Countr ie s s u ch a s G han a i n 1 957, K en ya i n 1 963, a n d M ala w i a n d Z am bia

in 1964 bro ke fro m th e co lo nia l fo ld to beco m e in dep en den t sta te s

betw een 1956 an d 1966; in all, th ir ty -o ne A fric an co untr ie s did so .

In dep en den t t h ey

may h av e b een o n p ap er, b ut i n dep en den ce d ep en den t o n

th e f in an cia l la rg esse o f th eir f o rm er c o lo nia l m aste rs w as th e r e ality . F or

th e W est, a id b ecam e a m ean s b y w hic h B rita in a n d F ra n ce c o m bin ed t h eir

new -fo und altr u is m w ith a hefty dollo p of se lf -in te re st – m ain ta in in g

str a te g ic g eo politic al h old s. F or th e U S, a id b ecam e th e to ol o f a n oth er

politic al c o nte st – t h e C old W ar.

While th e C old W ar w as p ep pere d w ith o utb re ak s o f p hysic al h ostility

(fo r e x am ple , in K ore a), m uch o f th e b attle f o r w orld h eg em ony b etw een

th e U S a n d th e U SSR w as fo ught e co nom ic ally a n d o n fo re ig n s o il. T he

ch oic e o f w eap on – a id . A fric a s a w m an y s u ch b attle s. A id b ecam e t h e k ey

to ol in th e c o nte st to tu rn th e w orld c ap ita lis t o r c o m munis t. T he S ovie t

Unio n w as, o f co urs e , a sta u nch su pporte r (a n d fin an cie r) o f so m e o f

Afric a’s g re ate st c o m munis ts – P atr ic e L um um ba in C ongo a n d M en gis tu

Haile M aria m in Eth io pia . A nd th e U S, by co ntr a st, re w ard ed its

su pporte rs , s u ch a s Z air e ’s M obutu S ese S ek o.

As su ch , th e aid im pera tiv e to ok on an ad ded dim en sio n: not how

dese rv in g a c o untr y m ig ht b e o r th e n atu re o f its le ad ers h ip , b ut r a th er th e

willin gness o f a d esp era te ly im poveris h ed c o untr y to a lly its e lf w ith o ne

cam p o r a n oth er – b en ev ole n t l e ad er o r v ic io us t y ra n t, a s l o ng a s t h ey w ere

onsid e, w hat d id i t m atte r?

It is im possib le to k now f o r s u re w hat th e tr u e m otiv atio ns f o r g ra n tin g

fo re ig n a id t o A fric a w ere , b ut g ra n te d i t w as.

The 1 960s: t h e d eca de o f i n dustr ia liz a tio n

By th e b eg in nin g o f th e 1 960s so m e U S$100 m illio n in aid h ad b een

tr a n sfe rre d to th e A fric an c o ntin en t. T his w as a m ere tr ic k le c o m pare d to

th e a v ala n ch e o f b illio ns o f d olla rs o f a id th at w ould e v en tu ally m ak e its

27 way t o A fric a.

The early p art o f th e 1 960s als o sa w th e u nderly in g sh if t to w ard s a

gre ate r fo cu s on aid fu ndin g fo r la rg e-s c ale in dustr ia l pro je cts . The

pre v ailin g v ie w w as th at b ecau se th ese p ro je cts h ad lo nger-te rm p ay -o ffs

(fo r ex am ple , th e fu ndin g o f in fra str u ctu re p ro je cts su ch as ro ad s an d

ra ilw ay s), th ey w ere u nlik ely to b e f u nded b y th e

priv ate s e cto r. O ne s u ch

ex am ple is th e d ouble -c u rv atu re , h ydro ele ctr ic , c o ncre te a rc h K arib a d am

th at str a d dle s th e b ord er b etw een Z am bia an d Z im bab w e; it w as b uilt

th ro ughout th e d ecad e. T he d am , w hose c o nstr u ctio n b eg an u nder B ritis h

co lo nia l r u le in th e m id -1 950s, w as f in ally c o m ple te d a t a c o st o f U S$480

millio n in 1 977. T oday it still ra n ks as o ne o f th e la rg est d am s in th e

world .

By 1 965, w hen a ro und h alf o f s u b-S ah ara n A fric a’s r o ughly f if ty s ta te s

were in dep en den t, aid had alr e ad y re ach ed at le ast U S$950 m illio n.

Ghan a, w hic h had w on its in dep en den ce fro m B rita in in 1957, had

re ceiv ed as m uch as U S$90 m illio n in aid flo w s. Z am bia , K en ya an d

Mala w i, a ll in dep en den t b y 1 964 h ad , o n a v era g e, r e ceiv ed a b out U S$315

millio n e ach b y th e e n d o f th e d ecad e. S ta tis tic al re co rd s fro m th e 1 960s

are s c an t, a n d e stim ate s o f th e m ile s o f ta rre d r o ad a n d r a ilw ay tr a ck , th e

num bers o f b rid ges a n d a ir p orts , th at a id h elp ed b uild r e m ain u ncle ar. A s

su ch , th e tr u e v alu e o f th e s u rfe it o f a id th at h ad g one to A fric a re m ain s

open to d eb ate , b ut b y th e b eg in nin g o f th e 1 970s th ere w as s till n ot m uch

in fra str u ctu re t o s p eak o f.

The f o re ig n a id a gen da o f t h e 1 970s:

th e s h ift t o a p overty f o cu s

On 1 7 O cto ber 1 973, A ra b s ta te s p la ced a n e m barg o o n o il a s a r e ta lia tio n

fo r U S s u pport f o r I s ra el i n t h e Y om K ip pur W ar. I n j u st a f e w m onth s, t h e

pric e o f p etr o l q uad ru ple d , s e n din g t h e g lo bal e co nom y i n to t u rm oil. A s o il

pric es so are d , o il- e x portin g c o untr ie s d ep osite d th e a d ditio nal c ash w ith

in te rn atio nal b an ks, w hic h in tu rn e ag erly s o ught to le n d th is m oney to th e

dev elo pin g w orld . L ax e co nom ic a n d fin an cia l p olic ie s (fo r e x am ple , th e

lo w a m ounts c en tr a l b an ks r e q uir e d c o m merc ia l b an ks to k eep in r e se rv e)

mean t th at th e volu m e of le n din g to ev en th e poore st an d m ost un-

cre d itw orth y c o untr ie s a ro und th e w orld w as e n orm ous. T he w all o f f re ely

su pplie d m oney le d to ex tr e m ely lo w , an d ev en n eg ativ e, re al in te re st

ra te s, an d en co ura g ed m an y p oore r

eco nom ie s to sta rt b orro w in g ev en

more i n o rd er t o r e p ay p re v io us d eb ts .

In A fric a, a s o il p ric es r o se m an y c o untr ie s s a w f o od p ric es r o ck et a n d

28 re cessio n ta k e h old . In 1 975 G han a’s G DP co ntr a cte d b y 1 2 p er cen t,

in fla tio n r o se f ro m 3 p er c en t in 1 970 to 3 0 p er c en t in 1 975, a n d s h ot to

116 p er c en t in 1 977. I n C ongo-K in sh asa , in fla tio n r o se f ro m 8 p er c en t in

1970 to 8 0 p er c en t in 1 976, a n d re ach ed 1 01 p er c en t in 1 979. A lm ost

in ev ita b ly , f o od a n d c o m modity p ric e s h ock s f u elle d b y r is e s in o il p ric es

le d t o t h e s h if t t o w ard s a m ore p overty -b ase d a p pro ach t o d ev elo pm en t.

Under R obert M cN am ara , th e W orld B an k v ery p ublic ly re o rie n te d its

str a te g ie s to w ard s th is m ore p ro nounced p overty fo cu s. D onor c o untr ie s

fo llo w ed s u it: in 1 975 th e U K p ublis h ed its w hite p ap er

More A id fo r th e

Poore st

a n d i n t h e s a m e y ear t h e U S p asse d t h e I n te rn atio nal D ev elo pm en t

an d F ood A ssis ta n ce A ct, w hic h s tip ula te d th at 7 5 p er c en t o f its F ood f o r

Peace P ro gra m w ould g o t o c o untr ie s w ith a p er c ap ita i n co m e o f l e ss t h an

US$300.

In pra ctic al te rm s th is mean t re d ir e ctin g aid aw ay fro m la rg e

in fra str u ctu re in vestm en t (p ow er, tr a n sp ort, e tc .) , a n d to w ard s p ro je cts in

ag ric u ltu re an d ru ra l dev elo pm en t, so cia l se rv ic es (in clu din g housin g,

ed ucatio n an d health ), m ass in ocu la tio n pro gra m mes, ad ult lite ra cy

cam paig ns, a s w ell a s fo od fo r th e m aln ouris h ed . T he e m phasis w as n ow

on th e p oor. B y th e e n d o f th e 1 970s th e p ro portio n o f a id a llo cate d to

so cia l s e rv ic es h ad c re p t to o ver 5 0 p er c en t, u p f ro m u nder 1 0 p er c en t in

th e p re v io us d ecad e.

Alth ough in th e mid -1 970s nearly tw o th ir d s of aid was fo r

in fra str u ctu re – r o ad s, r a ilw ay s, w ate r a n d s e w era g e, p orts , a ir p orts , p ow er

sta tio ns an d te le co m munic atio ns, th e pro portio n of poverty -o rie n te d

le n din g r o se f ro m 5 p er c en t in th e la te 1 970s to 5 0 p er c en t b y th e e arly

1980s. In th e y ear o f th e fir s t o il sp ik e (b etw een 1 973 an d 1 974) th e

volu m e of poverty -re la te d aid flo w s in cre ase d th re efo ld ; it m ore th an

double d a t th e tim e o f th e se co nd o il ju m p b etw een 1 979 a n d 1 980. It

sh ould b e u nders to od th at, lik e th e m ajo rity o f th e in fra str u ctu re a id , m uch

of th e p overty -re la te d a id d id n ot c o m e fo r fre e. A id c o sts m oney . A nd

unle ss it’ s

in th e f o rm o f g ra n ts , it h as to b e p aid b ack , w ith in te re st. T his

poin t w ould l a te r c o m e b ack t o h au nt m an y A fric an s ta te s.

By th e b eg in nin g o f th e 1 970s th e g ro w th -o rie n te d s tr a te g y w as w id ely

belie v ed in p olic y c ir c le s to h av e f a ile d in its m is sio n to d eliv er s u sta in ed

eco nom ic gro w th . M ountin g num bers of peo ple liv in g in a sta te of

ab so lu te poverty , in cre asin g le v els of unem plo ym en t, ris in g in co m e

in eq uality , w ors e n in g b ala n ce o f tr a d e p ositio ns a n d a g ro w in g s e n se th at

su sta in ed gro w th – re al su sta in ed gro w th – co uld not occu r w ith out

mate ria lly im pro vin g th e liv elih ood o f s o cie ty ’s p oor d em an ded a n ew a id

str a te g y.

29 Yet, d esp ite th e a id a im ed a t p overty a lle v ia tio n, re cip ie n ts u nder th e

pro gra m me in co untr ie s su ch as Z am bia w ould la te r se e th eir p overty

le v els s k yro ck et a n d g ro w th r a te s p lu m met. A noth er s h if t w as u nderw ay i n

th e 1 970s. U p u ntil th e e arly p art o f th e d ecad e th e U S g overn m en t ( u nder

th e au sp ic es of th e U S A gen cy fo r In te rn atio nal D ev elo pm en t) had

dis b urs e d th e la rg est a m ount o f a id to th e d ev elo pin g w orld . T his c h an ged

under R obert M cN am ara ’s p re sid en cy o f th e W orld B an k, a n d a fte r its

1973 a n nual m eetin g t h e W orld B an k b ecam e t h e l a rg est a id d onor.

The f o re ig n a id a gen da o f t h e 1 980s:

th e l o st a ge o f d evelo pm en t

By th e e n d o f th e 1 970s A fric a w as a w ash w ith a id . I n to ta l, th e c o ntin en t

had am asse d aro und U S$36

billio n

in fo re ig n assis ta n ce. W ith th e

co m modity boom cre d ito rs w ere only to o hap py to pro vid e lo an s.

Alth ough eco nom ic p re ssu re s an d fin an cia l in sta b ility h ad b een la rg ely

co nta in ed a fte r th e 1 973 o il c ris is , c o m e th e 1 979 o il s p ik e p re cip ita te d b y

th e I ra n –Ira q w ar, i t w as a d if fe re n t s to ry .

Fore ig n m oney h ad b een flo w in g n ot o nly to A fric a, b ut a ll a cro ss th e

world . Thro ughout th e 1960s an d 1970s Latin A m eric an co untr ie s

borro w ed v ast s u m s o f m oney , a ls o t o f in an ce t h eir b urg eo nin g e co nom ie s.

Betw een 1 975 a n d 1 982, f o r e x am ple , L atin A m eric an d eb t to c o m merc ia l

ban ks in cre ase d at a cu m ula tiv e

an nual ra te of 20.4 per cen t. T his

heig hte n ed b orro w in g le d L atin A m eric a to q uad ru ple its ex te rn al d eb t

fro m U S$75 b illio n in 1 975 to m ore th an U S$315 b illio n in 1 983, o r 5 0

per c en t o f t h e r e g io n’s G DP.

The 1979 oil cris is pro duced fin an cia l pre ssu re s of in su rm ounta b le

pro portio ns, an d th e offic ia l polic y re sp onse did not help . T he polic y

re actio n, p artic u la rly b y m ajo r e co nom ie s s u ch a s t h e U S a n d U K, d if fe re d

dra stic ally fro m th e e arlie r a p pro ach o f sim ply d um pin g in m ore a id to

sta v e o ff th e im pact o n th e p oor. C en tr a l b an kers in th e in dustr ia liz ed

world r e acte d t o t h e s e co nd p ric e s h ock a n d f e ars o f m ountin g i n fla tio n b y

tig hte n in g m oneta ry p olic y – th at is , m ain ly r a is in g in te re st r a te s. M ost o f

th e b an k lo an s to d ev elo pin g co untr ie s w ere b ase d o n flo atin g in te re st

ra te s, s o a s p olic y m ak ers r a is e d in te re st r a te s, s o to o th e c o st o f b orro w in g

in cre ase d – o fte n t o l e v els w here d eb t w as u nsu sta in ab le .

Afric a’s d eb t s e rv ic e ( in te re st p ay m en ts a n d th e r e p ay m en t o f p rin cip al)

re ach ed aro und U S$8 b illio n in 1 982, u p fro m U S$2 b illio n in 1 975.

Alm ost in ev ita b ly , th e e n vir o nm en t o f h ig her in te rn atio nal in te re st ra te s

le d to w orld w id e re cessio n an d, in tu rn , le ss dem an d fo r dev elo pin g

30 co untr ie s’ ex ports , an d hen ce lo w er fo re ig n ex ch an ge earn in gs.

Even tu ally , as em erg in g co untr ie s were unab le to se rv ic e th eir

accu m ula te d d eb ts t h ere w as o nly o ne a lte rn ativ e.

On 1 2 A ugust 1 982 M ex ic o ’s S ecre ta ry o f F in an ce te le p honed th e U S

Fed era l R ese rv e C hair m an , th e U S S ecre ta ry of th e T re asu ry an d th e

IM F’s M an ag in g D ir e cto r to in fo rm th em th at M ex ic o w ould b e u nab le to

meet its 1 6 A ugust d eb t o blig atio ns to its b an k c re d ito rs . O th er c o untr ie s

so on fo llo w ed su it. In A fric a alo ne, so m e ele v en co untr ie s – A ngola ,

Cam ero on, C ongo, I v ory C oast, G ab on, T he G am bia , M ozam biq ue, N ig er,

Nig eria , T an zan ia , a n d Z am bia – d efa u lte d o n t h eir o blig atio ns.

The d eb t c ris is th re ate n ed to u n derm in e th e v ery fo undatio ns o f g lo bal

fin an cia l s ta b ility . I f e m erg in g n atio ns w ere a llo w ed to d efa u lt u nch eck ed ,

th is w ould h av e le d to a c o m ple te c o lla p se o f th e in te rn atio nal fin an cia l

str u ctu re . T he s u rv iv al o f i n te rn atio nal c re d ito rs , s u ch a s b an ks, w ho r e lie d

on g ettin g p aid b ack fo r th e

lo an s w as in je o pard y. M uch lik e th e ris k s

su rro undin g th e 2 008 s u b-p rim e c re d it c ris is , th is c o uld h av e r e su lte d in a

cata str o phic ru n o n th e b an ks, a g lo bal fin an cia l m eltd ow n a n d a ll th at it

en ta ils – u nem plo ym en t, g allo pin g i n fla tio n a n d e co nom ic d ep re ssio n.

The so lu tio n to th e cris is w as to re str u ctu re th e d eb t. T hus th e IM F

fo rm ed th e Str u ctu ra l A dju stm en t Facility – la tte rly , th e Enhan ced

Str u ctu ra l A dju stm en t F acility – s p ecif ic ally to le n d m oney to d efa u ltin g

natio ns t o h elp t h em r e p ay w hat t h ey o w ed . N ecessa ry t h ough t h is w as, t h e

en d r e su lt o nly s e rv ed to in cre ase p oor c o untr ie s’ a id -d ep en den ce a n d p ut

th em d eep er i n to d eb t.

This in te rv en tio n w as c alle d a r e str u ctu rin g, b ut in r e ality it w as m ere ly

a re in carn atio n o f th e a id m odel. In varia b ly , b ecau se in te rn atio nal p riv ate

le n din g m ark ets d rie d u p a n d a s c o m merc ia l b an ks w ere n o lo nger w illin g

to le n d to p oor c o untr ie s, th e B re tto n W oods in stitu tio ns w ould re cla im

th eir c en tr a l p ositio n a s c h ie f l e n ders t o e m erg in g e co nom ie s.

Fro m th e h ig h h opes a n d a m bitio ns o f th eir e arly in dep en den ce, m an y

Afric an co untr ie s had been re d uced to a sta te of near destitu tio n an d

re n ew ed dep en den cy . Facin g fa llin g in co m e fro m tr a d e (p ric es of

co m moditie s s u ch a s o il a n d s u gar h ad r e tr e ate d to h is to ric ally lo w le v els :

oil fe ll fro m U S$38 a b arre l in 1 980 to U S$15.1 0 in 1 986 (a 6 0 p er c en t

dro p i n j u st f o ur y ears ), a n d s u gar f ro m 6 5 c en ts p er p ound t o a l o w o f j u st

under 7 cen ts per pound in 1978), w eig hed dow n by en orm ous deb t

burd en s, h ig h in te re st ra te s a n d d eclin in g d em an d fo r th eir g oods, it w as

dif fic u lt to se e w hat, if an yth in g, h ad b een ach ie v ed in th e p re ced in g

tw en ty y ears . B ut a m id st th is fin an cia l c h ao s a ro und th e w orld , a n oth er

fu ndam en ta l s h if t in e co nom ic th in kin g w as o ccu rrin g; o ne w hic h w ould

31 ag ain h av e i m plic atio ns f o r a id .

Up u ntil t h e 1 980s t h e n otio n t h at g overn m en ts w ere t h e u ltim ate a rb ite r

of re so urc e a llo catio n la y a t th e c o re o f e co nom ic p la n nin g, le av in g little

ro om fo r a n y so rt o f p riv ate se cto r. G overn m en t- le d e co nom ic p la n nin g

had ap peare d to w ork w ell in th e Sovie t U nio n, an d m an y W este rn

govern m en ts w ere k een to a v ert a n oth er g re at d ep re ssio n b y c em en tin g

th eir i n flu en ce i n e co nom ic m an ag em en t. S ocia lis t p olic ie s t h at h ad p la ced

govern m en t a t th e c en tr e o f

eco nom ic a ctiv ity a n d n atio naliz ed m uch o f

priv ate in dustr y w ere belie v ed to be th e fa ste st ro ute to eco nom ic

pro sp erity . T his w as tr u e a cro ss th e d ev elo ped w orld – fo r e x am ple , in

Brita in a n d F ra n ce w ell b efo re th e 1 980s – a s w ell a s in m an y A fric an

co untr ie s i n t h e p ost- in dep en den ce p erio d.

By th e 1980s, how ev er, th ere w as a gro w in g se n se am ong le ad in g

polic y m ak ers th at th ere w ere in here n t str u ctu ra l im ped im en ts to th e

fu nctio nin g of eco nom ic mark ets . Far fro m bein g a cata ly st fo r

dev elo pm en t, e x cessiv e g overn m en t in volv em en t w as v ie w ed a s th e p rim e

obsta cle to g ro w th ; r a th er th an f a cilita tin g h ealth y e co nom ic e x pan sio n, it

was t h e s o urc e o f e co nom ic d is to rtio n.

The 1 980s a ls o sa w th e ris e o f th e n eo -lib era l th in kin g w hic h a rg ued

th at g overn m en ts s h ould l ib era liz e t h eir e co nom ie s i n f a v our o f t h e l a is se z-

fa ir e para d ig m , w hic h en co m passe d (a n d in deed ack now le d ged th e

im porta n ce of) th e priv ate mark et. The ex perie n ce of th e new ly

in dustr ia liz in g eco nom ie s of A sia gav e th ese m ark et- b ase d id eas a

popula rity b oost in p olic y c ir c le s in th e U nite d S ta te s a n d E uro pe. T he

Asia n t ig ers s e em ed t o h av e a ch ie v ed h ig h g ro w th r a te s a n d u npre ced en te d

poverty r e d uctio n w ith f re e-m ark et p olic ie s a n d a n o utw ard o rie n ta tio n. A s

fre e-m ark et pro ponen ts , M ilto n Frie d m an an d th e C hic ag o Sch ool of

Eco nom ic s h ad g re at in flu en ce o n th e p olic ie s an d th in kin g o f th e U S

Pre sid en t, Ronald Reag an , an d th e U K’s Prim e M in is te r, M arg are t

Thatc h er. T he p olic ie s th at e n su ed (R eag an om ic s a n d T hatc h eris m ) b ore

all th e h allm ark s o f a n e co nom ic r e v olu tio n, a n d th ere w as little r o om f o r

co m pro m is e ; so to o in A fric a, w here th ese fre e-m ark et polic es w ere

pack ag ed a n d s o ld a s t h e n ew d ev elo pm en t a g en da.

In A fric a, a s w ith o th er p arts o f th e d ev elo pin g w orld , th is e co nom ic

overh au l n ecessita te d tw o n ew a id -b ase d p ro gra m mes: fir s t, s ta b iliz atio n,

an d th en str u ctu ra l a d ju stm en t. S ta b iliz atio n m ean t re d ucin g a c o untr y ’s

im bala n ces to re aso nab le le v els – fo r ex am ple , th e g overn m en t’ s fis c al

positio n an d th e co untr y ’s im port– ex port ra tio . M ean w hile str u ctu ra l

ad ju stm en t w as aim ed at en co ura g in g gre ate r tr a d e lib era liz atio n an d

re d ucin g pric e an d str u ctu ra l rig id itie s by su ch m ean s as re m ovin g

32 su bsid ie s.

Both t h e W orld B an k a n d t h e I M F l a u nch ed a g gre ssiv e a id p ro gra m mes

to in stitu te th ese tw o in itia tiv es; th e IM F’s S tr u ctu ra l A dju stm en t an d

Enhan ced S tr u ctu ra l A dju stm en t F acilitie s are ex am ple s o f th ese . P oor

govern m en ts r e ceiv ed c ash in th e f o rm o f b udgeta ry s u pport, a n d in r e tu rn

ag re ed to e m bra ce th e fre e-m ark et s o lu tio ns to d ev elo pm en t. T his w ould

en ta il m in im iz in g th e r o le o f th e s ta te , p riv atiz in g p re v io usly n atio naliz ed

in dustr ie s, lib era liz in g tr a d e a n d d ra m atic ally re d ucin g th e c iv il se rv ic e.

Betw een 1 986 a n d 1 996, fo r e x am ple , s ix A fric an c o untr ie s – B en in , th e

Cen tr a l A fric an R ep ublic , G uin ea, M ad ag asc ar, M ali a n d U gan da – s h ed

more t h an 1 0 p er c en t o f t h eir c iv il s e rv ic e w ork fo rc e.

T he p riv atiz atio n o f

Afric an sta te -o w ned en te rp ris e s acro ss all se cto rs (n o se cto r sa cre d –

man ufa ctu rin g a n d i n dustr y , a g ric u ltu re , t o uris m , s e rv ic es, t r a d e, t r a n sp ort,

fin an cia l, en erg y, m in in g, w ate r, ele ctr ic ity an d te le co m munic atio ns)

mean t th e g overn m en t s ta k e o f c o rp ora te e q uity fe ll fro m a lm ost 9 0 p er

cen t to ju st 1 0 p er c en t o w ners h ip in six y ears . T he fre e m ark ets g av e

Afric an e co nom ie s th e f re ed om to s u cceed , b ut a ls o th e f re ed om to f a il. I n

Zam bia , fo r in sta n ce, an ag gre ssiv e priv atiz atio n pro gra m me sa w th e

clo su re o f t h e c o untr y ’s n atio nal a ir lin e c arrie r, Z am bia A ir w ay s.

Fro m th e sta rt o f th e d eb t c ris is in 1 982, IM F flo w s ro se fro m U S$8

billio n to U S$12 b illio n in 1 983. W ith th e o nse t a n d r e so lu tio n o f th e d eb t

cris is in th e 1 980s, p overty -re la te d a id f lo w s s u bsid ed , tiltin g in f a v our o f

sta b iliz atio n an d str u ctu ra l ad ju stm en t pack ag es (to geth er know n as

pro gra m me a id ). S in ce th e 1 980s th e W orld B an k’s s h are o f a d ju stm en t-

re la te d le n din g has av era g ed betw een 20 an d 25 per cen t of its to ta l

dis b urs e m en ts . D urin g th e 1980s bila te ra l flo w s als o becam e m ore

co ncessio nal i n n atu re a n d b y t h e e arly 1 990s o ver 9 0 p er c en t w ere g ra n ts .

Alo ngsid e ris in g govern m en t- to -g overn m en t tr a n sfe rs (b ila te ra l aid ),

multila te ra l in stitu tio ns c o ntin ued th eir a g gre ssiv e m arc h to w ard s g ain in g

gre ate r im porta n ce – b oth in te rm s o f th e v olu m e o f a id d is b urs e d a n d a s

arc h ite cts o f d ev elo pm en t p olic y . B y 1 989, th e W ash in gto n C onse n su s (a

sta n dard re fo rm pack ag e of eco nom ic polic y pre sc rip tio ns, m ain ly on

moneta ry a n d fis c al p olic y fo r th e c o untr ie s m ost a ffe cte d b y e co nom ic

cris is ) b ecam e th e b ack bone

of th e d ev elo pm en t s tr a te g y p urs u ed b y th e

Wash in gto n D C-b ase d in stitu tio ns (th e IM F, W orld Ban k, an d U S

Tre asu ry D ep artm en t) .

The f o re ig n a id a gen da o f t h e 1 990s: a q uestio n o f g overn ance

33 By th e e n d o f th e 1 980s, e m erg in g-m ark et c o untr ie s’ d eb t w as a t le ast

US$1 tr illio n, a n d th e c o st o f s e rv ic in g th ese o blig atio ns c o lo ssa l. I n deed ,

th e c o st b ecam e s o s u bsta n tia l th at it e v en tu ally d w arfe d f o re ig n a id g oin g

in to p oor c o untr ie s – le ad in g to a n et r e v ers e f lo w f ro m p oor c o untr ie s to

ric h t o t h e t u ne o f U S$15 b illio n e v ery y ear b etw een 1 987 a n d 1 989. F ro m

a d ev elo pm en t p oin t o f v ie w , th is w as a b su rd . W ere it n ot fo r th e tr a g ic

co nse q uen ces, it w ould b e f a rc ic al. A fric a’s e co nom ic g ro w th h ad b een in

a s te ad y d eclin e, p overty l e v els w ere o n th e r is e a n d t h e s te n ch o f r a m pan t

co rru ptio n w as gro w in g ev er m ore pungen t. (A fte r his m eetin g w ith

Pre sid en t R eag an , Z air e ’s P re sid en t M obutu S ese S ek o had ask ed fo r

easie r te rm s to s e rv ic e th e c o untr y ’s U S$5 b illio n d eb t; h e th en p ro m ptly

le ase d C onco rd e t o f ly h is d au ghte r t o h er w ed din g i n t h e I v ory C oast.

This b ack dro p, s e en b y m an y a s th e s p ecta cu la r c ra sh o f th e a id -b ase d

dev elo pm en t m odel, s e t t h e t o ne f o r t h e p olic y s h if ts o f m uch o f t h e 1 990s.

Hav in g se en th e fa ilu re of fif ty years of co m petin g aid in te rv en tio ns,

donors n ow la id th e b la m e fo r A fric a’s eco nom ic w oes at th e d oor o f

politic al l e ad ers h ip a n d w eak i n stitu tio ns.

While m uch o f A sia a n d L atin A m eric a w as fir m ly b ack o n a g ro w th

path , w ith i s su es o f e co nom ic i n sta b ility b eh in d i t, m an y A fric an c o untr ie s

sta g nate d , a n d i n s o m e o f t h e w ors t c ase s e co nom ic ally r e g re sse d .

It w as a ro und t h is t im e t h at t h e d onor c o m munity c o nverg ed o n t h e i d ea

th at govern an ce – good govern an ce, need ed fo r su sta in ab le eco nom ic

gro w th – was la ck in g acro ss m uch of su b-S ah ara n Afric a. Good

govern an ce was a eu phem is m fo r str o ng an d cre d ib le in stitu tio ns,

tr a n sp are n t ru le o f la w a n d e co nom ie s fre e o f ra m pan t c o rru ptio n. A ls o

aro und th is tim e, geo politic ally , th e w orld had been underg oin g a

tr a n sfo rm atio n o f its o w n, a tr a n sfo rm atio n th at

would h av e fa r-re ach in g

im plic atio ns f o r A fric a a n d t h e a id a g en da f o r t h e c o ntin en t.

Thro ughout th e la tte r h alf o f th e tw en tie th cen tu ry an d u p u ntil th e

1990s, th e C old W ar had pro vid ed ric h er co untr ie s w ith th e politic al

im pera tiv e to g iv e a id m onie s e v en to th e m ost c o rru pt a n d v en al d esp ots

in A fric a. O ne o f th e f e atu re s o f th e C old W ar w as th e W est’ s a b ility a n d

eag ern ess to s u pport, b an kro ll a n d p ro p u p a s w ath e o f p ath olo gic al a n d

dow nrig ht d an gero us d ic ta to rs . F ro m I d i A m in in th e e ast, to M obutu S ese

Sek o in th e w est, f ro m E th io pia ’s M en gis tu to L ib eria ’s S am uel D oe, th e

co m petitio n a m ong th ese le ad ers to b e m ore b ru ta l to th eir p eo ple , m ore

sp en dth rif t, m ore in dif fe re n t to th eir c o untr y ’s n eed s th an th eir n eig hbours

were , w as m atc h ed o nly b y th e w illin gness o f in te rn atio nal d onors to g iv e

th em th e m oney to r e aliz e th eir d re am s. B okassa ’s c o ro natio n a s E m pero r

of th e C en tr a l A fric an E m pir e in 1 977 a lo ne c o st U S$22 m illio n.

A cro ss

34 man y A fric an s ta te s, c o rru ptio n w as ru nnin g a t e p id em ic le v els . In 1 996,

am ong f if ty -fo ur c o untr ie s a ro und th e w orld , N ig eria w as r a n ked th e m ost

co rru pt n atio n, s c o rin g a d is m al 0 .6 9 o ut o f 1 0 o n c o rru ptio n r a n kin gs.

Desp ite t h is c o rru pt e n vir o nm en t, e v ery one c o ntin ued t o l e n d. I n a n sw er

to m ountin g c ritic is m o f ra g in g c ro oked , s h ad y a n d fra u dule n t p ra ctic es,

donors offe re d qualif ic atio ns. For ex am ple , th e W orld B an k ple d ged

co ntin ued a id s u pport, w ith th e p ro vis o th at a id m onie s m ust a ls o ta rg et

govern an ce re fo rm , w ith th e aim of im pro vin g th e civ il se rv ic e an d

govern m en t bure au cra cy (th ro ugh te ach in g sk ills , tr a n sp are n cy an d

in stitu tio nal r e fo rm ).

Govern an ce r e m ain s a t th e h eart o f a id to day . W heth er th is a id s tr a te g y

has an y lo ng-te rm effe cts , how ev er, re m ain s an open questio n. H av e

Afric an s been tr a in ed in eth ic s an d good govern an ce at W este rn

univ ers itie s? Y es. H av e ra d ic al re fo rm s a im ed a t im pro vin g tr a n sp are n cy

an d effic ie n cy been im ple m en te d ? Y es, at le ast on pap er. B ut it is

deb ata b le w heth er th ese in itia tiv es h av e a n y re al b ite in c o untr ie s w hic h

still o pt t o b e d ep en den t o n a id .

Alo ngsid e govern an ce em erg ed th e W est’ s gro w in g obse ssio n w ith

dem ocra cy fo r th e d ev elo pin g w orld . T he in sta lla tio n o f

dem ocra cy w as

th e donor’s fin al re fu ge; th e la st- d itc h atte m pt to sh ow th at aid

in te rv en tio ns c o uld w ork , w ould w ork , i f o nly t h e p olitic al c o nditio ns w ere

rig ht. T he 1 960s’ g ro w th a g en da h ad fa ile d to d eliv er g ro w th a n d re d uce

poverty ; a s h ad th e 1 970s’ e m phasis o n th e p oor, a n d th e 1 980s’ f o cu s o n

eco nom ic sta b iliz atio n an d ad ju stm en t. S o afte r th re e decad es of aid -

cen tr ic d ev elo pm en t m odels , it w as le ft to W este rn d em ocra cy to s a v e th e

day . In its esse n ce, d em ocra cy w as p erc eiv ed to b e th e w ay in w hic h

co untr ie s co uld gro w an d dev elo p; an d if th e dem ocra tic eth os an d

in stitu tio ns w ere tr a n sp la n te d to A fric an s ta te s, th en th ese c o untr ie s w ould

fin ally b eg in t o p ro sp er. D em ocra cy w as t h e u ltim ate k ey .

Dem ocra cy , re al lib era l d em ocra cy , m ean s p olitic al re p re se n ta tiv es a re

ch ose n th ro ugh e le ctio ns th at a re o pen , fre e a n d fa ir ; w here v ir tu ally a ll

ad ults p osse ss th e rig ht to v ote ; w here civ il an d p olitic al lib ertie s are

bro ad ly p ro te cte d ; an d w here ele cte d au th oritie s are n ot su bje ct to th e

tu te la ry c o ntr o l o f m ilita ry o r c le ric al le ad ers . F or th e W est, th e p ro cess o f

open a n d f a ir e le ctio ns h ad t a k en c en tu rie s t o e v olv e, b ut t h e h ope w as t h at

(c o uple d w ith a id ) sh oe-h orn in g d em ocra cy in to u nderd ev elo ped n atio ns

would g uara n te e t h at A fric an c o untr ie s w ould s e e a s u dden c h an ge i n t h eir

eco nom ic an d p olitic al fo rtu nes. Y et, as d is c u sse d la te r, it w ould so on

beco m e c le ar th at a n y im pro vem en ts in A fric a’s e co nom ic p ro file h av e

been l a rg ely a ch ie v ed i n s p ite o f ( n om in al) d em ocra cy , n ot b ecau se o f i t.

35 By t h e e n d o f t h e C old W ar i n 1 991, t h e U SSR w as n o l o nger a t a n gib le

th re at, an d C hin a had not yet ap peare d as a pro ta g onis t in A fric a’s

dev elo pm en t s to ry . S o w here as in th e p ast th e a id p olic y h ad , to a g re at

ex te n t, b een g overn ed b y C old W ar d em an ds, W este rn d onors w ere n ow

no lo nger b ound b y s u ch p olitic al c o nsid era tio ns. T he S ovie t U nio n h ad ,

on a v era g e, d is b urs e d U S$300 m illio n a y ear t o A fric a ( 5 8 p er c en t w en t t o

Eth io pia ), b ut a fte r th e b re ak -u p o f th e u nio n th is a m ount w ould a lm ost

certa in ly h av e fa lle n co nsid era b ly . D onors co uld n ow p ic k an d ch oose ,

when , w hy a n d t o w hom t h ey d ole d o ut a id – i f a t a ll.

Where fo re ig n a id is c o ncern ed , th e 1 990s w ere c h ara cte riz ed b y tw o

th em es. F ir s t, t h ere w as t h e d om in an ce o f m ultila te ra l

ag en cie s, s u ch a s t h e

World B an k a n d t h e U nite d N atio ns D ev elo pm en t P ro gra m me ( U NDP), a s

th e le ad in g a id d onors ; th eir s h are o f m ultila te ra l g iv in g r o se f ro m 2 3 p er

cen t in th e 1 970s to 3 0 p er c en t in th e e arly 1 990s. M uch o f th e o ffic ia l

flo w o f a id w as o n a c o ncessio nal b asis , w ith g ra n ts c o nstitu tin g m ore t h an

90 p er cen t o f to ta l o ffic ia l assis ta n ce b y 1 996 – u p fro m 6 0 p er cen t

tw en ty y ears e arlie r.

Seco nd, th ere w as th e o nse t o f d onor fa tig ue in th e la tte r p art o f th e

decad e. W ith th e g eo politic al r a tio nale f o r g iv in g a id g one, th e a m ount o f

aid to A fric a d w in dle d d ra m atic ally . I n th e e arly 1 990s, o ffic ia l d onor a id

(e x clu din g em erg en cy aid an d deb t re lie f) to A fric a av era g ed U S$15

billio n a y ear, co m pare d to aro und U S$5 b illio n a y ear in th e 1 970s.

Hav in g a cco unte d f o r m ore t h an 6 0 p er c en t o n a v era g e o f t o ta l c ash t o t h e

co ntin en t ( n et d is b urs e m en ts ) d urin g th e 1 987–92 p erio d ( p eak in g in 1 990

at 7 0 p er c en t) , th e s h are o f o ffic ia l f o re ig n a id s te ad ily d eclin ed to a little

more t h an 3 0 p er c en t o f d is b urs e m en ts b etw een 1 993 a n d 1 997. S im ila rly

th e net offic ia l dev elo pm en t assis ta n ce (O DA – th e donors ’ te rm fo r

offic ia l a id ) d is b urs e m en ts a s a s h are o f d onor G NP f e ll f ro m 0 .3 8 p er c en t

in 1 982 to 0 .2 2 p er c en t in 1 997. F or m an y d ev elo pin g c o untr ie s (m ain ly

in A sia a n d L atin A m eric a) p riv ate flo w s h ad la rg ely re p la ced a id flo w s,

ris in g f ro m 2 6 p er c en t i n 1 987–92 t o 5 5 p er c en t i n 1 993–7.

How ev er, unlik e oth er em erg in g zo nes, su b-S ah ara n A fric a did not

witn ess a c o nco m ita n t r is e in p riv ate c ap ita l in flo w s a s a id f lo w s d eclin ed .

Desp ite th e declin e in net aid flo w s to A fric a over th e 1990s, net

dis b urs e m en ts a t th e e n d o f th e p erio d w ere s till la rg er th an in 1 987, a n d,

fu rth erm ore , fo re ig n a id c o ntin ued (a n d c o ntin ues to th is d ay ) to b e th e

pre d om in an t so urc e o f fin an cia l re so urc es fo r m uch o f th e c o ntin en t. In

so m e c ase s in A fric a, a id s till re p re se n te d a s m uch a s 9 0 p er c en t o f n et

dis b urs e m en ts b etw een 1 987 a n d 1 996.

So th ere h ad b een a m ark ed u pw ard tr e n d in th e re al v alu e o f fo re ig n

36 assis ta n ce f ro m t h e 1 960s; t h is p eak ed i n 1 992, a n d s in ce t h en a id v olu m es

hav e fa lle n . A fric a’s to ta l n et O DA h as d eclin ed fro m a h ig h o f U S$17

billio n t o U S$12 b illio n i n 1 999.

Durin g t h e 1 990s a n oth er v ie w w as a ls o e m erg in g a b out A fric a’s f a ilu re

to d ev elo p. A sid e fro m a n a b se n ce o f q uality g overn an ce a n d o f fre e a n d

fa ir d em ocra tic p ro cess, a n d th e e m erg en ce o f e n dem ic c o rru ptio n, th ere

was a s e n se f ro m s o m e q uarte rs th at if o nly A fric a c o uld b e r e le ase d f ro m

its y oke o f d eb t i n o ne f e ll s w oop, i t c o uld f in ally a ch ie v e t h at e lu siv e g oal

– e co nom ic p ro sp erity . It w as d eb t th at w as h old in g A fric a b ack . A nd in

th at s e n se i t w as t h e W est’ s f a u lt, a s i t w as t h e W est t o w hom A fric a o w ed

billio ns. M ora lity – W este rn , lib era l, g uilt- tr ip ped m ora lity – s e ep ed in to

th e d ev elo pm en t e q uatio n. S oon e v ery one w ould j o in i n .

The f o re ig n a id a gen da o f t h e 2 000s:

th e r is e o f g la m our a id

In 2 000, A fric a b ecam e th e f o cu s o f o rc h estr a te d w orld -w id e p ity , a n d n ot

fo r t h e f ir s t tim e. T he N ig eria n h um an ita ria n c ata str o phe o f B ia fra in 1 971

(th e s a m e y ear a s th e B eatle G eo rg e H arris o n’s C oncert fo r B an gla d esh )

had dem an ded th at th e world re sp ond to hum an cata str o phe.

Consc io usn ess w as r a is e d s e v era l n otc h es w ith B ob G eld of’s 1 3 J u ly 1 985

Liv e A id Concert w here , w ith 1.5 billio n peo ple w atc h in g, public

dis c o urs e b ecam e a p ublic d is c o .

Liv e A id h ad n ot o nly b een t r iu m phan t i n b rin gin g A fric a’s p lig ht t o t h e

wid er p ublic ; i t a ls o t r u m pete d a n e ra o f m ora lity . I n t h e r u n-u p t o t h e n ew

mille n niu m , cru sa d es lik e th e Ju bile e D eb t C am paig n cap ita liz ed on

peo ple ’s d esp era te d esir e t o b e a p art o f s o m eth in g t h at w ould g iv e a id a n d

dev elo pm en t p olic y a n oth er d im en sio n. A fric an l e ad ers s u ch a s T an zan ia ’s

Pre sid en t M kap a la te r e n cap su la te d th e f e elin g o f th e d ay in h is s p eech a t

th e Ju bile e D eb t C am paig n C onfe re n ce in F eb ru ary 2005, callin g it a

‘s c an dal th at w e a re f o rc ed to c h oose b etw een b asic h ealth a n d e d ucatio n

fo r o ur p eo ple a n d r e p ay in g h is to ric al d eb t’ .

Thus, th e w ay w as p av ed f o r th e a rm y o f m ora l c am paig ners – th e p op

sta rs , th e m ovie s ta rs , n ew p hila n th ro pis ts a n d e v en P ope J o hn P au l I I – to

carv e o ut n ic h es fo r th em se lv es, a s th ey to ok o n th e fig ht fo r m ore , n ot

le ss, a id to b e se n t to A fric a, e v en a fte r b illio ns o f d olla rs o f d eb t w ere

can celle d – in e sse n ce, c an cellin g

deb t o n th e o ne h an d, a n d re p la cin g it

with a sw ath e o f n ew a id , a n d th us th e p ro sp ect o f fre sh d eb t a ll o ver

ag ain , w ith th e o th er. T he a id c am paig ners c ap ita liz ed o n th e s u ccess o f

ra is in g cash fo r em erg en cy aid , an d ex te n ded it to a p la tf o rm to ra is e

37 dev elo pm en t a id ; s o m eth in g e n tir e ly d if fe re n t.

In m ore r e cen t t im es, t h e I ris h m usic ia n B ono h as m ad e h is c ase d ir e ctly

to t h e U S P re sid en t, G eo rg e B ush , i n a W hite H ouse v is it i n O cto ber 2 005,

an d B ob G eld of w as a guest at th e 2005 G 8 m eetin g in G le n eag le s,

Sco tla n d, a n d a d vis e d th e U K’s C om mis sio n to A fric a. It w ould a p pear,

desp onden t with th eir re co rd of fa ilu re , th at W este rn donors are

in cre asin gly l o okin g t o a n yone f o r g uid an ce o n h ow b est t o t a ck le A fric a’s

pre d ic am en t.

Scarc ely does one se e A fric a’s (e le cte d ) offic ia ls or th ose A fric an

polic y m ak ers c h arg ed w ith th e d ev elo pm en t p ortf o lio o ffe r a n o pin io n o n

what s h ould b e d one, o r w hat m ig ht a ctu ally w ork to s a v e th e c o ntin en t

fro m its re g re ssio n. T his v ery im porta n t re sp onsib ility h as, fo r a ll in te n ts

an d p urp ose s, a n d to th e b ew ild erm en t a n d c h ag rin o f m an y a n A fric an ,

been le ft to m usic ia n s who re sid e outs id e Afric a. One dis a str o us

co nse q uen ce o f th is h as b een th at h onest, c ritic al a n d s e rio us d ia lo gue a n d

deb ate o n th e m erits a n d d em erits o f a id h av e a tr o phie d . A s o ne c ritic o f

th e a id m odel r e m ark ed , ‘ m y v oic e c an ’t c o m pete w ith a n e le ctr ic g uita r’.

At th e e n d o f it a ll, it is v ir tu ally im possib le to d ra w o n A fric a’s a id -le d

dev elo pm en t ex perie n ce an d arg ue th at aid has w ork ed . T he bro ad est

co nse q uen ces o f th e aid m odel h av e b een ru in ous. R w an da’s P re sid en t

Pau l K ag am e p ut i t m ost s im ply : ‘ T he p rim ary r e aso n [ th at t h ere i s l ittle t o

sh ow f o r t h e m ore t h an U S$300 b illio n o f a id t h at h as g one t o A fric a s in ce

1970] is th at in th e c o nte x t o f p ost- S eco nd W orld W ar g eo politic al a n d

str a te g ic riv alr ie s a n d e co nom ic in te re sts , m uch o f th is a id w as s p en t o n

cre atin g a n d s u sta in in g c lie n t r e g im es o f o ne t y pe o r a n oth er, w ith m in im al

re g ard t o d ev elo pm en ta l o utc o m es o n o ur c o ntin en t.’

Donors , d ev elo pm en t ag en cie s an d p olic y m ak ers h av e, b y an d la rg e,

ch ose n to ig nore th e b la ta n t a la rm s ig nals , a n d h av e c o ntin ued to p urs u e

th e a id -b ase d m odel e v en w hen it h as b eco m e a p pare n t th at a id , u nder

whate v er g uis e , is n ot w ork in g. E ven

when a id h as n ot b een s to le n , it h as

been u npro ductiv e. T he p ro of o f th e p uddin g is in th e e atin g, a n d e v er s o

cle arly th e pre p ondera n ce of ev id en ce is on th is sid e. G iv en A fric a’s

cu rre n t e co nom ic sta te it is h ard to se e h ow a n y g ro w th re g is te re d is a

dir e ct r e su lt o f a id . I f a n yth in g, t h e e v id en ce o f t h e l a st f if ty y ears p oin ts t o

th e re v ers e – slo w er gro w th , hig her poverty an d A fric a le ft off th e

eco nom ic l a d der.

We m ea nt w ell

38 More th an U S$2 tr illio n o f fo re ig n aid h as b een tr a n sfe rre d fro m ric h

co untr ie s t o p oor o ver t h e p ast f if ty y ears – A fric a t h e b ig gest r e cip ie n t, b y

fa r. Y et r e g ard le ss o f t h e m otiv atio n f o r a id -g iv in g – e co nom ic , p olitic al o r

mora l – aid h as fa ile d to d eliv er th e p ro m is e o f su sta in ab le eco nom ic

gro w th a n d p overty r e d uctio n. A t e v ery t u rn o f t h e d ev elo pm en t t a le o f t h e

la st f iv e d ecad es, p olic y m ak ers h av e c h ose n t o m ain ta in t h e s ta tu s q uo a n d

fu rn is h A fric a w ith m ore a id .

Aid h as n ot liv ed u p to ex pecta tio ns. It re m ain s at th e h eart o f th e

dev elo pm en t ag en da, desp ite th e fa ct th at th ere are very co m pellin g

re aso ns to sh ow th at it perp etu ate s th e cy cle of poverty an d dera ils

su sta in ab le eco nom ic gro w th . Pau l K ag am e rig htly als o la m en ts th at

‘W hile m ore th an U S$300 b illio n in a id h as a p pare n tly b een d is b urs e d to

our c o ntin en t s in ce 1 970, th ere is little to s h ow f o r it in te rm s o f e co nom ic

gro w th a n d h um an d ev elo pm en t.’

Aid i s n ot w ork in g. A nd h ere ’s w hy.

39 3. A id I s N ot W ork in g

C onsid er th is : in th e p ast f o rty y ears a t le ast a d ozen d ev elo pin g c o untr ie s

h av e e x perie n ced p hen om en al e co nom ic g ro w th . M an y o f th ese , m ostly

A sia n , co untr ie s h av e g ro w n b y alm ost 1 0 p er cen t o f G DP p er y ear,

s u rp assin g th e gro w th ra te s of le ad in g in dustr ia liz ed eco nom ie s, an d

s ig nif ic an tly re d ucin g p overty . In so m e in sta n ces, p oore r c o untr ie s h av e

l e ap -fro gged t h e p er c ap ita i n co m e l e v els o f l e ad in g d ev elo ped e co nom ie s,

a n d th is tr e n d is s e t to c o ntin ue: b y s o m e e stim ate s, s ta r e m erg in g-m ark et

p erfo rm ers s u ch a s B ra zil, R ussia , I n dia a n d C hin a a re p ro je cte d to e x ceed

t h e e co nom ic g ro w th ra te s o f n early a ll in dustr ia liz ed e co nom ie s b y th e

y ear 2 050. Y et, o ver th e s a m e p erio d, a s m an y a s th ir ty o th er d ev elo pin g

c o untr ie s, m ain ly aid -d ep en den t in su b-S ah ara n A fric a, hav e fa ile d to

g en era te c o nsis te n t e co nom ic g ro w th , a n d h av e e v en r e g re sse d .

Man y re aso ns h av e b een o ffe re d to a cco unt fo r w hy A fric an c o untr ie s

a re n ot w ork in g: in p artic u la r, g eo gra p hic al, h is to ric al, c u ltu ra l, tr ib al a n d

i n stitu tio nal. W hile e ach o f t h em i s c o nvin cin g i n e x pla in in g A fric a’s p oor

s h ow in g, t h ey d o n ot t e ll t h e w hole s to ry .

One arg um en t, ad van ced b y g eo gra p hic al d ete rm in is ts su ch as Ja re d

D ia m ond in

Guns, G erm s a nd S te el

( 1 997), is th at a c o untr y ’s w ealth a n d

s u ccess d ep en d o n its g eo gra p hic al e n vir o nm en t a n d to pogra p hy. C erta in

e n vir o nm en ts a re e asie r to m an ip ula te th an o th ers a n d, a s s u ch , s o cie tie s

t h at c an d om estic ate p la n ts a n d a n im als w ith r e la tiv e e ase a re lik ely to b e

m ore p ro sp ero us. A t a m in im um , a c o untr y ’s c lim ate , l o catio n, f lo ra , f a u na

a n d t e rra in a ffe ct t h e a b ility o f p eo ple t o p ro vid e f o od f o r c o nsu m ptio n a n d

f o r ex port, w hic h ultim ate ly has an im pact on a co untr y ’s eco nom ic

g ro w th . Dia m ond note s th at all so cie tie s an d cu ltu re s hav e had

a p pro xim ate ly s im ila r a b ilitie s to m an ip ula te n atu re , b ut th e r a w m ate ria ls

w ith w hic h t h ey h ad t o s ta rt w ere d if fe re n t.

Afric a’s b ro ad e co nom ic e x perie n ce s h ow s th at th e a b undan ce o f la n d

a n d n atu ra l re so urc es d oes n ot g uara n te e e co nom ic s u ccess, h ow ev er. In

t h e s e co nd h alf o f th e tw en tie th c en tu ry , n atu ra l- re so urc e d ep en den ce h as

p ro ved to b e a d ev elo pm en ta l c u rs e , ra th er th an a b le ssin g. F or e x am ple ,

m an y A fric an c o untr ie s w ere u nab le to c ap ita liz e o n c o m modity w in dfa lls

o f th e 1 970s, le av in g th eir e co nom ie s in a s ta te o f e co nom ic d is a ste r ( th e

g ood new s is th at at le ast fiv e A fric an co untr ie s – C had , E quato ria l

40 Guin ea, G ab on, N ig eria a n d S udan – h av e h ad th e g ood s e n se th is tim e

aro und to esta b lis h sa v in gs fu nds an d to put asid e so m e of th eir

co m modity w in dfa lls ). H av in g sq uan dere d m uch o f th eir n atu ra l w ealth

th ro ugh q uestio nab le in vestm en t a n d e v en , in s o m e c ase s, o utr ig ht th eft,

oil- a n d m in era l- ric h c o untr ie s s u ch a s N ig eria , A ngola , C am ero on a n d t h e

Dem ocra tic R ep ublic o f C ongo re co rd ed d is m al e co nom ic re su lts in th is

perio d. T hey h ad n oth in g t o s h ow f o r i t.

In ‘ A fric a: G eo gra p hy a n d G ro w th ’, a n O xfo rd U niv ers ity a n d e x -W orld

Ban k eco nom is t, Pau l Collie r, ad opts a nuan ced ap pro ach to th e

en dow m en ts is su e by cla ssif y in g A fric an co untr ie s in th re e gro ups:

co untr ie s w hic h are re so urc e-p oor but hav e co astlin e; th ose th at are

re so urc e-p oor an d la n dlo ck ed ; an d co untr ie s w hic h are re so urc e-ric h

(w here it m atte rs little w heth er th e co untr y is la n dlo ck ed or has a

co astlin e). T he th re e g ro ups h av e re m ark ab ly d if fe re n t g ro w th p atte rn s.

His to ric ally , o n a n e co nom ic p erfo rm an ce b asis , c o asta l re so urc e-s c arc e

co untr ie s perfo rm ed sig nif ic an tly bette r th an th eir re so urc e-ric h

co unte rp arts w heth er la n dlo ck ed or co asta l; le av in g th e la n dlo ck ed ,

re so urc e-s c arc e e co nom ie s a s th e w ors t p erfo rm ers . C ollie r re ck ons th at

th ese f a cto rs c o st t h ese e co nom ie s a ro und o ne p er c en ta g e p oin t o f g ro w th .

This i s a p atte rn w hic h e x is ts g lo bally a s w ell a s b ein g t r u e f o r t h e A fric an

co ntin en t. U nfo rtu nate ly , C ollie r note s, A fric a’s popula tio n is heav ily

poole d a ro und t h e l a n dlo ck ed a n d r e so urc e-s c arc e c o untr ie s.

Cle arly o ne’s e n vir o nm en t m atte rs , a n d o f c o urs e t h e c o nditio ns i n p arts

of A fric a a re h ars h – n ota b ly th e c lim ate a n d te rra in . B ut, h ars h a s th ey

may be, th ese asp ects are not in su rm ounta b le . W ith

av era g e su m mer

te m pera tu re s re ach in g 4 9°C (1 20°F ) S au di A ra b ia is ra th er h ot, a n d, o f

co urs e , S w itz erla n d is la n dlo ck ed , b ut th ese f a cto rs h av e n ot s to pped th em

fro m g ettin g o n w ith i t.

His to ric al f a cto rs , s u ch a s c o lo nia lis m , h av e a ls o o fte n b een p ut f o rw ard

as e x pla n atio ns f o r A fric a’s u ndera ch ie v em en t; t h e i d ea b ein g t h at c o lo nia l

pow ers d elin eate d n atio ns, e sta b lis h ed p olitic al str u ctu re s a n d fa sh io ned

bure au cra cie s t h at w ere f u ndam en ta lly i n co m patib le w ith t h e w ay o f l if e o f

in dig en ous popula tio ns. Forc in g tr a d itio nally riv al an d w arrin g eth nic

gro ups to liv e to geth er u nder th e sa m e fla g w ould n ev er m ak e n atio n-

build in g e asy . T he ill- c o nceiv ed p artitio nin g o f A fric a a t th e 1 885 B erlin

Confe re n ce did not help m atte rs . The gath erin g of fo urte en natio ns

(in clu din g th e U nite d Sta te s, an d w ith G erm an y, B rita in , Fra n ce an d

Portu gal t h e m ost i m porta n t p artic ip an ts ) p ro duced a m ap o f A fric a l itte re d

with s m all n atio ns w hose a rb itr a rily d ra w n b ord ers w ould a lw ay s m ak e it

dif fic u lt fo r th em to sta n d o n th eir o w n tw o fe et – eco nom ic ally an d

41 politic ally .

There is , o f c o urs e , th e la rg ely u nsp oken a n d in sid io us v ie w th at th e

pro ble m w ith A fric a is A fric an s – th at c u ltu ra lly , m en ta lly a n d p hysic ally

Afric an s a re in nate ly d if fe re n t. T hat, s o m eh ow , d eep ly e m bed ded in th eir

psy ch e is a n in ab ility to e m bra ce d ev elo pm en t a n d im pro ve th eir o w n lo t

in l if e w ith out f o re ig n g uid an ce a n d h elp .

It is n ot th e fir s t tim e in h is to ry th at c u ltu ra l n orm s, so cia l m ore s o r

re lig io us belie fs hav e been cite d as th e re aso ns fo r dif fe re n ces in

dev elo pm en t b etw een d if fe re n t p eo ple s. T he G erm an p olitic al e co nom is t

an d s o cio lo gis t M ax W eb er a rg ued t h at a P ro te sta n t w ork e th ic c o ntr ib ute d

to th e s p eed o f te ch nolo gic al a d van cem en t a n d e x pla in ed th e d ev elo pm en t

se en i n i n dustr ia l B rita in a n d o th er E uro pean n atio ns.

In h is m in d th ere w ere tw o b ro ad g ro ups: th e C alv in is ts , w ho b elie v ed

in p re d estin atio n an d, d ep en din g o n th eir lo t, m ay o r m ay n ot acq uir e

wealth ; a n d th e b elie v ers in th e P ro te sta n t w ork e th ic w ho c o uld a d van ce

th ro ugh th e sw eat o f th eir b ro w . A s w ith W eb er, A fric a’s d ev elo pm en t

quan dary o ffe rs tw o r o ute s: o ne in w hic h A fric an s a re v ie w ed a s c h ild re n ,

unab le t o d ev elo p o n t h eir

ow n o r g ro w w ith out b ein g s h ow n h ow o r m ad e

to ; a n d a n oth er w hic h o ffe rs a s h ot a t s u sta in ab le e co nom ic d ev elo pm en t –

but w hic h r e q uir e s A fric an s b e tr e ate d a s a d ults . T he tr o uble w ith th e a id -

dep en den cy m odel is , o f c o urs e , th at A fric a is fu ndam en ta lly k ep t in its

perp etu al c h ild lik e s ta te .

Anoth er arg um en t posite d fo r Afric a’s eco nom ic fa ilu re s is th e

co ntin en t’ s d is p ara te tr ib al g ro upin gs a n d e th no-lin guis tic m ak eu p. T here

are ro ughly 1 ,0 00 tr ib es a cro ss s u b-S ah ara n A fric a, m ost w ith th eir o w n

dis tin ct la n guag e a n d c u sto m s. N ig eria w ith a n e stim ate d p opula tio n o f

150 m illio n p eo ple h as a lm ost 4 00 t r ib es; a n d B ots w an a w ith j u st o ver o ne

millio n in hab ita n ts h as a t le ast e ig ht la rg e tr ib al g ro upin gs. T o p ut th is in

co nte x t, a ssu m in g N ig eria ’s r a tio , i m ag in e B rita in w ith i ts p opula tio n o f 6 0

millio n div id ed in to so m e 160 eth nic ally fra g m en te d an d dis tin ct

gro upin gs.

At le ast tw o p ote n tia l c o ncern s f a ce n atio ns w ith s tr o ng tr ib al d iv is io ns.

The m ost o bvio us is th e r is k th at e th nic r iv alr y c an le ad to c iv il u nre st a n d

str if e , so m etim es cu lm in atin g in fu ll- b lo w n civ il w ar. In co nte m pora ry

tim es th e ghastly ex am ple s of B ia fra in N ig eria (1 967–70) an d th e

eth nic ally m otiv ate d g en ocid e i n R w an da i n t h e 1 990s l o om l a rg e.

Pau l C ollie r p ostu la te s th at th e m ore a c o untr y is e th nic ally d iv id ed , th e

gre ate r th e p ro sp ect o f c iv il w ar. T his is w hy, it is a rg ued , A fric a h as a

much h ig her in cid en ce o f c iv il w ar th an o th er d ev elo pin g r e g io ns s u ch a s

South A sia in th e la st th ir ty y ears . V ery little c an r iv al a c iv il w ar w hen it

42 co m es to e n su rin g a c o untr y ’s (a n d p ote n tia lly its n eig hbours ’) d eclin e –

eco nom ic ally , so cia lly , m ora lly . In pure fin an cia l te rm s C ollie r has

estim ate d t h at t h e t y pic al c iv il w ar c o sts a ro und f o ur t im es a n nual G DP. I n

Afric a, w here s m all c o untr ie s e x is t in c lo se p ro xim ity w ith o ne a n oth er,

th e n eg ativ e s p illo ver c o st o f w ar o nto n eig hbourin g c o untr ie s c an b e a s

much a s h alf o f t h eir o w n G DP.

Even d urin g p eacefu l tim es, e th nic h ete ro gen eity c an b e s e en to b e a n

im ped im en t to e co nom ic g ro w th a n d d ev elo pm en t. A cco rd in g to C ollie r,

th e d if fic u lty o f r e fo rm in e th nic ally d iv ers e s m all c o untr ie s m ay a cco unt

fo r w hy A fric a p ers is te d w ith p oor p olic ie s fo r lo nger th an o th er re g io ns.

Eth nic ally div ers e so cie tie s

are lik ely to be ch ara cte riz ed by dis tr u st

betw een dis p ara te gro ups, m ak in g co lle ctiv e actio n fo r public se rv ic e

pro vis io n d if fic u lt. T his i s p artic u la rly t r u e i n ( e v en n om in ally ) d em ocra tic

so cie tie s, w here th e pro sp ect of ach ie v in g polic y co nse n su s am ongst

fra ctio us eth nic ally sp lit gro ups can be ch alle n gin g. In varia b ly , w here

th ere is in fig htin g, a n im passe o r s p lit a cro ss e th nic lin es s lo w s d ow n th e

im ple m en ta tio n o f k ey p olic ie s th at c o uld s p ur e co nom ic g ro w th . K en ya’s

tu rb ule n t d em ocra tic e le ctio ns in 2 008 a re a re cen t e x am ple w here tr ib al

te n sio ns b etw een th e p re sid en tia l in cu m ben t M wai K ib ak i ( a K ik uyu) a n d

Raila O din ga (a L uo) se ep ed in to a n d in fe cte d th e p olitic al p ro cess a n d

in stitu tio ns (th e c o m pro m is e w as a c o alitio n g overn m en t m ad e fro m th e

tw o g ro upin gs).

No o ne c an d en y t h at A fric a h as h ad i ts f a ir s h are o f t r ib al f ra cas. B ut b y

th e s a m e to ken it is a ls o tr u e th at th ere a re a n um ber o f A fric an c o untr ie s

where dis p ara te gro ups hav e m an ag ed to co ex is t perfe ctly peacefu lly

(B ots w an a, G han a, Z am bia , to n am e th re e). In th e q uest fo r a s o lu tio n to

Afric a’s e co nom ic w oes, it is f u tile to c ite e th nic d if fe re n ces a s a n e x cu se

– b orn a Z ulu , a lw ay s a Z ulu . B ut Z ulu s, lik e p eo ple f ro m a n y o th er tr ib e,

can a n d d o in te rm arry ; t h ey liv e, w ork a n d p la y in i n te g ra te d c itie s. I n f a ct

peo ple in A fric an c itie s liv e in a m ore in te g ra te d w ay th an y ou m ig ht f in d

in o th er c itie s – th ere a re n o e th nic z o nes s u ch a s e x is t in B elf a st, L ondon

or N ew Y ork , fo r th at m atte r. B esid es, once lo ck ed in to th e eth nic

arg um en t th ere is n o o bvio us p olic y p re sc rip tio n: it’ s a d ead e n d. B ette r to

lo ok to a w orld w here a ll c itiz en s c an fre ely p artic ip ate in a c o untr y ’s

eco nom ic p ro sp erity , a n d w atc h t h e d iv is iv e r o le o f e th nic ity e v ap ora te .

Yet an oth er ex pla n atio n put fo rw ard fo r A fric a’s poor eco nom ic

sh ow in g is th e ab se n ce of str o ng, tr a n sp are n t an d cre d ib le public

in stitu tio ns – c iv il s e rv ic e, p olic e, j u dic ia ry , e tc .

The W ea lth a nd P overty o f N atio ns

, D av id L an des a rg ues th at th e

id eal gro w th an d dev elo pm en t m odel is one guara n te ed by politic al

43 in stitu tio ns. Secu re pers o nal lib erty , priv ate pro perty an d co ntr a ctu al

rig hts , en fo rc ed ru le of la w (n ot necessa rily th ro ugh dem ocra cy ), an

om budsm an -ty pe o f g overn m en t, in to le ra n ce

to w ard s p riv ate r e n t- s e ek in g

an d o ptim ally s iz ed g overn m en t a re m an dato ry .

Em pir e : H ow B rita in M ade t h e M odern W orld

, N ia ll F erg uso n p oin ts

to t h e c o m mon-la w s y ste m a n d t h e B ritis h -ty pe c iv il a d m in is tr a tio n a s t w o

in stitu tio ns th at p ro m ote d d ev elo pm en t. F erg uso n a ls o n ote s th at it is a

co untr y ’s u nderly in g le g al a n d p olitic al in stitu tio ns th at m ak e it c o nduciv e

to in vestm en t (a n d c o unte r-d is in vestm en t th ro ugh le ss c ap ita l flig ht) a n d

in novatio n. T his necessa rily in clu des en fo rc em en t of th e ru le of la w ,

av oid an ce o f e x cessiv e g overn m en t e x pen ditu re s a n d c o nstr a in ts o n th e

ex ecu tiv e. In tu rn , th is y ie ld s a tr a n sp are n t fis c al s y ste m , a n in dep en den t

moneta ry a u th ority a n d a r e g ula r s e cu ritie s m ark et t h at f o ste r t h e g ro w th i n

siz e a n d n um ber o f c o rp ora tio ns.

Pro fe sso r D an i R odrik fro m H arv ard U niv ers ity is e q ually a d am an t in

arg uin g th at in stitu tio ns th at p ro vid e d ep en dab le p ro perty rig hts , m an ag e

co nflic t, m ain ta in l a w a n d o rd er, a n d a lig n e co nom ic i n cen tiv es w ith s o cia l

co sts a n d b en efits a re th e fo undatio n o f lo ng-te rm g ro w th . In h is b ook

Sea rc h o f P ro sp erity

, R odrik p oin ts to C hin a, B ots w an a a n d M au ritiu s a s

ex am ple s o f c o untr ie s w hic h la rg ely o w e th eir e co nom ic su ccess to th e

pre se n ce (o r c re atio n) o f in stitu tio ns th at h av e g en era te d m ark et- o rie n te d

in cen tiv es, p ro te cte d th e p ro perty rig hts o f c u rre n t a n d fu tu re in vesto rs ,

an d d ete rre d so cia l an d p olitic al in sta b ility . (B ots w an a h ad a G DP p er

cap ita o f U S$8,1 70 in 2 002, m ore th an f o ur tim es th e s u b-S ah ara n -A fric a

av era g e, U S$1,7 80, m uch o f its su ccess attr ib ute d to th e p ro bity o f its

politic al i n stitu tio ns.)

Convers e ly , h e s u ggests , I n donesia a n d P ak is ta n a re c o untr ie s w here , in

th e ab se n ce of good public in stitu tio ns, gro w th has been dif fic u lt to

ach ie v e on a su sta in ed basis . Even when gro w th has occu rre d

in te rm itte n tly it h as b een fra g ile (a s in p ost- 1 997 In donesia ) o r in cap ab le

of d eliv erin g h ig h le v els o f so cia l o utc o m es in a re as su ch a s h ealth o r

ed ucatio n (a s in th e case of P ak is ta n ). R odrik ’s estim ate s im ply th at

ch an ges in in stitu tio ns c an c lo se a s m uch a s th re e q uarte rs o f th e in co m e

gap b etw een t h e n atio ns w ith t h e b est a n d t h ose w ith t h e w ors t i n stitu tio ns.

While public in stitu tio ns – th e ex ecu tiv e, th e le g is la tu re an d th e

ju dic ia ry – ex is t in so m e fo rm or fa sh io n in m ost A fric an co untr ie s

(a rte fa cts o f th e c o lo nia l p erio d), a p art fro m th e o ffic e o f th e p re sid en t

th eir r e al p ow er i s m in im al, a n d s u bje ct t o c ap ric io us c h an ge. I n s tr o ng a n d

sta b le e co nom ic e n vir o nm en ts p olitic al in stitu tio ns a re th e b ack bone o f a

natio n’s d ev elo pm en t, b ut in a w eak s e ttin g – o ne in w hic h c o rru ptio n a n d

44 eco nom ic g ra ft r e ig n s u pre m e – t h ey o fte n p ro ve w orth le ss.

Afric a’s fa ilu re to gen era te an y m ean in gfu l or su sta in ab le lo ng-ru n

gro w th m ust, oste n sib ly , be a co nflu en ce of fa cto rs : geo gra p hic al,

his to ric al, c u ltu ra l, tr ib al a n d in stitu tio nal. In deed , it w ould b e n aiv e to

dis c o unt o utr ig ht a n y o f th e a b ove a rg um en ts a s c o ntr ib utin g to A fric a’s

poor g ro w th h is to ry . H ow ev er, it is a ls o fa ir to s a y th at n o fa cto r s h ould

co ndem n A fric a to a p erm an en t fa ilu re to g ro w . T his is an in dic tm en t

Afric a d oes n ot d ese rv e. W hile e ach o f th ese fa cto rs m ay b e p art o f th e

ex pla n atio n in d if fe rin g d eg re es, in d if fe re n t c o untr ie s, fo r th e m ost p art

Afric an c o untr ie s h av e o ne t h in g i n c o m mon – t h ey a ll d ep en d o n a id .

Does a id w ork ?

Sin ce th e 1 940s, a p pro xim ate ly U S$1 tr illio n o f a id h as b een tr a n sfe rre d

fro m ric h co untr ie s to A fric a. T his is n early U S$1,0 00 fo r ev ery m an ,

wom an a n d c h ild o n th e p la n et to day . D oes a id w ork ? P ro ponen ts o f a id

poin t t o s ix p ro ofs t h at i t c an .

The M arsh all P la n

Fir s t, th ere is th e M ars h all P la n . A s d is c u sse d e arlie r, b etw een 1 948 a n d

1952 th e U nite d S ta te s tr a n sfe rre d o ver U S$13 b illio n (a ro und U S$100

billio n in to day ’s te rm s) to a id in th e r e co nstr u ctio n o f p ost- S eco nd W orld

War E uro pe. B y m ost his to ric al acco unts th e M ars h all Pla n w as an

overw helm in g su ccess in re b uild in g th e e co nom ie s o f w ar-to rn E uro pe.

The M ars h all P la n n ot o nly g uara n te ed e co nom ic s u ccess, b ut m an y c re d it

th e p ro gra m me w ith t h e r e -e sta b lis h m en t o f p olitic al a n d s o cia l i n stitu tio ns

cru cia l f o r

Weste rn E uro pe’s o n-g oin g p eace a n d p ro sp erity . A lth ough th e

id ea o f a id to A fric a w as b orn o ut o f th e s u ccess o f th e M ars h all P la n in

Euro pe, i n p ra ctic al te rm s th e tw o a re c o m ple te ly d if fe re n t. P oin tin g to th e

Mars h all P la n ’s ach ie v em en ts as a b lu ep rin t fo r a sim ila r o utc o m e fo r

Afric a t o m orro w i s s im ply w ro ng.

Why?

For o ne th in g, E uro pean c o untr ie s w ere n ot w holly d ep en den t o n a id .

Desp ite th e ra v ag es o f w ar, W este rn E uro pe’s eco nom ic re co very w as

alr e ad y u nderw ay , a n d its e co nom ie s h ad o th er r e so urc es to c all u pon. A t

th eir p eak , M ars h all P la n f lo w s w ere o nly 2 .5 p er c en t o f th e G DP o f th e

la rg er r e cip ie n ts l ik e F ra n ce a n d G erm an y, w hile n ev er a m ountin g t o m ore

th an 3 per cen t of G DP fo r an y co untr y fo r th e fiv e-y ear lif e of th e

45 pro gra m me. I n m ark ed c o ntr a st, A fric a h as a lr e ad y b een f lo oded w ith a id .

Pre se n tly , A fric a re ceiv es d ev elo pm en t assis ta n ce w orth alm ost 1 5 p er

cen t o f its G DP – o r m ore th an f o ur tim es th e M ars h all P la n a t its h eig ht.

Giv en A fric a’s p oor e co nom ic p erfo rm an ce in th e p ast fif ty y ears , w hile

billio ns o f d olla rs o f a id h av e p oure d in , it is h ard to g ra sp h ow a n oth er

sw ath e o f b illio ns w ill s o m eh ow tu rn A fric a’s a id e x perie n ce in to o ne o f

su ccess.

The M ars h all Pla n w as als o fin ite . T he U S had a goal, co untr ie s

accep te d th e te rm s, s ig ned o n th e d otte d lin e, m oney f lo w ed in , a n d a t th e

en d o f fiv e y ears th e m oney sto pped . In c o ntr a st to th e M ars h all P la n ’s

sh ort, s h arp in je ctio n o f c ash , m uch o f A fric a h as r e ceiv ed a id c o ntin ually

fo r a t le ast fif ty y ears . A id h as b een c o nsta n t a n d re le n tle ss, a n d w ith n o

tim e lim it to w ork a g ain st. W ith out th e in built th re at th at a id m ig ht b e c u t,

an d w ith out th e se n se th at one day it co uld all be over, A fric an

govern m en ts vie w aid as a perm an en t, re lia b le , co nsis te n t so urc e of

in co m e a n d h av e n o re aso n to b elie v e th at th e flo w s w on’t c o ntin ue in to

th e in defin ite fu tu re . There is no in cen tiv e fo r lo ng-te rm fin an cia l

pla n nin g, n o r e aso n t o s e ek a lte rn ativ es t o f u nd d ev elo pm en t, w hen a ll y ou

hav e t o d o i s s it b ack a n d b an k t h e c h eq ues.

Cru cia lly , th e c o nte x t o f th e M ars h all P la n a ls o d if fe re d g re atly fro m

th at in A fric a. A ll th e w ar-to rn E uro pean n atio ns h ad h ad th e re le v an t

in stitu tio ns in p la ce in th e ru n-u p to th e S eco nd W orld

War. T hey h ad

ex perie n ced civ il se rv ic es, w ell- ru n busin esse s, an d effic ie n t le g al an d

so cia l in stitu tio ns in p la ce, a ll o f w hic h h ad w ork ed . A ll th at w as n eed ed

afte r th e w ar w as a c ash in je ctio n to g et th em w ork in g a g ain . M ars h all

Pla n aid w as, th ere fo re , a m atte r of re co nstr u ctio n, an d not eco nom ic

dev elo pm en t. H ow ev er d am ag ed , E uro pe h ad an ex is tin g fra m ew ork –

politic al, e co nom ic a n d p hysic al; w here as d esp ite th e le g acy o f c o lo nia l

in fra str u ctu re A fric a w as, e ffe ctiv ely , u ndev elo ped . B uild in g, ra th er th an

re b uild in g, p olitic al a n d so cia l in stitu tio ns re q uir e s m uch m ore th an ju st

cash . A n in flu x o f b illio ns o f d olla rs o f a id , u nch eck ed a n d u nre g ula te d ,

will actu ally hav e help ed to underm in e th e esta b lis h m en t of su ch

in stitu tio ns – a n d su sta in ab le lo nger-te rm g ro w th . In a sim ila r v ein , th e

re cen t a n d s u ccessfu l e x perie n ce o f Ire la n d, w hic h re ceiv ed v ast s u m s o f

(m ain ly E uro pean ) aid , is in n o w ay ev id en ce th at aid co uld w ork in

Afric a. F or, lik e p ost- w ar E uro pe, Ire la n d to o h ad a ll th e in stitu tio ns a n d

politic al in fra str u ctu re re q uir e d fo r aid to be m onito re d an d ch eck ed ,

th ere b y t o m ak e a m ean in gfu l e co nom ic i m pact.

Fin ally , w here as M ars h all P la n a id w as la rg ely (s p ecif ic ally ) ta rg ete d

to w ard s p hysic al in fra str u ctu re , aid to A fric a p erm eate s v ir tu ally ev ery

46 asp ect o f th e e co nom y. In m ost p oor c o untr ie s to day , a id is in th e c iv il

se rv ic e, aid is in p olitic al in stitu tio ns, aid is in th e m ilita ry , aid is in

health care a n d e d ucatio n, a id i s i n i n fra str u ctu re , a id i s e n dem ic . T he m ore

it i n filtr a te s, t h e m ore i t e ro des, t h e g re ate r t h e c u ltu re o f a id -d ep en den cy .

The I D A g ra duate s

Aid p ro ponen ts p oin t t o t h e e co nom ic s u ccess o f c o untr ie s t h at h av e i n t h e

past re lie d o n a id , b ut n o lo nger d o s o . T hese c o untr ie s a re k now n a s th e

In te rn atio nal D ev elo pm en t A sso cia tio n (ID A) g ra d uate s. T hey c o m pris e

tw en ty -tw o of so m e of th e m ost eco nom ic ally su ccessfu lly em erg in g

co untr ie s of re cen t tim es – in clu din g, C hile , C hin a, C olo m bia , S outh

Kore a, T haila n d an d T urk ey , w ith only th re e fro m A fric a: B ots w an a,

Equato ria l G uin ea (its im pro vem en ts m ain ly s p urre d b y its o il fin d) a n d

Sw azila n d.

Supporte rs of aid su ggest th at th ese co untr ie s hav e

mean in gfu lly lo w ere d poverty , in cre ase d in co m es an d ra is e d th eir

sta n dard s o f l iv in g, t h an ks t o l a rg e-s c ale a id -d riv en i n te rv en tio ns.

How ev er, a s in th e c ase o f th e M ars h all P la n , th eir a id f lo w s h av e b een

re la tiv ely sm all – in th is in sta n ce, gen era lly le ss th an 10 per cen t of

natio nal in co m e – an d th eir dura tio n sh ort. B ots w an a, w hic h is ofte n

to ute d a s a p rim e e x am ple o f th e I D A g ra d uate s u ccess s to ry , d id r e ceiv e

sig nif ic an t f o re ig n a ssis ta n ce ( n early 2 0 p er c en t o f th e c o untr y ’s n atio nal

in co m e) in th e 1 960s. It is tr u e th at b etw een 1 968 a n d 2 001 B ots w an a’s

av era g e re al p er cap ita eco nom ic g ro w th w as 6 .8 p er cen t, o ne o f th e

hig hest g ro w th r a te s in th e w orld . H ow ev er, a id is n ot r e sp onsib le f o r th is

ach ie v em en t. B ots w an a vig oro usly purs u ed num ero us m ark et eco nom y

optio ns, w hic h w ere k ey to th e c o untr y ’s su ccess – tr a d e p olic y le ft th e

eco nom y o pen to c o m petitio n, m oneta ry p olic y w as k ep t sta b le a n d th e

co untr y m ain ta in ed fis c al d is c ip lin e. A nd c ru cia lly , b y 2 000, B ots w an a’s

aid s h are o f n atio nal in co m e s to od a t a m ere 1 .6 p er c en t, a s h ad ow o f th e

pro portio n it c o m man ds in m uch o f A fric a to day . B ots w an a s u cceed ed b y

ceasin g t o d ep en d o n a id .

With c o nditio nalitie s

Aid s u pporte rs a ls o b elie v e in c o nditio nalitie s. T his is th e n otio n th at th e

im positio n o f r u le s a n d r e g ula tio ns s e t b y d onors to g overn th e c o nditio ns

under w hic h aid is dis b urs e d can ultim ate ly dete rm in e its su ccess or

fa ilu re . I n t h e 1 980s c o nditio nalitie s a tta ch ed t o A fric an a id p olic ie s w ould

47 beco m e t h e m an tr a .

The n otio n o f a q uid p ro q uo a ro und a id w as n ot n ew . M ars h all P la n

re cip ie n ts h ad b een r e q uir e d to a d here to a s tr ic t s e t o f c o nditio ns im pose d

upon th em b y th e U S. T hey h ad a c h oic e . . . y ou ta k e it o r y ou le av e it.

Afric an c o untr ie s f a ced t h e s a m e c h oic e.

Donors h av e te n ded to tie a id in th re e w ay s. F ir s t, it is o fte n tie d to

pro cu re m en t. C ountr ie s t h at t a k e a id h av e t o s p en d i t o n s p ecif ic g oods a n d

se rv ic es w hic h o rig in ate d f ro m th e d onor c o untr ie s, o r a g ro up s e le cte d b y

th em . T his e x te n ds to s ta ff a s

well: d onors e m plo y th eir o w n c itiz en s e v en

when s u ita b le c an did ate s f o r th e jo b e x is t in th e p oor c o untr y . S eco nd, th e

donor c an r e se rv e th e r ig ht to p re se le ct th e s e cto r a n d/o r p ro je ct th at th eir

aid w ould s u pport. T hir d , a id flo w s o nly a s lo ng a s th e re cip ie n t c o untr y

ag re es t o a s e t o f e co nom ic a n d p olitic al p olic ie s.

With sta b iliz atio n a n d str u ctu ra l a d ju stm en t in v ogue, th e a d optio n o f

mark et- b ase d p olic ie s b ecam e th e re q uir e m en t u pon w hic h a id w ould b e

gra n te d . A id w ould b e co ntin gen t o n A fric an co untr ie s’ w illin gness to

ch an ge fro m sta tis t, c en tr a lly p la n ned e co nom ie s to w ard s m ark et- d riv en

polic ie s – r e d ucin g t h e c iv il s e rv ic e, p riv atiz in g n atio naliz ed i n dustr ie s a n d

re m ovin g tr a d e b arrie rs . L ate r d em ocra cy an d g overn an ce w ould m ak e

th eir w ay o nto t h e l is t, i n t h e h ope o f l im itin g c o rru ptio n i n a ll i ts f o rm s.

On p ap er, c o nditio nalitie s m ad e s e n se . D onors p la ced r e str ic tio ns o n t h e

use of aid , an d th e re cip ie n ts w ould ad here . In pra ctic e, how ev er,

co nditio nalitie s fa ile d m is e ra b ly . P ara m ount w as th eir fa ilu re to c o nstr a in

co rru ptio n a n d b ad g overn m en t.

A W orld B an k stu dy fo und th at a s m uch a s 8 5 p er c en t o f a id flo w s

were use d fo r purp ose s oth er th an th at fo r w hic h th ey w ere in itia lly

in te n ded , v ery o fte n d iv erte d to u npro ductiv e, if n ot g ro te sq ue v en tu re s.

Even a s f a r b ack a s t h e 1 940s, i n te rn atio nal d onors w ere w ell a w are o f t h is

div ers io n r is k . I n 1 947, P au l R ose n ste in -R odin , th e D ep uty D ir e cto r o f th e

World B an k E co nom ic s D ep artm en t, r e m ark ed t h at ‘ w hen t h e W orld B an k

th in ks it is fin an cin g an ele ctr ic p ow er sta tio n, it is re ally fin an cin g a

bro th el’ .

But th e p oin t h ere is th at c o nditio nalitie s w ere b la ta n tly ig nore d , y et a id

co ntin ued to flo w (a n d a g re at d eal o f it) , e v en w hen th ey w ere o pen ly

vio la te d . In o th er re se arc h , S ven sso n fo und ‘n o lin k b etw een a c o untr y ’s

re fo rm e ffo rt o r fu lf ilm en t o f c o nditio nality a n d th e d is b urs e m en t ra te o f

aid fu nds’, p ro vin g o nce ag ain th at th ough a cen tr a l p art o f m an y aid

ag re em en ts , c o nditio nalitie s d id n ot s e em t o m atte r m uch i n p ra ctic e.

48 Aid s u ccess i n g ood p olic y e n vir o nm en ts

Faced w ith m ountin g e v id en ce th at a id h as n ot w ork ed , a id p ro ponen ts

hav e a ls o a rg ued th at a id w ould w ork , a n d d id w ork , w hen p la ced in g ood

polic y e n vir o nm en ts , i.e . c o untr ie s w ith s o und fis c al, m oneta ry a n d tr a d e

polic ie s. In o th er w ord s, a id w ould d o its b est, w hen a c o untr y w as in

esse n tia lly good w ork in g ord er. This arg um en t w as fo rm aliz ed in a

se m in al p ap er p ublis h ed b y W orld B an k e co nom is ts B urn sid e a n d D olla r

in 2 000. (Q uite w hy a c o untr y in w ork in g o rd er w ould n eed a id , o r n ot

se ek o th er b ette r, m ore tr a n sp are n t fo rm s o f fin an cin g its e lf , re m ain s a

myste ry .)

Donors s o on la tc h ed o nto th e B urn sid e– D olla r r e su lt a n d w ere q uic k to

put th e fin din gs in to p ra ctic e. In 2 004, fo r e x am ple , th e U S g overn m en t

la u nch ed its US$5 billio n M ille n niu m Challe n ge Corp ora tio n aid

cam paig n m otiv ate d b y th e id ea th at ‘e co nom ic d ev elo pm en t a ssis ta n ce

can be su ccessfu l only if it is lin ked to so und polic ie s in dev elo pin g

co untr ie s’.

In la te r e m pir ic al w ork , th e B urn sid e– D olla r re su lt fa ile d to

sta n d u p to s c ru tin y, a n d it s o on lo st its a llu re . I t w as n ot lo ng b efo re th e

wid er e co nom ic c o m munity c o nclu ded th at th e B urn sid e– D olla r fin din gs

were te n uous a n d c erta in ly n ot ro bust; p erh ap s e v en tu ally c o m in g to th e

obvio us c o nclu sio n th at c o untr ie s w ith g ood p olic ie s – lik e B ots w an a –

would te n d to m ak e p ro gre ss u nassis te d , a n d th at a k ey p oin t o f a id is to

help c o untr ie s w ith b ad o nes. B ut e v en se ttin g a sid e e m pir ic al a n aly sis ,

th ere are , as d is c u sse d la te r, v alid co ncern s th at, fa r fro m m ak in g an y

im pro vem en t, a id c o uld m ak e a g ood p olic y e n vir o nm en t b ad , a n d a b ad

polic y e n vir o nm en t w ors e .

On th e su bje ct of good polic y en vir o nm en ts , aid su pporte rs are

co nvin ced th at aid w ork s w hen it ta rg ets dem ocra cy , becau se only a

dem ocra tic e n vir o nm en t c an j u m p-s ta rt e co nom ic g ro w th . F ro m a W este rn

pers p ectiv e, d em ocra cy p ro m is e s t h e l o t.

There are , in fa ct, good re aso ns fo r belie v in g th at dem ocra cy is a

le ad in g d ete rm in an t o f e co nom ic g ro w th , a s a lm ost in varia b ly th e b ody

politic ble ed s in to eco nom ic s. Lib era l dem ocra cy

(a n d th e politic al

fre ed om s i t b esto w s) p ro te cts p ro perty r ig hts , e n su re s c h eck s a n d b ala n ces,

defe n ds a fre e pre ss an d guard s co ntr a cts . P olitic al sc ie n tis ts su ch as

Dougla ss N orth h av e lo ng a sse rte d d em ocra cy ’s e sse n tia l lin ks w ith a ju st

an d e n fo rc eab le l e g al f ra m ew ork .

Dem ocra cy , th e arg um en t goes, giv es a gre ate r perc en ta g e of th e

popula tio n a ccess to th e p olitic al d ecis io n-m ak in g p ro cess, a n d th is in tu rn

en su re s c o ntr a ct e n fo rc em en t th ro ugh a n in dep en den t ju dic ia ry . N ot o nly

49 will dem ocra cy pro te ct you, but it w ill als o help you bette r yours e lf .

Dem ocra cy p ro m is e s th at b usin esse s, h ow ev er sm all, w ill b e p ro te cte d

under th e d em ocra tic ru le o f la w . D em ocra cy als o o ffe rs th e p oor an d

dis a d van ta g ed th e o pportu nity to re d re ss an y u nfa ir d is tr ib utio n v ia th e

sta te .

It is a fte r a ll u nder d em ocra tic g overn m en ts , th e A m eric an e c o nom is t

an d s o cia l s c ie n tis t M an cu r O ls o n p osite d , th at th e p ro te ctio n o f p ro perty

rig hts an d th e se cu rity of co ntr a cts , cru cia l fo r stim ula tin g eco nom ic

activ ity , w ere m ore lik ely . In esse n ce, dem ocra cy en gen ders a peace

div id en d, in tr o duces a f o rm o f p olitic al s ta b ility th at m ak es it a p re cu rs o r

fo r eco nom ic g ro w th . In O ls o n’s w orld , d em ocra tic re g im es en gag e in

activ itie s th at a ssis t p riv ate p ro ductio n in tw o w ay s: e ith er b y m ain ta in in g

a fra m ew ork (re g ula to ry , le g al, etc .) fo r p riv ate activ ity o r b y d ir e ctly

su pply in g in puts w hic h are n ot effic ie n tly d eliv ere d b y th e m ark et (fo r

ex am ple , a ro ad co nnectin g a sm all re m ote v illa g e to a la rg er tr a d in g

to w n). B y th eir v ery n atu re , d em ocra cie s h av e an in cen tiv e to p ro vid e

public g oods w hic h b en efit e ach a n d e v ery one, a n d w ealth c re atio n i s m ore

lik ely under dem ocra tic re g im es th an non-d em ocra cie s, su ch as, sa y ,

au to cra tic o r d ic ta to ria l r e g im es.

Under th is sk y, dem ocra cy is se en as A fric a’s eco nom ic sa lv atio n:

era sin g co rru ptio n, eco nom ic cro nyis m , an d an tic o m petitiv e an d

in effic ie n t p ra ctic es, a n d r e m ovin g o nce a n d f o r a ll th e a b ility f o r a s ittin g

in cu m ben t to cap ric io usly se iz e wealth . Dem ocra cie s purs u e m ore

eq uita b le a n d tr a n sp are n t e co nom ic p olic ie s, th e ty pes o f p olic ie s th at a re

co nduciv e t o s u sta in ab le e co nom ic g ro w th i n t h e l o ng r u n.

More o ver, th e N obel Lau re ate A m arty a Sen arg ues th at becau se

dem ocra tic ally e le cte d p olic y m ak ers r u n th e r is k o f lo sin g p olitic al o ffic e,

th ey a re m ore v ig ila n t a b out a v ertin g e co nom ic d is a ste rs .

A m ong m ain ly

dev elo pin g eco nom ie s an oth er stu dy fo und th at dem ocra tic ally

acco unta b le g overn m en ts m et t h e b asic n eed s o f t h eir c itiz en s b y ‘ a s m uch

as 7 0 p er c en t m ore ’ th an n on-d em ocra tic s ta te s.

B ut, p erh ap s m ost o f a ll,

donors a re c o nvin ced th at a cro ss th e p olitic al sp ectr u m d em ocra cy (a n d

only d em ocra cy ) i s p ositiv ely c o rre la te d t o e co nom ic g ro w th .

Alth ough th e p ote n tia l p ositiv e a sp ects o f d em ocra cy h av e d om in ate d

dis c o urs e (a n d aid polic y ), W este rn donors an d polic y m ak ers hav e

esse n tia lly ch ose n to ig nore th e pro te sts of th ose w ho arg ue th at

dem ocra cy , a t t h e e arly s ta g es o f d ev elo pm en t, i s i r re le v an t, a n d m ay e v en

be harm fu l. In an aid -d ep en den t en vir o nm en t su ch vie w s are easy to

en vis a g e. A id -fu nded d em ocra cy d oes n ot g uard ag ain st a g overn m en t

ben t o n a lte rin g p ro perty r ig hts f o r its o w n b en efit. O f c o urs e , th is lo w ers

50 th e i n cen tiv e f o r i n vestm en t a n d c h okes o ff g ro w th .

The unco m fo rta b le tr u th is th at fa r fro m bein g a pre re q uis ite fo r

eco nom ic gro w th , dem ocra cy can ham per dev elo pm en t as dem ocra tic

re g im es f in d i t d if fic u lt t o p ush t h ro ugh e co nom ic ally b en efic ia l l e g is la tio n

am id riv al p artie s a n d jo ck ey in g in te re sts . In a p erfe ct w orld , w hat p oor

co untr ie s a t t h e l o w est r u ngs o f e co nom ic d ev elo pm en t n eed i s n ot a m ulti-

party d em ocra cy , b ut i n f a ct a d ecis iv e b en ev ole n t d ic ta to r t o p ush t h ro ugh

th e r e fo rm s r e q uir e d to g et th e e co nom y m ovin g ( u nfo rtu nate ly , to o o fte n

co untr ie s e n d u p w ith m ore d ic ta to r a n d le ss b en ev ole n ce). T he W este rn

min dse t e rro neo usly e q uate s a p olitic al s y ste m o f m ulti- p arty d em ocra cy

with h ig h-q uality in stitu tio ns ( fo r e x am ple , e ffe ctiv e r u le o f la w , r e sp ecte d

pro perty rig hts a n d a n in dep en den t ju dic ia ry , e tc .) . B ut th e tw o a re n ot

sy nonym ous.

One only has to lo ok to th e his to ry of A sia n eco nom ie s (C hin a,

In donesia , K ore a, M ala y sia , S in gap ore , T aiw an a n d T haila n d) to s e e h ow

th is is b orn e o ut. A nd e v en b ey ond A sia , P in och et’ s C hile a n d F ujim ori’ s

Peru a re e x am ple s o f e co nom ic s u ccess in la n ds b ere ft o f d em ocra cy . T he

re aso n fo r th is ‘a n om aly ’ is th at e ach o f

th ese d ic ta to rs , w hate v er th eir

fa u lts (a n d th ere w ere m an y), w as ab le to en su re so m e se m bla n ce of

pro perty rig hts , fu nctio nin g in stitu tio ns, gro w th -p ro m otin g eco nom ic

polic ie s (fo r ex am ple , in fis c al an d m oneta ry m an ag em en t) an d an

in vestm en t clim ate th at b uttr e sse d g ro w th – th e th in gs th at d em ocra cy

pro m is e s t o d o. T his i s n ot t o s a y t h at P in och et’ s C hile w as a g re at p la ce t o

liv e; it d oes, h ow ev er, d em onstr a te th at d em ocra cy is n ot th e o nly r o ute to

eco nom ic t r iu m ph. ( T han ks t o i ts e co nom ic s u ccess C hile h as m atu re d i n to

a fu lly fle d ged d em ocra tic sta te , w ith th e ad ded acco la d e o f, in 2 006,

in sta llin g S outh A m eric a’s f ir s t w om an P re sid en t – M ic h elle B ach ele t.)

The o bvio us q uestio n to a sk is , h as f o re ig n a id im pro ved d em ocra cy in

Afric a? T he a n sw er to th is is y es – c erta in ly in te rm s o f th e n um ber o f

Afric an co untr ie s th at hold ele ctio ns, alth ough still m an y of th em are

illib era l (p eo ple go th e polls , but in so m e pla ces th e pre ss re m ain s

re str ic te d , a n d t h e r u le o f l a w f ic k le ).

The re al q uestio n to a sk is , h as th e in se rtio n o f d em ocra cy v ia fo re ig n

aid e co nom ic ally b en efite d A fric a? T o th is q uestio n th e a n sw er is n ot s o

cle ar. T here a re d em ocra tic c o untr ie s in A fric a th at c o ntin ue to s tr u ggle to

post c o nvin cin g g ro w th n um bers (S en eg al, a t ju st 3 p er c en t g ro w th in

2006), a n d th ere a re a ls o d ecid ed ly u ndem ocra tic A fric an c o untr ie s th at

are s e ein g u npre ced en te d e co nom ic g ro w th ( fo r e x am ple , S udan ).

What is c le ar is th at d em ocra cy is n ot th e p re re q uis ite fo r e co nom ic

gro w th th at aid pro ponen ts m ain ta in . O n th e co ntr a ry , it is eco nom ic

51 gro w th th at is a p re re q uis ite fo r d em ocra cy ; a n d th e o ne th in g e co nom ic

gro w th d oes n ot n eed i s a id .

In ‘W hat M ak es D em ocra cie s E ndure ?’ P rz ew ors k i et al. offe r th is

fa sc in atin g in sig ht – ‘a d em ocra cy c an b e e x pecte d to la st a n a v era g e o f

ab out 8 .5 y ears in a c o untr y w ith a p er c ap ita in co m e u nder U S$1,0 00 p er

an num , 1 6 y ears i n o ne w ith i n co m e b etw een U S$1,0 00 a n d U S $ 2,0 00, 3 3

years b etw een U S$2,0 00 a n d U S$4,0 00 a n d 1 00 y ears b etw een U S$4,0 00

an d U S$6,0 00 . . . A bove U S$6,0 00, d em ocra cie s a re im pre g nab le . . .

[th ey a re ] c erta in to s u rv iv e, c o m e h ell o r h ig h w ate r.’ I t

th e e co nom y,

stu pid .

No o ne is d en yin g th at d em ocra cy is o f c ru cia l v alu e – it’ s ju st a m atte r

of t im in g.

In th e e arly s ta g es o f d ev elo pm en t it m atte rs little to a s ta rv in g A fric an

fa m ily w heth er th ey c an v ote o r n ot. L ate r th ey m ay c are , b ut fir s t o f a ll

th ey n eed f o od f o r to day , a n d th e to m orro w s to c o m e, a n d th at r e q uir e s a n

eco nom y t h at i s g ro w in g.

Aid e ffe ctiv en ess: a m ic ro — macro p ara dox

There ’s a m osq uito n et m ak er in A fric a. H e m an ufa ctu re s a ro und 5 00 n ets

a w eek . H e e m plo ys te n p eo ple , w ho (a s w ith m an y A fric an c o untr ie s)

each h av e to su pport u pw ard s o f fif te en re la tiv es. H ow ev er h ard th ey

work , th ey can ’t m ak e en ough nets to co m bat th e m ala ria -c arry in g

mosq uito .

Ente r v ocif e ro us H olly w ood m ovie sta r w ho ra llie s th e m asse s, an d

goad s W este rn g overn m en ts to c o lle ct a n d s e n d 1 00,0 00 m osq uito n ets to

th e a ic te d re g io n, a t a c o st o f a m illio n d olla rs . T he n ets a rriv e, th e n ets

are d is tr ib ute d , a n d a ‘ g ood’ d eed i s d one.

With th e m ark et flo oded w ith fo re ig n n ets , h ow ev er, o ur m osq uito n et

mak er is p ro m ptly p ut o ut o f b usin ess. H is te n w ork ers can n o lo nger

su pport t h eir 1 50 d ep en dan ts ( w ho a re n ow f o rc ed t o d ep en d o n h an douts ),

an d o ne m ustn ’t f o rg et t h at i n a m ax im um o f f iv e y ears t h e m ajo rity o f t h e

im porte d n ets w ill b e t o rn , d am ag ed a n d o f n o f u rth er u se .

This is th e m ic ro –m acro p ara d ox. A s h ort- te rm e ffic acio us in te rv en tio n

may h av e fe w d is c ern ib le , su sta in ab le lo ng-te rm b en efits . W ors e still, it

can unin te n tio nally underm in e w hate v er fra g ile ch an ce fo r su sta in ab le

dev elo pm en t m ay a lr e ad y b e i n p la y .

Certa in ly w hen v ie w ed in c lo se -u p, a id a p pears to h av e w ork ed . B ut

vie w ed in its en tir e ty it is ob vio us th at th e overa ll situ atio n has not

52 im pro ved , a n d i s i n deed w ors e i n t h e l o ng r u n.

In nearly all case s, sh ort- te rm aid ev alu atio ns giv e th e erro neo us

im pre ssio n of aid ’s su ccess. B ut sh ort- te rm ev alu atio ns are sc arc ely

re le v an t when tr y in g to ta ck le Afric a’s lo ng-te rm pro ble m s. Aid

effe ctiv en ess sh ould be m easu re d ag ain st its co ntr ib utio n to lo ng-te rm

su sta in ab le g ro w th , a n d w heth er it m oves th e g re ate st n um ber

of p eo ple

out o f p overty in a s u sta in ab le w ay . W hen s e en th ro ugh th is le n s, a id is

fo und t o b e w an tin g.

That sa id , th e a p pro ach to fo od a id (la u nch ed a t th e 2 005 F ood A id

co nfe re n ce in K an sa s C ity

) h as tr ie d to p ush a id in a n ew d ir e ctio n, o ne

whic h c an p ote n tia lly h elp A fric an fa rm ers . T he p ro posa l w ould a llo w a

quarte r o f th e fo od a id o f th e U nite d S ta te s F ood F or P eace b udget to b e

use d to b uy fo od in p oor c o untr ie s, ra th er th an b uyin g o nly A m eric an -

gro w n f o od th at h as to th en b e s h ip ped a cro ss o cean s. I n ste ad o f f lo odin g

fo re ig n m ark ets w ith A m eric an fo od, w hic h puts lo cal fa rm ers out of

busin ess, t h e s tr a te g y w ould b e t o u se a id m oney t o b uy f o od f ro m f a rm ers

with in th e c o untr y , a n d th en d is tr ib ute th at fo od to th e lo cal c itiz en s in

need . I n t e rm s o f t h e m osq uito n et e x am ple , i n ste ad o f g iv in g m ala ria n ets ,

donors c o uld b uy f ro m l o cal p ro ducers o f m ala ria n ets t h en s e ll t h e n ets o n

or d onate th em lo cally . T here n eed s to b e m uch m ore o f th is ty pe o f

th in kin g.

Betw een 1 950 a n d th e 1 980s, th e U S is e stim ate d to h av e p oure d th e

eq uiv ale n t o f a ll th e c o m bin ed a id g iv en to fif ty -th re e A fric an c o untr ie s

betw een 1 957 a n d 1 990 in to ju st o ne c o untr y , S outh K ore a. S om e h av e

alle g ed th at th is is th e kin d of fin an cia l lif t th at A fric a w ill need ;

esse n tia lly a n e q uiv ale n t o f i ts o w n M ars h all P la n .

Advocate s o f a id a rg ue th at a id w ork s – it’ s ju st th at ric h er c o untr ie s

hav e not giv en en ough of it. T hey arg ue th at w ith a ‘b ig push ’ – a

su bsta n tia l in cre ase in a id ta rg ete d a t k ey in vestm en ts – A fric a c an e sc ap e

its p ers is te n t p overty tr a p ; th at w hat A fric a n eed s is m ore a id , m uch m ore

aid , i n m assiv e a m ounts . O nly t h en w ill t h in gs s ta rt t o t r u ly g et b ette r.

In 2 000, 1 89 c o untr ie s s ig ned u p to th e M ille n niu m D ev elo pm en t G oals

(M DG).

T he eig ht- p oin t actio n pla n w as aim ed at health , ed ucatio n,

en vir o nm en ta l s u sta in ab ility , c h ild m orta lity , a n d a lle v ia tin g p overty a n d

hunger. In 2 005, th e p ro gra m me w as c o ste d . A n a d ditio nal a id b oost o f

US$130 b illio n a y ear w ould b e n eed ed to a ch ie v e th e M DG in a n um ber

of c o untr ie s. T w o y ears a fte r th e M DG p le d ge th e U nite d N atio ns h eld a n

in te rn atio nal co nfe re n ce on F in an cin g fo r D ev elo pm en t in M onte rre y ,

Mex ic o , w here d onors p ro m is e d t o i n cre ase t h eir a id c o ntr ib utio ns f ro m a n

av era g e o f 0 .2 5 p er c en t o f t h eir G NP t o 0 .7 p er c en t, i n t h e b elie f t h at t h is

53 ad ditio nal US$200 billio n an nually would fin ally ad dre ss Afric a’s

co ntin uin g p ro ble m s. In p ra ctic e, m ost o f th e d onor p le d ges h av e g one

unm et a n d p ro ponen ts o f a id h av e la tc h ed o n to th is fa ilu re to m eet th e

ple d ged c o m mitm en ts a s a r e aso n f o r w hy A fric a h as b een h eld b ack . B ut

th e b ig -p ush th in kin g b ru sh es o ver o ne o f th e u nderly in g p ro ble m s o f a id ,

th at it is fu ngib le – th at m onie s se t asid e fo r one purp ose are easily

div erte d to w ard s a n oth er; n ot ju st a n y o th er p urp ose , b ut a g en das th at c an

be w orth le ss, if n ot d etr im en ta l, to g ro w th . P ro ponen ts o f a id th em se lv es

hav e a ck now le d ged t h at u nco nstr a in ed a id f lo w s a lw ay s f a ce t h e d an ger o f

bein g eg re g io usly co nsu m ed ra th er th an in veste d ; o f g oin g in to p riv ate

pock ets , in ste ad o f th e p ublic p urs e . W hen th is h ap pen s, a s it so o fte n

does, n o re al p unis h m en ts o r s a n ctio ns a re e v er im pose d . S o m ore g ra n ts

mean m ore g ra ft.

One of th e m ost dep re ssin g asp ects of th e w hole aid fia sc o is th at

donors , polic y m ak ers , govern m en ts , acad em ic ia n s, eco nom is ts an d

dev elo pm en t sp ecia lis ts k now , in th eir h eart o f h earts , th at aid d oesn ’t

work , h asn ’t w ork ed a n d w on’t w ork . C om men tin g o n a t le ast o ne a id

donor, th e C hie f E co nom is t at th e B ritis h D ep artm en t of T ra d e an d

In dustr y r e m ark ed t h at ‘ th ey k now i ts c ra p , b ut i t s e lls t h e T -s h ir ts ’.

Stu dy, a fte r stu dy, a fte r stu dy (m an y o f th em , th e d onors ’ o w n) h av e

sh ow n th at, a fte r m an y d ecad es a n d m an y m illio ns o f d olla rs , a id h as h ad

no ap pre cia b le im pact on dev elo pm en t. For ex am ple , C le m en s et al.

(2 004) co nced e no lo ng-te rm im pact of aid on gro w th . H ad jim ic h ael

(1 995) a n d R eic h el (1 995) fin d a n eg ativ e re la tio nsh ip b etw een sa v in gs

an d a id . B oone ( 1 996) c o nclu des th at a id h as f in an ced c o nsu m ptio n r a th er

th an in vestm en t; an d fo re ig n aid w as sh ow n to in cre ase unpro ductiv e

public c o nsu m ptio n a n d f a il t o p ro m ote i n vestm en t.

Even th e

most

c u rs o ry lo ok a t d ata su ggests th at a s a id h as in cre ase d

over tim e, A fric a’s g ro w th h as d ecre ase d w ith a n a cco m pan yin g h ig her

in cid en ce o f p overty . O ver th e p ast th ir ty y ears , th e m ost a id -d ep en den t

co untr ie s h av e e x hib ite d g ro w th ra te s a v era g in g

min us

0 .2 p er c en t p er

an num .

For m ost c o untr ie s, a d ir e ct c o nse q uen ce o f th e a id -d riv en in te rv en tio ns

has b een a d ra m atic d esc en t i n to p overty . W here as p rio r t o t h e 1 970s m ost

eco nom ic in dic ato rs h ad b een o n an u pw ard tr a je cto ry , a d ecad e la te r

Zam bia la y in eco nom ic ru in . B ill E aste rly , a N ew Y ork U niv ers ity

pro fe sso r an d fo rm er W orld B an k eco nom is t, note s th at had Z am bia

co nverte d a ll th e a id it h ad r e ceiv ed s in ce 1 960 in to in vestm en t, a n d a ll o f

th at in vestm en t to g ro w th , it w ould h av e h ad a p er c ap ita G DP o f a b out

US$20,0 00 b y th e e arly 1 990s.

In ste ad , Z am bia ’s p er c ap ita G DP w as

54 lo w er th an in 1 960, u nder U S$500. I n e ffe ct, Z am bia ’s G DP s h ould h av e

been a t le ast th ir ty tim es w hat it is to day . A nd b etw een 1 970 a n d 1 998,

when a id f lo w s t o A fric a w ere a t t h eir p eak , p overty i n A fric a r o se f ro m 1 1

per cen t to a sta g gerin g 66 per cen t. T hat is ro ughly 600 m illio n of

Afric a’s b illio n p eo ple t r a p ped i n a q uag m ir e o f p overty – a t r u ly s h ock in g

fig ure .

The e v id en ce a g ain st a id is s o s tr o ng a n d s o c o m pellin g th at e v en th e

IM F – a le ad in g p ro vid er o f a id – h as w arn ed a id s u pporte rs a b out p la cin g

more h ope in a id a s a n in str u m en t o f d ev elo pm en t th an it is c ap ab le o f

deliv erin g. The IM F has als o cau tio ned govern m en ts , donors an d

cam paig ners t o b e m ore m odest i n t h eir c la im s t h at i n cre ase d a id w ill s o lv e

Afric a’s p ro ble m s. I f o nly t h ese a ck now le d gem en ts w ere a c ata ly st f o r r e al

ch an ge.

What i s p erh ap s m ost a m azin g i s t h at t h ere i s n o o th er s e cto r, w heth er i t

be b usin ess o r p olitic s, w here s u ch p ro ven f a ilu re s a re a llo w ed t o p ers is t i n

th e f a ce o f s u ch s ta rk a n d u nassa ila b le e v id en ce.

So th ere w e h av e it: s ix ty y ears , o ver U S$1 tr illio n d olla rs o f A fric an

aid , a n d n ot m uch g ood to s h ow f o r it. W ere a id s im ply in nocu ous – ju st

not d oin g w hat it c la im ed it w ould d o – th is b ook w ould n ot h av e b een

writte n . T he p ro ble m is th at a id is n ot b en ig n – it’ s m alig nan t. N o lo nger

part o f th e p ote n tia l s o lu tio n, it’ s p art o f th e p ro ble m – in fa ct a id

th e

pro ble m .

55 4. T he S ile n t K ille r o f G ro w th

I n 2 004, th e B ritis h e n voy to K en ya, S ir E dw ard C la y , c o m pla in ed a b out

r a m pan t co rru ptio n in th e co untr y , co m men tin g th at K en ya’s co rru pt

m in is te rs w ere ‘e atin g lik e g lu tto ns’ an d v om itin g o n th e sh oes o f th e

f o re ig n d onors . In F eb ru ary 2 005 (p ro dded to m ak e a p ublic a p olo gy fo r

h is sta te m en ts giv en th e politic al m aels tr o m his earlie r co m men ts had

m ad e), h e a p olo giz ed – sa y in g h e w as so rry fo r th e ‘m odera tio n’ o f h is

l a n guag e, fo r u ndere stim atin g th e sc ale o f th e lo otin g a n d fo r fa ilin g to

s p eak o ut e arlie r.

If th e w orld h as o ne p ic tu re o f A fric an sta te sm en , it is o ne o f ra n k

c o rru ptio n o n a stu pen dous sc ale . T here h ard ly se em an y le ad ers w ho

h av en ’t cro w ned th em se lv es in gold , se iz ed la n d, han ded over sta te

b usin esse s to re la tiv es an d frie n ds, div erte d billio ns to fo re ig n ban k

a cco unts , a n d g en era lly tr e ate d th eir c o untr ie s a s g ia n t p ers o naliz ed c ash

d is p en se rs . A cco rd in g to T ra n sp are n cy I n te rn atio nal, M obutu is e stim ate d

t o h av e lo ote d Z air e to th e tu ne o f U S$5 b illio n; r o ughly th e s a m e a m ount

w as sto le n fro m N ig eria b y P re sid en t S an i A bach a a n d p la ced in S w is s

p riv ate b an ks ( la te r U S$700 m illio n o f th e lo ot w as r e tu rn ed to N ig eria ).

I t’ s n ot, o f c o urs e , ju st o ne p ers o n w ho h as ta k en th e m oney . T here a re

m an y peo ple , at m an y dif fe re n t le v els of th e bure au cra cy , w ho hav e

f u nnelle d a w ay b illio ns o f d olla rs o ver th e y ears . C orru ptio n is a w ay o f

l if e .

The lis t o f c o rru pt p ra ctic es in A fric a is a lm ost e n dle ss. B ut th e p oin t

a b out c o rru ptio n i n A fric a i s n ot t h at i t e x is ts : t h e p oin t i s t h at a id i s o ne o f

i ts g re ate st a id es. T his is n ot to s a y th at th ere a re n ot o th er fa cilita to rs o f

c o rru ptio n. In A fric a, n atu ra l- re so urc e w in dfa lls , s u ch a s o il, h av e te n ded

t o b e m ore o f a c u rs e t h an a b le ssin g. L ik e a id , t h ey a re s u sc ep tib le t o t h eft

a n d h av e p ro vid ed p ra ctic ally u nlim ite d o pportu nitie s f o r p ers o nal w ealth

a ccu m ula tio n a n d s e lf -a g gra n diz em en t.

The cru cia l dif fe re n ce betw een fo re ig n aid an d natu ra l- re so urc e

e n dow m en ts is , o f c o urs e , th at a id is a n a ctiv e a n d d elib era te p olic y a im ed

a t d ev elo pm en t. C ountr ie s d on’t h av e m uch o f a c h oic e a s to w heth er o r

n ot th ey e n d u p w ith a n o il e n do w m en t; a lth ough o f c o urs e th ey d o h av e a

c h oic e o n h ow w in dfa lls a re d ealt w ith . W ith m ountin g p re ssu re f o r g re ate r

t r a n sp are n cy i n t h e o il, g as a n d m in in g s e cto rs , f ro m o rg an iz atio ns l ik e t h e

56 Extr a ctiv e In dustr ie s T ra n sp are n cy In itia tiv e (E IT I),

th e d ay s o f b la ta n t

lo otin g a n d c o rru ptio n in th ese se cto rs a re su re ly n um bere d . B ut d onors

co ntin ue to s it in c o m fo rta b le a ir -c o nditio ned ro om s in th e W est a n d p en

th e t r a g ic f a te o f c o untr ie s t h ey o ste n sib ly s e ek t o h elp .

The v ic io us c ycle o f a id

With a id ’s h elp , c o rru ptio n f o ste rs c o rru ptio n, n atio ns q uic k ly d esc en d i n to

a vic io us cy cle of aid . Fore ig n aid pro ps up co rru pt govern m en ts –

pro vid in g th em w ith fre ely usa b le cash . These co rru pt govern m en ts

in te rfe re w ith th e ru le of la w , th e esta b lis h m en t of tr a n sp are n t civ il

in stitu tio ns a n d th e p ro te ctio n o f c iv il lib ertie s, m ak in g b oth d om estic a n d

fo re ig n in vestm en t in poor co untr ie s unattr a ctiv e. G re ate r opacity an d

fe w er in vestm en ts re d uce eco nom ic gro w th , w hic h le ad s to fe w er jo b

opportu nitie s an d in cre asin g poverty le v els . In re sp onse to gro w in g

poverty , d onors g iv e m ore a id , w hic h c o ntin ues th e d ow nw ard sp ir a l o f

poverty .

This is th e v ic io us c y cle o f a id . T he c y cle th at c h okes o ff d esp era te ly

need ed in vestm en t, in stils a c u ltu re o f d ep en den cy , a n d f a cilita te s r a m pan t

an d s y ste m atic c o rru ptio n, a ll w ith d ele te rio us c o nse q uen ces fo r g ro w th .

The cy cle th at, in fa ct, perp etu ate s underd ev elo pm en t, an d guara n te es

eco nom ic f a ilu re i n t h e p oore st a id -d ep en den t c o untr ie s.

Corru ptio n a nd g ro w th

Ultim ate ly , A fric a’s g oal is lo ng-te rm , s u sta in ab le e co nom ic g ro w th , a n d

th e alle v ia tio n o f p overty . T his can not o ccu r in an en vir o nm en t w here

co rru ptio n is rif e . T here are , o f co urs e , an y n um ber o f w ay s in w hic h

co rru ptio n r e ta rd s g ro w th .

In a co nte x t of hig h deg re es of co rru ptio n an d uncerta in ty , fe w er

en tr e p re n eu rs (d om estic or fo re ig n) w ill ris k th eir m oney in busin ess

ven tu re s w here co rru pt offic ia ls can la y cla im to its pro ceed s, so

in vestm en t s ta g nate s, a n d f a llin g i n vestm en t k ills o ff g ro w th .

Dev elo pm en t ag en cie s w ould h av e u s b elie v e th at aid h elp s b uild a

la stin g, cre d ib le an d str o ng civ il se rv ic e. In deed , th e W orld Ban k

re co m men ds t h at b y p ro vid in g m ore a id r ic h c o untr ie s a ctu ally a ssis t i n t h e

fig ht a g ain st c o rru ptio n. T han ks to a id , p oor g overn m en ts c an a ffo rd to

su pport eth ic s tr a in in g, in cre ase th e sa la rie s of th eir public -s e cto r

em plo yees (p olic e, ju dges, m ed ic al s ta ff, ta x c o lle cto rs ), th ere b y lim itin g

57 th e n eed fo r c o rru ptio n. M ore o ver, h ig her s a la rie s w ill a ttr a ct c o m pete n t

an d h ig her-q uality e m plo yees t o t h e c iv il s e rv ic e.

Unfo rtu nate ly , unfe tte re d m oney (th e pro sp ect of siz eab le ill- g otte n

gain s) is ex cep tio nally co rro siv e, an d m is a llo cate s ta le n t. In an aid -

dep en den t en vir o nm en t, th e ta le n te d – th e bette r-e d ucate d an d m ore -

prin cip le d , w ho s h ould b e b uild in g t h e f o undatio ns o f e co nom ic p ro sp erity

– beco m e unprin cip le d an d are dra w n fro m pro ductiv e w ork to w ard s

nefa rio us a ctiv itie s th at u nderm in e th e c o untr y ’s g ro w th p ro sp ects . T hose

who re m ain p rin cip le d are d riv en aw ay , eith er to th e p riv ate se cto r o r

ab ro ad , le av in g th e p osts th at re m ain to b e fille d b y th e re la tiv ely le ss-

ed ucate d , a n d p ote n tia lly m ore v uln era b le t o g ra ft.

Endem ic c o rru ptio n a ls o t a rg ets p ublic c o ntr a cts . I n t h ese e n vir o nm en ts ,

co ntr a cts w hic h s h ould b e a w ard ed to th ose w ho c an d eliv er o n th e b est

te rm s, in th e b est tim e, a re g iv en to th ose w hose p rin cip al a im is to d iv ert

as m uch a s p ossib le to th eir o w n p ock ets . W hat e n su e a re lo w er-q uality

in fra str u ctu re p ro je cts , a n d e n fe eb le d p ublic s e rv ic es, to th e d etr im en t o f

gro w th .

Sim ila rly , th e allo catio n of govern m en t sp en din g su ffe rs as co rru pt

offic ia ls a re lik ely to c h oose p ro je cts le ss o n th e b asis o f p ublic w elf a re

an d m ore o n t h e o pportu nitie s f o r e x to rtin g b rib es a n d d iv ertin g f u nds. T he

big ger th e p ro je ct, th e g re ate r th e o pportu nity . P ro je cts w hose e x act v alu e

is d if fic u lt to m onito r p re se n t lu cra tiv e o pportu nitie s f o r c o rru ptio n – it is

easie r to sip hon m oney fro m la rg e in fra str u ctu re pro je cts th an fro m

te x tb ooks o r t e ach ers ’ s a la rie s.

So h ow b ad ly d oes c o rru ptio n a ctu ally a ffe ct g ro w th ?

Every year, sin ce 1995, T ra n sp are n cy In te rn atio nal has publis h ed a

Corru ptio n Perc ep tio ns In dex (C PI). Usin g su rv ey s re fle ctin g th e

perc ep tio ns o f b usin ess p eo ple a n d c o untr y a n aly sts , th e C PI ra n ks o ver

100 c o untr ie s, f ro m 0 t o 1 0, t h e m ost c o rru pt t o t h e l e ast.

Usin g t h e T ra n sp are n cy I n te rn atio nal C PI, G ra f L am bsd orff f o und t h at a

one-p oin t i m pro vem en t i n a c o untr y ’s c o rru ptio n s c o re w as c o rre la te d w ith

an in cre ase in p ro ductiv ity o f 4 p er c en t o f G DP. T his im plie s th at w ere

Tan zan ia ( p la ced a t 3 .2 o ut o f 1 0 o n th e 2 007 T ra n sp are n cy I n te rn atio nal

in dex ) to im pro ve its c o rru ptio n s c o re to th e le v el o f th e U K (ra n ked 8 .4

out o f 1 0), its G DP c o uld b e m ore th an 2 0 p er c en t h ig her, a n d n et a n nual

per c ap ita i n flo w s w ould i n cre ase b y 3 p er c en t o f G DP.

Jo el K urtz m an fo und th at ev ery one-p oin t in cre ase in a co untr y ’s

opacity in dex (th e d eg re e to w hic h a co untr y la ck s cle ar, accu ra te an d

easily dis c ern ib le pra ctic es govern in g busin ess, in vestm en t an d

govern m en t) c o rre la te d to a lo w er p er c ap ita in co m e b y U S$986 a n d a 1

58 per cen t d ecre ase in n et fo re ig n d ir e ct in vestm en t as a sh are o f G DP.

More o ver, c o rru ptio n w as a ls o re la te d to a 0 .5 p er c en t in cre ase in th e

co untr y ’s a v era g e b orro w in g r a te , a n d a 0 .5 p er c en t in cre ase in its r a te o f

in fla tio n.

Aid a nd c o rru ptio n

The donor co m munity is public ly air in g co ncern s th at dev elo pm en t

assis ta n ce e arm ark ed f o r c ritic al s o cia l a n d e co nom ic s e cto rs i s b ein g u se d

dir e ctly or in dir e ctly to fu nd unpro ductiv e an d co rru pt ex pen ditu re s

(U NDP’s H um an D ev elo pm en t R ep ort, 1 994). A t a h earin g b efo re th e

Unite d Sta te s Sen ate C om mitte e on Fore ig n R ela tio ns in M ay 2004,

ex perts a rg ued th at th e W orld B an k h as p artic ip ate d ( m ostly p assiv ely ) in

th e c o rru ptio n o f ro ughly U S$100 b illio n o f its lo an fu nds in te n ded fo r

dev elo pm en t.

W hen th e co rru ptio n asso cia te d w ith lo an s fro m oth er

multila te ra l- d ev elo pm en t b an ks is in clu ded , th e fig ure ro ughly d ouble s to

US$200 b illio n. O th ers e stim ate th at o f th e U S$525 b illio n th at th e W orld

Ban k h as le n t to d ev elo pin g co untr ie s sin ce 1 946, at le ast 2 5 p er cen t

(U S$130 billio n) has been m is u se d . V ast su m s of aid not only fo ste r

co rru ptio n – t h ey b re ed i t.

Aid s u pports r e n t- s e ek in g – th at is , th e u se o f g overn m en ta l a u th ority t o

ta k e a n d m ak e m oney w ith out tr a d e o r p ro ductio n o f w ealth . A t a v ery

basic le v el, a n e x am ple o f th is is w here a g overn m en t o ffic ia l w ith a ccess

to a id m oney se t a sid e fo r p ublic w elf a re ta k es th e m oney fo r h is o w n

pers o nal u se . O bvio usly , th ere c an not b e r e n t- s e ek in g w ith out a r e n t. A nd

becau se fo re ig n aid (th e re n t) is fu ngib le – easily sto le n , re d ir e cte d o r

ex tr a cte d – it fa cilita te s c o rru ptio n. W ere d onor c o nditio nalitie s re m ote ly

effe ctiv e, th is w ould not be th e case . B ut, as desc rib ed pre v io usly ,

co nditio nalitie s c arry l ittle p unch .

In ‘D o C orru pt G overn m en ts R eceiv e L ess F ore ig n A id ?’, A le sin a a n d

Wed er c o nclu de t h at a id t e n ds t o i n cre ase c o rru ptio n. S ven sso n s h ow s h ow

aid fo ste rs co rru ptio n by re d ucin g public sp en din g; th at by in cre asin g

govern m en t r e v en ues, a id l o w ers t h e p ro vis io n o f p ublic g oods ( th in gs t h at

ev ery one b en efits fro m , b ut n o o ne w an ts to p ay fo r – fo r in sta n ce, a

la m ppost) . In a s im ila r v ein , fo re ig n a id p ro gra m mes, w hic h te n d to la ck

acco unta b ility a n d c h eck s a n d b ala n ces, a ct a s s u bstitu te s f o r t a x r e v en ues.

The ta x re ceip ts th is re le ase s a re th en d iv erte d to u npro ductiv e a n d

ofte n

waste fu l p urp ose s ra th er th an p ro ductiv e p ublic e x pen ditu re (e d ucatio n,

health in fra str u ctu re ) f o r w hic h th ey w ere o ste n sib ly in te n ded . I n U gan da,

59 fo r ex am ple , aid -fu elle d co rru ptio n in th e 1 990s w as th ought to b e so

ra m pan t th at o nly 2 0 c en ts o f e v ery U S$1 d olla r o f g overn m en t s p en din g

on e d ucatio n r e ach ed t h e t a rg ete d l o cal p rim ary s c h ool.

Aid g oes t o c o rru pt c o untr ie s

If i t i s s o o bvio us, a s i t m ust b e t o e v ery one i n volv ed , t h at a id i s v uln era b le

to s u ch b la ta n t m an ip ula tio n, w hy i s i t t h at d onors c o ntin ue t o d onate ?

Witn ess th e occu rre n ces in 1978 afte r th e IM F ap poin te d Irw in

Blu m en th al to a p ost in th e c en tr a l b an k o f w hat w as th en Z air e , n ow th e

Dem ocra tic R ep ublic o f C ongo. B lu m en th al re sig ned in le ss th an a y ear,

writin g a m em o w hic h s a id th at ‘ th e c o rru ptiv e s y ste m in Z air e w ith a ll its

wic k ed m an if e sta tio ns’ is s o s e rio us th at th ere is ‘ n o ( re p eat n o) p ro sp ect

fo r Z air e ’s c re d ito rs t o g et t h eir m oney b ack ’. S hortly a fte r t h e B lu m en th al

mem o, th e I M F g av e Z air e th e la rg est lo an it h ad e v er g iv en to a n A fric an

co untr y a n d o ver th e n ex t te n y ears P re sid en t M obutu ’s k le p to cra cy h ad

re ceiv ed a n a d ditio nal U S$700 m illio n f ro m t h e F und.

More re cen tly , re fe rrin g to Z am bia ’s fo rm er P re sid en t C hilu ba (w ho

was in p ow er b etw een 1 991 a n d 2 002) in a p arlia m en ta ry a d dre ss in 2 002,

Zam bia ’s c u rre n t P re sid en t, L ev y M wan aw asa , a lle g ed e m bezzle m en t a n d

th eft of up to U S$80 m illio n. Y et durin g th e perio d w hen th e th efts

occu rre d Z am bia h ad r e ceiv ed u pw ard s o f U S$1.5 b illio n f ro m th e W orld

Ban k. M uch o f th e m oney w as g iv en u nder th e a u sp ic es o f th e H eav ily

In deb te d P oore st C ountr y (H IP C ) d eb t re lie f p ro gra m me, a p ro gra m me

th at r e q uir e d i ts b en efic ia rie s t o b e c o rru ptio n-fre e.

More gen era lly , th e acad em ic Larry Dia m ond obse rv es th at

dev elo pm en t ag en cie s co ntin ue to giv e aid to th e m ost co rru pt an d

unacco unta b le A fric an sta te s, w ith know n au th orita ria n an d co rru pt

govern m en ts . H is lis t in clu des C am ero on, A ngola , E ritr e a, G uin ea

an d

Mau rita n ia , e ach re ceiv in g a id e q uallin g o r e v en e x ceed in g th e A fric an

av era g e o f U S$20 p er c ap ita . T here i s n o e n d t o i t.

Why g iv e a id i f i t l e a ds t o c o rru ptio n?

Giv en w hat w e know ab out fo re ig n aid , an d how it en co ura g es an d

su sta in s c o rru ptio n, w hy d o W este rn g overn m en ts in sis t o n p arc ellin g o ut

aid to p oor co untr ie s? B ey ond th e m otiv atio ns fo r aid -g iv in g d is c u sse d

earlie r – eco nom ic , p olitic al an d m ora l – th ere are tw o o th er p ra ctic al

ex pla n atio ns w hy.

60 Fir s t, th ere is sim ply a pre ssu re to le n d. T he W orld B an k em plo ys

10,0 00 p eo ple , th e IM F o ver 2 ,5 00; a d d a n oth er 5 ,0 00 fo r th e o th er U N

ag en cie s; a d d to th at th e e m plo yees o f a t le ast 2 5,0 00 re g is te re d N GOs,

priv ate c h aritie s a n d th e a rm y o f g overn m en t a id a g en cie s: ta k en to geth er

aro und 500,0 00 peo ple , th e popula tio n of S w azila n d. S om etim es th ey

mak e lo an s, s o m etim es th ey g iv e g ra n ts , b ut th ey a re a ll in th e b usin ess o f

aid ( th e t o ta l o f c o ncessio nal l o an s – t h ose w hic h c arry a s m all i n te re st r a te

– a n d g ra n ts – e ffe ctiv ely f re e m oney ), s e v en d ay s a w eek , f if ty -tw o w eek s

a y ear, a n d d ecad e a fte r d ecad e.

Their liv elih oods d ep en d o n a id , ju st a s th ose o f th e o ffic ia ls w ho ta k e

it. F or m ost d ev elo pm en ta l o rg an iz atio ns, s u ccessfu l le n din g is m easu re d

alm ost e n tir e ly b y t h e s iz e o f t h e d onor’s l e n din g p ortf o lio , a n d n ot b y h ow

much of th e aid is actu ally use d fo r its in te n ded purp ose . A s a

co nse q uen ce, th e in cen tiv es built in to th e dev elo pm en t org an iz atio ns

perp etu ate th e c y cle o f le n din g to e v en th e m ost c o rru pt c o untr ie s. D onors

are s u bje ct to ‘ fis c al y ear’ c o ncern s: ‘ th ey f e are d th e c o nse q uen ces w ith in

th eir a g en cie s o f n ot re le asin g th e fu nds in th e fis c al y ear fo r w hic h th ey

were sla te d ’ (R av i K an bur). A ny non-d is b urs e d am ounts in cre ase th e

lik elih ood th at th eir s u bse q uen t a id p ro gra m mes w ill b e s la sh ed . W ith th e

ad ded c o ro lla ry , o f c o urs e , t h at t h eir o w n o rg an iz atio nal s ta n din g i s p la ced

in j e o pard y.

For m an y d onor ag en cie s th e d ecis io n to le n d to le ss th an re p uta b le

govern m en ts is c o uch ed in th e v ie w th at if th ey d id n’t, th e

poor w ould

su ffe r, h ealth a n d e d ucatio n b udgets w ould n’t b e m et, a n d c o untr ie s w ould

fa lte r. T he r e ality is , th e p oor a re n ’t g ettin g th e m oney a n d, b esid es, e v en

under t h e a id r e g im e, A fric an c o untr ie s a re f a lte rin g a n yw ay .

Donors h av e th e a d ded f e ar th at w ere th ey n ot to p um p m oney in , p oor

co untr ie s w ould n ot b e a b le to p ay b ack w hat th ey a lr e ad y o w e, a n d th is

would affe ct th e donors ’ fin an cin g th em se lv es. T his cir c u la r lo gic is

ex actly w hat k eep s t h e a id m erry -g o-ro und h um min g.

The in sa tia b le need to le n d is yet an oth er re m in der of w hy th e

co nditio nalitie s im pose d o n p oor co untr ie s are w orth n o m ore th an th e

pap er th ey a re w ritte n o n. A 1 9 92 s tu dy c o nducte d b y th e W orld B an k’s

Opera tio ns Evalu atio n D ep artm en t co nclu ded th at th e re le ase of aid

tr a n ch es w as c lo se t o 1 00 p er c e n t, e v en w hen c o untr y c o m plia n ce r a te s o n

co nditio ns w ere b elo w 5 0 p er c en t. A noth er W orld B an k s tu dy, in 1 997,

sh ow s th at b etw een 1 980 a n d 1 996 7 2 p er c en t o f th e a id th e W orld B an k

allo cate d to a d ju stm en t le n din g w en t to c o untr ie s w ith p oor tr a ck re co rd s

on c o m plia n ce w ith c o nditio nality . I n th e d onor’s d esp era te q uest to le n d,

an d m ain ta in th e le n der– borro w er se e-s a w , th e aid re la tio nsh ip tip s in

61 fa v our o f th e c o rru pt g overn m en t. A lm ost to th e a b su rd p oin t w here th e

donor h as a g re ate r n eed f o r g iv in g t h e a id t h an t h e r e cip ie n t h as f o r t a k in g

it.

Seco nd, d onors a re a p pare n tly u nab le to a g re e o n w hic h c o untr ie s a re

co rru pt an d w hic h are not. A cla ssic ex am ple of th is occu rre d on 26

Novem ber 2 002, w hen th e

New Y ork T im es

p ublis h ed a n a rtic le e n title d

‘B ush P la n T ie s F ore ig n A id to F re e M ark et a n d C iv ic R ule ’. T he a rtic le

tr u m pete d W ash in gto n’s a id in itia tiv e a n d w en t o n to o utlin e th e d eta ils o f

a W hite H ouse p ro posa l to s e t u p a c o m petitio n a m ong th e p oore st w orld

eco nom ie s, w here th e ‘ w in ners ’ w ould b e a p portio ned a s lic e o f th e U S$5

billio n f o re ig n a id f u nd.

Curio usly , a m ong th e lis t o f p ossib le q ualif y in g c o untr ie s w as M ala w i.

Only w eek s prio r to th e B ush an nouncem en t, M ala w i’ s M in is tr y of

Agric u ltu re h ad b een e m bro ile d in a v ery p ublic a lte rc atio n w ith th e I M F.

Gra in co nsig nm en ts had gone m is sin g, an d

a siz eab le perc en ta g e of

Mala w i’ s p opula tio n w as f a cin g s ta rv atio n. T o m ak e m atte rs w ors e , a to p

Mala w ia n o ffic ia l a t th e s ta te -ru n g ra in m ark etin g b oard w ho w as to b e a

key w itn ess in th e tw o c o rru ptio n c ase s ‘m yste rio usly d is a p peare d ’.

Y et

ev en w ith t h ese a lle g atio ns o f c o rru ptio n t h e U S g overn m en t d id n ot s e e f it

to r e m ove M ala w i f ro m t h e q ualif y in g M ille n niu m C halle n ge A cco unt l is t.

On t h e o th er h an d, T an zan ia w as o m itte d f ro m t h e s a m e U S M ille n niu m

Challe n ge A cco unt lis t (a p pare n tly fo r re aso ns of co rru ptio n). But

biz arre ly it h ad b een h aile d a s a m odel o f g ood g overn an ce in N ovem ber

2001 b y th e B ritis h g overn m en t’ s S ecre ta ry o f D ev elo pm en t a t th e tim e,

Cla re S hort, w ho p ro m ptly a n nounced th at T an zan ia w ould b en efit f ro m a

new p ilo t a id p ro gra m me.

Who w as r ig ht?

Thus, it w ould a p pear th at r e g ard le ss o f w ho y ou a re , a n d w hat y ou’v e

done (o r h av en ’t fo r th at m atte r), y ou’ll g et th e c ash fro m s o m ew here . In

th e M ala w i m aiz e s c an dal, th e I M F r e su m ed its le n din g p ro gra m me to th e

govern m en t w ith n o c le ar r e so lu tio n o f t h e c ase .

Corru ptio n: p ositiv e o r n eg ativ e?

May be it w ould n’t b e s o b ad if A fric an le ad ers , lik e s o m e o f th eir A sia n

co unte rp arts , r e in veste d s to le n m oney d om estic ally , in ste ad o f s q uir re llin g

it a w ay i n f o re ig n b an k a cco unts .

This n otio n o f ‘ p ositiv e’ c o rru ptio n g oes a lo ng w ay to e x pla in in g w hy

man y A sia n c o untr ie s, p erc eiv ed t o h av e h ig h l e v els o f c o rru ptio n ( in s o m e

62 case s, su ch as In donesia , ex ceed in g th ose o f A fric a), n ev erth ele ss p ost

en via b le le v els o f e co nom ic g ro w th . F or e x am ple , d esp ite r a n kin g ju st 3 .5

out o f 1 0 o n T ra n sp are n cy In te rn atio nal’ s C orru ptio n P erc ep tio ns In dex

(2 007), C hin a c o ntin ues to a ttr a ct th e g re ate st a m ount o f fo re ig n d ir e ct

in vestm en t (U S$78 b illio n in 2 006, a cco rd in g to th e IM F’s In te rn atio nal

Fin an cia l Sta tis tic s), w hic h undoubte d ly has co ntr ib ute d to its

ste lla r

gro w th . S im ila rly , alth ough in th e 1980s T haila n d re g is te re d a str o ng

eco nom ic p erfo rm an ce, in th e s a m e d ecad e it w as r a n ked th e m ost c o rru pt

co untr y i n t h e w orld .

In s ta rk c o ntr a st, c o rru ptio n a n aly sts e stim ate a t le ast U S$10 b illio n –

nearly h alf o f A fric a’s 2 003 fo re ig n aid re ceip ts – d ep art A fric a ev ery

year.

It is th is ‘n eg ativ e c o rru ptio n’ w hic h b le ed s A fric a’s p ublic p urs e

dry , a n d d oes n oth in g t o a d dre ss t h e c o ntin en t’ s d esp era te n eed s. I t i s t r u ly

tr a g ic th at w hile s to le n a id m onie s s it a n d e arn in te re st in p riv ate a cco unts

ab ro ad , th e c o untr ie s fo r w hic h th e m oney w as d estin ed h av e s ta g nate d ,

an d e v en r e g re sse d .

The co rn ers to ne o f d ev elo pm en t is an eco nom ic ally re sp onsib le an d

acco unta b le g overn m en t. Y et, i t r e m ain s c le ar t h at, b y p ro vid in g f u nds, a id

ag en cie s (in ad verte n tly ?) p ro p u p c o rru pt g overn m en ts . B ut c o rru ptio n is

not th e o nly p ro ble m e m an atin g fro m a id . T he d ele te rio us e ffe cts o f a n y

new a id f lo w s w ould b e b oth s o cia l a n d e co nom ic .

Aid a nd c iv il s o cie ty

Afric a n eed s a m id dle cla ss: a m id dle cla ss th at h as v este d eco nom ic

in te re sts ; a m id dle c la ss in w hic h in div id uals tr u st e ach o th er ( a n d h av e a

co urt to g o to if th e tr u st b re ak s d ow n) a n d th at re sp ects a n d d efe n ds th e

ru le o f la w ; a m id dle cla ss th at h as a sta k e in se ein g its co untr y ru n

sm ooth ly a n d u nder a tr a n sp are n t le g al fra m ew ork ; a m id dle c la ss (a lo ng

with th e r e st o f th e p opula tio n) th at c an h old its g overn m en t a cco unta b le .

Above a ll, a m id dle c la ss n eed s a g overn m en t t h at w ill l e t i t g et a h ead .

This is n ot to im ply th at A fric a d oes n ot h av e a m id dle c la ss – it d oes.

But in a n a id e n vir o nm en t, g overn m en ts a re le ss in te re ste d in fo ste rin g

en tr e p re n eu rs a n d th e d ev elo pm en t o f th eir m id dle c la ss th an in f u rth erin g

th eir o w n fin an cia l in te re sts . W ith out a str o ng e co nom ic v oic e a m id dle

cla ss is p ow erle ss to ta k e its g overn m en t to ta sk . W ith e asy a ccess to c ash

a govern m en t re m ain s all- p ow erfu l, acco unta b le only (a n d only th en

nom in ally ) t o i ts a id d onors . I n hib ite d i n i ts g ro w th , t h e m id dle c la ss n ev er

re ach es th at

critic al m ass th at his to ric ally has pro ven esse n tia l fo r a

63 co untr y ’s e co nom ic a n d p olitic al s u ccess.

In m ost f u nctio nin g a n d h ealth y e co nom ie s, th e m id dle c la ss p ay s ta x es

in re tu rn fo r govern m en t acco unta b ility . F ore ig n aid sh ort- c ir c u its th is

lin k. B ecau se th e g overn m en t’ s fin an cia l d ep en den ce o n its c itiz en s h as

been r e d uced , i t o w es i ts p eo ple n oth in g.

A w ell- fu nctio nin g c iv il so cie ty a n d p olitic ally in volv ed c itiz en ry a re

th e b ack bone o f lo nger-te rm s u sta in ab le d ev elo pm en t. T he p artic u la r ro le

of s tr o ng c iv il s o cie ty is to e n su re th at th e g overn m en t is h eld a cco unta b le

fo r its actio ns, th ro ugh fu ndam en ta l civ il re fo rm s oth er th an sim ply

hold in g e le ctio ns. H ow ev er, fo re ig n a id p erp etu ate s p overty a n d w eak en s

civ il so cie ty by in cre asin g th e burd en of govern m en t an d re d ucin g

in div id ual f re ed om .

An a id -d riv en e co nom y a ls o le ad s to th e p olitic iz atio n o f th e c o untr y –

so th at ev en w hen a m id dle cla ss (a lb eit sm all) ap pears to th riv e, its

su ccess o r f a ilu re is w holly c o ntin gen t o n its p olitic al a lle g ia n ce. S o m uch

so , a s B au er p uts it, th at a id ‘d iv erts p eo ple ’s a tte n tio n fro m p ro ductiv e

eco nom ic activ ity to politic al lif e ’, fa ta lly weak en in g th e so cia l

co nstr u ctio n o f a c o untr y .

Aid a nd s o cia l c a pita l: a m atte r o f t r u st

Socia l c ap ita l, b y w hic h is m ean t th e in vis ib le g lu e o f re la tio nsh ip s th at

hold s b usin ess, e co nom y a n d p olitic al lif e to geth er, is a t th e c o re o f a n y

co untr y ’s d ev elo pm en t. A t its m ost e le m en ta l le v el, th is b oils d ow n to a

matte r o f t r u st.

As dis c u sse d earlie r, am ong dev elo pm en t pra ctitio ners th ere is

in cre asin g a ck now le d gem en t th at ‘s o ft’ fa cto rs – s u ch a s g overn an ce, th e

ru le of la w , in stitu tio nal quality – pla y a critic al ro le in ach ie v in g

eco nom ic p ro sp erity a n d p uttin g c o untr ie s o n a s tr o ng d ev elo pm en t p ath .

But t h ese t h in gs a re m ean in gle ss i n t h e a b se n ce o f t r u st. A nd w hile t r u st i s

dif fic u lt to d efin e o r m easu re , w hen it is n ot th ere th e n etw ork s u pon

whic h d ev elo pm en t d ep en ds b re ak d ow n o r n ev er e v en f o rm .

Fore ig n a id d oes n ot str e n gth en th e so cia l c ap ita l – it w eak en s

it. B y

th w artin g a cco unta b ility m ech an is m s, e n co ura g in g r e n t- s e ek in g b eh av io ur,

sip honin g off sc arc e ta le n t fro m th e em plo ym en t pool, an d re m ovin g

pre ssu re s to r e fo rm in effic ie n t p olic ie s a n d in stitu tio ns, a id g uara n te es th at

in th e m ost a id -d ep en den t re g im es so cia l c ap ita l re m ain s w eak a n d th e

co untr ie s th em se lv es p oor. I n a w orld o f a id , th ere is n o n eed o r in cen tiv e

to tr u st y our n eig hbour, a n d n o n eed f o r y our n eig hbour to tr u st y ou. T hus

64 aid e ro des t h e e sse n tia l f a b ric o f t r u st t h at i s n eed ed b etw een p eo ple i n a n y

fu nctio nin g s o cie ty .

Aid a nd c iv il w ar

Acco rd in g t o t h e S to ck holm I n te rn atio nal P eace R ese arc h I n stitu te , ‘ A fric a

is th e m ost c o nflic t rid den re g io n o f th e w orld , a n d th e o nly re g io n in

whic h th e n um ber o f a rm ed c o nflic ts is o n th e in cre ase .’ D urin g th e 1 990s

th ere w ere s e v en te en m ajo r a rm ed c o nflic ts in A fric a a lo ne, c o m pare d to

te n ( in to ta l) e ls e w here in th e w orld . A fric a is a ls o th e r e g io n th at r e ceiv es

th e la rg est am ount o f fo re ig n aid , re ceiv in g m ore p er cap ita in o ffic ia l

dev elo pm en t a ssis ta n ce t h an a n y o th er r e g io n o f t h e w orld .

There are th re e fu ndam en ta l tr u th s ab out co nflic ts to day : th ey are

mostly born out of co m petitio n fo r co ntr o l of re so urc es; th ey are

pre d om in ate ly a fe atu re o f p oore r e co nom ie s; a n d th ey a re in cre asin gly

in te rn al c o nflic ts .

Whic h is w hy fo re ig n aid fo m en ts co nflic t. T he p ro sp ect o f se iz in g

pow er a n d g ain in g a ccess to u nlim ite d a id w ealth is ir re sis tib le . G ro ssm an

arg ues th at th e u nderly in g p urp ose o f re b ellio n is th e c ap tu re o f th e s ta te

fo r fin an cia l a d van ta g e, a n d th at a id m ak es s u ch c o nflic t m ore lik ely . In

Sie rra L eo ne, th e le ad er of th e re b el R ev olu tio nary U nite d F ro nt w as

offe re d th e v ic e-p re sid en tia l p ositio n in a p eace d eal, b ut r e fu se d u ntil th e

offe r w as c h an ged to in clu de h is c h air m an sh ip o f th e b oard c o ntr o llin g

dia m ond-m in in g i n te re sts . S o n ot o nly w ould i t a p pear t h at a id u nderm in es

eco nom ic g ro w th , k eep in g c o untr ie s in s ta te s o f p overty , b ut it is a ls o , in

its e lf , a n u nderly in g c au se o f s o cia l u nre st, a n d p ossib ly e v en c iv il w ar.

While a ck now le d gin g th at th ere a re o th er r e aso ns f o r c o nflic t a n d w ar –

fo r e x am ple , th e p ro sp ect o f c ap tu rin g n atu ra l re so urc es su ch a s o il, o r

tr ib al c o nflic t ( w hic h , o f c o urs e , c an h av e i ts r o ots i n e co nom ic d is p arity ) –

in a cash -s tr a p ped /r e so urc e-p oor en vir o nm en t th e pre se n ce of aid , in

whate v er f o rm , i n cre ase s t h e s iz e o f t h e p ie t h at d if fe re n t f a ctio ns c an f ig ht

over. F or e x am ple , M are n b la m es S om alia ’s c iv il w ars o n c o m petitio n f o r

co ntr o l o f l a rg e-s c ale f o od a id .

Furth erm ore , in a n in dir e ct m an ner, b y lo w erin g a v era g e in co m es a n d

slo w in g d ow n e co nom ic g ro w th ( a cco rd in g to C ollie r, b oth in th em se lv es

pow erfu l p re d ic to rs o f c iv il w ars ), a id i n cre ase s t h e r is k o f c o nflic t.

I n t h e

past f iv e d ecad es, a n e stim ate d 4 0 m illio n A fric an s h av e d ie d in c iv il w ars

sc atte re d a cro ss t h e c o ntin en t; e q uiv ale n t t o t h e p opula tio n o f S outh A fric a

(a n d t w ic e t h e R ussia n l iv es l o st i n t h e S eco nd W orld W ar).

65 Bey ond p olitic iz atio n o f th e p olitic al e n vir o nm en t, a id f o ste rs a m ilita ry

cu ltu re . C iv il w ars a re b y th eir v ery n atu re m ilita ry e sc ap ad es. W hoev er

win s sta y s in p ow er th ro ugh th e alle g ia n ce o f th eir m ilita ry . T hus, th e

re ig nin g in cu m ben t, a n xio us to h an g o n to p ow er, a n d m an ag e c o m petin g

in te re st g ro ups a n d fa ctio ns, fir s t d ir e cts w hat re so urc es h e h as in to th e

pock ets o f h is a rm y, i n t h e h ope t h at i t w ill r e m ain p lia n t a n d a t b ay .

The e co nom ic l im ita tio ns o f a id

Any la rg e in flu x o f m oney in to a n e co nom y, h ow ev er ro bust, c an c au se

pro ble m s. B ut w ith th e re le n tle ss flo w of unm itig ate d , su bsta n tia l aid

money , th ese p ro ble m s a re m ag nif ie d ; p artic u la rly in e co nom ie s th at a re ,

by th eir v ery n atu re , p oorly m an ag ed , w eak an d su sc ep tib le to o uts id e

in flu en ce, over w hic h dom estic polic y m ak ers hav e little co ntr o l. W ith

re sp ect to aid , poor eco nom ie s fa ce fo ur m ain eco nom ic ch alle n ges:

re d uctio n of dom estic sa v in gs an d in vestm en t in fa v our of gre ate r

co nsu m ptio n; in fla tio n; d im in is h in g e x ports ; a n d d if fic u lty in a b so rb in g

su ch l a rg e c ash i n flu xes.

Aid r e d uces s a vin gs a nd i n vestm en t

As f o re ig n a id c o m es i n , d om estic s a v in gs d eclin e; t h at i s , i n vestm en t f a lls .

This is n ot to g iv e th e im pre ssio n th at a w hole p opula tio n is a w ash w ith

aid m oney , a s i t o nly r e ach es r e la tiv ely f e w , v ery s e le ct h an ds. W ith a ll t h e

te m ptin g aid m onie s o n o ffe r, w hic h are n oto rio usly fu ngib le , th e fe w

sp en d it on co nsu m er goods, in ste ad of sa v in g th e cash . A s sa v in gs

declin e, lo cal b an ks h av e le ss m oney to le n d fo r d om estic in vestm en t.

Eco nom ic s tu die s c o nfir m t h is h ypoth esis , f in din g t h at i n cre ase s i n f o re ig n

aid

are

c o rre la te d w ith d eclin in g d om estic s a v in gs r a te s.

Aid h as a n oth er e q ually d am ag in g c ro w din g-o ut e ffe ct. A lth ough a id is

mean t to en co ura g e priv ate in vestm en t by pro vid in g lo an guara n te es,

su bsid iz in g in vestm en t ris k s an d su pportin g co fin an cin g arra n gem en ts

with p riv ate in vesto rs , in p ra ctic e it d is c o ura g es th e in flo w o f s u ch h ig h-

quality fo re ig n m onie s. In deed , in s o m e e m pir ic al w ork , it is s h ow n th at

priv ate fo re ig n c ap ita l a n d in vestm en t fa ll a s a id ris e s. T his m ay in p art

re fle ct th e fa ct th at priv ate in vesto rs te n d to be unco m fo rta b le ab out

se n din g t h eir m oney t o c o untr ie s t h at a re a id -d ep en den t, a p oin t e la b ora te d

on l a te r i n t h e b ook.

An o utg ro w th o f th e c ro w din g-o ut p ro ble m is th at h ig her a id -in duced

66 co nsu m ptio n le ad s to a n e n vir o nm en t w here m uch m ore m oney is c h asin g

fe w er g oods. T his a lm ost in varia b ly le ad s to p ric e ris e s – th at is , h ig her

in fla tio n.

Aid c a n b e i n fla tio nary

Pric e p re ssu re s are tw ofo ld . A id m oney le ad s to in cre ase d d em an d fo r

lo cally pro duced goods an d se rv ic es (th at is , non-tr a d ab le s su ch as

hair c u ts , r e al e sta te a n d f o odstu ffs ), a s w ell a s i m porte d ( tr a d ed ) g oods a n d

se rv ic es, s u ch a s tr a cto rs a n d T V s. I n cre ase d d om estic d em an d n eed n’t b e

harm fu l i n i ts e lf , b ut a d is ru ptiv e i n je ctio n o f m oney c an b e.

There a re m ultip le k nock -o n e ffe cts . F or e x am ple , ta k e th is v ery b asic

an d s im plis tic s to ry . S uppose a c o rru pt o ffic ia l g ets

US$10,0 00. H e u se s

so m e o f th e c ash to b uy a c ar. T he c ar s e lle r c an n ow a ffo rd to b uy n ew

clo th es, w hic h p la ces c ash i n t h e h an ds o f t h e c lo th es t r a d er, a n d s o o n a n d

so fo rth d ow n th e lin e, a t e ach p oin t p uttin g m ore p re ssu re o n d om estic

pric es a s th ere a re n ow m ore p eo ple d em an din g m ore c ars , c lo th es, e tc .

This is at le ast an ex am ple of positiv e co rru ptio n. B ut in a poor

en vir o nm en t, th ere a re n ’t a n y m ore c ars , th ere a re n ’t a n y m ore c lo th es, s o

with in cre ase d d em an d p ric es g o u p. E ven tu ally , th ere m ay b e m ore c ars

an d th ere m ay b e c lo th es, b ut b y th at tim e in fla tio n w ill h av e e ro ded th e

eco nom y, a ll th e w hile w ith e v en m ore a id c o m in g in . P erh ap s ir o nic ally ,

becau se o f th e d ete rio ra tin g in fla tio nary e n vir o nm en t m ore a id is p um ped

in t o ‘ s a v e t h e d ay ’; w e’re b ack o n t h e c y cle a g ain .

As if th at w as n ot b ad e n ough, in o rd er to c o m bat th e c y cle o f in fla tio n,

dom estic polic y m ak ers ra is e in te re st ra te s. B ut, at a very basic le v el,

hig her i n te re st r a te s m ean l e ss i n vestm en t ( it b eco m es t o o c o stly t o b orro w

to in vest) ; le ss in vestm en t m ean s fe w er jo bs; fe w er jo bs m ean m ore

poverty ; a n d m ore p overty m ean s m ore a id .

Aid c h okes o ff t h e e xp ort s e cto r

Tak e K en ya. S uppose it h as 1 00 K en yan s h illin gs in its e co nom y, w hic h

are w orth U S$2. S udden ly , U S$10,0 00 w orth o f a id c o m es in . N o o ne c an

sp en d dolla rs in th e co untr y , becau se sh opkeep ers only ta k e th e le g al

te n der – K en yan sh illin gs. In o rd er to sp en d th e a id d olla rs , th ose w ho

hav e it m ust c o nvert it to K en yan s h illin gs. A ll th e w hile th ere a re o nly

still 1 00 sh illin gs in th e e co nom y; th us th e v alu e o f th e fre ely flo atin g

sh illin g r is e s a s p eo ple tr y to o fflo ad th e m ore e asily a v aila b le a id d olla rs .

67 To th e detr im en t of th e K en yan eco nom y, th e now str o nger K en yan

cu rre n cy m ean s th at K en yan -m ad e goods fo r ex port are m uch m ore

ex pen siv e in th e in te rn atio nal m ark et, m ak in g th e tr a d ed goods se cto r

unco m petitiv e (if w ag es in th at se cto r do not ad ju st dow nw ard s). A ll

th in gs b ein g e q ual, t h is c h okes o ff K en ya’s e x port s e cto r.

This p hen om en on is k now n a s D utc h d is e ase , a s its e ffe cts w ere fir s t

obse rv ed w hen n atu ra l g as re v en ues flo oded in to th e N eth erla n ds in th e

1960s, d ev asta tin g th e D utc h e x port s e cto r a n d in cre asin g u nem plo ym en t.

Over th e y ears e co nom ic th in kin g h as e x te n ded b ey ond th e sp ecif ic s o f

th is o rig in al s c en ario , s o th at a n y la rg e in flo w o f ( a n y) f o re ig n c u rre n cy is

se en t o h av e t h is p ote n tia l e ffe ct.

Even in an en vir o nm en t w here th e dom estic cu rre n cy is not fre ely

flo atin g, b ut ra th er its ex ch an ge ra te re m ain s fix ed , th e D utc h d is e ase

phen om en on can occu r. In th is case , th e in cre ase d av aila b ility of aid

money e x pan ds d om estic d em an d, w hic h a g ain c an le ad to in fla tio n. A id

flo w s s p en t o n d om estic g oods w ould p ush u p th e p ric e o f o th er r e so urc es

th at a re in lim ite d s u pply d om estic ally – s u ch a s s k ille d w ork ers – m ak in g

in dustr ie s (m ain ly th e ex port se cto r) th at fa ce in te rn atio nal co m petitio n

an d d ep en d o n th at re so urc e m ore u nco m petitiv e, a n d a lm ost in ev ita b ly

th ey c lo se .

The I M F h as s ta te d t h at d ev elo pin g c o untr ie s t h at r e ly o n f o re ig n c ap ita l

are m ore p ro ne to th eir c u rre n cie s s tr e n gth en in g. A cco rd in gly , a id in flo w s

would s tr e n gth en t h e l o cal c u rre n cy a n d h urt m an ufa ctu rin g e x ports , w hic h

in tu rn re d uces lo ng-ru n g ro w th . IM F eco nom is ts h av e arg ued th at th e

co ntr ib utio n o f aid flo w s to a co untr y ’s ris in g ex ch an ge ra te w as o ne

re aso n w hy a id h as fa ile d to im pro ve g ro w th , a n d th at a id m ay v ery w ell

hav e co ntr ib ute d to p oor p ro ductiv ity in p oor eco nom ie s b y d ep re ssin g

ex ports .

In o th er w ork , th eir re se arc h fin ds s tr o ng e v id en ce c o nsis te n t w ith a id

underm in in g th e co m petitiv en ess of th e la b our-in te n siv e or ex portin g

se cto rs (fo r e x am ple , a g ric u ltu re su ch a s c o ffe e fa rm s). In p artic u la r, in

co untr ie s th at re ceiv e m ore a id , e x port s e cto rs g ro w m ore s lo w ly re la tiv e

to c ap ita l- in te n siv e a n d n on-e x porta b le s e cto rs .

Aid in flo w s h av e ad vers e effe cts o n o vera ll co m petitiv en ess, w ag es,

ex port s e cto r e m plo ym en t ( u su ally in th e f o rm o f a d eclin e in th e s h are o f

th ose in th e m an ufa ctu rin g s e cto r) a n d u ltim ate ly g ro w th . G iv en th e fa ct

th at m an ufa ctu rin g e x ports a re a n e sse n tia l

veh ic le fo r p oor c o untr ie s to

sta rt g ro w in g (a n d ach ie v in g su sta in ed g ro w th ), an y ad vers e effe cts o n

ex ports s h ould

prim a f a cie

b e a c au se f o r c o ncern .

More o ver, b ecau se th e tr a d ed -g oods se cto r c an b e th e m ain so urc e o f

68 pro ductiv ity i m pro vem en ts a n d p ositiv e s p illo vers a sso cia te d w ith l e arn in g

by d oin g th at f ilte r th ro ugh to th e r e st o f th e e co nom y, th e a d vers e im pact

of a id o n its c o m petitiv en ess r e ta rd s n ot ju st th e e x port s e cto r, b ut a ls o th e

gro w th o f t h e e n tir e e co nom y.

In t h e m ost o dd t u rn o f e v en ts , t h e f a ct t h at a id r e d uces c o m petitiv en ess,

an d th us th e tr a d ed s e cto r’s a b ility to g en era te f o re ig n-e x ch an ge e arn in gs,

mak es c o untr ie s e v en m ore d ep en den t o n f u tu re a id , l e av in g t h em e x pose d

to all th e ad vers e co nse q uen ces of aid -d ep en den cy . W hat is m ore ,

polic y m ak ers k now th at p riv ate -to -p riv ate flo w s lik e re m itta n ces d o n ot

se em to c re ate th ese a d vers e a id -in duced ( D utc h d is e ase ) e ffe cts , b ut th ey

la rg ely c h oose t o i g nore t h ese p riv ate c ap ita l s o urc es.

As a fin al p oin t, in o rd er to m itig ate th e D utc h d is e ase effe cts (a n d

dep en din g on th eir eco nom ic en vir o nm en ts ), polic y m ak ers in poor

co untr ie s g en era lly h av e tw o c h oic es. T hey c an (in a fix ed e x ch an ge ra te

re g im e) eith er ra is e in te re st ra te s to co m bat in fla tio n to th e in ev ita b le

detr im en t o f t h e e co nom y, o r t h ey c an ‘ s te riliz e’ t h e a id i n flo w s.

Ste riliz atio n i m plie s t h at t h e g overn m en t i s su es b onds o r I O Us t o p eo ple

in th e e co nom y, a n d in r e tu rn th ey g et th e c ash in th e e co nom y. T hro ugh

th is p ro cess t h e g overn m en t c an m op u p th e e x cess c ash t h at a id b rin gs i n .

But, a s d is c u sse d l a te r, e v en s te riliz atio n h as i ts c o sts .

Aid c a use s b ottle n ecks: a bso rp tio n c a pacity

Very o fte n , p oor c o untr ie s c an not a ctu ally u se th e a id flo w s g ra n te d b y

ric h g overn m en ts . A t e arly sta g es o f d ev elo pm en t (w hen c o untr ie s h av e

re la tiv ely u nderd ev elo ped fin an cia l an d in stitu tio nal str u ctu re s) th ere is

sim ply n ot en ough sk ille d m an pow er, o r th ere are n ot en ough siz eab le

in vestm en t o pportu nitie s, to p ut th e v ast

aid w in dfa lls e ffe ctiv ely to w ork .

Eco nom ic re se arc h ers hav e fo und th at co untr ie s w ith lo w fin an cia l

dev elo pm en t do not hav e th e ab so rp tiv e cap acity fo r fo re ig n aid . In

co untr ie s w ith w eak f in an cia l s y ste m s, a d ditio nal f o re ig n r e so urc es d o n ot

tr a n sla te i n to s tr o nger g ro w th o f f in an cia lly d ep en den t i n dustr ie s.

What h ap pen s to th is a id m oney th at c an ’t b e u se d ? I n th e m ost h onest

of outc o m es, if th e govern m en t did noth in g w ith th e aid in flo w , th e

co untr y w ould still hav e to pay in te re st on it. B ut giv en th e polic y

ch alle n ges o f la rg e in flo w s d is c u sse d earlie r (fo r ex am ple , in fla tio nary

pre ssu re , D utc h d is e ase e ffe cts ), p olic y m ak ers i n t h e p oor c o untr y m ust d o

so m eth in g. S in ce th ey c an not p ut a ll th e a id flo w s to g ood u se (e v en if

th ey w an te d to ), it is m ore lik ely th an n ot th at th e aid m onie s w ill b e

69 co nsu m ed r a th er t h an i n veste d ( a s b efo re , t h ere b y r a is in g t h e r is k o f h ig her

in fla tio n).

To a v ert t h is s h arp s h ock t o t h e e co nom y, A fric an p olic y m ak ers h av e t o

mop u p th e ex cess cash ; b ut th is co sts A fric an s m oney . In ad ditio n to

hav in g t o p ay th e i n te re st o n t h e a id t h e c o untr y h as b orro w ed , t h e p ro cess

of ste riliz in g th e a id flo w s (a g ain , is su in g lo cal- c o untr y d eb t in o rd er to

so ak u p th e e x cess a id f lo w s in th e e co nom y) c an im pose a s u bsta n tia l h it

to th e g overn m en t’ s b otto m lin e. U gan da o ffe rs a te llin g e x am ple o f th is .

In 2 005, th e U gan dan c en tr a l b an k is su ed su ch a id -re la te d b onds to th e

tu ne of U S$700 m illio n; th e in te re st pay m en ts alo ne on th is co st th e

Ugan dan t a x pay er U S$110 m illio n a n nually .

Natu ra lly , th e p ro cess o f m an ag in g a id in flo w s is p artic u la rly p ain fu l

when th e in te re st c o sts o f th e d eb t th e g overn m en t p ay s o ut a re g re ate r

th an t h e i n te re st i t e arn s f ro m h old in g a ll t h e m opped -u p a id m oney .

Aid a nd a id -d ep en den cy

Corru ptio n, in fla tio n, th e ero sio n of so cia l cap ita l, th e w eak en in g of

in stitu tio ns a n d th e re d uctio n o f m uch -n eed ed d om estic in vestm en t: w ith

offic ia l a id to th e c o ntin en t a t 1 0 p er c en t o f p ublic e x pen ditu re , a n d a t

le ast 1 3 p er c en t o f G DP fo r th e a v era g e

co untr y , A fric a’s c o ntin ual a id -

dep en den cy t h ro w s u p a h ost o f o th er p ro ble m s.

Aid e n gen ders la zin ess o n th e p art o f th e A fric an p olic y m ak ers . T his

may in p art e x pla in w hy, a m ong m an y A fric an le ad ers , th ere p re v ails a

kin d of in so ucia n ce, a la ck of urg en cy , in re m ed yin g A fric a’s critic al

woes. B ecau se aid flo w s are v ie w ed (rig htly so ) as p erm an en t in co m e,

polic y m ak ers h av e n o in cen tiv e to lo ok f o r o th er, b ette r w ay s o f f in an cin g

th eir c o untr y ’s lo nger-te rm d ev elo pm en t. A s d eta ile d la te r in th is b ook,

th ese optio ns, lik e fo re ig n dir e ct in vestm en t an d accessin g th e deb t

mark ets , offe r m ore -d iv ers if ie d an d gre ate r pro sp ects fo r su sta in ab le

dev elo pm en t.

Rela te d ly , in a w orld o f a id -d ep en den cy , p oor c o untr ie s’ g overn m en ts

lo se th e n eed to p urs u e ta x r e v en ues. L ess ta x atio n m ig ht s o und g ood, b ut

th e ab se n ce of ta x atio n le ad s to a bre ak dow n in natu ra l ch eck s an d

bala n ces b etw een th e g overn m en t a n d its p eo ple . P ut d if fe re n tly , a p ers o n

who is le v ie d w ill a lm ost c erta in ly e n su re th at th ey a re g ettin g s o m eth in g

fo r th eir ta x es – th e Bosto n te a party ’s ‘N o ta x atio n with out

re p re se n ta tio n’.

Besid es, an y ra tio nal g overn m en t sh ould b e th in kin g ab out d if fe re n t

70 fo rm s o f ta x atio n a s a w ay o f ru nnin g th eir a ffa ir s . In to day ’s c u ltu re o f

aid -d ep en den cy , w ere aid to dis a p pear (a s unlik ely as it se em s), a

co untr y ’s ta x -ra is in g m ech an is m s w ould hav e atr o phie d to a poin t of

in cap acity .

Larg e su m s o f aid , an d a cu ltu re o f aid -d ep en den cy , als o en co ura g e

govern m en ts to su pport la rg e, u nw ie ld y an d o fte n u npro ductiv e p ublic

se cto rs – ju st a n oth er w ay to re w ard th eir c ro nie s. In h is re se arc h , B oone

(1 996) f in ds t h at a id d oes i n cre ase t h e s iz e o f t h e g overn m en t.

The n et r e su lt o f a id -d ep en den cy is th at in ste ad o f h av in g a f u nctio nin g

Afric a, m an ag ed by A fric an s, fo r A fric an s, w hat is le ft is one w here

outs id ers a tte m pt to m ap its d estin y a n d c all th e s h ots . G iv en th e s ta te o f

affa ir s , it is h ard ly su rp ris in g th at, th ough o ste n sib ly h ig h o n th e g lo bal

ag en da, th e A fric a d is c o urs e h as b een u su rp ed b y p op s ta rs a n d W este rn

politic ia n s. R are ly , if e v er, a re th e A fric an s e le cte d b y th eir o w n p eo ple

heard f ro m o n th e g lo bal s ta g e. A nd e v en th ough, a s d is c u sse d e arlie r, th e

bala n ce o f p ow er

may h av e sh if te d su ppose d ly in fa v our o f th e A fric an

polic y m ak ers , it is still th e d onors w ho a re in th e p olic y m ak in g d riv in g

se at (w hic h m ig ht help ex pla in why, over th e la st fiv e decad es,

in dep en den t A fric an polic y m ak in g an d natio nal eco nom ic m an ag em en t

hav e dim in is h ed co nsid era b ly ). So aid -d ep en den cy only fu rth er

underm in es th e a b ility o f A fric an s, w hate v er th eir sta tio n, to d ete rm in e

th eir o w n b est e co nom ic a n d p olitic al p olic ie s. S uch is th e a ll- p erv asiv e

cu ltu re o f a id -d ep en den cy th at th ere is little o r n o re al d eb ate o n a n e x it

str a te g y f ro m t h e a id q uag m ir e .

Aid o bje ctio ns

Dea d Aid

is not th e fir s t critiq ue to be le v elle d ag ain st aid as a

dev elo pm en t to ol. O ne o f th e e arlie st c ritic s o f a id w as a H ungaria n -b orn

London S ch ool o f E co nom ic s e co nom is t, P ete r B au er. A t a tim e w hen th e

pro -a id m odel e n jo yed w id e s u pport, B au er w as a lo ne d is se n tin g v oic e,

man y o f h is w ritin gs d ra w in g o n h is p ers o nal ex perie n ce as a co lo nia l

offic er s tu dyin g th e r u bber in dustr y in M ala y sia a n d N ig eria . H e s a w w hat

sh ould h av e b een f lo uris h in g i n dustr ie s w re ck ed b y h uge a id s u bsid ie s t h at

ra re ly r e ach ed t h e i n dig en t i n t h e r e cip ie n t c o untr y .

Aid , B au er a rg ued , in te rfe re d w ith d ev elo pm en t a s th e m oney a lw ay s

en ded u p i n t h e h an ds o f a s m all c h ose n f e w , m ak in g a id a ‘ fo rm o f t a x in g

th e p oor in th e w est to e n ric h th e n ew e lite s in fo rm er c o lo nie s’. B au er

arg ued m ost str o ngly th at aid -b ase d th eo rie s an d p olic ie s w ere w holly

71 in co nsis te n t w ith so und eco nom ic re aso nin g an d, in deed , w ith re ality .

Alth ough he w as a fa v ourite of th e B ritis h P rim e M in is te r, M arg are t

Thatc h er ( s h e g av e h im a p eera g e

), a t th e tim e o f h is d eath in 1 992 P ete r

Bau er w as a n o utc ast f ro m th e s ta te -le d s o cia lis t d ev elo pm en t a g en da a n d

his critiq ue of th e aid -b ase d dev elo pm en t str a te g y re m ain ed la rg ely

ig nore d .

More re cen tly , th e au th or an d fo rm er W orld B an k eco nom is t B ill

Easte rly h as p ro vid ed n um ero us c ase s tu die s o n th e f a ilu re s o f a id p olic ie s

acro ss th e d ev elo pin g w orld . I n

The B otto m B illio n

Pau l C ollie r c ritic iz es

th e b la n ket o ne-s iz e-fits -a ll a id a p pro ach a s p ay in g n o h eed to th e u niq ue

cir c u m sta n ces o f in div id ual c o untr ie s, a n d th us p ro pose s a m ore n uan ced

ap pro ach t o a id -d riv en p ro posa ls , a n d o nly w here t h ey a re n eed ed .

Perh ap s w here a ll th is lite ra tu re f a lls d ow n s o m ew hat is th at it d oes n ot

ex plic itly o ffe r A fric a a m en u o f a lte rn ativ es t o a id . B ut, m ore i m porta n tly ,

th e p eo ple w ho a ctu ally a n d a ctiv ely im ple m en t th e a id a g en da a re y et to

be c o nvin ced . T hese a re th e p eo ple w ho a re s o w ed ded to a id th at th ey a re

unab le t o s e e A fric a a s a n yth in g b ut h elp le ss w ith out a id i n te rv en tio n.

What f o llo w s is a d is c u ssio n o f o th er, b ette r w ay s f o r A fric a to f in an ce

its e co nom ic d ev elo pm en t; w ay s th at h av e b een tr ie d a n d te ste d in p la ces

as f a r-flu ng a s I n dia , R ussia a n d C hile , a n d e v en , c lo se r to h om e, in S outh

Afric a.