Aid Under Pressure: Support for Development Assistance in a Global Economic Downturn - International Development Committee Contents

Examination of Witness (Questions 44-59)


4 MARCH 2009

  Q44 Chairman: Good morning, Dr Moyo. Welcome to our Committee. Thank you for coming to give evidence. For the record, would you give us your name, please.

  Dr Moyo: Sure, it is Dr Dambisa Moyo.

  Q45  Chairman: You are an author and lots of other things.

  Dr Moyo: Yes, I am an economist and most recently I was an economist at Goldman Sachs for the past eight years. I have just published a book with Penguin press called Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa. I am a full-time author for this year. I have another contract to complete a book called How the West Was Lost, which is looking at the financial crisis and how it is basically a harbinger for what I view as economic shifts longer term, global and political, going forward.

  Q46  Chairman: We shall look forward to seeing the outcome from that. I confess that I personally have not managed to read your book but I have read some fairly full reviews of it and I think one or two colleagues have read the entire book. I think it would be fair to say it is a challenging book and to some of us, perhaps, counter intuitive, but we are obviously very pleased that you are here to discuss your ideas with us. Very specifically you have called your book Dead Aid, and you have said that aid is harmful and you want it to end in a relatively short space of time. Could you perhaps give us an indication of in which ways you think aid has been actively harmful, perhaps with some specific examples from your own experience.

  Dr Moyo: Sure. Thank you again to the Committee for giving me the opportunity to come and have this very important discussion. I should give you my disclaimer upfront, which is that I am a very proud African but I am also a very concerned African, which is why I have taken the time to write this book. Just to give you a little bit of the motivation for the book and ultimately my thoughts in the book which I will be very happy to share with you, a product of many years of academic and work experience, including in British universities—I did my doctorate at Oxford in economics—and having spent many years also in the United States, working at the World Bank but also completing a Masters degree at Harvard. Through my work experience and my academic experience but also through the experience of growing up as an African girl, I have come to the view that aid is not working and in fact it is being quite harmful in terms of delivering long-term economic growth and poverty alleviation to the continent. I would like to start off by explaining what I mean by aid in the context of this book. Very simplistically, I define aid in three ways. There is what we call humanitarian aid, which is the aid that we in the global community send to places that have been affected by natural disasters. A good example would be the tsunami in 2004, or, for example, Myanmar (Burma) with their crisis last year and so on. The other type of aid is charitable aid, which is relatively small beer to what I am thinking about. This is the type of monies that individuals, primarily living in the West but again across the globe, put towards charities of their choice; for example, girls' education in Zambia (which is my home country). The book is not dealing with those two types of aid. Those two types of aid certainly have problems with respect to implementation and that are very well documented. Also, in terms of delivery, there has been a lot written about how these types of aid, particularly charitable aid, leads to promulgation of NGOs which ultimately, by and large, do not help to deliver capacity in Africa and in the developing world. But that is another book. This book is really focusing on the third type of aid, which is the billion dollar packages of aid that go from government to government or from multilateral institutions, such as the World Bank, to African governments. I am focusing on Africa here because that is what the book really tries to do. Focusing on that very narrow area, my estimates are that there has been about $1 trillion worth of that type of aid that has gone to Africa in the past 50 years. (That is again discounting all the humanitarian aid and discounting the charitable aid.) I feel it is important to understand that the original architects of the aid model—this is going back to the post-war era, post World War II, after the success of the Marshall Plan—had two targets in terms of aid: (i) it was going to help deliver growth and (ii) it was going to help with poverty alleviation. It is on those two metrics alone which I judge the success of aid to Africa. It is on those two aspects alone that I come to the conclusion that it has not worked. It is very interesting to me that some people think the book is controversial, because I think it is obvious and many of the Africans to whom I have spoken have said, "So what of the book? We all know it's true that poverty has increased." Just to give you some numbers, in the 1970s about 10% of Africa's population was living in poverty. Now around 70% of Africans are living in poverty, many of them living below a dollar a day. In terms of growth, with the exception of the past 10 years, which we can talk about later, we have seen systematically poor growth rates. My former PhD supervisor would describe it as a "sheering off". While the rest of the world was in some cases posting double-digit growth rates, Africa has been declining and in many cases has posted negative growth rates.

  Q47  Chairman: Nobody would argue with the basic facts you have presented. Obviously the Committee monitors what our Government does, particularly in the context of budget support, and their argument is that they are trying to build up the capacity of governments to run their own programmes rather than them to have them run for them, but you are saying that it encourages corruption. That is one of your arguments. We certainly would be very concerned if there were any evidence that our Government's money was being misappropriated, because we are always looking to ensure that it is properly audited. Paul Collier, in his review of your book, says that what we need is more transparency and more accountability. Your argument is: "Aid does not work, therefore do not have it." His argument is: "Aid does not work if it is not properly directed and not properly accounted for." Do you feel there is any merit in that argument?

  Dr Moyo: Theoretically, yes, I believe there is merit in that. However, as a practical initiative over the 50-odd years that aid has been in play, we have as a global community and global policymakers tried to ensure that aid is delivered in a transparent and accountable way and that has failed. This is via the conditionality programmes. It seems to me—and I should have prefaced the conversation by saying that my book is meant to be a positive, constructive book, and, importantly, the second half of the book comes up with a list of alternatives. The reason why I think that is important is because I am offering the global debate a better way of delivering growth, given that we have tried to deliver and implement aid in many different fashions which has consistently failed. In theory I do agree. It would be nice if we could implement aid effectively, but we cannot. It is not possible, particularly in an environment where the political system is very weak and government is incentivised to take aid.

  Q48  Mr Singh: In your book Dr Moyo you mention seven negative effects that aid may have on a country, such as inflation, Dutch disease and the crowding out of foreign investment. Are these consequences inevitable or could policies be adapted to take account of those effects?

  Dr Moyo: Policy can be implemented to take account of those effects. However, it is very expensive to do that. I give the example in the book of what a government is required to do in the event that they are facing inflationary pressure or, indeed, Dutch disease, where the exchange rate strengthens so dramatically as to kill off the export sector. Very often governments then issue bonds when the currency is very strong, to try to flood the domestic market with the domestic currency, so that it can cause the currency to weaken. Those types of interventions are very, very costly. The estimate that I put in the book is that in places like Uganda it cost the government about $100 million, which they ostensibly do not have to spend on fighting a policy that a priori is not, to my mind, effective.

  Q49  Mr Singh: Was that inflationary pressure?

  Dr Moyo: The specific examples I used here was on the back of Dutch disease.

  Q50  Mr Singh: And you say that was entirely due to the aid that was going into Uganda.

  Dr Moyo: Yes, absolutely. In the book and in the discourse amongst academics, the evidence is very stark. I picked one example but across the continent there are many examples of this.

  Q51  Mr Singh: Is there any way of removing that kind of risk?

  Dr Moyo: As I say, I think the cost of removing that risk would be that the central banks in these countries would have to intervene in the markets. The procedure of intervening means that they would have to issue bonds into the domestic market, which could be inflationary and therefore cause the currencies to depreciate, which is what you want, but the cost of doing that and issuing bonds is very expensive.

  Q52  John Bercow: You argue that aid has not worked. Many of us can envisage particular circumstances in which particular allocations of aid, if undertaken insensitively, can have the effect of damaging local markets rather than assisting the recipient population. But I confess that I find it difficult to get my mind around—and maybe I would have done so better if I had had the privilege of reading your book which I have not yet done—how as an overall statement it stacks up to say "Aid does not work". Specifically, how do you respond to those who say, "Well, we can demonstrate quite explicitly how it has worked in certain important respects which are the focus of the MDGs[1] and of British Government policy; for example, providing education to millions of children and HIV/AIDS treatment to millions of people." Those are, I think we would say, some of the directly positive consequences and benefits of aid. How would they happen without the aid?

  Dr Moyo: With respect to the MDGs in particular there have been a number of statements from officials, from the United Nations but also from the broader development community—and I am happy to provide the Committee with the quotes from many of the key officials involved in this—that they are almost certain that Africa will not meet any of the MDGs, as they were spelt out, by 2015. In some cases there is a greater concern—and maybe this is a neo-Malthusian concern—that, given the rapid population growth in the continent and the fact that 50% of the population is less than the age of 15 on the continent, and also given the shrinkage in resources and demand for resources, that you could see much more instability across the continent. With respect to the MDGs specifically, it is very clear to my mind and I think to the minds of the architects of the MDGs, that those goals are not going to be met whether or not aid has been pumped in, which we know it has. On the point about the implementation, I agree with you that very often people who vociferously defend the fact that the international community should be intervening via aid would point to education or HIV treatments. I agree that those types of interventions have helped, but in a micro way. In reality, to my mind, the goal of aid is ultimately to get Africa to stand on its own two feet and be an equal partner on the global stage. I can guarantee that those types of interventions, such as providing education and scholarships to young children in Africa, although they might be wonderful in the short term will not deliver long-term growth. Ultimately—and this is what we call the micro-macro paradox in the book—you arrive at a situation where a child may have an education but the economy has not grown. Very often when I go to my home country I see a lot of young people on the streets who are in their teens and early twenties who have a very good command of English and they have a good education but there are no jobs and so they are on the streets. That type of situation is what I am really trying to target. In terms of it being a band-aid solution, absolutely, but that is not what aid is supposed to be doing. It is supposed to be alleviating poverty and delivering long-term growth, and on those two metrics it will not work. The other point I would like to make to the Committee is that I strongly believe that the whole aid model, certainly where Africa is concerned, is couched in a sense of pity for the continent. Rather than take a hard-nosed look at the effectiveness and the failures of aid over the past half century as critically as we are looking at the capitalistic model now, we tend to just brush over it and allow for a situation to perpetuate, even though we have seen other emerging countries do incredibly well during the same period that Africa has continued to spiral down.

  Q53  John Bercow: That is a very interesting response. I cannot help but feel that you have inadvertently, rather than calculatedly no doubt, parodied or even, dare I say it, caricatured some aspects of our aid. I have probably almost spoiled the argument by referring to the MDGs, because it is perfectly clear that the MDGs are not going to be met—although I think it would be hard to argue that they are not going to be met because of the aid: they are not going to be met for a whole plethora of reasons which we do not have time to explore. But let me come back, if I may, Dr Moyo, to this question of particular aid currently provided and to which, because we are the Committee that scrutinises this, DFID is committed, HIV work. The development assistance that we provide on HIV is not just in the manner of immediate relief. It is not just to fight a fire, if I might put it that way; it is also aimed at strengthening the domestic capacity and organisational robustness, if I might put it that way, of the health systems in the recipient countries. It is, in that sense, intended to build for the long tem.

  Dr Moyo: I think the intention is laudable. In practice I think that is not the case at all. I must say that I do not have specific evidence in respect to the DFID programme that is supporting HIV/AIDS, but if you allow me some indulgence I will give you an example from the United States.

  Q54  John Bercow: Of course.

  Dr Moyo: Under the PEPFAR[2] programme the United States had pledged, under the Bush administration, anywhere between $15 and $30 billion to 15 countries to focus on HIV AIDS. There has been a lot written about the parameters under which that aid is delivered and its effectiveness, but just to illustrate why it is ineffective in the narrow sense of capacity building to which you are alluding—because, ultimately, if we can prove that it is building capacity on the ground and building domestic capabilities then I would stand down and say that I am wrong—here is an example of how it does not work. PEPFAR then gives the money to an additional government organisation called OGAC[3]—and I am happy to provide details to the Committee. OGAC then splits that money across four organisations: Harvard University, Columbia University, the Elizabeth Glaser Foundation, and Yale University. After those four institutions are given the money, another set of institutions, USAID and CDC,[4] is another layer of bureaucracy. It has not got to Africa at this point: it is still within the United States. After that level, it is then split to individual organisations, many of which are Western organisations that are supplanted into the African continent. I am sorry to be longwinded about it but, ultimately, the estimate of the amount of the share of the dollar that ends up hitting a clinic in Africa is about 20 cents, with no transfer of knowledge or education to African doctors or African participants on the ground. The PEPFAR programme, as you know, has been a multi-year programme. To sit here and say that some people's lives have been saved because of HIV interventions, I absolutely agree. However, to sit here and say that there has been a transfer of knowledge and that it is benefiting the African continent in terms of Africa attaining the goal of being an equal partner, I disagree.

  Q55 John Bercow: I understand your thesis, but I am not clear how, in the absence of what may be very imperfect aid, it would be possible to fund basic services like health and education, and, in particular, what would be put in place to ensure that the poorest people had access to them rather than those somewhat above the poorest threshold who could no doubt buy their way in.

  Dr Moyo: That is a very important question. I think it goes to the heart of the matter. Ultimately, the delivery of services, such as public goods, should be the responsibility of the domestic governance. Ultimately, it is that to which we are aspiring. The only way that African governments can get to a position where they are able to finance that out of their own public purse is if the economy is growing. The fact that African governments are not able to deliver those goods because the public purse is challenged, is ostensibly because we have been under an aid model. As I said to you earlier, we have been in a situation where 10% of the population was impoverished and we are now in a situation where 70% of the population is impoverished. If we continue down this road, who knows, we could be over 90% of the population impoverished, and therefore moving away from what I would call a utopia where the government has taxation and is representing the domestic citizenry. The point that we are skirting around slightly—or I am, certainly—is the issue of the aid model disenfranchising local Africans. The fact that African governments are more beholden and responsive to the donor community means that, ultimately, we cannot get to a situation where African governments are focused on raising the money through the tax system or growing their economies in an accountable manner to the point where they can then deliver the social services that you are talking about. The prescriptions in my book are not meant to be an immediate aid turn-off. The suggestion is basically that we should aggressively pursue a model where, on a step-by-step basis, governments start to move away from the aid model and start to find alternate ways of financing development, such as raising taxes through foreign direct investment, through trade, through the capital markets—and we can talk about that some more—through micro-finance, and, ultimately, through building these economies so that they can use the money to provide the social services.

  John Bercow: That is very helpful. Thank you very much.

  Q56  Chairman: This Committee is not responsible, obviously, for the American aid programme.

  Dr Moyo: No. I understand that.

  Chairman: I think it would be fair to say that the model you describe in PEPFAR is one which, had our Government pursued it, this Committee would have robustly criticised and rebuked. We have a different approach and we want to explore whether or not there is any qualitative difference and we would like to think there might be. I am going to ask Andrew Stunell to take that forward.

  Q57  Andrew Stunell: Dr Moyo, you have put forward an extremely seductive argument and of course for many voters and governments it is self-serving: "Let's not give the money, we can find plenty of other things to do with it." I wonder if I could pick up this point about Africa. Are we suffering from Dutch disease here or African disease? If we look at Nigeria, for instance, which has the investment model with oil and loads and loads of money, there are still the same problems of poverty and a failure to tackle the issues which aid is intended to tackle. The alternative model does not seem to be delivering where it is available in Africa and I would be interested in your comment on that. Coming back to my second point, if DFID does not spend its money on aid, what should it spend its money on in order to achieve the results that both you and this Committee want to see?

  Dr Moyo: Before I answer you, if you do not mind, might I just comment on the fact that I draw on the American example. With respect to DFID, I think what I should do and what I will do is go and look at how many Africans have been employed and educated and how much capacity has been built on the back of the multi-year, multi-decade interventions from DFID, even in the health sector, because I think those are the kind of metrics that would effectively shut me out.

  Q58  Chairman: We would be delighted to have that information.

  Dr Moyo: Yes. Thank you. To your question with respect to aid versus other countries that are ostensibly failing across the continent, I would say that you are absolutely right. I am not saying that aid is the only cause of state failure or the failure of governments to deliver economic growth. What I am saying is that aid is a deliberate policy where we sit in London and we say, "Well, I think we should give African countries x additional billion dollars," whereas with something like an oil purse you either have it or you do not, you are either endowed with oil or you are not. That is not to say that there are not a lot of issues. Nigeria is a case in point. Congo (DRC) is an example. The fact that there are many countries in Africa that are still showing what I view as the challenges and the negative externalities of aid—corruption, aid dependency, sort of disenfranchising voters and so on—is really an artefact of deliberate policy, which is why I think it is important for us to tackle that policy. That leads me to the second point: What should DFID do? I believe that the British Government should engage with Africa in the manner that it engages with other developing countries of the world. In the best case scenario, as a trade partner. I personally am not very sanguine, I am not very optimistic that that is going to happen in my lifetime, but there are things like helping to support African governments to come to international markets. The British Government has a wealth of experience in doing that. Training African governments to participate in the capital markets and helping them to understand what that process is is much more beneficial because through the capital markets, by and large, there is an element of accountability and transparency that aid does not provide. The other thing they could do is to help build alliances to the point where they can get Africa to be an equal partner, as I say, on the stage, as opposed to having what I would view as an imbalanced relationship between donor and recipient, where African governments are pretty generally begging and donors are basically dipping into the largesse of the British purse without much result.

  Q59  Andrew Stunell: Would you say capacity building of African governments and African civic institutions should be the highest priority for the application of this money?

  Dr Moyo: Here I confess my bias towards economics. I believe that you will not get strong institutions, civil liberties, or a transparent or strong judicial system in a place that is aid dependent because of the corruption and the negative externalities that I have talked about. In that sense I believe that the economy is a deep pre-requisite to delivering on the governance and the democracy and all the positive attributes of a developed society.

1   Millennium Development Goals Back

2   President's Emergency Plan for AIDS Relief Back

3   Office of the US Global AIDS Coordinator Back

4   Centre for Disease Control and Prevention Back

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