Examination of Witness (Questions 60-79)
DR DAMBISA
MOYO
4 MARCH 2009
Q60 Andrew Stunell: To bring you
back to Nigeria—and you mentioned DRC. Where there is that
capacity, the money is available, maybe the aid is not needed,
still we see a failure to achieve the objective we are talking
about.
Dr Moyo: Yes.
Q61 Andrew Stunell: Is governance
not at the heart of that?
Dr Moyo: I believe it is, but
I do not think that aid-supported governance programmes are going
to help Nigeria to resolve its quandary. We have started to see
improvements already in terms of the democratic process in Nigeria.
I think there is a way to go, but certainly the fact that the
economic windfalls are much more diversified now, obviously with
the liberalisation of the banking sector and telecommunication
in Nigeria, you see in their media and press much more of a participation
amongst their domestic society—I would argue much more than
you would find in many African countries where leadership has
been in power for 40 years. I think there is now a very clear
transition that Nigeria is going through. I am not saying that
it will be stable but I think that they have a much better chance
of achieving long-term sustainable development than many African
countries that are dependent on aid.
Chairman: Perhaps we could now move to
the other half of your thesis and I will bring in John Battle.
Q62 John Battle: May I say thank
you for the book and for writing it, and I want to say thank you
for getting us on to the ground of economics. I think economic
justice, not charity, is where I start from. As someone who has
read the book, I share with you the shift, if I might put it this
way, of people in the North and the West regarding Africa as a
colonial raiding model and then moving to a pity model. I am glad
that you are challenging that. I grew up with that pity model.
Sadly, I gave names to children in Africa, who may be nearly my
age now, because we were adopting them and all that kind of carry
on. I think it was completely unjust. It was not about economic
relationships which should be just. I also share with you—which
may come as a shock, as someone who set up with an NGO—the
thought that NGOs can be barriers to structural development in
places where you have to see structural justice through the system
as well—and by that I mean institutional development at
local level, intermediate level, council and municipal level and
government level. NGOs can be in the way, and I accept that. But,
to get to the heart of your question, I want to know how much
the argument has moved on on the economic model and to test your
economic model. In listening to you, I am almost tempted to say,
"Come back when you have done the next book as well,"
because I think the argument is about economic growth but it is
also about distribution and taxation and I am not sure we have
answered that question. We have not answered it in Britain or
America or the rest of the world. You mentioned the finance sector,
the banking sector, and in capital markets transparency and accountability
is a massive question everywhere now—but we will not go
down that track, Chairman, as there are other committees in this
building working on that. Let me put a particular question to
you about whether aid can be a help, a stimulus and a catalyst
that is complementary to supporting financial systems or whether
you see it as a complete barrier. If you want alternative models,
will they be alternatives or complementary? I will put it in a
particular way. You have mentioned in the book that Lord Peter
Bauer argued for the growth model for a long time. For 20 years
we debated whether it was growth and what would be the implication.
We had export-led growth. It is not true that all African countries
went backwards. Some had an 8% growth, if we look at the 53 countries
of Africa, through export-led growth. But were the profits of
that growth shared equitably in developed education and systems?
Answer: I do not think they were. Then we went through very heavy
conditionality with the World Bank and the whole structure of
adjustment programmes, and there was a campaign against conditionality,
to trust the governments to develop its own systems—which
is why I wonder if your work is not really an attack not on aid
but on budget support. I am worrying because then I would say
you have an alliance. I sometimes think the NGOs align with those
that criticise budget support and I am passionately in favour
of governments, budgets and systems, and seeing if we can reform
and transform institutions to deliver justice for the people.
I see government to government aid as being a catalyst and complementary
but not undermining the other systems. How do you respond to that
kind of diatribe in response to what I find is a provocative,
stimulating book?—and thank you for it.
Dr Moyo: Thank you very much.
First of all, the book is dedicated to Peter Bauer because he
was clearly ahead of his time. He was absolutely right in his
predictions. As I am sure many of the Committee members know,
he was effectively ostracised from the economics profession.
Q63 John Battle: For a while.
Dr Moyo: For a while.
Q64 John Battle: Keith Joseph championed
him here for 20 years.
Dr Moyo: That is true, but—
John Bercow: As did Enoch.
Q65 John Battle: Enoch Powell, as
well, yes.
Dr Moyo: That was much later in
his life, though. As you know, he subsequently was bestowed a
peerage by former Prime Minister Margaret Thatcher. That said,
I completely agree with him. The world was so taken by the view
that aid could work that they ignored him. On your point, there
is a fundamental statement that I would like to make, which is
that no country on this earth has achieved sustainable growth
and alleviated poverty by relying on aid. There is not a single
one. For the world to be so gripped and obsessed with delivering
more aid to Africa when we have no evidence that it works anywhere
is problematic.
Q66 John Battle: I am not sure it
is, because remittances are four times the value of aid alone,
remittances from people working abroad. Aid is 10% of the influence
they bring. They are getting trade relations right. People say
aid and trade, do they not, and remittances—the whole bundle—rather
than thinking aid is going to do it? Do you not think there is
a disproportionate emphasis on aid on your part?
Dr Moyo: No. I just came back
from spending time with the President of Rwanda a week and a half
ago and in their country 70% of the public budget is aid dependent.
The problem is not that there are other sources of financing—remittances,
as you say, four times as much as aid investment, trade and so
on. The problem is that the government, which is charged with
delivering social services and is supposed to deliver the public
goods, is primarily financed by aid, which means it disenfranchises
the domestic population and that the government is beholden or
is catering to another group rather than the people that it is
ostensibly supposed to be supporting.
Q67 John Battle: If you take Rwanda,
the tax system is weak. Take Congo, the tax system is even weaker.
It has natural resources. And I could put an argument up that
goes straight along Peter Bauer's lines, that if there is export
led growth, sell off your minerals and get the money, but if you
do not have a tax system for the companies, all that happens is
foreign multinationals come in and take the minerals and the people
do not get any health care or education. I think that was a central
challenge to Peter Bauer's approach. How do you respond to that?
Dr Moyo: I would say that as long
as governments have an alternative way of financing themselves,
financing their armies, financing their lifestyles, they will
not need to build the tax bases that are required to deliver long-term
growth. That is essentially the problem. The other thing is that
I wish aid had not existed in Africa. The Chinas and the Indias
of this world, which were poorer than African countries 40 years
ago, are now vying for top spots in the world economy, and they
have done it without being dependent on aid. But the reality of
the situation is that Africa will effectively be emerging from
a complementary model, so even in the best case scenario, if my
model implements and Africa had five years within which to wean
itself off aid, it will not be the case that there will not be
any aid going to Africa, it is just that I believe it is incumbent
on the global community to move away from this aid model towards
what we know works. Because it has not worked. We know what works
as well, which is the good news.
Q68 John Battle: I live in inner
city Leeds and I am an urbanite. I struggle very hard to understand
agriculture. I have campaigned in this Committee to increase investment
in agriculture, but in 2008 the world tipped over into an urban
society. 50% of under-15s in Africa live primarily in the cities
now. I wonder if the world has changed from the analysis of export-led
growth because of the dynamics of the urban towns and cities?
I am just wondering whether the relationship between economic
growth and taxation is going to be an urban question or a rural
one, and I think that will challenge us everywhere to look at
the change. If I might just press you on economics again, why
would a developing country want to raise money issuing bonds rather
than through aid when those bonds will carry higher interest rates
and stricter conditions?
Dr Moyo: I address this question
in the book. The financial cost, you are right, it is much more
expensive to issue bonds in the international capital market,
but there is an additional hidden cost that is not generally factored
when people debate aid. What do I mean by that? As someone who
has spent time working in the city, I know that if you are selling
a product to a client, an investor, the first thing they ask you
is what is the country rating or what is the rating of the assets.
Most African countries do not have credit ratings and yet this
is a relatively objective way of figuring out a credit rating:
Are they good? Are they bad?—just as we on an individual
basis have credit ratings for our banks. The important thing with
that is that those credit ratings determine how much foreign direct
investment (FDI) goes to those countries, whether people want
to trade in these countries. It reflects how easy it is to do
business in these places. In some African countries it takes two
years to get a business licence. My point is that, yes, although
the financial cost is higher to issue bonds in the capital market,
when you factor in the vast amount of money through FDI potential
investment and longer-term growth, the fact that you have a negative
stigma associated with being aid dependent, the basket case that
goes to the World Bank, it means that longer term the costs of
relying on aid is higher.
Q69 John Battle: What is burning
my head up, in a way, is that in Malawi some of our aid money
goes into training people. I am massively in favour of training
accountants. I think it should be a good profession—justice
in the arithmetic. We need more people to do accountancy and not
pretend it is an evil science. If we were training treasurers
in government departments and people to understand the world of
investment, the bond markets and finance, would that not be a
good catalytic use of aid?
Dr Moyo: I think it would be a
step forward. It is funny that you should pick Malawi. As you
know, the former President is embroiled in a scandal right now.
$11 million has gone missing.
Q70 John Battle: That is why we need
it.
Dr Moyo: It is the tip of the
iceberg. This again is the problem with these types of situations.
The British Government has given money to a country—and
here we have it, $11 million. He has been charged, he has not
been indicted, but I think it is quite important.
John Battle: We have people who have
let systems collapse all over the world, including in banks in
London and New York.
Chairman: They have locked up some of
the ministers in Malawi—certainly when we were there we
saw that. I think aid dependency is a point of concern, but it
is just worth saying that this is the International Development
Committee not the International Aid Committee. We are focused
on how we make development work. We are exploring aid dependency.
Making aid the basis of the economy I think we would worry about,
we do worry about, but getting rid of aid and having no aid at
all is really the focus of this discussion, which is really interesting
and I think you have given a good explanation of that.
Q71 Mr Hendrick: In answer to an
earlier question with regard to aid, you talked about the impact
it would have on the currency in terms of it becoming weaker and
devaluing. You said that, in order to counter that, the issuing
of bonds would in itself strengthen currency. Is there not a case
for doing what you are suggesting in terms of issuing bonds at
the same time as balancing that with aid to make sure that the
currency is at a level somewhere in between?
Dr Moyo: The fundamental point
that I think is important with aid is the negative externality.
I picked one thing, the issue of the exchange rate getting stronger,
but we have not discussed the other negative externalities, the
corruption, the bureaucracy, which is causing these governments
to have a lazy muscle. Let me just give you an example. Ethiopia
has the second largest population in Sub-Saharan Africa. There
are 85 million people. 2% of the population has access to mobile
phones and the government is the only one that holds a mobile
phone licence. To me, being the utilitarian economist that I view
myself, it seems to me it is easier for the government to say,
"Okay, we need to raise capital, why not auction off the
licence, multiple licences. If we feel like we want to run one
of these businesses, we can earn a tariff from that but also it
grows the economy." There is proven evidence that through
mobile phones there is more trade—a farmer in a rural area
can get his foods to port and so on—so they can start to
grow the economy that way. What we have seen is that the leadership
from Ethiopia has publicly come out and said, "Don't forget
us when you're handing out aid packages." So there is this
lazy muscle.
Q72 Mr Hendrick: Is anybody advising
Prime Minister Meles in that direction?
Dr Moyo: He was one of the members
of the Africa Commission which the British Government underwrote.
To me, this is an obvious case.
Q73 Chairman: A very good point.
Dr Moyo: You have a situation
with 85 million people—and I was just in Ethiopia two and
a half weeks ago. It is absurd. Anyway, my point is just that,
yes, we can focus on these offsetting costs but there are other
costs of having large aid flows and it creates this dependency
and this lazy muscle. Ethiopia should be saying, "Okay, assume
there is no aid, what other things can we be doing?" The
economy is on its knees across the continent but Ethiopia is a
classic example: 85 million, 2% with mobile phones, why is the
government asking for more aid money.
Q74 Mr Hendrick: I do remember the
British Government in particular at one point was quite supportive
and then that support was withdrawn at a later date. You are very
complimentary in your book with regard to Chinese investment in
Africa. There is a lot of criticism at the moment that with the
downturn Chinese companies are leaving, very often without paying
their taxes and in a way which is particularly harmful since commodity
prices have fallen quite a lot as well. How do you respond to
the critics who say that what the Chinese are doing in Africa
is not in the interests of the African people?
Dr Moyo: I believe that what the
Chinese have done in 10 years in Africa has been amazing. It has
been tremendous. They have built roads, they have provided jobs
to Africans, and they have invested not just in the commodity
sector they have, as we know, bought 20% in the largest pan-African
bank, and they are diversifying their investments across the continent.
This is not to say that what the Chinese are doing in Africa is
perfect. It needs a lot of work. They are obviously in Africa
to meet their own needs primarily. Again I think it is important
and incumbent on African governments to provide adequate policy
to ensure that Africans are benefiting from the situation and
from the investment coming in from China. Just to point to a survey
that I talk about in the book called the Pew Survey, the Pew organisation
went to 15 African countries and surveyed Africans, asking them
what did they think of the Chinese in Africa, did they think it
was better or worse than the Americans or the British or French
being in Africa and had they helped. Consistently—the numbers
are quite staggering—Africans said that they think that
the Chinese have done much better. They have done much better
in terms of delivering growth, providing jobs—the things
that are important to everyone around the world—and therefore
giving Africans a real shot at a livelihood. The short answer
is, yes, I think that the Chinese are doing good things. I think
there are a lot of challenges. Even in my own country there have
been some clashes and big debate about the role of the Chinese,
but I think it is important that we focus on ensuring that were
African governments accountable to the African people they would
make sure that the social constructs and the economic benefits
that Africans were getting were meaningful and helpful. So there
is a lot of work to be done there, but I think that the Chinese
come to Africa and look at Africans as potential business partners,
whereas Westerners come to Africa—again it is this pity
model—and feel sorry for Africans and they do not view Africa
as an investment place.
Q75 Mr Hendrick: In the West it is
a lot more fashionable now to talk about conditions like improvements
in governance, measures to combat corruption, all sorts of strings
attached in terms of aid that perhaps in the past were not attached.
Another criticism of the Chinese is that they provide the aid
in a "no strings attached" way and are quite willing
to deal with governments that are at best dubious and at worst
corrupt and tyrannical. What is your view on that?
Dr Moyo: I think it is quite interesting
that from the perspective of an African some of the most evil
despots that have ruled the continent, many of them still ruling
African countries, have done so under the reign of western involvement
in Africa, the Mabutos, the Idi Amins, the Bokassas and so on,
so it is very interesting to see that the West now is kind of
offended to have the Chinese there doing the same thing. I give
an example in the book about how Mugabe is an example. Zimbabwe,
even as late as 2006, I have data from DFID, got US $300 million
from the US and the UK government. He is still getting money,
even at this stage. Besides Britain is maintaining diplomatic
ties, as we know, and America—they have an ambassador and
a high commissioner stationed in Harare. If you are an African
on the ground and you see this and you also see Mugabe coming
to Rome, coming to the United Nations meetings—he was in
the UN meetings last September in New York—it makes you
wonder whether the West really does care about issues of governance
and corruption. Why would you be funding $300 million to Mugabe?
Why would you allow him to come here? This is a lot of the stuff
that is in the media, but this comes to the root of the issue.
You cannot point fingers at the Chinese if the Western governments
are doing essentially the same thing. It is all bad and ultimately
all boils down to accountability. Until African governments are
accountable to African people, whether it is the Chinese or Westerners,
they will continue to see it as a despots' playground.
Q76 Mr Hendrick: Tomorrow the President
of Somaliland is visiting. As you know, it is fairly democratic,
fairly well run—a big contrast with Somalia, the remaining
part of what the UN regards as Somalia. Can I ask you what your
view is on that. Clearly this is a relatively stable economic
entity in the north that wants recognition, yet the international
community would rather see Somalia remain as one state for whatever
reason.
Dr Moyo: I do not know what the
nature of the discussions of that are going to be, so I cannot
comment, I am afraid, on whether it is good or bad. I cannot come
down hard on that. My family lives in Africa and they suffer the
consequences of this whole aid model every day. I would say it
will go a long way to moving the continent forward if the West
was quite transparent and objective about how it is that it deals
with African leaders. There are countless examples. Museveni in
Uganda becomes the darling of the Western donor establishment,
then 40 years or multi-decades on he does not leave power and
it becomes an entrenched part of the problem. Until we all start
to say, "How are we going to get Africa on its own two feet?"
these conversations are moot.
Mr Hendrick: Thank you.
Q77 John Battle: The credit crunch
internationally, would that not put pressure on private financing
now? In a sense, I am moving on to your next book, but if the
whole financial systems of the world are clogged up and there
is no private money being put forward, if we stop the aid programmes
internationally in the next three months, where would the money
come from?
Dr Moyo: Yes, the credit crunch
is a challenge but I do not view it as permanent. We all know
that this apocalyptic state is not permanent, so for me I would
encourage African governments to start to think about whether
or not they will be ready with ratings and so on when the market
comes back. But even beyond that, if you look across the world
as opposed to focusing on traditional markets, such as the US
and Europe, there are still pockets of money. As we know, China
has $4 trillion in reserves, the Middle East ... Arguably these
places have a better understanding of how to price African risk.
I am not saying it is perfect but there are things that need to
start to be done. If I can quickly pop in the answer to "What
should DFID be doing?" another clear way of intervention
with proven results is through microfinance. I was with Professor
Yunus last week. In small Bangladesh he is lending $1 billion
a year of money that does not come from multilateral institutions,
it is from the community itself. The default rate is less than
1%. We have to innovate. We are not going to solve this problem
without innovation.
Q78 Chairman: You conclude that the
financial crisis could be the best thing that has happened to
Africa.
Dr Moyo: I think so, yes.
Q79 Chairman: Other people have said
"Be careful what you wish for." You are about to have
your model tested.
Dr Moyo: Yes.
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