Dead Aid

I recently read a book called “Dead Aid” by Dambisa Moyo, the Head of Economic Research for Africa.  In her book she discusses the negative effects of foreign aid given by Western countries to Third World nations such as Africa.  

She firstly makes clear that aid from Western countries are really loans to be paid back with interest with no strings attached or accountability as to what these funds are used for.

As a reult these huge loans mostly fall into the hands of corrupt government officials and very little is used to build the necessary infrastructure that is needed to benefit the lives of the poorer population eg.  hospitals,  roads,  schools,  houses etc.

A consequence of this is that Africa’s own economy does not benefit but instead their debt mounts up higher and higher as they continue to receive these aid loans year after year.

The author goes on to say that the solution is to aim to gradually decrease the percentage of aid given to these Third World African nations over a period of 10 years.

When this occurs the African governments should instead begin to attract more direct foreign  investment from other countries.  In this way there is more leeway for accoutability for Third World governments.  This is so because when another nation makes a direct investment they will be expecting concrete returns over time in the future.  The author mentions how China has already made huge investments in the order of billions of dollars into Africa’s infrastructure. 

Other sources of income that these Third World Nations could draw upon are:-

1. Trade with other countries –  ideally to aim for 30% of the nation’s income. 

2. Foreign Direct Investment – from other countries  via capital markets ( as China has demonstrated)  – 30%

3. Remittances & Savings–  this is when African people find work overseas whitch enables them to send money back home to support their families 25%

4. Foreign Aid –  to be reduced to only 5% of the nation’s income.

5.  Microfinance – has proven to be highly successful.  This is where small lenders from NGO’s go into the country and give very small loans eg. $50  or $100 to local individuals so they can start up their own business.  Many women have been very successful in this endeavour with the default rate on repayments close to NIL.  Some businesses involve selling vegetables or hand made or sewn items.  An example of an NGO who has successfully done this is “Bridge of Hope” started by a group of people from the Northern Suburbs Manly area in Sydney.  Often money is lent to an individual but a group of people help to secure the loan if there is a possibility of default on repayment of the loan.

The author goes on to say that the problem is that Africa often lacks the political will to make this sort of change and implement such measures. For instance:-

a)  Western Governments often have to protect their own farmers with heavy subsidies and also punish African traders with high tariffs.

b)  African Leaders – still want to retain the aid loans coming in,  for their own corrupt purposes

c)  Most policy makers do not wish to be critical enough of Africa’s aid policies  to instigate such change

d)  Ordinary people in African nations may wish to see long term change.  However they are often faced with intimidation and punishment of death from their own governments that are corrupt who wish to retain the status quo for their own gains. For instance from Robert Magabe the President of Zimbabwe.

Her solutions may seem overly simplistic and she also assumes that the mechanisms of the free market economy will always work.  Some proponents could also argue that at least a small percentage of foreign aid could still benefit the people.   Also that funds from direct foreign investment could still be corrupted.  However her ideas can still provide food for thought to help form possible strategies for Third World Nations to escape the continual cycle of debt and extreme poverty for their long term future.

Perhaps this information could also form a basis for praying into this desperate situation that many people in Third World nations are facing today.

The book “Dead Aid” by Dambisa Moyo can be ordered from any ABC bookshop.

If you would like to listen to the author talking about the issues in her book you can follow this link:-

http://odeo.com/episodes/24746635-Dead-Aid-Dambisa-Moyo-Head-of-Economic-Research-for-Africa-Goldman-Sachs-Author-Dead-Aid-Why-Aid-is-Not-Working-and-How-There-is-a-Better-Way-for-Africa

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