Dead Aid

Dambissa Moyo's small book, Dead Aid, makes a simple straight forward argument that aid to Africa has been a disaster holding Africa back from economic progress. The solution is the development of private capital markets by African countries to raise money and foster the credibility that will attract foreign investment capital. Unlike income from aid, private capital will not tolerate the siphoning off of funds for grandiose personal consumption by corrupt governments. In the absence of free or cheap aid, countries will have to create the economic discipline needed to compete in the global economy. Foreign donors would have to curtail aid and instead extend their altruistic instincts to taking down their own trade barriers to African products.

Moyo has been trashed as a shill for pro-western multinationals seeking to exploit African resources. She has been labeled by some, as a right wing economist reviving the Reaganesque aid policies of the eighties.

This characterization is dead wrong. Moyo argues that it matters little whether a country is capitalist or socialist, the important thing is how the country finances economic development. She argues that socialists countries can and do raise money in private capital markets and spends it on a socialist agenda. She points to European social democratic governments as examples.

Obviously, the whole argument rises or falls on the ability of African countries to tap private financial markets. Moyo argues that increased savings by Africans combined with the continued growth of current African markets will enable the markets to work.

However, the size of the capital markets needed to replace aid would challenge the current financial infrastructure in Africa. Furthermore, it would require Western countries to begin to curtail aid and focus on trade. American farmers would rather spend American money to subsidize their food and dump it on the African economy than open up trade to African products.

The next phase of the Moyo paradigm is the transition. How can the very small financial markets grow to the size to propel development while maintaining their credibility abroad. Can aid be curtailed gradually and directed towards creating the market and trade infrastructure to compete?