Use the economic crisis to reduce aid dependence

In the economic turmoil currently affecting the industrialised world, the arguments I set out in my book, The Trouble with Aid, become even more pertinent. As donor governments look for ways to cut expenditure on non-priority activities, some campaigners will shift away from a call to double aid to Africa, towards trying to ensure that aid at least does not begin to tail off. But to continue to focus our attention on aid would be to ignore the mistakes of the past, and to miss the opportunities presented by the present context.

In the book I argue that campaigning for more aid should be a low priority for those concerned about poverty reduction, human rights and democracy in Africa. The optimism that aid is making a big difference to the lives of poor Africans is not shared by most analysts on the African continent. In a literature review carried out for the Overseas Development Institute, Moses Isooba of Uganda’s Community Development Resource Network found that, ‘A majority of civil society actors in Africa see aid as a fundamental cause of Africa’s deepening poverty.’ Rather than accepting the simplistic notion that more aid equals less poverty, we need to look at the evidence. All of it. In contrast to aid optimists and aid pessimists, who selectively use evidence either to support or dismiss aid, this “aid realism” recognizes that the impacts of aid are complex.

I break down aid’s impacts into four categories. Direct impacts are the easiest to measure and are the ones we hear about most in the media – how many people have been vaccinated, how many schools have been built, and so on. These impacts are very often positive. Receiving large amounts of aid also has macroeconomic consequences because large inflows of foreign money affect prices and incentives. But the two most important impacts, and potentially the most harmful, are aid conditions and aid dependency. The new global context offers new possibilities to make progress on these two vital issues which Africa campaigners must seize before the window of opportunity closes.

The policy conditions attached to aid have arguably had greater consequences in the lives of Africans than the direct impacts of the way the money has actually been spent. Within two decades the whole economic direction of a continent has changed, largely as a consequence of aid, and while some people have gained, many more have suffered as a result. But now the credibility of donor countries to insist that recipients adopt certain economic policies has been severely undermined. The failure of these donors properly to regulate the financial markets is the main cause of the current global meltdown. Meanwhile western governments have elaborated huge spending plans not only to nationalise banks, but also to protect key industries from collapse – policy options effectively denied to African countries facing far greater crises in the last few decades, at the insistence of these same governments. One of the key calls I make in the book is that the arrogance with which a specific set of liberal economic policies are being foisted on Africa must stop, and that the coming decade must be a decade of policy freedom, in which African governments are allowed to govern as they see fit. Reduced confidence in the West’s economic model brings this objective a few steps closer – campaigners should turn up the heat.

It is generally agreed that shortcomings in the accountability and effectiveness of African governments in recent decades have been a major part of the problem of low or negative growth and insignificant poverty reduction. What is less discussed, but is becoming increasingly clear, is that dependency on aid from foreign donors has undermined the development of the basic institutions needed to govern and the vital link of accountability between state and citizen. According to Siapha Kamara of the Social Enterprise Development (SEND) Foundation of West Africa, ‘the more African governments are dependent on international aid the less ordinary citizens such as farmers, workers, teachers or nurses have a meaningful say in politics and economic policies.’

The overhaul of the global financial system now being called for by the world’s leading governments provides a unique opportunity to undo some of the measures that until now have prevented Africa from maximising its development resources. One key aspect that is coming under increasing scrutiny is the complex global web of tax havens that serves no serious purpose for rich nations or poor, but is responsible for allowing dodgy deals, theft and crime to abound. Africa loses far more every year through capital flight to tax havens than it receives in aid. Plugging this leak, cracking down on corruption (including the demand side), and building better financial systems which, among other things, could make more credit available to small and medium sized businesses, would open the way to reducing dependence on aid. Such possibilities have also become more likely since the crisis began.

In many countries aid has done more harm than good. Rather than seek more of it, most African governments should set out plans to reduce the amount they receive over the next decade or so. Even when it is playing a positive role, which it certainly can sometimes, aid is far less important than a whole range of other measures rich governments need to take to support development in Africa. Campaigners should spend their limited time and resources on more important issues that would make a substantial and sustainable difference to Africa – I make suggestions for what these should be in my book.

African countries have reduced poverty when they have implemented the right policies, and when foreign governments have taken supportive measures. Aid has been at best marginal to this effort, and at worst has frequently undermined it. In 2009 the opportunity exists for African governments to make strides towards policy freedom and aid independence. It will not be easy, but the course should be set.

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