A conversation with Dambisa Moyo, former Goldman Sachs economist and author of Dead Aid: Why Aid is Not Working and How There is a Better Way For Africa

Question: What precipitated Africa's development problems?

Dambisa Moyo: The numerous factor is that have contributed to Africa’s economic development issues. I have decided specifically to focus on one of those which is basically policy, however, in the book I do talk about things like the historical context, issues of geography, the historical context in the sense of colonialism, for example, how that all may have to some extent contributed to the economic malaise that we see now across the continent.

However, the main issue that I am tackling in my work is that of aid, which is an active policy, where we as the international and global community have designed a specific policy towards supporting the economic development in Africa. So rather than things like geography and history, which are extensively outside the room of our abilities we’re really focused on very specific issue of aid to Africa and how that has been a negative factor in ensuring a long term economic growth.

Question: What is the current perception of aid to Africa?

Dambisa Moyo: I supposed in the context of my work, I think that there is this unstated view or unstated fact that aid to Africa has not worked. By that, I should clarify that there is essentially three types of aid. There’s humanitarian or emergency aid, which goes to actually assists during times of if there’s a tsunami or if there’s an emergency like an earthquake or flood. Then, there’s also NGO or charitable aid, which is very small amount of money that people send to African countries to support pretty much clear and defined projects such as providing a scholarship for girl to go to school.

There was two types of aid that I’ve mentioned. They can certainly help in terms of immediate band aid solutions, but they will not contribute to long term economic development in the sense that it will not help to get Africa to grow at sort of 10% or more per year, which would actually meaningfully which is poverty across the continent.

But those two types have a very different from the third type of aid, which is what I critic in the book, which is the large billion dollar programs of aid that go from governments to governments and also international institutions such as The World Bank to Africa. And tthat’s type of aid that I’m talking about.

Question: What's the history of aid in Africa?

Dambisa Moyo: The history of Aid in Africa or in the development of this course has its roots and actually began in Earnest at the Bretton Wood in the 1940’s, and essentially really took hold after the Marshall Plan, which was between 1945 and 1950. there’s a five-year program it was $13 billion which in today’s terms is about a $100 billion and really the idea was that the newly emerging African countries that were coming out of independence had no money to finance economic development.

So, the idea is very simple. That savings leads to investment which would lead to growth. The problem is that because this when new economies there was not necessarily any savings in this economy and so the idea was that you put aid instead of the savings. And aid should lead to investment and therefore, lead to growth.

What we have seen actually is that has not been the case. The issue of aid delivering growth and reducing poverty has not actually happened in reality. If anything we’ve seen growth rates go down across Africa, and poverty levels rise very dramatically while at the same time aid has consistently risen over time in Africa.

I should add here one of the fundamental problems with the aid model is that we’ve tried many different interventions. So, the 1960s aid was very focused on infrastructure that didn’t work so the decision was to move towards aid for poverty that didn’t really work in alleviating poverty went to 1980s were we focused on aid infrastructure adjustment as stabilization. That also did not deliver the growth that we would like to see.

We went to 1990s, which is focusing on aid for democracy and governance issues. Again, that did not work efficiently so, we’ve ended up and then, 2000 were they seemed to be a focus on what I called “Glamour Aid” so the role of celebrities in championing an aid. Aid causes rather than they being a real economic policy.

Question: Why is aid bad for Africa?

Dambisa Moyo: There are many, many reasons why aid to Africa does not work, the government-to-government aid that I’m referring to. The most obvious one that many people be very familiar with is the idea that this money going in to Africa is ostensibly free in the sense that there is no constraints on how governments on the ground used the money.

And so, it’s very easily corrupted. And in fact, we’ve got a long history across the continent of a lot of the money that has gone into Africa being stolen and diverted for non-productive uses. So, corruption is an obvious one.

However, there are many, many other reasons why giving or sending billion dollar packages in the form of US dollars, for example, into small economies is very harmful.

For example, you can see why having that kind of money flying into a country makes the government less inclined to raise money through other sources of capital because they have this steady flow of permanent income what they perceived is permanent income coming in. The government develops what I would call a lazy muscle and this can breed dependency, which means that the governments are not focused on actually building up other source of capital such as the private sector which is important for growth.

Things like inflation. Things like Dutch disease were basically the domestic or the poor countries export sector gets killed off because there is so much money coming in which makes the local currency very strong versus other currencies outside and that actually, makes people not interested in buying the food from the poor country.

Those types of things are also very well documented in the literature, but perhaps if I could pick one thing that is particularly problematic with having large flows of money going into a poor country it would be that all this aid actually disenfranchises Africans. Africans on the ground cannot hold the government accountable in the most effective way.

Why? Because African governments; because of the nature of the system spend an enormous amount of time courting and talking to donors about the aid programs, whereas, if they behave as I’ve we talked before if the governments behave badly there’s no recourse to that bad behavior from the ground. As we know from historical instance, the donors themselves tend to be quite lenient on bad governments and they allow them to stay in power. So, the fact that Africans are disenfranchise means that Africans cannot ensure that their governments deliver on social services and public goods like you would see in any other country around the world.

In particular, it’s no surprise that things like education, healthcare, infrastructure and even security are now being provided to Africa from outsiders. And that just leaves the situation where the African governments have a questionable role, what exactly is the role for African governments when they are not responsible for those things.

Question: Does aid necessarily impose political and ethical strictures?

Dambisa Moyo: Going back to my point about accountability, the whole policy structure, the cultural structure, the cultural fabric of a society that depends on outsiders to finance it is actually then designed and guided by the outsiders view of what they want to see. So, the example that you’ve given of the former President [George W.] Bush is policy to provide HIV drugs to Africa only under the program of abstinence; not drugs, but HIV support by the abstinence is a very good example of how it is that it matters less what the Africans think about their own society because the donors--they give the money--have a higher charge on what’s going to be done with that money.

Question: Why has private investment in Africa been so weak?

Dambisa Moyo: Most investors are looking for governments or looking to invest in countries where the government has a clear agenda of how it’s going to grow the economy over a multi-year period. What’s been quite clear from the past historical circumstance, very often African government do not have much of a role in that putting that better experience together, putting those plans together. And so, many investors look at Africa and say, “This place must be a basket case.” Because rather than really doing the hard work to trying to finance economic development from other sources to such as foreign direct investments or the bond market are very transparent, the past tradition has been asking for government to raise money through The World Bank and the bilateral donors which is quite opaque.

Nobody knows which country is doing better than another country because it’s all kind of closed and information is not very clear on how these countries are doing. So, this is actually discouraged private investors coming in. Moreover, because of the bureaucracy and the lack of focus on an incentive for governments in Africa to try and raise money from other sources, we find that it becomes so difficult to start a business, for example, in Africa. For some countries, it takes up to two years to get a business license. And that’s to me is an artifact, again, of a system where the government doesn’t really need to find other ways of raising money. They’re okay to continue to sustain the bureaucracy because there’s money coming in from aid.

Question: How can Africa encourage private investment?

Dambisa Moyo: Well, the good news is that we’re seeing a new crop of African leaders coming up who are questioning the aid system and recognizing that it’s not such a good system for delivery of long-term economic growth and the reduction of poverty. So, for example, ethic extreme we’ve got places like South Africa and Botswana that do not relay on aid to the extent that other African countries do. But we also have countries like Ghana, which are making strides away from aid and towards more private capital solutions to finance development.

More recently, I spend sometime in Rwanda and President of Rwanda Mr. Kagame, President Kagame has been very vocal about how aid doesn’t work and how he’s desperately trying to find ways to win his country up of aid and then there’s much more of that, but they are African countries were we actually to beginning to hear this dialogue. It’s a great pity that many of these African leaders who are much more innovative in how they are looking at financing development and reducing poverty in their countries don’t really have an international audience. We don’t hear that much from them, but they have very clear plans on what they are going to do.

One of the things that very easy a country can do, for example, is to look at getting a credit rating of which; commonly only 15 out of about 50 African countries have credit ratings and yet credit rating are prerequisite to access the international capital market. So, that just a specific example of what I believe is a space for a lot more improvement in moving away from aid.

Question: How will the Global Financial Crisis affect the aid model?

Dambisa Moyo: Well, I think there would definitely be an impact in a negative one at that, because one can envisage the situation where Westerners, Western governments who are dealing with their own crisis at home are going to be faced with shrinking budgets and needs to borrow more money quite aggressively. So, the bailout programs sort of very familiar to Western in the United States, but also more generally in doing the countries are become a very big deal. Two countries in particular Italy has been very public about cutting back it’s 80 budget by 50%, but also when Britain movements in the exchange rate have meant that the actual notion amount of money that they going to be giving two developing countries has shrunk. So, these types of factors which are an artifact of the credit crisis mean that the aid model is really under threat.

Question: Which aid programs are doing the best work?

Dambisa Moyo: I mean, I sit on a number of charities, on the board of a number of charities that are doing fantastic work in Africa. And I’ll come into details in a moment, but I think what’s really important to stress here again is what these charities can and cannot do?

So, the charities that I sit on are able to go into these countries and actually provide bandage solutions intermediate solutions. They cannot provide jobs which is where it’s really important for us to see much more involvement in the private sector and that’s why I’m talking about this other form of aid. And why it’s hampered that opportunity. Some of the charities that I think of doing some fantastic work are places like Room to Read, which has got a very targeted programs towards helping young people get to access to books.

Other charities, for example, I sit on the board of a charity called “Lundin for Africa” which is a very, very clearly defined mandate to try and support through lending projects in microfinance across the continent. And the third charity that I worked for; for whom I’m a patron is called “Ark” Absolutely Return for Kids again, very targeted involvement providing anti-retrovirals to Africans, but again, very narrow and also no illusion that they are going to be providing a long-term sustainable growth to these countries. So, there’re some examples of some interesting programs.

Question: What do you think of the Millennium Development Goals?

Dambisa Moyo: Well, to the extent that we know, we’re not going to achieve those goals, which is obvious 2015 is around the corner.

The architects of the Millennium Development Goals are themselves going around saying that Africa is likely not to meet any of those goals. So, I think those type of very sort of large, big scale large focus lofty goals tend to meet to be red herrings for the fundamental issues. What I’m looking to see is much more active programs to implement the things that we know worked, the things that have made China, China and India, and South Africa and Botswana successful at creating jobs and reducing poverty.

That’s what we need to focus our efforts on.

I think it’s also important that we focus on spinning a more positive story about Africa. Too many of the NGOs and celebrities and charities around are very focused on perpetuating a negative stereo type about the concept which cannot be helpful to raise the very young Africans that are coming up across the continent. That’s a no value to be negative and yet that’s what we see across the continent. So, I think, we just need to do more of what we know works and less of what we know does not work.

In fact there is no country on Earth today that has achieved economic development and reduced poverty by relaying on aid. Not a single one, and yet we’re pushing a product that we know doesn’t work at the time when we know what does work and that’s what the issue is here.

Question: Is microfinance a better alternative?

Dambisa Moyo: Absolutely, microfinance is one of the tools for development that I talked about in the book. It’s an amazing, amazing way of providing support to Africans and people all around the world to finance themselves and therefore be able to stand on their own two feet. They can provide themselves an income, provide education and healthcare to their children. There are numerous examples of this. From Muhammad Yunus want to know about price from Grameen Bank and I just was on a discussion program with him not too long ago.

Even in this market, with all the challenges of the capital markets right now, he’s managed to raise $1 billion from the very small aid student, very small communities within Bangladesh. It’s a billion dollars in rural Bangladesh and very, very little default rates and tremendous success. These are the type of programs that you’d becoming out of the multilateral institutions and they are not; we’ve seen more of the same giving more money to African government.

Giving money to governments around the world whereas it seems to me we know what works and give us another example I talked about in the book. It’s an internet interface for a minimum of $25, you can lend to an entrepreneur anywhere around the world. Again, helping to finance a job and again, lending is the operative word, gives opportunity for Africans on the ground, so actually meaningful change their lives.

Question: Why has corruption thrived in Africa?

Dambisa Moyo: On the point of corruption, the problem is that it makes good governments bad and bad government worst and how does that happen it boils down to incentives. It doesn’t matter where you are on this Earth. If you live in New York or in London or in anywhere in Africa, we’re all driven by incentives. Governments are incentivized [sic] as our individuals and as societies as a whole.

The problem with aid which is essentially giving free money to somebody with no recourse, it means that the incentive structure it introduces a very negative incentive structure. You can steal that money and have no recourse. You can use that money for non-productive activities and there’s no penalty. There’s no punishment. You don’t lose office. You don’t end up in jail. And because of that, what in economic seat call there’s a rent without, you cannot have rent seeking, which is the economic term for corruption or graft. You cannot have rent seeking without a rent. And unfortunately, the aid provides that rent in the context of many African countries and it’s a very easy thing to steal.

Question: Are corrupt African leaders products of the aid model?

Dambisa Moyo: I don’t think in the African context you can separate the aid model from the political leadership that we have. The good African leaders that we do have across Africa are actually because they themselves have moral qualm to actually do what’s right. What I mean by that is it’s all too easy if you are a good leader to become bad and the bad leader to become worst. So, there’s a reason why African history is littered with examples of despotic and tyrannical leaders across the continent who’ve stayed in power for many, many years. And even in those situations, they have very clearly continued to receive aid monies. I wish I could sit here and say actually this is the figment of the past, it’s not.

There are still may African leaders that are still facing charges; very regularly most recently we were still hearing of governments that are actually being sued for stealing aid money. So, this is not something from the past and I think it’s virtually impossible to strip out the aspect of political leadership from the aid model. The notion of lack of accountability immediately comes in when you’ve got an aid model.

Question: Why aren't more native Africans involved in policy-making?

Dambisa Moyo: I think there have been a number of Africans. The debate about aid to Africa is going on everyday across the continent. Unfortunately, many Africans do not have the space or the airtime to actually be able to comment on what they either agree or even disagree about the aid model.

I think it’s also quite interesting that it’s not just the average African who’s not getting airtime it’s the political leadership.

If you ask Americans to name three African leaders or maybe even just one African President and who they could say they knew what their view was about, where the continents is going and how aid is helping or not helping? They wouldn’t be able to do that because the face of Africa is not of Africans whether the average African nor is it the face of African leadership that vacuum has been taken over by other people.

Question: Is an African Union economically viable?

Dambisa Moyo: Is yet to be seen, I think the immediate issue is economics. I’m an economist and so my advice is towards economics as a prerequisite to any political system. I do not think that spending time on issues of democracy, per se, or political systems, is necessary at the time when people are starving and dying from the failure of the economic system on a daily basis. I believe and my approach is we first want to ensure that you have the economic systems and place it. People can actually provide for themselves. They can get jobs and they’re correctly incentivized.

So that, you can actually build up and generate the middle class with vested interests like anywhere else in the world and it’s that middle class that will force the government to deliver on it’s promises which is like is the way it works anywhere else in the world including in the United States. So, any conversation about the political frame up to me is moot until you actually have an economic, a sustainable economic strategy in place where people feel it’s alleviating poverty and actually generating long-term economic policy, opportunities for Africans.

Question: Which African countries can serve as economic models?

Dambisa Moyo: There is good news and this is what I was talking about earlier. We tend to dwell on the negative things in Africa and that’s what we, as the international committee seems to have a lot appetite for that and the people who have ostensively become the face of Africa seem to want to focus on the negative aspects, but let’s just take a look at what’s happening in the last five to seven years. Africa now has 15 stock markets with 500 stock exchanges, excuse me, 500 shares at trade on the stock exchanges. We’ve seen actually improvement in infrastructure largely because of the Chinese and Africa.

We’re seeing also job creation. We’ve seen African countries achieved and sometimes past 7% growth rates and even now, at the height of the credit crisis, the IMF is forecasting that Africa could grow by about 3 1/2% between 3 and 3 ½%. This is the time when many countries around the world are posting, expecting to post negative growth rates and the world as a whole likely to grow around 0.5%. So, there is good news.

Question: What is the extent of China’s presence in Africa?

Dambisa Moyo: I think what the Chinese have done in Africa in the last 10 years has been amazing. They have brought in infrastructure word has not existed before and they provided jobs where we’ve not been able to get jobs in the past 60 years. Overall, I would say that they’ve been a positive force towards economic development in Africa. They have even diversified their approach to Africa initially was very heavily dependent on the mining and mineral sector in oil and gas. They now become much more focused on things like agriculture, banking sectors in much more diversified.

Now, this is not to say that the Chinese are perfect and that they should come to Africa carte blanche. I think that the many issues at the media for certain the Western media has picked up on and there’s a lot of scope for trying to actually improved that this course the alliances between African countries and the Chinese.

But that is not the responsibility of the international community to police that. It’s the responsibility of African governments were they accountable to their people to actually ensure that the Chinese are behaving in the best interest of Africa. So, I think that there’s a lot of scope there and I think that it really boils down again to the notion of incentives.

When the Chinese come to Africa, they look at Africans as equals or at least as business partners and a basis partner which to engage is all commercial. Whereas, when lesson has come to Africa its 2/3 relationship, their coming in as the superior donor and the African are always viewed as the junior partner or the inferior recipient.

Question: What is the future of Africa's contribution to the global economy?

Dambisa Moyo: I think it’s time for dramatic innovation in Africa. Africa tends to be viewed under the guise of this, what I call the Four Horsemen of Africans Apocalypse and the four things being war, disease, poverty and corruption. And unfortunately, that has meant Africa has been held back and suffers from most serious negative PR problem.

I believed that going forward if African focused on building alliances with the regions of world who have looked past the negative perception and I’m actually looking at the continents as an opportunity to invest an opportunity to make money and to make commercial enterprise grow. Those are the type of alliances Africa should be focused on.

For example, China has one 1.3 billion people 7% are blend. It means to feed its people. Africa’s got a lot of error blend. There’s obviously scope for an alliance there, whereas traditionally African agriculture produce in particular has been locked out of US and European markets. Here’s a clear opportunity for African governments to find a relationship with a country that is very interested in African produce. So, that’s I think that it should be much more of that so much so that Africa can continue on a very strong solid developmental path.

Question: What is the future of media coverage in Africa?

Dambisa Moyo: I think that there’s a lot more scope; to move the near towards a positive message if we start to listen to different messengers. I think the reason why it’s negative is that the traditional media tend always go and interview the same kind of people very often people who have rarely been to Africa or maybe been to Africa a handful of times. They don’t know what it’s like living there. They don’t have families there. They have not had the experienced then, so, they have not come out pinpoint the positive aspects of the continent.

There are many positive things happening. Africa got a female President. Africa has got, as I said, 15 stock markets now. It has shown some positive signs of growth. We’re seeing some improvements in the capital market growth and so on.

And yet, if you asked the traditional sort of commentators on Africa; I have sort of self-imposed themselves as a spokespeople for Africa. You never hear those positive stories. All you hear is the sort of tragic stories which do exists but that cannot be the face of Africa. They cannot be the manner in which the world expects Africa, an African to raise their children for the years to come. As I said earlier, over 60% of the population in Africa is under the age of 24. So, it’s very important to get young Africans to have believed in themselves and to have a positive outlook about themselves and their continents and the role of their continents in the broadest scheme of the world. I do not believe that the NGOs and the celebrities and the so on, the ones that are really the face of the debates thus far have really made a contributed effort to make that message positive.

Question: Is Tim Geithner going too easy on banks and hedge funds?

Dambisa Moyo: I don’t think you can say, we can say that because it’s important to understand the global linkages and perhaps allowing Lehmann Brothers to fail as an example of why you cannot make these decisions very quickly nor you can make them in a very light manner. Not only do others such close linkages and significant linkages in terms of size that could really dramatically affect or cause a collapse of the whole banking system which would not be a good thing where they to be a decision to allow some hedge funds to fail, for example or some investor to fail. So, I actually don’t think so. I think it is a much more considered approach. I know people are very anxious and very keen to see decisions be made quickly, but I think it’s really important to understand that we know also know that what can happen to its system if a bank is allowed to fail or a big financial institutions is allowed to fail from the experience of seeing Lehmann Brothers fail. So, I actually think that we would like to see more regulation. We would like to see some changes to the system from where it was in the past, but I don’t think that we should get too hung up on allowing us specific hedge fund or hedge funds to fail.