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Are the reports of dead aid greatly exaggerated?

Connect-World, February 10, 2009

[ANALYSIS] Ireland is just one of several countries that may cut back on their aid budgets in 2009 due to the global financial crisis. In the case of the UK, the depreciation of the pound has had the effect of slashing its development assistance. So, aid agencies in either country are unlikely to welcome the timing of a new book, Dead Aid by African Economist, Dambisa Moyo.

Moyo says it is a myth that aid works, and instead what is needed are better policies and improved access to capital and markets. She is writing primarily about direct-to-government aid rather than the work of charities, for example.

Unsurprisingly, the book has not been met with universal acclaim. Parminder Bahra, Poverty and Development correspondent for The Times, writes:

"Moyo is not the first to question the effectiveness of state aid, but her analysis is crude. There is no new research and her argument against aid is as spurious as the argument that it is bad to go to hospitals because many people die in them."

Part of Moyo's argument is that we know that aid doesn't work because Africa has failed to grow and still suffers from extreme poverty despite receiving billions of dollars in aid in the last 60 years. However, deducing that aid caused the lack of economic growth would be a logical (post hoc or cum hoc) fallacy. It cannot even be assumed that aid had no positive effect on growth or poverty; this is because it is unknown how Africa would have fared in the absence of development assistance.

A more fundamental problem is the lumping of all aid since World War II together. Much of the aid Africa has received over that period was donated primarily in order to achieve foreign policy objectives, not to reduce poverty or promote growth. A considerable amount of aid is still tied aid, which normally means that it must be spent on goods or services provided by the donor country. Such aid is also skewed by the priorities of the donor country and is known to be less effective than untied aid. The quality and nature of aid varies greatly from country to country and over time. Irish Aid, though it has its critics, is well-regarded internationally, avoids tied aid, and attempts to limit the risk of corruption.

Her book has itself suffered from bad timing. Her former lecturer at both Oxford and Harvard, Paul Collier writes that she:

"exaggerates the opportunity for alternative finance and underestimates the difficulties African societies face... In the brief interval between writing and publication, the book's argument has been overtaken by events. The opportunity for African governments to raise money on international markets has evaporated even more rapidly than it opened around four years ago. The global financial crisis has drastically reduced investor appetites for risk: for example, the government of Kenya had planned to raise $500m through an international bond issue, but that is now out of the question."

Despite several reservations, Collier says the book should be taken seriously. He also says that:

"...(existing) research on whether aid is effective is frankly shambolic. At the level of an individual project we can often show it is effective, but this misses Moyo's point: that what matters is the overall impact on the society."

The implication is that more research is needed.

China's spectacular growth accompanied by massive poverty reduction has many to ask whether economic growth should be top priority for Africa. For some observers, China's economic success relative to many countries in Africa implies that aid doesn't work. However, it only shows that aid on its own has not been able to guarantee growth and that growth is possible without it - neither of which are controversial.

The example of China may lead to development assistance being more focused on promoting growth than heretofore. There has been a recent shift by donors away from social spending and towards infrastructure, for example.

Nonetheless, there are ways other than aid to assist developing countries; Collier points out a few that he believes have been neglected: "peacekeeping, security guarantees, trade privileges, and governance."

See also Criticism mounts over cuts in Irish Aid budget


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