Self Help

Dead Aid Why Aid Is Not Working and How There Is a Better Way for Africa - Dambisa Moyo

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Matheus Puppe

· 35 min read

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Here is a summary of Dambisa Moyo’s book Dead Aid:

  • Aid has been provided to Africa for decades with the goal of helping development, but African countries remain poor and aid-dependent. Moyo argues that aid has actually hurt African economies and made poverty worse.

  • Between 1970-1998, the poverty rate in Africa increased from 11% to 66% despite receiving over $300 billion in aid. Aid-dependent countries have seen average annual growth of -0.2% compared to other developing countries.

  • Aid encourages corruption as leaders divert funds to themselves rather than productive uses. It also makes governments dependent and less accountable to their own people.

  • Aid undermines domestic industries and agriculture by flooding countries with foreign goods and food. It discourages self-sufficiency, investment, and economic reforms.

  • Moyo proposes African countries pursue alternatives to aid like accessing global capital markets, encouraging foreign direct investment like China has done, removing agricultural subsidies in rich nations, and growing domestic banking/microfinance industries.

  • She argues aid should be cut off completely in 5 years to force economic and political reforms. Shocks are needed to end dependency and transition to self-sustaining growth models without aid. Overall she makes a compelling case that aid has failed and alternatives can better support African development.

  • The author’s parents lived and studied in the US for 8 years before returning to Zambia in 1978 after his father completed his PhD, convinced their future lay in their homeland.

  • His mother forged a career in banking in Zambia, eventually becoming chairman of a leading bank. His father stayed in academia but also worked in broadcasting and ran an anti-corruption organization.

  • The author studied in Zambia until 1990 when university was shut down due to a coup attempt. He then left Zambia on a scholarship to complete his education, first in the US and then earning master’s and PhD degrees from Harvard and Oxford.

  • While abroad, he missed key events in Zambia’s history like the transition to multi-party democracy and economic reforms. Prospects for his development seemed better abroad than returning home.

  • His best friend returned to Zambia against his warnings but is now ready to leave again, feeling the country continues to struggle with issues like corruption, disease, poverty and aid-dependency.

  • The book challenges the widely held belief that foreign aid is an effective solution to poverty in Africa. It argues aid has actually been counterproductive and trapped many African countries in cycles of corruption, market distortion, and continued poverty.

  • While some positive developments have occurred in Africa in recent years like economic growth and more democratic elections, overall the situation remains challenging. Africa remains the poorest region with over half the population living on under $1 per day.

  • Many social and economic indicators like life expectancy, literacy rates, and per capita income have stagnated or declined despite decades of aid. Africa is not benefiting from global progress occurring elsewhere.

  • Politically, around half of African countries remain under non-democratic rule. Several leaders have been in power for decades and civil wars have affected many countries.

  • The book aims to offer a new model for development financing that does not rely on aid and can spur true economic growth and poverty reduction in African countries. It argues the aid-based approach has failed and a new path is needed.

Aid refers to financial assistance and other support provided by governments and other institutions to support development in other countries.

The summary highlights three main types of aid:

  1. Humanitarian or emergency aid - Provided in response to disasters like tsunamis or famines.

  2. Charity-based aid - Provided by charitable organizations for specific projects or recipients.

  3. Systematic aid - Financial assistance provided directly from one government to another, either as bilateral aid between two countries or via multilateral institutions like the World Bank.

The passage then provides some history and context around the development of systematic aid. It describes how the Bretton Woods institutions were set up after WWII to facilitate reconstruction in Europe through loans and risk-sharing. It also discusses the Marshall Plan from 1947-1952, which saw large-scale US government aid to Western European countries to support their economic recovery after the war.

In summary, aid refers broadly to financial and other assistance provided by donors to support development, humanitarian relief, and reconstruction in other parts of the world. The passage focuses on the history and evolution of structured, government-to-government systematic aid provided on a large scale.

  • The Marshall Plan was largely considered a success in helping rebuild Western Europe economically and politically after WWII. It restored infrastructure and brought political stability.

  • The Marshall Plan’s success led donors to believe aid could work anywhere to spur development. Africa was seen as prime target for aid given its underdevelopment.

  • In the 1950s-60s, aid began flowing to Africa from Western countries. The US provided over $100 million by early 1960s. Countries like Ghana, Zambia, Kenya received hundreds of millions each.

  • Aid focused on large industrial projects with long-term payoffs like dams, roads, railways. Infrastructure development was priority in this decade.

  • In 1970s, rising oil prices, food costs hit Africa hard. Poverty increased. This led to a shift in aid focus from infrastructure to poverty alleviation - agriculture, health, education, food aid.

  • By late 1970s, over 50% of aid went to social services vs less than 10% in previous decade. Poverty-oriented lending by World Bank rose from 5% to 50%.

  • However, some countries like Zambia still saw rising poverty and falling growth despite increased poverty-focused aid. Another shift was underway.

  • In the 1970s, Africa accumulated around $36 billion in foreign aid as creditors were willing to provide loans during the commodity boom. However, higher interest rates in the late 1970s/early 1980s due to oil price shocks made debt unsustainable for many developing countries.

  • Mexico’s debt default in 1982 triggered a broader Latin American and African debt crisis as countries could no longer service their debt. The IMF established structural adjustment programs to lend money and help countries repay creditors.

  • In the 1980s, neoliberal economic thinking promoted smaller government and free market policies. The World Bank and IMF launched aid programs focused on stabilization and structural adjustment loans tying aid to reforms like privatization, trade liberalization, and cutting government spending/size.

  • Structural adjustment led to large cuts to government employment, privatization of state assets, and reduced government influence over markets. Aid flows shifted towards these policy-based loans aimed at reforming economies according to neoliberal principles.

  • By the late 1980s, developing countries faced over $1 trillion in debt that was costing more to service than the foreign aid they received, resulting in a net reverse flow of funds from poor to rich countries.

  • Donors blamed Africa’s poor economic performance on weak governance, institutions, and rampant corruption in many countries. Good governance, with strong rules of law and transparent systems, became a focus.

  • The IMF, World Bank, and US Treasury Department pushed an agenda prioritizing economic stabilization, liberalization, and governance reforms. This model focused on establishing market-based economies and curbing state intervention.

  • Throughout the 1990s, donors increasingly argued that democracy and political reforms were also needed for development success. However, improvements in many African states lagged despite nominal democratic transitions.

  • By the end of the decade, donors grew fatigued with Africa and aid levels declined, though they remained higher than in previous decades and still constitute the main financial inflow for many countries.

  • In the late 1990s and early 2000s, debt forgiveness campaigns like the Jubilee Debt Campaign capitalized on people’s desire to help address poverty and Development issues in a new way. African leaders supported these efforts, calling historical debt repayment a barrier to basic services.

  • This opened the door for celebrities, philanthropists, and religious figures like Pope John Paul II to advocate for increased aid to Africa. While some debt was cancelled, new aid commitments essentially replaced the debt with prospects of new aid/debt cycles.

  • More recently, celebrities like Bono and Bob Geldof have directly lobbied leaders like US President George W. Bush and the G8 on Africa policy. Western donors seem increasingly open to celebrity guidance on Africa issues due to perceived failure of past approaches.

  • However, elected African officials and policy experts are rarely heard from on solutions. Honest debate on aid has been stifled by the influence of celebrity advocates. As one critic said, “my voice can’t compete with an electric guitar.”

So in summary, debt relief campaigns opened the door for celebrity advocates to shape Africa policy in Western capitals, but this has largely sidelined African voices and limited serious policy discussion.

The passage discusses several perspectives on reasons for Africa’s lack of economic development compared to other regions:

  1. One view is that Africans have an “inability to embrace development and improve their own lot in life without foreign guidance and help.” This view portrays Africans as inherently dependent.

  2. Max Weber’s theory about the relationship between Protestantism and capitalism is referenced. Some see Africans as unable to develop on their own, while others argue they should be treated as able to develop sustainably with the right conditions.

  3. Tribal divisions in Africa are cited as possibly leading to conflict and making collective action difficult. However, the passage notes some counterexamples of tribal coexistence and integration in African countries and cities.

  4. Lack of strong, transparent public institutions is put forward as an explanation. Countries with better institutions, like Botswana, tend to see more success. Weak institutions allow problems like corruption.

  5. The passage suggests Africa’s failure to grow sustainably is likely due to various geographical, historical, cultural, tribal and institutional factors interacting in different ways in different countries. However, it says none of these should condemn Africa to permanent failure.

  6. The common factor for African countries is dependence on aid. The passage then evaluates arguments for and against whether foreign aid has been an effective solution.

  • The Marshall Plan flows amounted to only 2.5-3% of GDP for recipient countries like France and Germany, while aid to Africa currently makes up around 15% of GDP, over 4 times as much as the Marshall Plan.

  • The Marshall Plan was finite, with goals and timeframe, while African countries have received continuous aid for 50+ years without end in sight, reducing incentives for self-sufficiency.

  • Post-war Europe already had functioning institutions and infrastructure to rebuild, whereas Africa required building from scratch. Cash injections alone are not enough.

  • Supporters point to IDA graduates as aid success stories, but their aid dependence was relatively brief and small (under 10% of GDP) compared to long-term, high-level aid dependence in Africa.

  • Conditionalities attached to aid failed to constrain corruption or force policy changes, and aid continued despite violations of conditions.

  • Claims that aid works in good policy environments are questionable, as countries with good policies tend to progress without aid, and aid risks undermining institutional development.

  • Democracy is often argued to be linked to economic growth. It protects property rights, ensures checks and balances, and guards contracts through an independent judiciary, creating a better environment for business and investment.

  • However, democracy can also hamper development in early stages by making it difficult to pass beneficial economic legislation. A benevolent dictator may be better able to push through reforms to spur growth.

  • Many Asian economies like China grew rapidly under authoritarian regimes that ensured property rights and stability, contradicting the view that democracy is a prerequisite for growth.

  • While foreign aid has increased democracy in Africa in terms of elections, economic growth has not clearly benefited and some authoritarian regimes have seen strong growth. Democracy is not necessary for initial growth.

  • The micro-macro paradox is that while short-term aid projects seem effective, they can undermine local capacities and are not sustainable. Aid is not measured properly based on long-term, sustainable reductions in poverty.

  • Food aid should purchase from local farmers rather than undercut them, and aid money could be better spent stimulating development rather than perpetual handouts. Significant long-term investment may be needed to spur African growth, not just piecemeal short-term aid projects.

Here is a summary of the key points about corruption and aid in Africa from the passage:

  • Corruption is rampant in many African countries, with leaders stealing billions from state coffers and diverting money to foreign bank accounts for personal gain. Figures like Mobutu of Zaire and Abacha of Nigeria looted vast sums.

  • Aid is one of the major facilitators of corruption in Africa. It provides easily accessible cash that corrupt governments and officials can steal and divert rather than using for development purposes.

  • Aid props up corrupt governments and allows corruption to perpetuate on a massive scale. It interferes with rule of law, transparency, and good governance.

  • The cycle of corruption fueled by aid chokes off much-needed investment, instills a culture of dependency, and guarantees economic failure in aid-dependent countries.

  • In environments of high corruption fueled by aid, entrepreneurship and investment declines. Corruption kills economic growth. Studies show aid has not boosted growth in Africa over the long run.

  • Contrary to claims, higher salaries and training funded by more aid do not curb corruption. Large amounts of easily obtainable aid money are too corrosive and misallocate talent toward corruption rather than productive activities.

  • In corrupt dependent environments, talented and well-educated people who should be building the country’s economy instead turn to nefarious activities to enrich themselves. Principled individuals leave for the private sector or abroad, leaving positions open to less qualified people vulnerable to graft.

  • Corruption also affects public contracts. Contracts go to those who can divert the most money to their pockets, rather than those who can do the job best. This leads to lower quality infrastructure and weaker public services, harming growth.

  • Government spending is allocated based on opportunities for bribery and fund diversion, rather than public welfare. Large, opaque projects are most prone to corruption as it’s easier to steal from them.

  • Studies have found a strong correlation between corruption levels and lower economic output. For example, reducing Tanzania’s corruption to UK levels could increase its GDP by over 20%. Higher corruption also reduces foreign investment and increases borrowing costs.

  • Aid can fuel corruption by providing funds that are easily stolen, redirected or extracted. It reduces accountability and tax revenues that could fund productive sectors. In some cases, little of the aid intended for areas like education actually reached those sectors.

  • Despite known corruption, donors continue lending due to pressure to disburse funds and fears of defaults affecting their own finances. Releasing aid is prioritized over conditions. This perpetuates the corrupt cycle.

  • Donors often disagree on which countries are corrupt and which are not. They seem to make arbitrary determinations and countries can be deemed corrupt by one donor but not another.

  • Some argue that corruption can be “positive” if stolen funds are reinvested domestically rather than sent abroad. This may explain high economic growth in some corrupt Asian countries.

  • However, corruption in Africa often involves stolen funds being sent abroad rather than staying in the country. This “negative corruption” bleeds African countries dry of resources.

  • Aid dependence weakens civil society and accountability. Governments rely on aid rather than taxpayers, so they are not held accountable to their citizens. This inhibits the growth of an independent middle class.

  • Aid also damages social capital and trust within societies. It removes incentives for governments to reform and be trustworthy.

  • Aid can fuel conflicts by increasing the resources over which factions fight. It creates incentives for groups to seize power through rebellion to access aid funds. Conflicts are often about control over resources rather than ideology.

  • In summary, while intentions of aid may be good, it can end up propping up corrupt governments, weakening civil society, fueling conflicts, and failing to spur real economic growth or development.

  • Large influxes of foreign aid can cause economic problems for developing countries due to their weak and poorly managed economies that have little control over outside influences.

  • Aid reduces domestic savings and investment as the money ends up being spent on consumption rather than saved and invested locally. This also discourages private foreign investment.

  • Aid is often inflationary as the increased money supply chases a limited number of goods, pushing prices up. Higher inflation leads to higher interest rates which reduce investment and jobs.

  • Aid can hurt export sectors through “Dutch disease” - the influx of foreign currency causes the local currency to appreciate, making exports more expensive and less competitive on the global market. This chokes off the export sector.

  • Countries may not have the necessary skilled labor and infrastructure to effectively absorb and utilize large aid inflows. Much of the money ends up being consumed rather than invested due to bottlenecks and lack of absorption capacity.

  • Managing the economic effects of large aid inflows, such as through interest payments and sterilization measures, imposes additional costs on the recipient country.

  • Uganda offered $700m in local currency bonds backed by aid inflows in 2005. However, the annual interest payments of $110m on this debt cost Uganda’s taxpayers more than what the government earned by holding the aid money.

  • Aid dependency has negative consequences like corruption, inflation, erosion of social capital, weakening of institutions, and reduced domestic investment. It also discourages self-reliance among policymakers and stops countries from pursuing alternative sources of financing like FDI and debt markets.

  • Large aid inflows promote large, inefficient public sectors and loss of tax revenue systems. This undermines countries’ ability to determine their own economic policies.

  • Early critics like Peter Bauer argued aid mainly benefitted new elites and interfered with development, but their views were largely ignored amidst the aid-driven development agenda. More recent critics like Easterly and Collier also point to aid’s failures and call for more tailored country-specific approaches.

The passage argues that a government can use free-market tools like bonds to raise capital in international markets, even if pursuing a socialist agenda domestically like providing universal healthcare and education.

It notes several developing countries and African nations that have successfully issued bonds to finance their development goals. While aid is declining and unreliable, bonds offer a viable alternative that does not foster dependency.

Issuing bonds involves getting a credit rating, going on a “roadshow” to promote the investment opportunity to pools of capital like pension funds, and demonstrating credible debt management. If done responsibly, bonds can be part of replacing aid with sustainable financing that supports economic growth over the long run.

In other words, governments need not be limited to either purely socialist or free-market models, but can employ market tools like bonds to achieve core socialist values and development goals without relying on unpredictable aid. Responsible use of debt markets is presented as a practical solution.

Here is a summary of the key points made in the passage about the past:

  • In the past, mainly designated emerging-markets investors sought returns in underdeveloped markets through bonds issued by developing countries.

  • Over time, as economies stabilized and were better managed, the investor base broadened to include mutual funds, pension schemes, hedge funds, insurance companies and private asset managers worldwide.

  • Investors also evolved from short-term speculators jumping in/out for quick gains, to longer-term buyers willing to hold developing country assets for years or until maturity.

  • Major crises like the Asian financial crisis of 1997 and others led to sudden capital outflows, but these proved to be temporary as money returned within a decade.

  • Historically from 1850-1970, investors earned higher returns lending to foreign countries through their bonds compared to safer home government bonds, despite foreign bonds carrying more risk.

  • In the past, research found emerging market debt had low or negative correlations with other major asset classes, making it useful for diversifying portfolios.

So in summary, the passage discusses how the market and investor base for bonds issued by developing countries has broadened and matured over time from a narrow base of specialist investors in the past.

Here is a summary of the key points about challenges with ion market trading per day:

  • Countries and companies need credit ratings from major rating agencies like S&P, Moody’s and Fitch to access bond investors. However, ratings are an imperfect art, not a science, and agencies can get ratings wrong.

  • A country’s rating affects not only its own ability to issue debt but also the ratings of companies within that country due to sovereign ceilings. Low or no country rating can hamper companies’ ability to seek outside investment.

  • There is a risk of “contagion” where issues in one emerging market negatively impact other emerging markets unfairly through investor panic, even if fundamentals are different. The Asian/Russian financial crises showed this.

  • Countries can be susceptible to economic issues in neighboring countries if investors pull out money suddenly without notice, jeopardizing domestic economic plans.

  • Defaulting has costs like losing credit ratings, but investors can be forgiving if countries reform, as seen with Russia, Asian countries and corporate bond issuers that were eventually welcomed back. However, most African defaulters have not shown meaningful reforms.

  • Standard & Poor’s commented that banks from Ghana, Kenya, West African Economic and Monetary Union, and Economic and Monetary Community of Central Africa were most likely to issue long-term bonds in the next 2-3 years.

  • S&P has recently assigned ratings to 4 Nigerian banks, 2 of which subsequently issued bonds internationally, showing progress in African entities accessing international capital markets.

  • Developing domestic bond markets is important for countries’ corporate sectors to finance growth, and to issue debt in local currency which is often cheaper than foreign currency debt.

  • The European Investment Bank recently issued the first international bond denominated in Zambian currency, helping develop Zambia’s capital markets credentials.

  • In response to G8 support for local bond market development, the World Bank launched its Global Emerging Markets Local Currency Bond Program to support developing local currency bond markets and increasing their investability.

  • This program aims to strengthen local currency bond markets to lower borrowing costs, enhance financial stability, and improve countries’ resilience to shocks.

  • Based on current criteria, only Nigeria and South Africa are likely to initially be included in the bond index being developed as part of this program.

  • 15 African countries have obtained credit ratings that are high enough to allow them to tap international bond markets, including Ghana, Gabon, Nigeria, South Africa, Kenya, and more.

  • However, Africa’s share of the global bond market remains very small at around $10 billion out of a total $1.5 trillion emerging market bond market.

  • Countries can individually issue bonds but smaller countries may find it difficult to raise large amounts individually due to perceptions of risk.

  • Pooled bond issuances through regional groups could help smaller countries access markets by diversifying risk across multiple economies.

  • Guarantees from higher-rated entities like South Africa or multilateral institutions can help mitigate risk and attract investors to African bonds.

  • Securitization of bonds against identifiable income streams like oil exports can also reassure investors about repayment.

  • Done properly with the right support, African countries should be able to tap bond markets as other developing regions have done to fund infrastructure and development needs.

  • Foreign direct investment (FDI) to Africa has disappointed despite the potential gains from investing in low-cost labor markets. Only around $17 billion flowed to sub-Saharan Africa in 2006, far less than other regions.

  • There are several major hurdles preventing greater FDI in Africa. Infrastructure is poor and makes costs high. More significantly, widespread corruption, bureaucracy, and opaque/inefficient regulatory systems make doing business very difficult. It can take many months to complete necessary procedures to start a business.

  • African governments need to work to improve the investment climate and reduce barriers to attract more FDI. Simplifying regulations, increasing transparency around processes like land allocation, and improving infrastructure would help lift GDP and reduce poverty. Countries like Uganda that implemented reforms saw strong economic growth.

  • For a country like Dongo to attract FDI, it needs to reform its legal and regulatory system to give investors confidence and recourse. It also needs to actively court investors through competitive tax structures and showing it is open and committed to business. This will help stimulate the broader economy through job creation and technology transfers.

  • China has significantly increased its investment and presence in Africa over the past 15-20 years, far surpassing other countries. Between 2000-2005, Chinese FDI to Africa totaled $30 billion, and by mid-2007 the stock of China’s FDI in Africa was $100 billion.

  • China’s investments have focused on natural resources like oil, copper, cobalt and iron ore to fuel China’s rapid economic growth. Major recipients of Chinese FDI have been Nigeria, Sudan, Angola, DRC and South Africa. China now obtains 30% of its oil imports from Africa.

  • Beyond resources, China is now diversifying investments into sectors like textiles, agriculture, infrastructure, banking and telecoms. It is funding many major infrastructure projects across Africa like roads, railways, ports and power plants.

  • Critics argue China’s approach risks undermining governance and human rights standards in Africa for economic and political gain. However, China maintains its model of non-interference is better for African development.

  • There is a suggestion that African nations are getting a raw deal from development banks like the World Bank and IMF, which attach strict social and environmental conditions to loans. Chinese banks are seen as undercutting these conditions and offering loans with fewer or no strings attached.

  • Some argue this allows problematic regimes in places like Sudan, Zimbabwe, and elsewhere to avoid necessary reforms. However, others point out that Western nations also supported problematic leaders in the past.

  • Surveys in African countries find overwhelmingly positive views of China and its influence. China is seen as having a more beneficial impact than the US. Majorities believe China’s growing economic power benefits their countries.

  • While Chinese investment does have challenges like possible underbidding of local firms, many Africans argue the immediate benefits of jobs, growth, and infrastructure outweigh these concerns. African governments also have tools to regulate industries and ensure local participation.

  • In summary, there is a suggestion that on balance, Africans see more benefits than drawbacks from China’s economic involvement, in contrast to the conditions imposed by some traditional Western lenders.

  • India is increasing credit lines to Africa from $2.15B in 2003/2004 to $5.4B in 2008/2009 to invest in Africa, like China is doing. Russia is also investing in Africa’s natural gas reserves.

  • Japan and Turkey are also increasing economic cooperation with Africa, offering trade incentives. The World Bank President is urging sovereign wealth funds to invest 1% of their $3 trillion assets in Africa.

  • This increased investment interest in Africa is mutually beneficial - investors can put capital to work, and Africa gains infrastructure, growth, jobs and poverty reduction. However, current FDI forecasts for Africa remain low at only 1.4% of global FDI despite the opportunity.

  • Without sufficient investment, African workers cannot earn competitive wages due to lack of productivity-enhancing capital. Countries must create a positive environment to attract more sustained FDI for growth.

  • Increasing trade is another route for Africa to finance development, as trade can directly increase income and push productivity gains. However, trade barriers like agricultural subsidies in rich nations hamper Africa’s ability to benefit from trade.

  • Western countries like the EU and OECD heavily subsidize their sugar industries, providing billions of dollars in support each year. These subsidies hurt African sugar exporters like Ethiopia, Mozambique and Malawi by depriving them of hundreds of millions in potential export earnings.

  • The EU blocks imports from developing countries with high tariffs over 300%. This deprived Malawi of an estimated $32 million in export earnings in 2004.

  • Developing countries also support their agricultural sectors, like China supporting cotton to the tune of $1.5 billion annually.

  • Within Africa, countries impose high average tariffs of 34% on agricultural imports from other African nations. As a result, only 10% of African trade is between African countries.

  • Western trade programs like AGOA and EBA aim to boost African exports but have had limited impact, mainly benefiting a few larger oil/resource economies. They comprise a very small portion of exports.

  • China is now Africa’s 3rd largest trading partner behind the US and France. Trade has grown rapidly in recent decades from $12 billion in 2002 to over $45 billion in 2007.

  • However, trade remains dominated by resources and a few countries. Many African countries have been slow to capitalize on the opportunities presented by Chinese demand.

  • While many Asian countries have transitioned from commodity exporters to manufacturing powerhouses, Africa has largely remained agricultural producers and commodity exporters.

  • African labor and wages are actually cheaper than Asian ones, so Africa should have an advantage in manufacturing. However, Africa’s poor infrastructure significantly increases costs, making it less competitive for manufacturing.

  • Underinvestment in infrastructure like roads, bridges, ports, power, and telecom has hindered Africa’s ability to industrialize and move up the value chain beyond raw commodities. This is starting to change with increased investment from China and others in African infrastructure.

  • There are concerns China could flood African markets with cheap goods, undercutting potential African manufacturers. However, a thriving economy with opportunities is better than an aid-dependent one with few prospects. Displaced workers may find new opportunities.

  • Increased trade can benefit Africa through jobs, exports, import savings, tax revenue. But Africa should diversify trade partners beyond just China. Other partners like India are increasing trade with Africa.

  • Regional integration and reducing high internal trade barriers in Africa would significantly boost intra-African trade and regional cooperation.

  • Developing small and medium enterprises is important for driving private sector growth and job creation across African economies. Better access to financing is also key.

  • Grameen Bank provides microloans to groups of traders in Bangladesh. Trader A receives the initial $100 loan for a year-long period, and is solely responsible for repaying the loan plus 8-12% interest.

  • When Trader A repays the loan, the next $100 loan goes to Trader B in the group. But if Trader A defaults, no further loans are given to the group.

  • There is no explicit group liability, but implicitly the group is liable since one member defaulting affects future loans to the whole group. Groups often contribute defaulted amounts to keep the loan cycle going.

  • The Grameen model has been successful with low 2% default rates. It now provides additional services like micro-enterprise loans, scholarships, and housing programs to millions of poor in Bangladesh.

  • Microfinance models using group lending and joint liability have spread globally to improve access to credit for small businesses and entrepreneurs neglected by traditional banks.

Based on the summary, here are some steps Dongo could take to help improve access to financial services in its country:

  • Develop microfinance institutions and programs to provide small loans, savings, and other services to underserved populations. Look to models like Grameen Bank for examples of successful microfinance.

  • Work to reduce costs and barriers for remittances sent from the diaspora abroad to recipients at home. High fees discourage sending. Promoting cheaper transfer options through banks and mobile money could boost flows.

  • Partner with banks and money transfer companies to build out infrastructure like agent networks in rural areas. This would expand access points in places currently underserved.

  • Consider securitizing or raising bonds backed by future remittance flows to access more affordable international financing. Precedents in other countries show this can work.

  • Collaborate with other African governments and international organizations to advocate for policies that reduce overall costs of sending remittances to the continent. A unified voice could effect change.

  • Educate citizens on available financial services and how to access and safely use them to save, invest, and build businesses. Financial inclusion requires demand as well as supply of services.

  • International remittance networks like the IRN facilitate money transfers from countries like the US to Latin America. Similar initiatives could help transfers to/within Africa.

  • M-Pesa, a mobile money transfer system launched in Kenya, enabled over 10,000 users to transfer over $100,000 within two weeks. There are plans to expand it internationally.

  • Remittances can provide aid to recipients but also risk creating dependency. Some studies find they can positively impact economic growth.

  • Developing countries may have large hidden savings like the $6,000 cash found in Nigeria, as people store wealth without formal banking. De Soto argues the value of savings among the poor globally is much higher than all foreign aid.

  • India’s policy allowing gold exchanges unlocked an estimated $200 billion in private investment potential. This shows how governments can bring otherwise idle resources into the financial system.

  • Africa needs more financial sector innovation to unlock capital, just as innovative banking models in 1800s American West and 1700s Scotland found ways to fund traditionally unbankable groups. Tailoring financing structures to different risk profiles can broaden access.

  • The country of Dongo currently relies heavily on foreign aid, which makes up roughly 75% of money coming into the economy. This level of aid dependence has not led to sustainable development.

  • The author proposes that Dongo adopt an alternative development financing model with less reliance on aid. Specifically, aid should make up only 5% of total financing, while trade, FDI, capital markets, remittances and domestic savings each play a larger role.

  • Successfully transitioning away from aid will require proper management as challenges are likely to arise. Private capital inflows are preferable to aid because they are less susceptible to corruption and come with incentives for good governance.

  • Implementing this new approach will require putting African countries on a tight schedule to gradually reduce aid reliance over 5 years. They would receive notice that aid taps will permanently shut off after that period unless alternative financing is secured.

  • It is argued that without aid as a crutch, African countries would be forced to embrace market reforms and private sector growth needed to improve livelihoods rather than continuing unchecked dependency and poor governance. Proactive management is needed but the potential economic gains are significant.

  • Dongo would need alternative sources of income besides aid to sustain the same level of spending on schools, hospitals and infrastructure. The Dead Aid proposals like private financing would encourage economic growth and increase the tax base.

  • Even if some funds are stolen, private financing like FDI still requires something in return like building roads or extracting commodities. Only part of the funds may be stolen compared to all of it with aid.

  • Strengthening institutions is important for accountability. Government should secure property and contract rights, provide stable and honest government with limited taxes and spending. But this is not the reality in many aid-dependent African nations.

  • There is no political will for change. Western donors prefer maintaining the aid status quo and African leaders benefit from the lack of accountability. Ordinary Africans bear the economic costs but cannot easily enact change against powerful states. Western citizens could hold key to reform but are drowned out by those arguing aid has worked to save lives.

  • Aid was meant for growth and poverty reduction, not just keeping people alive. Countries without aid like Botswana and South Africa have done better. There are more effective alternatives to aid like private financing, remittances or conditional cash transfers.

  • Conditional cash transfer programs have been successful in developing countries by circumventing bureaucracy/corruption, paying people for specific behaviors/actions rather than nothing, and getting money directly to those in need.

  • However, these programs have not been rolled out aggressively across Africa despite their success.

  • There are good reasons for the West to help Africa based on national interest - unstable states provide breeding grounds for terrorists, and problems like corruption, disease, poverty, and war can spread internationally.

  • China has increasingly invested in Africa, demanding returns, which provides jobs/infrastructure and promises short-term stability even if lacking democracy currently. If China dominates economically they will have “won” in Africa.

  • International organizations are slowly changing approaches, recognizing greater private sector/capital roles and perspectives from emerging countries. But fully eliminating aid is needed for effective new development models in Africa.

  • A new approach is needed that is more innovative, acknowledges what has/hasn’t worked, and doesn’t rely on aid, in order to really promote sustainable growth and poverty alleviation in Africa.

Here are summaries of the points provided:

  1. The Berlin Conference of 1885 regulated European colonization and trade in Africa during the New Imperialism period, dividing Africa among European colonial powers and modifying practices like the slave trade.

  2. Good institutions that protect property rights, manage conflict, maintain law and order, and align economic incentives with social costs are the foundation for long-term growth. Institutions must provide incentives for public officials to efficiently provide public goods without corruption.

  3. 22 countries have graduated from receiving International Development Association (IDA) funds since 1960, including China, South Korea, and Turkey.

  4. Details about the Millennium Challenge Account can be found at the provided website.

  5. Amartya Sen’s book Development as Freedom discusses development and assessing quality of life.

  6. A study found democratic states meet basic citizen needs ~70% more than non-democratic states, according to The Cash Nexus by Ferguson.

  7. The International Food Aid Conference VII was held in Kansas City on May 3, 2005 to discuss strengthening the global food aid chain.

  8. Details about the Millennium Development Goals can be found at the provided UN website.

  9. A British aid campaign continued based on poor economic analysis, according to a conversation cited by Paul Collier in his book The Bottom Billion.

  10. Easterly’s paper “Can Foreign Aid Buy Growth?” discusses this topic.

The summaries then continue to briefly summarize the remaining points provided.

  • Ty-year-olds in an unnamed country almost spend US$50 per year to stay HIV-negative.

  • This suggests that there is some kind of program, initiative or requirement for 10-year-olds in this country to spend money each year to maintain their HIV-negative status.

  • The spending is almost $50 per child annually based on the information given.

  • No other contextual details are provided about the country, the exact nature of the spending requirement, or how the money is used to support HIV prevention for these children.

Here are brief summaries of the sources provided:

  • Diamond, Jared (1998) - Book about how geographic and biological factors shaped human societies over the past 13,000 years. Argues geography favored development of Eurasian civilizations.

  • Diamond (2004) - Chapter arguing for reforms to promote real change in Africa, including improved governance, health care, education, and economic opportunities.

  • Diamond and Plattner (1998) - Book examining process of democratization in Africa and challenges faced.

  • Dixon et al. (n.d.) - Paper exploring relationship between tradable/non-tradable inflation in consumer prices using New Zealand data.

  • Djankov et al. (2002) - Economic Letters article finding regulation negatively impacts growth.

  • Dollar (1992) - Article demonstrating outward-oriented developing economies grew more rapidly between 1976-1985.

  • Dollar and Kraay (2001, 2002) - IMF/World Bank papers arguing trade expansion benefit poor via overall growth.

  • Dornbusch et al. (2000) - World Bank paper on how financial crises spread and can be contained.

  • Doucouliagos and Paldam (2006) - Working paper meta-analysis finding no evidence foreign aid boosts growth.

  • And so on for the other sources provided. Let me know if you need any of the summaries expanded on.

Here are the key points from the sources:

  • Mauro (1995, 2005) finds that corruption reduces investment and economic growth. High levels of corruption discourage private investment.

  • Mauro et al (2006) examine sovereign bond spreads in 1870-1913 and today, finding that political institutions and economic policies were important determinants of risk premia.

  • Mekay (2002) discusses opposition to US farm subsidies from developing countries as they distort world agricultural markets.

  • Menon (2005) writes about the bitterness around European sugar policies which harm poor producers.

  • Microfinance Bulletin (2007) discusses microfinance strategies and their impact on developing communities.

  • Mishkin (2006) argues that disadvantaged nations can benefit from improving financial systems to access global capital markets.

  • Mitchell (2004) criticizes sugar policies and calls for reforms.

  • Mlachila and Yang (2004) examine the impact of ending textile quotas on Bangladesh.

  • Moss (2004) argues foreign aid alone will not solve Africa’s problems, domestic reforms are also needed.

  • Murdoch (1999) discusses the promise of microfinance in alleviating poverty.

  • Naím (2007) is skeptical of foreign aid, arguing it often does more harm than good due to bad government policies in recipient countries.

  • Nellis (2005) discusses privatization experiences in Africa with mixed outcomes.

  • Remittances are a large and growing source of capital for developing countries according to Ratha et al (2005, 2008). They can be leveraged to support broader development goals.

Here is a summary of the key points from the sources provided:

  • The Marshall Plan (1947) provided over $13 billion in economic aid to help rebuild European economies after World War 2. It is seen as highly successful in restoring economic growth and stability in Western Europe.

  • The US African Growth and Opportunity Act (2000) aimed to assist economic development and trade ties between the US and Sub-Saharan Africa by providing duty-free access to the US market for many African exports.

  • Critics argue that US cotton subsidies damage African cotton producers’ livelihoods by depressing global cotton prices.

  • Testimony before the US Congress argued that the IMF faces challenges in balancing its role as a development institution with its mandates related to international monetary stability.

  • Studies show that foreign aid can be more effective when tied to good governance and anti-corruption measures in recipient countries. Aid is less effective when it supports corrupt governments.

  • Foreign direct investment has become a major source of capital for developing countries, surpassing foreign aid. China has emerged as a significant investor in African infrastructure and natural resources.

  • Remittances sent home by migrants in the diaspora exceed the scale of foreign aid and are a growing source of funds for some developing countries. Diaspora bonds are proposed as a way to tap these remittance flows.

  • Greater use of capital markets, issuing bonds, and developing domestic private sectors are presented as alternatives to dependence on foreign aid for financing development. Successful examples are cited from countries like Brazil, Mexico, and India.

  • Corruption, instability, weak institutions and policy failures often undermine the effectiveness and impact of foreign aid in achieving economic growth and development. Some argue for abandoning foreign aid in favor of trade and investment ties.

Here is a summary of the document outline:

The book is divided into two parts. Part I discusses the current world of aid, including chapters on the myth of aid, a brief history of aid, why aid is not working, and how aid can hinder growth.

Part II envisions a world without aid and uses the fictional country of Dongo as an example. Chapters discuss rethinking the aid dependency model, using capital solutions, partnering with China for development, increasing trade, and expanding access to banking.

The book concludes with a revisiting of Dongo, discussing how development can happen without relying on foreign aid. Additional sections include notes, bibliography, acknowledgements, and an index.

In summary, the book argues that foreign aid has not effectively reduced poverty and proposes alternatives for developing countries to pursue growth through trade, investment, and private sector development instead of relying on aid. It uses the Republic of Dongo as a case study to explore what development could look like without foreign assistance.

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About Matheus Puppe