Week Seven: Moyo on Aid

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Dambisa Moyo “is a Zambian-born author and international economist who analyses the macroeconomy, foreign aid impact, and global affairs” (Wikpedia) who wrote the book Dead Aid: Why Aid is Not Working and How There is Another Way for Africa. In her book, Moyo “argues that foreign aid has harmed Africa and that it should be phased out” and “offers proposals for developing countries to finance development, instead of relying on foreign aid” (Wikipedia).

Dambisa Moyo

She suggested four alternative sources of funding for Africa that included using international bond markets, spreading microfinance institutions, having a large-scale direct investment in infrastructure policy (similar to China), and encouraging free trade for agricultural products.

As Moyo argues in her book, aid is simply not working. Moyo says on page 27, “Western donors are increasingly looking to anyone for guidance on how best to tackle Africa’s predicament” which refers to the fact that Bono spoke to President George W. Bush about the aid crisis in Africa. She quotes a critic of an aid model as saying, “my voice can’t compete with an electric guitar” meaning that people are more likely to listen to someone famous who they recognize over someone who might have more knowledge and a better understanding of the issue.

Moyo also talks about the vicious cycle of aid. On page 49, she says:

“Foreign aid props up corrupt governments- providing them with freely usable cash. These corrupt governments interfere with the rule of the law, the establishment of transparent civil institutions and the protection of civil liberties, making both domestic and foreign investment in poor countries attractive. Greater opacity and fewer investments reduce economic growth, which leads to fewer job opportunities and increasing poverty levels. In response to growing poverty, donors give more aid, which continues the downward spiral of poverty”.

Below is a video from 2009 where Moyo talks about Dead Aid and talks about if aid is killing Africa.

The Washington Consensus is a term “coined in 1989 by English economist John Williamson to refer to a set of 10 relatively specific economic policy prescriptions that he considered constituted the “standard” reform package promoted for crisis-wracked developing countries by Washington, D.C.–based institutions such as the International Monetary Fund (IMF), World Bank, and the US Treasury Department” (Wikipedia). There a ten policies that are considered necessary for “first stage policy reform” (WHO).

10 Policies

  • Fiscal discipline – strict criteria for limiting budget deficits
  • Public expenditure priorities – moving them away from subsidies and administration towards previously neglected fields with high economic returns
  • Tax reform – broadening the tax base and cutting marginal tax rates
  • Financial liberalization – interest rates should ideally be market-determined
  • Exchange rates – should be managed to induce rapid growth in non-traditional exports
  • Trade liberalization
  • Increasing foreign direct investment (FDI) – by reducing barriers
  • Privatization – state enterprises should be privatized
  • Deregulation – abolition of regulations that impede the entry of new firms or restrict competition (except in the areas of safety, environment and finance)
  • Secure intellectual property rights (IPR) – without excessive costs and available to the informal sector
  • Reduced role for the state.

Sources: Wikipedia, Youtube, Wikipedia, WHO

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