Sudip Bandyopadhyay’s Blog

The recent debate about aid, sparked by Dambisa Moyo’s book Dead Aid, has polarised the development community.  However, effective aid has an important role to play in the quest for sustainable economic growth and poverty reduction.

In her book, Ms Moyo suggests that government bonds can take the place of development assistance. This is probably unrealistic. First, debt markets are not open to the African countries that most need capital. Second, the cost of government bonds is materially higher than that of World Bank or other institutional aid. Why should African governments pursue a detrimental line of financing to satisfy an ideologically-led approach to development?  Furthermore, even before the economic downturn, most financial institutions were not interested in investing in sub-Saharan Africa in a sustained manner, despite the fact that for the past 10 years the rate of growth has exceeded that of Europe. It is implausible that they will be interested now. It is investment and good governance, not aid, which can solve Africa’s problems.

However, Africans do not hold a monopoly on governance failures. It is the failure of financial institutions in developed countries to govern themselves that led to a global crisis that surpasses anything in recent history - one that their governments have responded to with aid in the form of bail-outs. We must acknowledge that bad governance is as endemic in rich countries as in the developing world.  The critical argument should not be about aid or no aid - no one can question the necessity of pure humanitarian aid as long as it satisfies basic good governance criteria. The argument should be about where to focus aid to achieve the best returns for donor taxpayers and aid recipients.  May be we can consider  two areas to focus aid: the hardware of Africa, infrastructure and regional integration; and human software, in the form of education and health.

The reality is that most African countries are sub-scale and fundamentally unable to compete in a global market. If economies the size of the UK, Germany and France find regional integration necessary to ensure growth, then 53 un-integrated African states have a competitive disadvantage. This fragmentation is evident in Africa’s transportation infrastructure, geared towards trade outside rather than within the continent. Africa needs to integrate its economies and open their borders to each other. Development aid can help these efforts and facilitate intra-African trade. This capital investment cannot succeed without investment in education and health.