Where does most of that money go?
While the report cited is several months old, Declan McCullagh recently wrote about how nearly all government-to-government foreign aid to Africa ends up in Swiss bank accounts.
For instance, in 2004 $94 billion was desposited into the accounts, most originating from African politicos. The following year the amount increased to $150 billion. In all, about 80% of all aid given to Africa was "stolen by corrupt leaders and transferred back into Western bank accounts."
Bureaucratic governmental projects also have a dismal track record of working as "World Bank's aid projects failed 55 to 60 percent of the time." Furthermore, "transfer payments have failed to stimulate economic growth in Africa where the average income per person is 11 percent lower today than it was in 1960."
In addition, despite receiving fistfulls of "free" capital, productivity levels did not increase:
The productivity increase that resulted from $187 billion's worth of aid going on "public investment" in 22 African countries between 1970 and 1994 is a very precise figure: zero. The Ajaojuta steel mill in Nigeria helps to explain why so much produced so little. The Ajaojuta project began in 1979. Nearly 30 years and more than $5 billion later, it has yet to produce a single bar of steel.McCullagh was writing in response to WEF speakers in Davos, Bill Gates in particular, who call for more foreign aid to African countries.
A couple years ago Walter Williams pointed out why this free-aid policy is foolhardy,
Nearly every sub-Saharan African nation is poorer now than when they became independent during the '60s and '70s. Since that time, food production has fallen by roughly 20 percent. Since 1975, per capita GDP has fallen at a rate of half of one percent annually. Nigerian President Olusegun Obasanjo estimated, "Corrupt African leaders have stolen at least $140 billion from their people in the [four] decades since independence."Be sure to also read Will More Foreign Aid End Global Poverty? and the Spiegel interview with economist James Shikwati -- in a nutshell, free trade not free aid.
Comments (22)
Owen
Africa is almost permanently hamstrung by the dictatorial regimes installed since the end of the Cold War and which followed 60 years of colonial rule.
Africa will never begin to prosper until power is returned to the people in the form of democratic government and land reform which returns to the people the land which has been stolen from them.
Talking about the performance of African aid without mentioning these facts is a bit foolhardy I think...
Published: January 27, 2008 1:23 AM
Serge Beauchamp
To respond to Owen:
I think that the problem is in fact, the exportation of western democracy to Africa.
The West didn't growth rich because of democracy, but in spite of it.
The west grew rich because of the institution of private property and the rule of law, within a context of decentralisation power between feudal states and the church.
Democracy fuels socialism, it is the source of the problem. Africa needs to be left alone politically and mature on its own, instead of the West funding their government.
But western politicians and bureaucrats can't possibly teach another nation how to develops, since they are themselves obstacles to the growth of their own nations.
Published: January 27, 2008 3:34 AM
TLWP Sam
Why because kings had to have long term outlooks and could emphasise with the merchants? That hereditary rule of Monarchs fitted nicely with hereditary businesses of the merchants? That the people have no more rights to dispose of the rulers of the day any more than employees can control dispose the owners of a company and run it themselves?
Published: January 27, 2008 6:35 AM
Jake
Owen,
I visited your website. I pray that the citizens of NZ will avoid your party like the plague!
Published: January 27, 2008 8:29 AM
Stranger
The solution to African poverty is already underway, and you can bet it doesn't involve any western governments:
http://www.guardian.co.uk/feedarticle?id=7243159
Published: January 27, 2008 9:02 AM
Inquisitor
Of course, it is naivety such as Owen's that is the heart of the problem. The recent article here on the law of the Somali made a good point regarding the fact that democracy in Africa so far has failed because of the strong level of tribalism that exists there. Instead of letting the Africans remain true to their traditions, we, the more knowledgeable colonists, must show them the way! It is this mentality, IMO, that hinders Africa.
Published: January 27, 2008 9:19 AM
Thomas James
It's also important to realize that for those leaders in Africa that they have a sustained moral hazard to keep the economies they are receiving money for in poor condition, in order to receive more future payments. The fact they take it off the top not only makes doing this easier but makes it all the more tempting to maintain the state of affairs as the aid is far more in amount than they as individuals could raise independently.
Published: January 27, 2008 9:56 AM
Jakealope
I think the mentality and level of the average African is the root cause. All this theoretical talk about governments and socialism ignores the absolute primitive mentality of most of the people. Instead, here in the west, we get bombarded with alleged African achievements, which at best are about 2 millenia old.. But when Dr. Watson spoke out last year and said what most people really believe, he was attacked and humiliated by people who couldn't even understand high school bology.
Published: January 27, 2008 1:44 PM
jeffrey
My sense of Bill Gates's comments is that he has too limited a view of what constitutes capitalism. He thinks it means investing, buying, selling, and marketing--the for-profit cash nexus. But if we think of capitalism as nothing but the economic system of a free society, capitalism also includes charitable work, charitable giving, non-remunerative service, sharing, etc. etc. In that sense, what he says is perfectly true in general even if his intended application is wrongheaded.
Published: January 27, 2008 3:49 PM
Yancey Ward
Foreign aid's purpose really isn't to do good for the African people but, rather, to raise the self-esteem of the "givers".
Owen is correct that the problems of Africa are their poor government, but the aid only sustains these corrupt governments; and the solution cannot be "installed" by any other than the people of Africa themselves.
Published: January 27, 2008 7:40 PM
David
Yancey makes an important point about the undermentioned role of foreign aid, as a personal self-esteem boost to the donors.
I'm no expert on foreign aid or Africa, but these are interesting questions that really seem to get passed over in the popular press.
Personally, I take my cues on Africa and foreign aid/involvement from someone like Jim Rogers, rather than Bono. He (Rogers) has made some interesting statements in the past based on his travels and personal observations.
For example, the indiscriminate support for foreign aid money seems to help African dictators and corrupt regimes rather than common people.
http://financetrends.blogspot.com/2007/12/marketing-war-disease-and-genocide.html
http://financetrends.blogspot.com/2007/12/update-to-darfur-congo-post.html
Published: January 27, 2008 9:14 PM
newson
owen says:
"Africa will never begin to prosper until power is returned to the people in the form of democratic government and land reform which returns to the people the land which has been stolen from them."
owen's political platform is a curious mix of georgism and socialism. nothing that hasn't been tried and failed over the past century. rivers of tears and blood thrown in for good measure.
however, the land-reform point he raises merits serious discussion at mises.org.
many of the ldc's do suffer from the results of the colonial land-grab, but to address these via state re-distributions smacks of socialism, and risks going down the zimbabwe road.
two wrongs don't make a right, and the black empowerment aspirations of the south african government towards the mining industry also smacks of marxism.
Published: January 27, 2008 10:23 PM
newson
owen says:
"Africa will never begin to prosper until power is returned to the people in the form of democratic government and land reform which returns to the people the land which has been stolen from them."
owen's political platform is a curious mix of georgism and socialism. nothing that hasn't been tried and failed over the past century. rivers of tears and blood thrown in for good measure.
however, the land-reform point he raises merits serious discussion at mises.org.
many of the ldc's do suffer from the results of the colonial land-grab, but to address these via state re-distributions smacks of socialism, and risks going down the zimbabwe road.
two wrongs don't make a right, and the black empowerment aspirations of the south african government towards the mining industry also smacks of marxism.
Published: January 27, 2008 10:26 PM
newson
to mises.org:
the key-slapping slippard is at it again. i got the confirmation, but nothing appeared. posted again, and was successful.
Published: January 27, 2008 10:30 PM
jeffrey
we'll get there. classic case of an "upgrade"
Published: January 27, 2008 10:35 PM
Chris Heath
Unfortunately most of African politics is along tribal lines rather than country lines, so this is why there is so many problems. The distribution of Aid is a problem everywhere, because the countries that usually get it dont have a competent goverment structure, maybe the way forward is to create distribution systems that can be imported to any country that aid is sent too.
Published: January 27, 2008 11:54 PM
TokyoTom
Most of the comments here about aid are right-on. It is kleptocracy and the lack of clear and enforceable property rights that so hamstrings development in much of Africa and elsewhere. I'm just glad no one here has yet to try to blame enviros for the problem, as one writer did recently when rightly pointing out that "climate change welfare" is unlikely to be of much help: http://mises.com/blogs/tokyotom/archive/2008/01/22/poor-countries-need-capitalism-not-climate-change-welfare.aspx.
Tribal-based corruption at the state level also undercuts traditional community property approaches to resources. The result in many places is a free for all and spiralling population and environmental damage, fuelling conflicts like we saw in Rwanda, the Congo and now Darfur.
There are very sticky problems there, but I don't believe we can turn our back on them. Donors should be looking to improve/reward effective governance. Perhaps also greater cooperation among Western forms operating in developing countries would be helpful as well.
Published: January 28, 2008 4:04 AM
DS
What this situation really needs is for the Rock Stars of the world to hold a concert and get rid of all this poverty once and for all. It worked in the 80's when all the poverty in Africa went away.
Published: January 28, 2008 6:49 AM
Miklos Hollender
My Buddhist teacher (Lama Ole) said about 20 years ago: "Development aid is making the poor people of rich countries pay to the rich people of poor countries." He isn't an economist, but has a lot of common sense.
Published: January 28, 2008 7:52 AM
Curt Howland
Let's see.
"tribal rather than national", with "national" boundaries imposed upon them by their conquerors, governments imposed upon them, now "aid" imposed upon them.
Why is anyone surprised that things don't work?
Somalia throws off the imposition and goes back to tribal dealings, and things settle down almost overnight. Again, why is anyone surprised?
Published: January 28, 2008 11:57 AM
Jay
There are two things--actually, make that three things--that Africa needs to become prosperous:
1) They need peace.
2) They need freedom.
3) They need jobs.
Published: January 29, 2008 4:11 AM
Aaron Kinney
True, Jay, but you forgot the list of things they DONT NEED in order to prosper. Or should I say, things they need to absolutely GET RID OF:
1) government
2) government
oh, and I almost forgot the most important one:
3) government
Published: February 15, 2008 11:32 AM