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Time to get more creative about aid

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I’ve just finished Dead Aid, Zambian economist Dambisa Moyo’s book on “why aid isn’t working and how there is another way for Africa.”

At a time of STERP and budget slashing, Moyo’s book poses an interesting challenge to Zimbabwe’s Minister of Finance and the inclusive government as a whole.

Moyo is sharply critical of aid and its role in Africa’s development:

Sixty years, over US$ 1 trillion of African aid, and not much good to show for it. Were aid simply innocuous – just not doing what it claimed it would do – this book would not have been written. The problem is that aid is not benign – it’s malignant. No longer part of the potential solution, it’s part of the problem – in fact aid is the problem.

Foreign aid and concessional loans have contributed to Africa’s bad governance and human rights track record, Moyo posits, by supplanting the relationship between governing and governed with the relationship between government and donor.

Moyo doesn’t for a moment doubt Africa’s need to develop. But rather than relying on aid for this purpose, Moyo recommends that countries instead turn to a combination of:

  • Bonds
  • Trade – local, regional and foreign
  • Foreign Direct Investment
  • Micro-finance
  • Leveraging remittances

In her book, Moyo outlines the potential each one of these areas has for promoting growth – and the challenges countries would face in leveraging each of these options.

Unfortunately, the principle challenge raised by Moyo’s suggestion is a governance one – it would require political will for governments to convert their aid dependency into a more business model approach to financing. Financing is hard work compared to getting aid, and it requires transparency, accountability, and sound decision making to keep it. For politicians who have themselves been getting rich off of aid – even as their countries don’t develop – there’s a disincentive to move to the harsher conditions of the market. Those politicians who would want to change would face stiff resistance from their more corrupt and less forward thinking colleagues.

Despite the obstacles, Moyo consistently argues that moving away from donor dependence and towards a more diversified, business model of finance, is good for its own sake, as well as having the potential to be more financially lucrative. Of course, as Moyo points out, having confidence in the institutions – the banking system, the government, the laws, and the government’s respect for these laws – is an important part of encouraging business in a country.  Zimbabwe has a long way to go on this score; suspicion is still rife.

But Moyo’s point on remittances particularly stood out, given recent conversations I’ve been having.

The UN estimates that there are around 33 million Africans living outside their country of origin. Remittances – the money Africans abroad sent home to their families – totalled around US$20 billion in 2006. According to a United Nations report entiteld Resource Flows to Africa: An Update on Statistical Trends, between 2000 and 2003 Africans sent home about US$17 billion each year, a figure that even tops Foreign Direct Investment, which averaged US$ 15 billion during this period.

Although the actual remittance sums taken individually are relatively small, taken collectively the remittance amounts flowing into African nations’ cofferes are enormous. On  a household level, remittances are used to finance basic consumption needs: housing, children’s education, healthcare, and even capital for small businesses and entrepreneurial activities – the heart of an economy.

Remittances are, of course, in some sense a form of aid (the recipient is essntially getting something for nothing). And like other forms of aid, there is the inherent risk that remittances encourage reckless consumption and laziness. But at least some part of the money is reaching the indigent and making its way to productive uses. And unlike aid, it does not increase corruption.

With Zimbabwe having moved to a US dollar based economy, obviating the official vs. parallel market exchange rate dilemma, and with the mandatory foreign currency remittance to the central bank lifted, moving money from overseas into local bank accounts should become easier. And hopefully, with an interim government that is able to engender a bit more trust in the population, encouraging remittances should be met with less cynicism than Gono’s Homelink initiative was some years back.

Even my lowly banking society, CABS, has created USD accounts for all of its existing ZWD account holders. One only has to deposit $10 into the account for it to be active – the same swipe card, account number and pin number apply.

One can imagine an economy in which shops again started offering point of sale services – for customers to swipe their USD account bank cards. Schools could offer their account details for both local and Diasporan Zimbabweans to pay school fees directly into their accounts. Relatives could make other purchases, for example for electronics, equipment or other investments directly into the supplier’s bank account.

Morgan Tsvangirai recently estimated that rebuilding Zimbabwe will require at least US$ 5 billion. The revised 2009 budget stands at about US$ 1 billion – and most of that is for running the country, not rebuilding it. And whilst Zimbabwe is asking for aid, Mugabe’s and Zanu PF’s assets remain untouched. Zimbabwe needs financial help – but it needs this help to solve its problems, not create new ones or compound the existing ones. It’s time to get creative about how we finance our future – and depending on donors to bail us out isn’t the only way.

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