Why Aid Is Doing More Harm than Good to Africa

Before I moved to the United States, I had a chance of visiting Biryogo, the largest slam in Rwanda. This suburb of Kigali, the capital of Rwanda, is home to approximately two hundred thousand people, who eke out a living in an area of about two square kilometers (roughly the size of Portland’s Old Port.) The idea of slum conjures up an image of children playing amidst piles of garbage and of cow’s manure, with no running water; it also jogs one’s mind of mothers with desperation on their faces, and of babies crying of hunger. Biryogo doesn’t disappoint.

What disappoint the most is that the world still underestimates the scale of African governments’ corruption and of the ineffectiveness of foreign aid to Africa. The insidious aid culture has left African countries more laden with debt, more inflation-prone, more vulnerable to the vagaries of the currency markets and more unattractive to higher quality investment.

African leaders live off theft of state funds, especially of those in forms of foreign aid. Instead of using aid to build infrastructures, to invest in education, and to open new markets for small and medium size enterprises, African leaders instead use that money to live a luxurious life. One watchdog group estimated that former Zairean President Mobutu Sese Seko took billions from the country. President Mobutu is an example of many African leaders, who were motivated by the knowledge that seizing the seat of power would gain them virtually unfettered access to the package of aid. Unsurprisingly, Africa remains the most unstable continent in the world.  Future generations are always victim of odious debt, whereby unjust debt is incurred as rich countries loan dictators or other corrupt leaders when it is known that the money will be wasted. South Africa, for example, shortly after freedom from Apartheid had to pay debts incurred by the apartheid regime. In effect, South Africans are paying for their own oppression. It is understood that African countries still pay close to $20 billion in debt per annum, a stark reminder that aid is not free.

Despite this constant flow of aid towards Africa, things have always been going from bad to worse; not only have many African countries been plunged into egregious debt, but also into other economic fallouts such as inflation. For example, during the height of inflation from 2008 to 2009, it was difficult to measure Zimbabwe’s hyperinflation because the government of Zimbabwe stopped filing official inflation statistics. However, Zimbabwe’s peak month of inflation was estimated at 79.6 billion percent in mid-November 2008. This inflation is another disputable, but well documented fact that foreign aid has made Africa more vulnerable to the vagaries of the currency markets and more unattractive to higher quality investment. Instead of buying food from farmers within the continent, and to distribute that food to the local citizens, each year millions of dollars are used to buy American grown food, which puts local farmers out of business. When you look on a bigger picture, large inflows of money can kill off country’s export sector, by driving up home prices and thus making their goods too expensive for export. Aid has the same effect. Large dollar aid causes the domestic currency to strengthen against foreign currencies. This is catastrophic for jobs in the poor country where people’s livelihoods depend on being relatively competitive in the global market.

Speaking of the competition in the global market, it has always been highlighted that nations that change their mentality of waiting for aid, but focus on growing markets and trade eventually start to grow their economies. Let me proudly state that Rwanda, my birth country, is now the most competitive place to do business in East Africa and 3rd in Africa (WEF-Global Competitiveness Index Report 2013-2014 page 3).  Rwanda is now politically stable with well-functioning institutions, rule of law and zero tolerance for corruption.  It has an 8% average year-on-year GDP growth, stable inflation and exchange rate. These impressive achievements by Rwanda are driven by a clear vision for growth through private investment set out by President Kagame. He has held incentive meetings around the world calling for investments in Rwanda, and he’s adopted a culture of cutting foreign aids little by little with a goal of making Rwanda self-sufficient.

Few will deny that it is imperative to step in with charity-based aid when necessary, such as during the aftermath of Genocide in Rwanda. Nevertheless, it is commonly admitted that aid is an unmitigated political, economic and humanitarian disaster. Unbelievably, over the past sixty years, at least one trillion US dollars of development related aid has been transferred from rich countries to Africa. Yet real per capita income today is lower than it was in the 1970s, and more than fifty percent of the population lives on less than a dollar a day. The good news is that we know what works and what doesn’t. We know that economies that rely on open-ended commitments of aid almost universally fail, and those that don’t depend on aid succeed. The latter is true for economically successful countries such as China and India, and even closer to home, in South Africa and in Botswana. Their strategy of development finance emphasizes the important role of entrepreneurship and markets. Thomas Sankara, former “Burkinabe” president, once said, “Aid to Burkina Faso must serve to strengthen not to undermine our sovereignty. It should help to destroy the need for further aid. All aid that puts further aid to death is welcome in Burkina Faso. But all aid that creates a beggar mentality, we will have to do without.”

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