“Dead Aid” Review Sparks Exchange

My review of Dead Aid, Dambisa Moyo’s provocative book about the failures of aid in Africa, has drawn comments from several places. One of the more interesting exchanges was with “An American in Kathmandu” that occurred on my blog on Daily Kos. The exchange began with a quote from my review:

I also fail to see how corrupt leaders and their minions will be any less likely to steal funds from private lenders than they are from the World Bank. Perhaps my most significant objection, though is when Moyo says the developing nations will be better served paying ten percent interest (the rate she quotes for emerging market debt in 2007) than the 0.75% they are charged by the World Bank. How does that work to anyone’s advantage other than the investment bankers?

“American in Kathmandu” wrote:

Exactly. So what to do? Just walk away? That’s hard to do in the face of the kinds of human suffering that you see. And there are some successes. Sometimes two steps forward and one back. Sometimes the other way around, depressingly. Sometimes it’s in one sector, or one district, or simply for a few thousand people before the good policies are reversed.

I don’t think there are easy solutions, but I do want to grapple for what the harder answers might be.

My response:

There is no one-size-fits-all solution to Africa’s economic problems. As you know, every country is different, every situation unique. In general, though, I rather admire the Chinese approach similar to the deal being negotiated now in the DRC: we’ll build you a railroad; you give us rights to develop these mines. Ignoring the way they treat their workers (for the sake of this argument), such a deal pretty much gives everybody what they want without a layer of ideology. Local companies and/or labor do much of the work on both the project and the mines, the government gets revenue from the mines in the form of royalties and taxes, and the Chinese get a source of minerals for their industries. Such deals don’t have to be for extractive industries, either; they can cover manufacturing, agricultural, or even service industries where direct foreign investment (not government-to-government aid) makes sense. Of course, there are several miles of hurdles to be jumped to get to these deals and make them fair, etc., but they are doable. They are also only one of a number of ways to approach the development dilemma.

Which brought this reply from “American in Kathmandu”…

China’s doing a lot of this in Africa now, the downside though, is that as you say, with the ideology removed, it really becomes about pure self-interest for China. Thus very little concern with environmental sustainability and social impact – e.g., the way everyone didn’t like that institutions like the World Bank used to behave time 100. There’s quite a lot of emphasis being put on public-private partnerships these days, including on models like what China is doing on such a massive scale now across Africa, but it also raises issues about who owns things – water resources, the best agricultural land, etc., being big concerns.

It’s an approach that should be considered – but at the same time, fraught with difficulties about how you avoid the same “colonialistic” seizing of things of value in the global South by outsiders with very little concern for the sustainability and impact on the average citizen in those countries, with the deals being approved by an often corrupt and undemocratic ruling elite.

My response was:

What public-private partnerships need in Africa is the element that’s sorely missing in opaque societies like the kleptocracies that are the norm: rule of law. If there is a fair commercial code and other body of law, an independent judiciary to enforce it, and a transparent process for awarding of contracts for development, the rights of the people of the nations involved can be protected along with their interests in the land and other resources being developed. Every party, be they the governments of China and the DRC, multinationals like Freeport McMoRan, or the World Bank, operates in its own self-interest; the rule of law makes sure the people don’t get trampled in the process. Private developers aren’t evil, they just need to be controlled for the interests of the nation, not the kleptocrats. A company that provides capital to develop a resource that builds jobs for the country and spawns ancillary supporting industries and infrastructure can also pay substantial taxes and royalties, which is a good thing as long as they go into the public coffers and not into Swiss bank accounts. The rule of law is necessary to make that happen.

“American in Kathmandu” replied “I agree the rule of law is critically important.”

Dave Donelson, author of Heart of Diamonds a about in the

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