Comment: Not "Dead Aid" but Reverse Aid

In one of the most controversial books about international aid in recient years, Dambisa Moyo says that African nations are worse off than they were 50 years ago. In her book "Dead Aid" she uses the figure of $1 trillion dollars when talking about the total amount of money that has been spent in African aid.

However in this commentary from Joy Online, Dr. Nii Moi Thompson challenges the figure and describes why it may not be entirely accurate. At the same time, Dr Thompson shows an unwanted side-effect that some aid loans have on African nations. Dr. Thompson is a development economist who lives in Ghana.

First is the exact scale of the “aid” that Moyo tells us, with irritating frequency, has been “transferred to Africa” over the past 50 years with seemingly no meaningful reciprocity. She parrots the oft-repeated claim of “US$1 trillion,” a figure whose origin and credibility remain murky, at best.

But that’s only half the problem of Dead Aid. The other (unspoken) half is the amount of money that poor countries have transferred to rich countries over the same period.

Perhaps for Moyo there is no data on this other transfer to warrant its discussion, but the case of Ghana (a poster child of the aid-underdevelopment paradox) shows why such an omission cannot be ignored for whatever reason.

In 1994 (five years before donors labeled it “heavily indebted” and “poor”), Ghana’s budget statement made the following grim disclosure about its 1993 performance: “In the second half of the year, Ghana also obtained a Compensatory and Contingency Financing Facility [from the IMF] equivalent to US$65.1 million. At the same time an amount of US$67.9 million was paid back to the IMF, thereby showing a net outflow to the IMF of US$2.8 million.” If every African country in 1993 sent out an average of US$2.8 million more to donors than it received, that would be about US$150 million in net transfers, a princely sum for a continent supposedly hard up for development finance.

Of course we cannot forget the well-known disparity between what donors publicly pledge to “transfer” (headline aid) and what they eventually give to, or for, poor countries (pipeline aid). For example, data from Ghana’s Ministry of Finance shows that between 1990 and 2006, donors promised some US$1.1 billion in aid to the education sector but actually disbursed US$766.9 million
But even here we must distinguish between “disbursements” and “transfers”. Some donors insist, as a matter of commercial policy, that a portion of disbursed aid (sometimes as high as 75%) be spent on imports, including consultancy services, from their home countries; very little money is actually “transferred” to the recipient countries.

Besides the well-known problems with such “tied aid”, poor countries also lose large amounts of their own monies to rich countries through such practices as transfer pricing (self-dealing) and invoice-tampering by unscrupulous multi-nationals, as well as the abuse of tax holidays granted to these multi-nationals ostensibly to help stimulate economic growth in poor countries. In Ghana, some multi-nationals have been known to sell off their assets to others, typically from their home countries, just as their tax holiday is about to expire for them to pay taxes. The tax holiday is effectively extended, depriving Ghana of resources for development and, paradoxically, deepening its aid dependence.

Perhaps rather than Dead Aid we should be talking about Reverse Aid.