This is Why Aid Does Not Work

Africa has long been the litmus test: if aid succeeds in Africa, then we have a working model of what it takes to lift a country out of poverty and make an economy grow.

But aid in Africa, as researchers at the Brookings Institution recently pointed out, has failed in the past and is now failing miserably. Africa still has an extraordinarily large proportion of "working poor" - people who work hard and yet can't lift themselves out of the poverty trap. Industries exist in Africa, yet they don't expand, they don't attract workers and if they do, they pay them miserable wages.


Here are the reasons given by John Page in an excellent blog post about what President Obama missed in his African trip -  I recommend you read it in its entirety (click here):

What President Obama didn’t see on his trip to Africa  
U.S. President Barack Obama delivers remarks at the African Union in Addis Ababa, Ethiopia July 28, 2015.
President Barack Obama delivers remarks
at the African Union in Addis Ababa, Ethiopia July 28, 2015.
 On his fourth trip to Africa, President Obama celebrated a changing continent. A change that he did not see, however, was growing numbers of workers in jobs that pay good wages and offer some employment security. In fact, except for a few high-tech entrepreneurs in Kenya and the staff of a U.S.-sponsored food supplement plant in Ethiopia it is unlikely he saw many Africans engaged in modern, high productivity jobs at all. That is because, despite nearly 20 years of solid GDP growth, Africa’s economies are creating too few jobs in the sectors that count: those with output per worker high enough to offer decent wages and a path out of poverty. More worrying still, the fastest growers are creating the fewest jobs (see Figure 1). Ethiopia and Kenya, the two countries on this visit, are among the region’s least successful countries in converting economic growth into employment growth. This is not how economic transformation is supposed to work. 

Figure 1. Tilting the Wrong Way: Employment growth and growth in GDP in African countries (Average 2000-2011)

Source: Page and Shemeles (2015)
But the main point he makes is this:

[It is a] sad fact that donors—the United States among them—have not been willing to address the more fundamental constraints to Africa’s industrial development: simple but costly things like infrastructure and skills or politically difficult things like expanding preferential market access. For example, slow implementation of Power Africa, lack of progress in improving educational quality, and the failure to extend the African Growth and Opportunity Act to most agricultural products were notably absent from the president’s published remarks.

And he closes his post, promising more on what can spur African growth and reflecting that

Africans, especially the young seeking good jobs, deserve something more from the U.S. president than cheerleading and conventional wisdom. 

Yes, conventional wisdom has been around for too long. And cheerleading is a way to  avoid the real issues.

Development can happen if, and only if:

1. Enough is done to develop the necessary public infrastructures: roads, bridges, ports, railways, warehouses etc etc

2. Enough is done to develop the needed skills and social services: education, technical training, health services etc etc

3. Enough is done to invest directly where most of the poor are, in rural areas. Laurent Thomas, FAO's Assistant Director General, upon returning from a major donor funding conference in Africa (Third International Conference on Financing for Development in Addis Ababa last week) makes a strong case for investing in agriculture: see his article on Impakter, here. A must read.

4. Enough is done to really open markets in the West for African goods: something is done, but not enough, it's more like a lip service to "free trade". Developed countries hide behind sophisticated customs barriers of all kinds and subsidize their own farming, making competition impossible for African farmers.

Photo on Impakter: Farming for the future (Tanzania) - Credits to ©FAO/Sara Quinn

We've known this for the past 70 years, ever since the United Nations was founded, as the world came out of World War II and everything had to be rebuilt.

It's not a magic recipe, it's not difficult to implement.

It just happens to be costly and people in the West are afraid to see the Third World poor come out of poverty - forgetting that trade between equally wealthy partners is really the best trade of all, the one that creates true and enduring wealth.

What do we want, true and enduring poverty?

To sum up: if aid does not work, it's because we're not doing the right things to make it work.