Economics

Africa Needs Fewer Humanitarians, More Profit-Seeking Chinese Investors

|

Large image on homepages | Helen Jones Photography via Wikimedia Commons
(Helen Jones Photography via Wikimedia Commons)
Dambisa Moyo headshot
Credit: Helen Jones Photography via Wikimedia Commons

According to Zambian economist Dambisa Moyo, the key to lifting millions of Africans out of poverty lies not in foreign aid but in profit-seeking investments from China. The U.S. doled out almost $50 billion in foreign aid in 2011, and research shows that a lot of it went to preserving corrupt systems that keep the majority poor and without rights.

Wolfgang Kaspar, author of a 2006 study that examined the corruption inadvertently caused by foreign aid writes:

A major cause for the rising tide of graft is foreign aid. Aid rarely reaches the poor and is rarely cost-effective. Despite assertions by well-paid foreign-aid lobbyists, unconditional foreign aid has failed. Thus, huge aid flows to Africa have only rewarded incompetent despots and kleptocratic elites, whereas absolute poverty has plummeted in India and China, countries which have received comparatively little foreign aid. In countries which derive over half their national budget from foreign aid transfers—as is now the case in many African and South Pacific countries—genuine democracy has no chance.

Moyo provides a succint explanation of the phenomenon in a 2009 article for The Wall Street Journal:

A constant stream of "free" money is a perfect way to keep an inefficient or simply bad government in power. As aid flows in, there is nothing more for the government to do -- it doesn't need to raise taxes, and as long as it pays the army, it doesn't have to take account of its disgruntled citizens. No matter that its citizens are disenfranchised (as with no taxation there can be no representation). All the government really needs to do is to court and cater to its foreign donors to stay in power.

The continued existence of these corrupt governments keeps foreign investment away, in spite of the fact that—as Moyo highlights—"the structural and fundamental structures of Africa right now are poised for a very good few decades" due to the availability of labor and a favorable debt-to-GDP ratio.

But just as outside investors offer a promise of change as the U.S. faces the very real possibility of diminished foreign aid budgets, the Chinese government might hamstring it. Last summer, China announced $20 billion in aid to Africa.