Foreign Aid– Dead, or in Need of Resuscitation?

Dubbed “the Anti-Bono” by the New York Times, Zambian-born Dambisa Moyo is generating buzz. In her recently published book Dead Aid, she maintains that foreign aid is largely holding Africa back. And despite the fact that billions of dollars of aid have been poured into the continent, poverty rates continue to escalate. In an interview with the New York Times Magazine:

“You get the corruption – historically, leaders have stolen the money without penalty – and you get the dependency, which kills entrepreneurship. You also disenfranchise African citizens, because the government is beholden to foreign donors and not accountable to its people.”

While it doesn’t take a rocket scientist to figure out that foreign assistance has been problematic in reducing poverty rates, Moyo’s alternatives caught my eye, among which are: bonds, dealing more with China, and cutting all aid in the next five years (arguably her most controversial proposal), more microfinance, and remittances.

Her call for cutting all aid to Africa in five years made me think: what about reforming aid so that it takes more of a bottom-up approach? Is it simply aid that’s to blame, or how it’s being used? If it’s the latter, then what about re-thinking aid such that it reflects the very alternatives that Moyo proposes– such as smart ways of channelling remittances, and harnessing the power of microfinance, including increasing access to savings and asset-building?

On remittances: everyone knows that global remittance flows exceed foreign aid worldwide, and that their potential to aid in development is enormous. What about thinking about how to better utilize remittances, the way that Banco ADOPEM has in the Dominican Republic? (ADOPEM has designed a product linking remittances to asset-building products for clients in recipient countries; see my blog post for more on this topic). As for microfinance, here’s what Moyo had to say in her New York Times Magazine interview:

If people want to help out, what do you think they should do with their money if not make donations?
Microfinance. Give people jobs.

But what if you just want to donate, say, $25?
Go to the Internet and type in Kiva.org, where you can make a loan to an African entrepreneur.

This is all well and good, but I can’t help but also point out that while access to credit is important, it’s not a panacea. And what’s oftentimes lost in the conversation of access to finance is increasing households’ access to a safe place to safe, where they can build assets and guard against the risks to which poor households are most vulnerable.

So when she mentioned Kiva.org, what immediately came to mind is WOCCU’s recent initiative, matchsavings.org. Similar to Kiva, it allows everyday citizens to make contributions to match the savings of individuals living in remote communities with no access to savings accounts (presently, the launch phase is being conducted in Veracruz, Mexico).

Seemingly a lone young African female voice amongst a sea of middle-aged white males, Moyo’s uniqueness and outspoken nature has forced those in the field of development — from Africa, to Europe, to the U.S.–to take notice. It seems an opportune moment, then, to consider alternatives to foreign aid that takes into consideration the crucial role of savings and assets in poverty alleviation.