Questioning ‘international’ development: A fundamental problematic construct

Keynote Address By Dr. Kingsley Chiedu Moghalu, CEO, Sogato Strategies LLC,

Former Deputy Governor, Central Bank of Nigeria at the 2015 Oxford Forum for International Development (OXFID)

Oxford University, February 21-22,  2015

The Problem Defined

THERE are a number of ways in which we can look at the phenomenon of “International Development”. First, we can look at it from a normative standpoint, one in which the creation of a norm of development as an aspiration is done not at local or national levels but at an international one at forums such as, for example, the United Nations or the World Bank. Here the Millennium Development Goals come to mind. In this mindset, we must look to these international institutions for assistance and guidance in our quest for development, which implicitly is a view that we cannot succeed without their support or guidance. This is a fundamentally problematic construct because it challenges the notion of sovereignty.

  Second, we can look at international development as an activity, one that highlights the path through which some countries or entities may pursue the goal of achieving a state of development in poor countries, and in which this pathway is decidedly “international”, outside-in or top-down rather than local or bottom-up. That pathway is mainly that of foreign aid. Problem is: it hasn’t worked. Then, thirdly, we may look at “international” development from the perspective of global distributive justice, as in, many parts of the world are developed, and so others that are not should also become developed, and we should therefore “redistribute” the wealth of nations or global wealth to lift up the poor in the underdeveloped or developing world. This also is problematic, not only because it doesn’t work, but also because the responsibility of poor countries to find and walk the path to wealth is theirs, and not that of outsiders.

 Since Africa, not exclusively but largely, has been the theatre for the experiment of “international” development since the end of World War II, I shall use the continent to argue my case. But that case is applicable well beyond Africa to Asia, Latin America and the Caribbean, and indeed to the societies we universally consider “developed”, which is to say, the advanced industrial societies of the Western world and parts of Asia. 

 Three things stand as fundamental challenges to Africa’s economic transformation. The first is the absence, with a few exceptions, of a clear worldview of development in African countries. A worldview is a clear mental, philosophical and psychological posture in interpreting the world and who we are in it, where we have come from, where we are going, how we intend to get to our destination, and the value systems, strategy and knowledge systems we will utilize to get there. In other words, it is a product of “thinking it through”, not simply activity without a real, underpinning logic or substance that will enable our activities to achieve transformational outcomes.  

  The second obstacle is an unwitting and naïve embrace of globalization, which certainly is an opportunity, but only so if we understand its dynamics and position our economies in the production value-chain of the products of globalization. This is quite different from simply being a market for the products of globalization manufactured by those who possess a globalizing (and thus dominating) intent. Developing countries that lack worldviews blithely assume that globalization is a wonderful thing and, with mobile phones in our pockets and those of every aunt and uncle in our village, we are “globalized.” And the third challenge is foreign aid, which is the core implementation paradigm of “international” development – the idea that the development of societies is something that can be externally driven or generated, either through aid or through norms. This address will focus on this dimension of international development.

  I will argue in this presentation that foreign aid is one of the chief factors that have underdeveloped Africa, and demonstrate why “development” by its very meaning and real nature must necessarily be an internal process in every society. If this is so, then the term “international development” must necessarily be a suspect one, or, at least, one that deserves interrogation.  I have articulated these views in greater detail in my book Emerging Africa: How the Global Economy’s ‘Last Frontier’ Can Prosper and Matter (Penguin Books, 2014).

  Several decades and billions of dollars of “development assistance” to African countries by mostly Western countries and international development finance institutions have failed to produce any significant development leaps in Africa, and many aid-dependent African countries are poorer today than they were a half-century ago. If this truth is self-evident, why have African leaders not woken up to it, and why has foreign aid remained so ubiquitous?  Let us examine the real fundamentals of aid. 

  First, aid is not essential, but Africa has been led for decades to believe that it is, and the continent has bought into the charade that aid is a path out of poverty and into development. Africans have believed this for several reasons. The first is that aid, especially when it is a grant or even a low-interest loan, appears to be free.  It is difficult, in situations of underdevelopment and poverty, for people to reject “assistance” that ostensibly costs nothing. 

  But the costs of aid are huge.  It crowds out potentially sustainable local industries in aid-dependent countries and creates an absence of self-respect and mutual respect in relations between recipient and donor nations and organizations suffocating initiative and self-reliance. Over many decades, aid created mental laziness in many parts of the continent, leaving many Africans with the illusion that they really do need foreign assistance. By basing calculations of resources available to such countries largely on aid flows from rich nations, international organizations, and global funds, rather than looking inward to generate revenue internally and efficiently, foreign aid prevents development. 

The fundamental problem with foreign aid lies in the notion that it can play a significant role in pulling poor countries out of poverty.  Development, by definition, is a process that must be internally driven by how efficiently and effectively countries or societies can organize for economic production. As we have seen from the modern history of Asia (which, like Africa, has a history of colonialism and, in the 1960s, generally had per capita incomes lower than those of many African countries), countries such as Singapore and Malaysia did not become the developed and emerging market countries they are today through reliance on foreign aid. Their rise was powered by inward-looking economic policies that created thriving industries, trade and services.  Africa can be no different.  

Second, aid is not the kindness of strangers. Some degree of moral guilt in Western countries and notions of distributive global justice might be a part of the motivation behind foreign aid. More importantly, however, foreign aid is a tool for the projection of worldviews – of soft power and domination and influence. Donors, especially developed country assistance (bilateral aid) and international institutions (multilateral aid), provide aid to promote certain geopolitical or economic self-interests – to influence the domestic policies of recipient countries for the donor country’s commercial benefit; to obtain diplomatic support at international forums; and to spread pet ideologies.  

In this context, a fundamental feature of foreign aid is that it always has strings attached. Such conditions, written or unwritten, constrain the freedom of choice and action of receiving nations. Thus, it is not random chance that the aid arena is populated by armies of consultants from donor countries, to whom much of the aid money returns through consultancy contracts, and also by the commercial companies from donor countries that dominate the procurement supply chain for the much that is supplied by aid money. 

    This has led to the existence of a coalition of interests between institutions, countries and aid campaigners that can only be described, for want of a better phrase, as the “aid-industrial complex”, akin to the more famous military industrial complex of powerful nations in which the linkage between the business interests of weapons manufacturers and sellers and the worldview of security hawks create a need to fight wars that also sustain these industries.

   Having realised that foreign aid is part of the tool kit for projecting and winning influence in the world, and that transitioning out of foreign aid is a necessary assertion of a worldview by developing nations, the emerging powers Brazil, China and India have evolved from aid recipients to aid donor status. Similarly, India and Brazil, for decades among the world’s biggest recipient of foreign aid, have shifted from being aid recipients to become donors, setting up their own aid agencies with a strong focus on Africa.

    These developments have upended the global aid industry as America and Europe lose their dominance to the rising aid powers from Asia and Latin America. Nevertheless, even in the seeming transformation of foreign aid relationships, Africa remains the playing field for this new global competition. Will aid from the emerging market giants to African countries be any different from that of the West? That is doubtful, if the first principles discussed earlier are applied. But some significant differences in the Western and emerging-power model of aid, with the latter focused on infrastructure and private sector investments, may yield better results.

   Third, foreign aid to Africa has not worked and is not working. Aid has failed to live up to its promise of bringing about development, and now appears content, especially in the face of the far greater volume and impact of private capital flows, to aspire to mere “poverty reduction”. 

   More importantly, the failure of aid in Africa is due to blind spots that have left Western countries unable to understand and invest aid in the things that could actually trigger development.  In addition to what aid is spent on, there is the question of why aid is the way it is, and how aid works. With few exceptions – mostly in the area of health vaccinations of children in developing countries against fatal diseases – foreign aid, as presently practised, does not address the issues that hold the key to real development in Africa. Such absolute necessities as good educational and technological institutions to produce local capacity that can drive a country’s future growth, joined-up health systems and a focus on prevention and eradication, instead of vertical funding for palliative approaches to diseases such as malaria, tuberculosis and HIV/AIDS, are not the focus of development aid programs in Africa. Similarly, aid often does not aim to jump-start wealth creation in Africa through private enterprise, the mass industrial production of local inventions; and the weak statistics system in much of the continent means that the accurate statistics on which real planning must be based do not exist.

The Nature of Foreign Aid

There are three broad kinds of foreign aid. There is the aid that is given by governments and international organizations, known as Official Development Assistance (ODA). There is humanitarian aid in response to natural disasters such as the Asian tsunami or conflicts such as those in Sudan, Somalia or Syria. And there is philanthropy by private and non-profit actors such as the Bill and Melinda Gates Foundation.  Of these variations, philanthropy has actually been the most effective, largely because much of it is channeled through private hands and frequently addresses the social infrastructure issues that directly improve the quality of life in poor communities. 

Yale University professor Thomas Pogge has highlighted the dysfunction of foreign aid to Africa in the focus of aid on the priorities of donors and the absence of accountability to recipients. As Professor Pogge puts it, “You have to keep the donors happy and keep them motivated to give money”. This reality feeds into the nature of the aid – industrial complex, which exists for quite different reasons other than to wipe out poverty. That reason is to provide a steady drip of “development assistance” to underdeveloped countries that keeps the source of aid in business. The aid is just enough to appear as if that drop is in fact truly supporting these recipient countries. Such assistance, however, is neither enough nor structured to bring about a fundamental change to the circumstances of the aid recipients.

   A classic demonstration of how foreign aid systems are dictated by donor priorities can be seen in the global aid approach to fighting malaria in Africa. That approach has been far more palliative – with a focus on the insecticide-treated anti-malaria mosquito bed nets – than a fundamental one that adopts eradication of malaria from the continent as a strategic agenda, in the same manner in which malaria was eradicated from Europe and the United States in the early part of the 20th century. These Western countries used DDT (dichlorodiphenyltrichloroethane) as part of the aggressive malaria eradication campaigns in their own countries. 

   But virtually no one is speaking of eradicating malaria in Africa. Why? Because Africans are told that DDT causes environmental damage. Donor countries threaten developing countries that seek to use the chemical with aid funding cut-offs, while emphasis is placed on aid funding for insecticide treated bed nets manufactured mostly in European and Asian countries. The inherent worldview assumption is that Africa is condemned to live with malaria because of the continent’s tropical ecology and can only control the disease through donor-supplied bed nets and anti-malaria drugs manufactured in advanced industrial economies.

   If African leaders had the appropriate worldviews, they would focus their efforts on how to eradicate malaria and return to rigorous public hygiene that denies the disease-bearing mosquito of its breeding grounds such as open gutters and stagnant pools of water. 

   This is the sort of approach African countries should embrace if the scourge of malaria, which has a disproportionate economic impact in Africa, is to be countered and conquered, and its causal contribution to the continent’s poverty wiped out. The disease occurs in an estimated 350 to 500 million cases per year, causes nearly one million deaths, and is a threat to over 3 billion people in 109 countries, with sub-Saharan Africa having 71 per cent of malaria cases and 86 per cent of all malaria deaths in the world. The economic burden of malaria in Africa is well established. A study in Uganda showed that in 1959-1960, an eradication campaign in northern Kigezi, Uganda employed DDT spraying which led to an overall reduction in parasite rates from 22 per cent to 0.5 per cent in hyper-endemic areas of the region, and that eradication had profound positive consequences with markedly improved schooling, literacy and primary school completion rates, as well as increased income levels.

    The conversation on malaria eradication was only re-started after Bill Gates called for global eradication of malaria at a conference of his Foundation in 2007, and Dr Margaret Chan, Director-General of the WHO, echoed the Gates’ declaration. Before Gates spoke of eradication and decided to put his vast philanthropic resources behind this goal, the conventional wisdom was that eradicating malaria was not a viable proposition in Africa.  Gates, as we know, is funding research into a malaria vaccine, which is another approach that attacks the problem of malaria in a fundamental manner.

Aid Has Failed

 Aid has failed broadly, and evidence of its failure abounds. Numerous academic studies have demonstrated that aid has not led to development in Africa because it has fuelled unproductive consumption rather than investment, and the most aid-dependent countries have recorded negative growth rates. Poverty in Africa shot up from 11 per cent to 66 per cent in the nearly 30 years between 1970 and 1998 – a period in which aid flow rose to the highest levels.

The failure of aid to bring about development in Africa – including the impoverishment foreign aid has caused in the continent through all sorts of perverse incentives it created – is one of the most well documented realities of the world we live in. This failure cannot be covered up by the relatively minor successes foreign aid has recorded in isolated instances at the micro-level. The worldview reality is that aid has proved not to be the path to development, wealth and prosperity for Africa that it was touted to be. What African country governments need to do is to create enabling environments in which their citizens can create wealth, not to focus their ambitions on small visions such as “poverty reduction”. 

  Then there is the corruption that foreign aid programs breed in many countries.  Foreign aid programs foster corruption because they depend, in the last mile, on the national, regional or local authorities to implement. In societies where corruption is systemic, elegant institutional transparency safeguards can be thwarted by collusion between officials. And because the accountability of aid programs is really to the funding donors and not to the recipients – who do not own the process anyway – the incentive for local citizens to fight graft in aid programs is not a strong one.

An excellent way to assess foreign aid is to use public choice theory, looking at the role of incentives and information, to understand why foreign aid has not, and cannot, achieve economic success. This approach examines the ways and means through which incentives at several levels and in a multitude of stakeholders and vested interests including donors, recipient governments and their citizens determine foreign aid outcomes. It also analyses how both the givers and receivers of aid may not have the information and knowledge required to achieve the lofty goals that what the American scholar William Easterly has pithily termed “the cartel of good intentions” has set for itself.  

   These studies have come up with the same results some of which I have demonstrated in the arguments above: That politicians in both donor and recipient countries are susceptible to pressures from special interests that encourage the flow of overseas development assistance; the multiplicity of donor agencies creates little or no incentive for accountability for aid results; bureaucrats in governments and aid organizations prefer to focus on financial disbursements, rather than on outcomes on the ground, as the measure of their success; aid and more aid, its meagre results notwithstanding, is an inherent form of institutional self-survival and relevance; and recipient governments need aid because they have weak institutions which aid cannot reform but it can help such governments shore up their local legitimacy, and as a result these countries have an incentive to rely ever more on, and request, foreign aid. This is the moral hazard problem. 

 It is accompanied by another, known in aid circles as the “Samaritan’s Dilemma”. In this scenario, citizens who receive aid develop warped incentives to continue receiving it – instead of saving and investing, which is “harder” to do than holding out a hand for a hand-out; the citizen adjusts to a continuing state of poverty if remaining in that circumstance will bring steady or more assistance. 

As we have also seen, aid providers do not have, and cannot have, the depth or scope of knowledge needed to make a real difference in addressing the problems of underdeveloped societies. That knowledge is too fragmented, dispersed among various segments of society, and often inarticulate, for a foreign official of an international organization or a foreign government cruising around in a recipient country in a 4-wheel drive to access fully and successfully. Add to this the corrosive effect of foreign aid on the development of local markets and industries, and the case against foreign aid is nearly closed.

An Industry in Decline

Finally, foreign aid is declining. There are three main reasons for this. First, with the rise of private sector flows into Africa and the opening of African economies to the influence of the private sector, aid as a model for development funds is now operating in a more restricted ideological space. Private capital flows to Africa overtook development aid as the majority form of financing in 2006. Many Africans, especially the younger generation that grew up in the post-Cold War world that coincided with the pervasive rise of global capital after the ideological conflict between America and the Soviet ended decisively, increasingly speak of business and entrepreneurship rather than hand-outs from foreigners. 

    Second, domestic politicians in donor countries have increasingly internalized the wisdom that all politics is local. They will thus be assessed more by what they have brought home to their constituencies than by the kindness they have shown to people in “poor” countries half a world away. There is much tension between this thought and that which insists that aid remains an essential component of maintaining global influence and so is in the national interest of donor countries. But this is a national interest argument from the donor perspective. It does not pretend that foreign aid is essential because it has transformed the countries that have received it.

   Third, the global financial crisis of 2007/2008 led to a global economic recession that has left the economies of rich countries prostrate. The result has been declining aid budgets in donor countries and the inability of some of them to keep their aid commitments. The United Nations has cited a $167 billion gap between actual aid disbursements and commitments, with the delayed impact of the global recession on donor country budgets likely to lead to further decline in aid.26 The volume of ODA peaked in 2010 but declined by almost 3 per cent in 2011. The global economic recession, however, is only an excuse for what has always been a wide gap between feel-good pledges of aid and actual aid flows. Well before the economic meltdown, G8 countries pledged at their summit in Gleneagles in 2005 to increase aid to Africa by $25 billion a year by 2010. The target went unmet.

 The best route out of the foreign aid cul-de-sac is for African countries to set a reasonable target of say, ten years as a time-frame within which to transit to a continent without aid. Contrary to the false assumption that Africa needs more aid now than ever before, aid abstinence would force the continent to seek more effective ways to make progress.

 Since foreign aid will not disappear in a flash, the aid model in the meantime ought to be overhauled. Some suggestions:

·Give aid in kind rather than cash. This will help reduce the corruption spawned by aid, but won’t eliminate it, especially with items such as health kits that can be sold on the black market by unscrupulous officials if oversight is lax. Build infrastructure such as roads, hospitals and health centres.

• Focus on building well-equipped schools and on building local capacity in the education system. This focus will have beneficial effects on human capital development and ultimately across the economy.

·Engage more directly with the local private sector in African countries. The supply chains of many business corporations in the continent have as many networks as governments and can serve as effective distribution channels. Yes, the companies will seek to make a profit; but that is not too high a price to pay for the relatively greater efficiency and effectiveness of aid delivery that will result.

·Remove structural bottlenecks that hamper the access of African countries to global trade, and target aid at increasing the global-competitive standards of African exports.

·Establish sunset clauses that include firm arrangements for the sustainability of aid programs that will be taken over by local experts.

  These are the best ways to begin the transition to the end of foreign aid to Africa. These approaches do not substitute or negate the fundamental argument against aid – it breeds dependency, crowds out personal initiative and real growth in African countries, and is antithetical to the real meaning of development. But at the very least they would demonstrate the advantage of teaching recipients how to fish as opposed to giving them fish in a manner that ensures they will ask for more from the “kind” donor. And they would provide the ultimate test of the much-avowed commitment of donor countries and institutions to Africa’s development. More essentially, African countries must “think it through” and then pursue paths that address their fundamental condition. “International development”, in and of itself, is not that path.

•Concluded 

•Moghalu is former deputy governor of Central Bank