The Munk Debates Read online

  So, why did private capital fail to develop Africa? Was it the fault of aid? Of course not. Aid is not that important. Aid is one of the range of policies. It’s a marginal benefit. But the idea that it was responsible for the failure of private capital is untenable. There were much deeper problems. For example, there was the resource curse across much of Africa. There was the political paradox that the societies were too large to be a nation — because the politicians hadn’t forged a sense of identity — and yet were too small to be viable states. They couldn’t reap the benefits inherent in public capital, in public goods. And often opportunities were quite limited. Some of the countries were landlocked. Once China got into global industrial markets it was very hard to compete against China.

  I also wrote The Bottom Billion to try and create a centre ground between what I regard as theatrically polarized opposing positions. Without a centre ground we cannot get intelligent public policies. Aid can’t fix all these problems. The core struggles are internal. In all these societies there are brave people struggling for change. But we can make aid more effective than it has been. Until the fall of the Soviet Union, aid was given for completely non-developmental reasons or agendas. So we’ve been through a sixteen-year learning process. And over that time there have been some big mistakes. But they are mistakes that can be rectified. We can condition aid not on the policies that governments adopt — we shouldn’t tell governments which policies to adopt — but on the governance of those governments. That is, we should be conditioning aid to require governments to be accountable to their own citizens.

  And finally, we can use aid much more strategically, linked up with those other policies — security, trade, and governance policies. Let me close with a Canadian example. It concerns Canada’s second biggest aid recipient, which is Haiti. Haiti is the classic country in the bottom billion. And the difficult thing in Haiti, which is the provision of security, has been provided by Brazilians, not Canadians. Brazil has 12,000 peacekeeping troops there. The next difficult thing is trade. The U.S. has taken care of that by creating a special trade deal; they have privileged market access to Haiti. And now what’s needed is for aid to be targeted on providing the infrastructure that would enable Haiti to benefit from those opportunities. The ball is in Canada’s court. That’s an example of aid which could be harnessed to generate the jobs that Haiti so badly needs. If that happens, then, finally, the private investors would come in. Private capital can be the solution, but it is going to be built on public capital.

  RUDYARD GRIFFITHS: And now Dambisa will give our final opening statement.

  DAMBISA MOYO: Thank you very much. I’d like to, first of all, say thank you to the Munk organizers for allowing me, as an African, to say a few words about the state of my continent, even though I’m not a celebrity. I want to begin by saying, ladies and gentlemen, that we are all on the same side. And what do I mean by that?

  There are three fundamental points that we all agree on. First of all, we all agree that Africa cannot rely on aid forever. We can sit here and quibble about whether it will be another five years or ten years or one hundred years, but I think we fundamentally agree that Africa cannot rely on aid forever. Aid is not the optimum solution. The second thing we agree on is, African governments must lead the charge to increasing growth and reducing poverty on the continent. It is not the responsibility of Westerners. It is not the responsibility of celebrities. Yes, we do need the international community to be front and centre alongside African governments, but, ultimately, the responsibility of leading the charge for Africa’s future is the responsibility of African governments. The third thing that I believe that we agree on is that aid has and continues to contribute to the dysfunctionality of African states. The point that Stephen mentioned earlier about corruption is not a figment of my imagination, nor is it something of the past.

  Just a couple of months ago, the president of Malawi was indicted for stealing aid money. As I speak, the former president of my country, Zambia, is embroiled in a corruption scandal. Aid is contributing to the corruption, and even in the best case scenario it is allowing African governments to abdicate their responsibilities to provide public goods. Governments around the world, like the Canadian government, the American government, the British government, and others are charged and elected to provide public goods. In Africa, however, public goods such as education, health care, infrastructure, and yes, even security, are provided by donors. That is completely unacceptable.

  I will point to a comment by a friend of mine from Africa who said, “Why do we even bother going to stand in the hot sun to vote for these leaders? We should actually be voting for either the Canadian International Development Agency [CIDA] or the United States Agency for International Development [USAID] because ultimately they are the ones who are providing us with the public goods.”

  I want to remind everyone of the origins of aid. If you go back to the 1960s, you will know that there was a very simple economic law that savings would lead to investment, which in turn would lead to growth. In the absence of savings, poor countries could rely on foreign aid. And remember, if we talk about the 1950s and 1960s, there were newly-founded countries coming out of the colonial period, and there were not a lot of savings in these economies. So the idea was actually a laudable one, after the success of the Marshall Plan. I’ll come to the Marshall Plan later. The simple idea was that aid would replace savings, and aid would therefore drive investment and ultimately lead to growth and reduce poverty. The question then becomes, have we seen an increase in growth over the past sixty years — during which over one trillion dollars of aid money has gone from the Western world towards Africa? The answer is no. Have we seen a decline in poverty? The answer is no. Paul Collier himself has talked about the African continent shearing off from the rest of the world. On those two metrics alone, the aid model has failed. How did this happen? Let me count the ways. I actually had a top ten list of reasons why aid doesn’t work, but I’m only going to go through a handful of them.

  First, aid fuels corruption, which is obvious. And, by the way, these are not my words, this is the conclusion of the World Bank, the International Monetary Fund, and from numerous academic studies about how and what aid does in poor and developing countries. Second, aid encourages inflation. Third, it leaves African countries and other developing countries with significant debt burdens that they cannot repay. Another ill effect is that it kills off the export sector. Fifth, it induces social unrest, because remember, the aid money is pooling at the top to governments. Sixth, aid kills entrepreneurship, and ultimately it disenfranchises African citizens. Our governments spend their time courting and catering to donors. They do not care about what their citizens have to say. In other words, it’s the reverse Boston Tea Party. No representation without taxation.

  Governments in developed countries respond to their people and provide public goods simply because they have to rely on the tax base provided by voters. Proponents of aid will argue that there are 2 million Africans on HIV/AIDS drugs and 34 million Africans are going to school. And that’s all well and good. I myself sit on charity boards that look specifically at HIV drugs and at providing education. But they neglect three fundamental questions.

  First of all, what is going to happen in ten to twenty years when these aid programs are no longer financed? The fact that the United States is facing a 10 percent unemployment rate and has other pressing concerns, and Germany’s economy is contracting by up to 6 percent, leads Africans to wonder what is going to happen when these countries are no longer able to finance aid programs. But that is a minor problem.

  The second question is: What are African governments doing with the money that they have? We have just come out of one of the most amazing bull runs in commodity prices. Does anybody care to ask what has happened to that money? No, instead they say, let’s just give them more aid. And finally, what exactly is the plan for African governments to deliver on their provision of public goods? Again, nobody wan
ts to know that. The good news is that we actually know what delivers growth and what reduces poverty.

  In our lifetime, China has moved 300 million people out of poverty. Did they do this with aid? No, they did it with trade. They did it with foreign direct investments. They relied on the capital markets. By the way, I should mention that a Chinese diplomat said to me, two months ago, “Dambisa, anybody who tells you that the capital markets are closed and that African governments shouldn’t bother is ludicrous. And it’s usually a Westerner who tells you. If you want to raise capital, come to China, or to the Middle East, we have the money.”

  We in Africa are looking to create jobs. Enough with the handouts. We are trying to be equal partners on the global stage. We do not want sympathy or pity. We want opportunities. And the only way we are going to succeed is if Westerners stop feeling sorry for Africans and start treating us as equals and adults and not as children.

  I’m going to conclude with a comment that a friend of mine from Nigeria made. He said, “Why have you bothered to write this book? It’s a complete waste of time, nobody cares.” And he added, “You do know why they give aid, don’t you? Ultimately, it’s because Africa is to development what Mars is to NASA. We spend billions of dollars every year analyzing, researching, quibbling about data, but ultimately, nobody really believes that we’re going to live on Mars and nobody believes that Africa is actually going to develop.”

  RUDYARD GRIFFITHS: I want to offer the two sides the opportunity to rebut some of the things that they’ve heard in the opening statements. Let’s start with Stephen.

  STEPHEN LEWIS: It’s hard to disagree with what Dambisa says, in particular. There are several African countries that have moved forward, quite remarkably, in the last ten years, in terms of economic growth and internal democracy and democratic elections, and are looking to overcome the reliance on Western aid. I don’t take any exception or difference with that. The problem is the transition. The problem is that at this particular moment in time, the evidence does not yet suggest that the trade rules will change, that the foreign direct investment will be available, or that the bond markets will respond. I point out that Ghana had to withdraw its bond renewal because the markets are not available. This is likely to go on for some time. We’re fighting for survival en route. These are not marginal questions. We’ve got millions of people fighting for survival as they move towards a more mixed economy. None of us would deny the legitimacy of that. We have to continue using aid intelligently and effectively. I don’t see any way around that. I guess that’s the fundamental concern that I have. The dismissal of aid may consign a lot of people to extraordinary risk, without recognizing that it’s a necessary part of a transition to a broader and more mixed economy.

  RUDYARD GRIFFITHS: Dambisa, in your book you made a somewhat controversial recommendation to turn the aid tap off, and to do so relatively quickly. How do you respond to Stephen’s comment that this is a long transition and it seems you want it done relatively quickly? Isn’t there a risk of shock therapy? How do you make that transition?

  DAMBISA MOYO: First of all, I have been misquoted. I have never said we should switch off the taps immediately. What I have said is, we should be discussing an exit strategy, and we should be aspiring to a time when African governments can start to be weaned off aid. I think the fundamental problem with the aid system is that it’s all couched in negatives. And if you actually listen to what Stephen Lewis has just said, it’s littered with negatives. It is the poor Africans with HIV and the poor woman who is getting raped. It’s the tragedy. I’m here to tell you that there is good news, and we’re trying to focus on that good news to significantly transform our continent. Let me share with you a few things.

  First of all, there are now sixteen countries in Africa that have credit ratings. They have credit ratings of B minus and above, which are not bad ratings. It’s the same rating as Turkey, for example. I do not believe that many African governments would have chosen to take those ratings if they thought that they were going to be worse off with them. We know that Turkey, like many other single B countries around the world, has come to the capital markets. The question is, why are many African countries not even exploring that as an option? They should be.

  Second, over 60 percent of the African population is under the age of twenty-four. This is a young, vibrant, energetic population that desperately wants to be part of the Twitter and Facebook era. I frequently receive messages from people in Africa who are struggling and using their last dime to send me an email, because they are interested in being part of a global community. But they are constantly getting shut out because we prefer to hear from celebrities. The International Monetary Fund is forecasting that Africa is going to grow by 3 percent this year. The sub-Saharan African growth rate is at 3 percent. At a time when, as I said earlier, Germany is talking about contracting by 6 percent, we’re seeing 10 percent unemployment perhaps in the U.S. and we are seeing global growth perhaps at 0.5 percent. So it’s not such a bad story.

  Some people might not even know that there are over fifteen stock markets in Africa right now. Over 85 percent of the stocks that trade on African stock markets are non-commodities. So the notion that Africa is one big commodity play, I think, is again misleading. There are telecommunications stocks, consumer goods stocks, and real estate stocks. The story is there. It is just about changing our mindset. We need to encourage people to speak in positive terms about the continent. Otherwise, how do we expect us to raise young people on a continent when they’re constantly being told that they can’t do it, they’re too poor and they need aid?

  RUDYARD GRIFFITHS: Hernando, I’d like you to focus on a single proposition or idea that Stephen or Paul has put forward that you take exception to, and explain to us why.

  HERNANDO DE SOTO: To start off with, Paul speaks as if capital were money. There are about 13 trillion dollars’ worth of currencies in the world if you add up all the dollars, Swiss francs, euros, etc. Where do credit and capital come from? They are in the form of a lot of paper that has equity — equity, bonds, derivatives, financial instruments. It isn’t currency and it isn’t money. It is paper that, as you have learned through the recession, is backed by assets. What does backed by assets mean? It means that what really supports paper currency are the underlying assets: it is homes, land, airplanes. It is all recorded, it’s all registered.

  But in developing countries such as mine or Dambisa’s, the assets aren’t titled. They are not on paper and they cannot be converted into capital. So it isn’t that developing countries don’t have capital. They have capital, but it is dead because it isn’t — for lack of a better word — paperized. Having said that, you don’t have to travel to Zambia or Peru to know what I’m talking about.

  But if you want an example close to home, go and visit Indian reservations in Canada. You have got people there who have assets, but they are dead assets that can’t be used as collateral. This goes back to the Indian Act over 140 years ago. Now you support your Native peoples through aid programs — for whatever guilt reasons. But the effect is to make their assets totally useless by denying your Native peoples of property rights. First they were deprived of property rights, and then they were deprived of their sovereignty. And when sovereignty goes, so does the pride of a people. Sovereignty is the real issue in the Palestinian-Israeli conflict. The solution there is to settle the border dispute. You say once and for all, this is Watusi territory, this is Aztec territory, this is Blackfoot territory. When you restrict sovereignty, people don’t like it. And assimilation isn’t always the solution, either. You’ve tried that in Canada. They should have been given property, so that inside their sovereignty they can convert assets into capital.

  I appreciate aid enormously. But what I’m also trying to tell you is that aid doesn’t give priority to creating property conditions in countries like mine. Instead of encouraging programs that support property rights, we throw money at maintaining tribes and clans. And in the proces
s you end up creating special interest groups that resist any real chance.

  I’m not against aid per se. But you in the West created wealth through a comprehensive system of property rights. All we want is the chance to create the same system: a system where we can produce wealth by “pauperizing” our assets.

  RUDYARD GRIFFITHS: Let me turn to you, Paul. Are property rights the panacea?

  PAUL COLLIER: First of all, let me agree with Dambisa that Africa is a region of economic opportunity for private investment. Recently, I’ve tried to triangulate three different data sources on rates of return on investment around the world, return on equity, and return on American foreign direct investment abroad. I’ve also examined the results from surveys of 18,000 manufacturing firms around the world. All three of them show, along with the data, that Africa has the highest return on private capital of anywhere in the world. So there is opportunity in Africa. But now let’s juxtapose that with the high rates of return that have been sitting there for the past five years, through the greatest credit bonanza the earth has seen. The credit didn’t flow. Now, maybe it is a problem of property rights. But it’s actually a bit deeper than that, because property rights will only function as collateral internationally if there are supporting institutions.

  I remember talking with someone at a bank in Uganda who said, “Oh, we finally managed to get foreclosure on a piece of land.” This person was initially very pleased that the judge for the first time had ordered this asset because of the default. And then they discovered that what we thought was the land on which a factory was built was actually the swamp next to the factory, and that’s why they were able to get the claim ordered. The problem is that these institutional difficulties are slow to fix. There aren’t quick fixes for them. We’ve been in this situation before during the 1990s, when the World Bank took the view that they didn’t need to finance infrastructure, and then the World Bank disastrously shifted from financing infrastructure to financing a social agenda.