Published: February 17, 2009
Dambisa Moyo, a former economist at Goldman Sachs and now independent consultant and author, says the US$1tn that the West has given to Africa in aid over the last 30 years has been wasted, and that the continent needs to move to a more capital markets approach.
Throwing rocks at the Zambian riot police is an unusual way to begin a career in global finance, but we all have to start somewhere, and that's where Dambisa Moyo began.
She grew up in Lusaka in the late 1970s, the child of an academic father, who eventually ended up working for Transparency International; and a mother who is still chairwoman of the Indo-Zambia Bank. Her parents had met at the University of Zambia, two of the first black graduates from the university after Zambia gained its independence in 1964.
Moyo says: "They were part of the same generation as Barack Obama's father - the post-independence generation, which was full of optimism and euphoria. I call it the 'yes we can' generation of Africa."
However, the promise of those first post-independence years gradually dissipated, as many African countries fell into poverty, corruption, and dependence on foreign aid. The economic model that most developing countries followed during the 70s and 80s, of socialist central planning, did not help, and led to bloated civil services and rent-seeking bureaucrats.
In the late 1980s and 1990s, the World Bank and IMF tried to introduce a new economic model into Africa, shrinking the state, reducing state subsidies, cutting public debt, and freeing up the private sector.
President Chiluba of Zambia was one of the first leaders to try and introduce the reforms in return for large loans from the multi-laterals. But the reduction of state subsidies in Zambia led to serious social unrest, including at the University of Zambia, where Moyo was one of the students who participated in demonstrations against the free market reforms.
However, Moyo gradually became more sympathetic towards the neo-liberal reforms. Now, looking back, she says: "The multi-laterals got the prescription right. If anything, they were not aggressive enough in the application of it."
Leaving for the West
An attempted coup in 1991, and the threat of civil war, led to Moyo leaving the country to finish her degree and then taking an MBA at the University of Washington. Then, at the tender age of 22, she joined the World Bank and worked on its 1994 Global Development Report. It doesn't seem to have been the most positive experience. She says: "It was an eye-opener. I was surprised how few Africans worked there. They probably thought I was too young to be there."
She then went to study at the John F. Kennedy School of Government, taking a Masters in public policy. There, a friend of hers insisted she go and see a visiting professor, Paul Collier of Oxford University, speak on African economics. She says: "I didn't really want to go. I thought, I'm from Africa, why should I go and hear an Englishman talk about my homeland?" But her friend insisted, and Moyo complied.
She was very impressed with his ideas, including his analysis of the social unrest that followed IMF structural reforms in Africa in the 1980s and 1990s. After the lecture, she rushed up and said to him: "I was one of those students throwing rocks!"
Moyo in turn impressed Collier with her intelligence and confidence, and he suggested she accept a scholarship to do a doctorate in development economics at Oxford.
"I wasn't really interested in more education, but several of my friends were taking PhD's, and I didn't want to be left out of the loop", she says. "And the World Bank and places like that were increasingly demanding higher-level degrees. So I went."
Oxford was, she says, "a shock to the system". While Harvard had been "very hands-on" in its teaching approach, at Oxford Moyo felt left to her own devices. Still, she was impressed with the history of the place, and its literary resonances. She also seems to have developed a fondness for English culture, and after finishing her doctorate, she went to work for Goldman Sachs in London, initially working in debt capital markets, and then, in 2007, spear-heading the initiation of sub-Saharan African research coverage for the bank.
She says: "By 2007, there was clearly much more interest in the City and among investors in sub-Saharan Africa, partly because of the amount of FDI flowing there."
Dead Aid
In 2008, Moyo left the bank to work on her first book, Dead Aid, which has just been published by Penguin. In it, Moyo argues controversially that the US$1tn in aid that Western governments have handed out to Africa since the end of colonialism has failed in the two targets of alleviating poverty and speeding up economic growth.
She says: "It has failed for four reasons. Firstly, it leads to corruption, and to rent-seeking by government officials who know that, however much they steal, more money will always be on the way. Secondly, it leads to a culture of aid dependency, and to bloated bureaucracies. Thirdly, it kills off the export sector through 'Dutch disease'. And fourthly, it disenfranchises people, because it means governments are accountable to donors rather than their own electorate."
The idea of Africa being dependent on the largesse of European people obviously smarts with Moyo. She says: "What is the goal? Trying to get Africa to be an equal partner on the global stage, to become business partners, rather than recipients of hand-outs. It's about following the Chinese model of business deals and infrastructure deals rather than the Western model of hand-outs."
Critics have made the argument that particular aid projects have helped keep starving or sick African children alive. But Moyo says: "The role of aid is not to keep people alive. It's to spur growth and alleviate poverty. Yes, an aid project might keep a girl alive. But she won't have a job when she leaves school, because the economy has shrunk. We need to try and get Africa on a long-term growth trajectory."
What’s the alternative to aid?
So if African countries rely less on foreign aid, where else will they get capital flows? Moyo argues they can get a better global deal on trade if they go to less global trade conferences like the Doha rounds - "they never go anywhere and are a big drain on resources" - and instead strike bilateral deals with the countries that really need their products, like China.
Secondly, she argues African markets can attract a lot more FDI than they are at present attracting by creating a more business friendly environment. For example, she points out that in some African countries, it takes 200 days to get a new business license. "There's a lot of red tape that can be cut back", she says.
Finally, Moyo holds great faith in the role of the credit markets, both local debt, Eurobond debt and micro-finance, to replace western aid. She points to the recent debut deals of issuers like Gabon and Ghana in 2007, and the successful corporate bond issues from several Nigerian banks in the same year.
She says: "Bond markets instil greater transparency and accountability. If a government squanders bond money, the money will be more expensive next time. That's not the case with foreign aid."
Moyo wrote the book in a very different era, one of easy credit. That enabled her to write sentences like: “It is not that hard to issue a bond.” Tell that to the Czech Republic, Slovakia, Romania and Croatia, all of which are far better rated than Sub-Saharan countries, but who have all still struggled to issue Eurobonds this year.
They’re not the only ones: Kenya, Uganda and Tanzania have all put off international issues this year. Nigeria may also have to delay its Eurobond plans.
But Moyo, who is working on a new book about the Western financial crisis and the rise of emerging markets, says: "Why not issue to China, or the Middle East, instead of the West? Arguably, these countries understand African markets better."
One could also say that local investors are becoming just as important as international investors – witness the growing issuance of infrastructure bonds launched by African sovereigns and bought by local banks.
She also champions the role of micro-finance in developing African economies. She herself invested in a microfinance company in Zambia, and she exhorts me to lend money myself to African micro-finance initiatives via the website Kiva. The idea of being able to lend money in this environment, when no one else is lending, gives me a strange sense of power.
Of course, one could argue that money from the Chinese government or from private lenders can be stolen and mismanaged just as easily as aid money. The Chinese government could acquire African natural resources at cut-price rates, simply by bribing the local politicians and de-frauding the hapless people. But Moyo says: "Even in the worst case scenario, they would still be financing a project that would provide jobs for the local economy."
And she points out that the African development story is about more than natural resources: "There are 500 stocks in the African equity universe, and 85% of them are non-commodities." I don't see China investing in many of the non-commodities projects, but western funds certainly are. Actis, for example, which mainly manages money for the UK's Department for Foreign Investment, has invested in several banks, telecom companies and retail firms throughout the continent.
Critical reception
Moyo's ideas have received some support - the historian Niall Ferguson, another devotee of the bond markets, writes in the foreword to her book that the world needs more Africans talking about African development, and less white, male rock stars. "Less Bono, more Moyo", is how he puts it.
Her old mentor, Paul Collier, is less certain about her central argument. Reviewing her book in The Independent, he wrote: "African societies face problems deeper than their dependence on aid. Divided by ethnic loyalties, they are too large to be nations. Yet with only tiny economies, they lack the scale to be effective states. As a result the vital public goods of security and accountability cannot adequately be provided. In their absence the valuable natural assets that many countries possess become liabilities instead of opportunities for prosperity. I think that African societies need international help to overcome these problems; it is just that the help they need is not predominantly money.”
Collier goes on: “Aid is not a very potent instrument for enhancing either security or accountability. Our obsession with it has detracted from the more important ways in which we can promote development: peacekeeping, security guarantees, trade privileges, and governance."
In fact, Wgfv redfcv rftv fcdcvcv estern governments are decreasing their aid to Africa. Italy, for example, just cut its aid budget by half. The UK is now giving around 10% less this year to African countries, simply because of the depreciation of sterling. Other countries may also cut their aid budgets. Moyo views this positively - the credit crunch may have given the continent a great opportunity to wean itself from its dependence on western aid.
Moyo talks a good game about "finding a sustainable solution" for "my continent". But she hasn't lived in Africa for over 15 years. Her star has instead risen steadily ever since she left Zambia and came to the west, with scholarships to Oxford and Harvard, a long career at Goldman Sachs, and now a literary career in high-speed.
She lives in London, and moves in glamorous circles. The day before our interview, she tells me, she had a book launch party thrown by Lady Annabel Goldsmith, the famous socialite widow of Sir James Goldsmith. Her literary agent is Caroline Michel of PFD, another glamorous London socialite, who "managed to get me a book deal in a day".
She represents Africa at its most cosmopolitan and glamorous, but it is an offshore Africa, made up of an intellectual and financial elite who live in the West. If Moyo really thinks Africa is the future, then why doesn’t she live there?