finding African leaders up for sale. The end of the Cold War also saw the end of this type of aid.
These Aid agreements often revolve around something called conditionalities, where by the donor country can decide when and on what the money is spent on. This has led to the phrase ‘boomerang aid’; ironically this can be used to offer a type of industry protection to firms in the donor country that is at complete odds with the Washington Consensus. Donor dollars are repatriated by insisting on the purchase of goods or technical services from certain firms. Western firms in the construction and defence sectors have been notable beneficiaries, with this aid helping boost their profits, employment numbers and tax contribution. Aid given with the considerations of the donor in mind simply isn’t effective; it isn’t targeted at the needs of the recipient country. It leaves a legacy of white elephant project (pointless dams, empty airports, weapons which are later used to fuel internal conflict) rather than tackling central economic issues. A Chatham House report summarizes the situation - ‘British commercial interests, including arms sales, had been promoted in Africa with little regard for human rights and governance. If many African states were corrupt it was in part because western business, including British businesses, allowed them and in some cases encouraged them to be corrupt.’ 5 China is investing more and more in Africa. However as the majority of the companies it deals with are owned or partly owned by the Chinese state there is suspicion that this investment may be aid in disguise. Both China and the U.S have focused heavily on Africa as competition for resources increases. It reflects a growing desperation to strengthen their foothold in resource rich countries all the while beating the drum for ending poverty. If Chinese and U.S. efforts don’t have Africa’s interests at heart it is unlikely to encourage good governance or growth. Lamido Sanusi, governor of the central bank of Nigeria, said ‘China is no longer a fellow under-developed economy - it is the world's second- biggest, capable of the same forms of exploitation as the west. It is a significant contributor to Africa's deindustrialization and underdevelopment.’ 6 But what does aid do once it’s got there? A large injection of cash is always going to distort an economy, no matter how robust. But because African nations receiving aid are usually stagnant economically and unstable politically, they are particularly susceptible. The first threat aid poses is to the export sector. As domestic currency appreciates exportable goods become less competitive in the global market, whilst imports that threaten domestic industry become cheaper. Given that exports are an established path for poor countries to establish growth this effect is especially damaging. Governments dependent on their citizens’ taxes are more likely to be held accountable by those citizens and thus more likely to make sound economic decisions. It seems that it is easier to steal foreign aid than it is domestic taxes. Essentially aid weakens the power of democracy by supplying governments with an alternate source of funds which means they are less accountable to their citizens. Aid money distorts the economy in less obvious ways too. Entrepreneurial talent that could innovate and take the risks that are required to see growth is instead focussed on capturing a slice of the cake.
Natural resources
The vast mineral wealth of Africa would seemingly be a blessing for the continent. Indeed resources produce a lot of money for Africa – however the effect of this money is complex and surprisingly destructive. Resource sales, like any cause of influx of money, drive up the price of local currency. This in turn makes it difficult for exporters and makes imports relatively cheap. The Zambian copper boom
5 ‘British government policy in sub-Saharan Africa under New Labour’ by Tom Porteous (2007) 6 ‘Africa must get real about Chinese ties’ Financial Times (2013)
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