This House prefers trade to aid

Between 1970 and 1998 when aid was at its peak, poverty rose alarmingly from 11% to 66%. This statistic alone suggests aid is damaging to African welfare. Africa began borrowing money in the 1970s when interest rates were low, but a rising rates in 1979 caused 11 African countries to default. Even after restructuring, they fell deeper into debt. While the Marshall Plan had been a success, the same approach would not favor Africa; as Dambisa Moyo contends, it lacks the required institutions to utilize capital efficiently. Debt servicing meant money was passing from the poor to the rich, leaving Africa in a precarious global position. Furthermore, countries which have rejected aid as an approach to combat poverty have prospered, indicating an additional correlation between aid and a ruined economy ^1.

¹ Edemariam, A. (2009, February 19). 'Everybody knows it doesn't work'. Retrieved July 20, 2011, from The Guardian:

While aid appears unsuccessful for Africa, the approach itself should not be criticized on the basis of results in one continent. Western countries have simply provided African countries with generous payments allowing them to stabilize their economy. It many aspects of life, emphasis is not often attributed to what resources are available but how they are used. Though more guidance on how to invest the money may have been useful, Africa itself must take responsibility for how it has spent the money. The evil behind aid is allegedly overreliance: a country becomes dependent on receiving more and more aid. However, a focused approach to budget and organization of capital could certainly put aid to good use.

To gear up to be successful trading partners, developing countries often need to go through a number of key changes. As well as developing their own economy and their manufacturing or service sectors, they may need to build trade infrastructure in other ways. For example, increased trade would focus their attention on such things as good governance, the benefits of a broadly stable currency and internal security. Although such developments may come about as a facilitator for trade, in the best case scenario they may be seen as structural changes which will have a trickle-down benefit for the broader society in the underdeveloped country. China for example has reformed its agriculture, created a large manufacturing sector and is increasingly moving into high tech sectors as a result of trading with, particularly exporting to, the rich world and as a result has lifted more than 600 million people out of poverty between 1981 and 2004 ¹.

¹ The World Bank, 'Results Profile: China Poverty Reduction', 19 March 2010, Retrieved 2 September 2011 from worldbank.org:

The opportunities for trade are severely limited because of barriers imposed by the international system. The arguments made by pro-trade proponents are often couched in the rhetoric of market economics. Yet the international trade arena represents anything but a free market. Instead, tariffs, taxes, subsidies, regulations and other restrictions operate to disadvantage some countries. Because of their weaker bargaining and economic power, it is typically developing not developed countries that are on the losing end of this equation. The agricultural protectionism of the EU and USA, in particular, means that developing countries are unable to compete fairly.

Furthermore, even if we were to accept that trade is more important, they should not be seen as alternatives; they can readily be complements. Trade is not inevitably magic and aid is not inevitably damaging. They depend on complementary policies. For example, aid-for-infrastructure programs that encourage trade could enable African exporters to compete with their Asian competitors ¹.

1. UNIDO, Industrial Development Report, 2009.

Whereas aid is mostly short term, particularly for individual projects or limited to the donors priorities, the other partner in a trading relationship is likely to represent an ongoing market for goods or services. So when a developing country has the capacity to engage in trade with another country, there is a strong likelihood that that trade will blossom into an ongoing trading partnership. This will allow a firm basis for a flow of cash or goods into the developing country, largely independently of whether the developed country is doing well or badly economically at a given moment. This can be contrasted to the flow of aid. It tends to be less predictable, both because it is manipulated for political reasons and also because it can be quite ephemeral and so, if the developed country goes through a bad economic time, the aid budget makes an easy target for a reduction in spending as is shown by the arguments in the United States where the USAID Administrator Shah "We estimate, and I believe these are very conservative estimates, that H.R. 1[bill passed by republicans in the house cutting foreign spending] would lead to 70,000 kids dying,"¹.European trade with Africa may have decreased, but China’s demand for oil and raw materials is blossoming, and Africa is becoming a major supplier ².

¹ Rogin, Josh, 'Shah: GOP budget would kill 70,000 children', foreignpolicy.com, 31 March 2011, Retrieved 1 September 2011 from Foreign Policy 

² Moyo, D. (2009, March 21). Why Foreign Aid is Hurting Africa. Retrieved July 21, 2011, from The Wall Street Journal:

improve this

Trade can be as short term as aid is; demand is very cyclical so if a country specializes in providing that good or service it can soon find that the product they are providing is no longer desired by consumers, or that there is a new product that makes what they provide obsolete. Even if there is a long term partnership between two trading partners it may simply mean tying the poor country into a different kind of dependency. Instead of the poor country being dependent upon handouts it is dependent upon the richer country buying its products or not trying to undercut it. 

improve this

While aid threatens the economy, it also poses hazards for society in Africa. As Moyo contends, it merely fosters civil war as people fight over scarce resources that cannot feasibly be equally distributed. According to Dr Napoleoni, $1.6bn of $1.8bn in aid received by Ethiopia in 1982 – 1985 was invested in military equipment¹.

As a result aid is often limited; some donors refuse to make payments unless a proportion is devoted to a specified cause or if some act is done in return. Moyo refers George Bush’s demand that two thirds of his $15bn donation towards AIDs must go to pro-abstinence schemes. Such requirements further impede Africa’s ability to create a domestic policy and think for itself. Aid is solely to blame for its dependent state.

¹Herrick, L. (2008, May 14). Money raised for Africa 'goes to civil wars'. Retrieved July 20, 2011, from New Zealand Herald

Resources will only be scarcer without aid; further chaos and corruption will ensue. There would be no need for fighting should resources be shared out equally. If aid is transferred to governments there is surely a centralized method of doing so; aid itself is not the problem. Africa could escape the issue of receiving payments according to donors’ vested interests by administering a list of causes for which it desires support, accepting contributions where demands fall exclusively within its categories. Again, aid is not detrimental but its careless distribution and allocation is.

Between 1970 and 1998 when aid was at its peak, poverty rose alarmingly from 11% to 66%. This statistic alone suggests aid is damaging to African welfare. Africa began borrowing money in the 1970s when interest rates were low, but a rising rates in 1979 caused 11 African countries to default. Even after restructuring, they fell deeper into debt. While the Marshall Plan had been a success, the same approach would not favor Africa; as Dambisa Moyo contends, it lacks the required institutions to utilize capital efficiently. Debt servicing meant money was passing from the poor to the rich, leaving Africa in a precarious global position. Furthermore, countries which have rejected aid as an approach to combat poverty have prospered, indicating an additional correlation between aid and a ruined economy ^1.

¹ Edemariam, A. (2009, February 19). 'Everybody knows it doesn't work'. Retrieved July 20, 2011, from The Guardian:

While aid appears unsuccessful for Africa, the approach itself should not be criticized on the basis of results in one continent. Western countries have simply provided African countries with generous payments allowing them to stabilize their economy. It many aspects of life, emphasis is not often attributed to what resources are available but how they are used. Though more guidance on how to invest the money may have been useful, Africa itself must take responsibility for how it has spent the money. The evil behind aid is allegedly overreliance: a country becomes dependent on receiving more and more aid. However, a focused approach to budget and organization of capital could certainly put aid to good use.

To gear up to be successful trading partners, developing countries often need to go through a number of key changes. As well as developing their own economy and their manufacturing or service sectors, they may need to build trade infrastructure in other ways. For example, increased trade would focus their attention on such things as good governance, the benefits of a broadly stable currency and internal security. Although such developments may come about as a facilitator for trade, in the best case scenario they may be seen as structural changes which will have a trickle-down benefit for the broader society in the underdeveloped country. China for example has reformed its agriculture, created a large manufacturing sector and is increasingly moving into high tech sectors as a result of trading with, particularly exporting to, the rich world and as a result has lifted more than 600 million people out of poverty between 1981 and 2004 ¹.

¹ The World Bank, 'Results Profile: China Poverty Reduction', 19 March 2010, Retrieved 2 September 2011 from worldbank.org:

The opportunities for trade are severely limited because of barriers imposed by the international system. The arguments made by pro-trade proponents are often couched in the rhetoric of market economics. Yet the international trade arena represents anything but a free market. Instead, tariffs, taxes, subsidies, regulations and other restrictions operate to disadvantage some countries. Because of their weaker bargaining and economic power, it is typically developing not developed countries that are on the losing end of this equation. The agricultural protectionism of the EU and USA, in particular, means that developing countries are unable to compete fairly.

Furthermore, even if we were to accept that trade is more important, they should not be seen as alternatives; they can readily be complements. Trade is not inevitably magic and aid is not inevitably damaging. They depend on complementary policies. For example, aid-for-infrastructure programs that encourage trade could enable African exporters to compete with their Asian competitors ¹.

1. UNIDO, Industrial Development Report, 2009.

Whereas aid is mostly short term, particularly for individual projects or limited to the donors priorities, the other partner in a trading relationship is likely to represent an ongoing market for goods or services. So when a developing country has the capacity to engage in trade with another country, there is a strong likelihood that that trade will blossom into an ongoing trading partnership. This will allow a firm basis for a flow of cash or goods into the developing country, largely independently of whether the developed country is doing well or badly economically at a given moment. This can be contrasted to the flow of aid. It tends to be less predictable, both because it is manipulated for political reasons and also because it can be quite ephemeral and so, if the developed country goes through a bad economic time, the aid budget makes an easy target for a reduction in spending as is shown by the arguments in the United States where the USAID Administrator Shah "We estimate, and I believe these are very conservative estimates, that H.R. 1[bill passed by republicans in the house cutting foreign spending] would lead to 70,000 kids dying,"¹.European trade with Africa may have decreased, but China’s demand for oil and raw materials is blossoming, and Africa is becoming a major supplier ².

¹ Rogin, Josh, 'Shah: GOP budget would kill 70,000 children', foreignpolicy.com, 31 March 2011, Retrieved 1 September 2011 from Foreign Policy 

² Moyo, D. (2009, March 21). Why Foreign Aid is Hurting Africa. Retrieved July 21, 2011, from The Wall Street Journal:

improve this

Trade can be as short term as aid is; demand is very cyclical so if a country specializes in providing that good or service it can soon find that the product they are providing is no longer desired by consumers, or that there is a new product that makes what they provide obsolete. Even if there is a long term partnership between two trading partners it may simply mean tying the poor country into a different kind of dependency. Instead of the poor country being dependent upon handouts it is dependent upon the richer country buying its products or not trying to undercut it. 

improve this

While aid threatens the economy, it also poses hazards for society in Africa. As Moyo contends, it merely fosters civil war as people fight over scarce resources that cannot feasibly be equally distributed. According to Dr Napoleoni, $1.6bn of $1.8bn in aid received by Ethiopia in 1982 – 1985 was invested in military equipment¹.

As a result aid is often limited; some donors refuse to make payments unless a proportion is devoted to a specified cause or if some act is done in return. Moyo refers George Bush’s demand that two thirds of his $15bn donation towards AIDs must go to pro-abstinence schemes. Such requirements further impede Africa’s ability to create a domestic policy and think for itself. Aid is solely to blame for its dependent state.

¹Herrick, L. (2008, May 14). Money raised for Africa 'goes to civil wars'. Retrieved July 20, 2011, from New Zealand Herald

Resources will only be scarcer without aid; further chaos and corruption will ensue. There would be no need for fighting should resources be shared out equally. If aid is transferred to governments there is surely a centralized method of doing so; aid itself is not the problem. Africa could escape the issue of receiving payments according to donors’ vested interests by administering a list of causes for which it desires support, accepting contributions where demands fall exclusively within its categories. Again, aid is not detrimental but its careless distribution and allocation is.

Aid is linked to need. Trade rewards those who are able and willing to engage in trade. This involves a number of elements – as well as having the rights sorts and quantity of goods and services and being willing to sell at the desired price, a country may need to meet certain other criteria of a purchasing country. For example, that country may make demands in terms of corruption, human rights, political support at the United Nations, or any other of a large number of possible preconditions for a trading partnership. This will suit some countries in the developing world. But for others it will act as a bar to trade. They will therefore not receive the redistribution of wealth that is claimed for the global trading web. In this way, trade can distribute its benefits very unevenly. By contrast, aid can in theory be more evenly distributed and can be targeted against identified need rather than against the ability to compete in a trading marketplace. While aid has not always been targeted effectively and has sometimes been wasted there have been efforts to increase accountability and coordinate aid better such as the Paris Declaration on Aid Effectiveness ¹.

¹Development Co-operation Directorate, 'Paris Declaration and Accra Agenda for Action', OECD, Retrieved 2 September 2011 from oecd.org:

All countries have something to trade. Many of the world’s poorest countries have a lot of natural resources so they can take part in trade. Even if a country does not have sufficient natural resources it still has people. In order to be able to take part in the globalized manufacturing industry it need only be willing to accept lower wages than its rivals. Alternatively if it is landlocked and has not opportunity to trade in manufactures it can invest in education in order to become a services hub. All states have a comparative advantage somewhere, they just need to find it.

improve this

Trade does not exist in a vacuum. It needs a wider infrastructure to support it, e.g. roads, railways, ports, education to produce capable civil servants to administer trading rules, etc. For example Malawi as a landlocked country needs roads and railways to link it to ports in neighboring Angola and Mozambique. Without foreign aid, developing countries are not able to develop this kind of support, and so cannot participate effectively in international trade.

This is even more the case when it comes to creating the necessary legal infrastructure and effective civil service. Aid is not always in the form of money - it may also be given through expert advisors who help countries prepare for the challenges of globalization. Such were the efforts in the 1960s by the developing world, but they were dropped in favor of poverty relief. If restarted and restructured, they would yield much better results, without the fear of commodity prices dropping, enabling African countries to eventually stand on their own two feet. Corruption is a potentially huge problem as recognized by Sudan People’s Liberation Movement Secretary General Pagan Amum "We will have a new government with no experience at governing. Our institutions are weak or absent. There will be high expectations. Hundreds of millions of dollars of oil money will be coming our way, as well as inflows of foreign aid. It's a recipe for corruption.¹" As a result it is not physical infrastructure that is needed but rather mechanisms for preventing corruption. Something that aid will always be much better at achieving than trade.

¹ Klitgaard, Robert, 'Making a Country', ForeignPolicy.com, 7 January 2011, Retrieved 2 September 2011 from ForeignPolicy.com

Yes, trade might require infrastructure, but Asian countries required it just as much, maybe more than the African ones do. As Moyo argues in “Dead Aid” all of this is to be achieved not by clinging to aid, but by creating a stable enough atmosphere with favorable terms for FDI. The Chinese have already invested billions of dollars in Africa and are likely to invest much more. That way, the African countries get both trade and infrastructure, without being at the mercy of developed nations.

improve this

Exposing fragile developing economies to free trade is very risky. There is a short-term danger that a flood of cheap (because of developed world subsidies) imports will wreck local industries that are unable to compete fairly. For example China’s dominance in textile manufacturers has reduced the amount African countries can export to the US and Europe and is causing protests in Zimbabwe and South Africa against cheap imported Chinese clothing. ¹

In the longer term economies are likely to become dangerously dependent upon "cash crops" or other commodities produced solely for export (e.g. rubber, coffee, cocoa, copper, zinc), rather than becoming self-sufficient. Such economies are very vulnerable to big swings on the international commodity markets, and can quickly be wrecked by changes in supply and demand. For illustration, one only needs to look at Greenfield’s “Free market-free fall” ^2. He writes: “Trade liberalization encouraged increased production, leading to overproduction that pushed down prices, driving down farmers’ incomes…” Combined with the protectionism of the West (the CAP in the EU) trade is dangerous for Africa. Aid is more stable and certain, and is better for frail countries.

¹Africapractice, 'The Impact of the Chinese Presence in Africa', 26 April 2007, retrieved 1 September 2011 from David and Associates

²Greenfield, G. (n.d.). Free Market Free Fall. Retrieved July 21, 2011, from UNCTAD: 

improve this

Aid money is often misspent, even when handled honestly. By imposing solutions from outside, it favors big projects, "grand gestures" and centralization - all of which may be inappropriate, only benefit a small number of people, and suffer from intended consequences. By contrast, the profits of trade trickle down to the whole population, giving people the power to spend additional income as they choose, for example by reinvesting it in worthwhile local industries and enterprises.

improve this

Aid allows for money in a given country to be allocated well against need. At the micro- level as well as the macro, trade is an inefficient distributor of resources in a developing country. Under it, most if not all of the benefit of the trade will stay with a small elite of people who are often amongst the richest in the country in the first place. They may then move the money offshore again. Alternatively, if it remains within the developing country, it may well simply be used to buttress their own position in a way which further entrenches their social and economic position. So, the benefits of trade flow to few people and often they are the least needy. Aid, by contrast, may be targeted against specifically identified groups or areas on the basis of need, often being given through local groups, such as churches, mosques, health clinics, etc. If one looks at the Gini index (income and wealth equality) ranking, it is plain that the top (most inequality) is occupied by Sub-Saharan countries, fortifying the point ¹.

¹ Mongabay. (2010, January 25). Distribution of Family Income. Retrieved July 21, 2011, from Mongabay:

This argument borders on the absurd. Trade is much more likely to yield benefits for the ordinary men and women of Africa, than aid ever hoped to be. Aid and its unregulated flow are precisely what kept numerous dictators in power (Zimbabwe’s Mugabe, to name but one) allowing them to starve their people while taking weekend trips to the Ivory Coast in private jets. Trade, on the contrary, creates jobs, and those jobs create demand for other jobs - which is what matters to the ordinary person.

The international trade arena represents anything but a free market. Instead, tariffs, taxes, subsidies, regulations and other restrictions operate to disadvantage some countries. Because of their weaker bargaining and economic power, it is typically developing not developed countries that are on the losing end of this equation. The agricultural protectionism of the EU and USA, in particular, means that developing countries are unable to compete fairly. In the EU, for example, each cow gets over 12 USD every day, which is many times more than what the average Sub-Saharan person lives on ¹. Furthermore, Africa has yet to break into the global market for manufactured exports: this is very difficult precisely because of the success of low-income Asia.

¹ BBC News. (2008, November 20). Q&A: Common Agricultural Policy. Retrieved July 21, 2011, from BBC News:

Even if that were true, people naturally want to trade with each other, seeking to turn their particular resources or skills to their advantage. All too often trade is limited not because government action is needed, but because the government actually gets in the way with restrictive rules and statist controls. For example, regardless of their terms of trade with developed nations, developing countries could all become more prosperous if they removed the barriers they have erected to trade with each other. Putting the emphasis on trade rather than aid redirects attention from what developed states should or could be doing for the developing world, to what developing countries can and should do for themselves.

improve this