Indonesia | Economics

Tuesday, August 02, 2005

Making a case for aid in Africa

"Africa's development crisis is unique" says Jeff Sachs, who is coming to lecture later this week at CSIS

(Jakarta Post, 2 August 2005) "Africa's development crisis is unique. Not only is Africa the poorest region in the world, it was also the only major developing region with negative growth in income per capita during 1980-2000."

So says "Ending Africa's Poverty Trap", an 'essay of persuasion' published in 2004 by members of the UN Millennium Project, an institution that dutifully works out a global plan to achieve the Millennium Development Goals (MDGs).

Along with other papers and large reports produced by the institution, this hundred page essay argues for more rich-country aid to help poor, sub-Saharan African countries achieve its MDGs. Behind the research that led to this conclusion was Jeffrey Sachs, a Columbia University economist and Special Advisor to the UN Secretary-General. His recent book, The End of Poverty, whose title, by the way, will be used for a lecture of his later this week, makes the same argument.

So, why more aid? Hasn't Africa received enough? To quote Former U.S. secretary of treasury Paul O'Neill: "We've spent trillions of dollars (of aid) on these problems (in Africa) and we have damn near nothing to show for it." The reason for the failure of aid to bring sub-Saharan Africa out of poverty, some people believe, is poor governance. More aid will do the African people no good, they say.

Sachs, meanwhile, strongly disagrees. Sure, the quality of governance in African countries is low by any standard. But many other countries with worse governance, particularly in East Asia, were quite successful in reducing poverty. The quality of governance, then, is an inadequate explanation for Africa's poverty: Indeed, his statistical analysis shows, relative to other countries with similar governance quality and income, poor African economies grew more slowly -- by three percentage points.

So, Sachs turns to another hypothesis: the poverty trap. The poverty trap hypothesis suggests that, in certain cases, a country's poverty can create a vicious circle. A country that starts with a very low per capita income does not have the capital to be invested in public goods such as infrastructure. Without such investments, the productivity of its citizens cannot improve. Over time, population growth will eat into the country's per capita income. Instead of observing positive growth, we observe the country falling deeper into poverty.

To bring a country out of a poverty-trap requires a "big push" from an external actor. This "big push" -- in the form of a well-targeted infusion of capital from rich countries -- will jump-start the country out of the trap. Once it escapes, the country will once more see positive growth rates and stop needing external aid. This is Sachs' case for aid: Aid is that necessary big push to help sub-Saharan Africa escape the trap.

Sachs' calculation suggests that the aid received by sub-Saharan Africa needs to increase gradually, from US$36.4 billion in 2006 to US$83.4 billion in 2015, to help these countries escape the trap and achieve the MDGs. A 3000-plus-page report of his Millennium Project describes how increasing aid and planning it around the MDGs can do wonders for the region.

Many development experts, however, are unconvinced by Sachs' diagnosis of Africa's poverty. Michael Kremer, a development economist at Harvard University, for instance, thinks that the poor economic policy and bad governance view is somewhat more supported by evidence than the poverty trap view. William Easterly, another economist and development expert at the New York University, is skeptical at the claims of what aid can achieve in Africa, especially in view of the previous four decades. Additionally, Easterly cannot see the rich world mustering the institutional capital to channel aid properly (The Economist, Jan. 20, 2005).

These disagreements do not amount to a rejection of the case for increased aid. They do, however, point to a need to rethink the best way to direct aid to help Africa. This often involves a more flexible definition of assistance: Helping Africa does not always imply a need to infuse capital into the country -- as demanded by the poverty trap view. Research on vaccinations for malaria or AIDS is likely to happen in rich countries, but its potential benefits to poor African countries are enormous.

It also points to a need to be less fanatical about the MDGs. Kremer, in his comments on Sachs' paper worried that putting too much importance on MDGs "may distort development spending... Poor countries may have many needs, not all of which fit neatly within the MDGs." Requiring countries to plan around MDGs to qualify for aid might skew poor countries' development planning away from their true development priorities.

These criticisms, however, should not belittle Sachs' contribution to the global efforts to fight poverty. After all, his contributions go beyond his analysis. Through his conviction, Sachs dares people to think big about eradicating poverty; by showing the possibility of ending poverty in our lifetime, Sachs gives the development community -- often a pessimist bunch -- a reason to be hopeful. His upcoming lecture in Jakarta hopefully will do more of the same.

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