NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

The Economist: HelpingAfrica Help Itself, The$25 Billion Question, DoingBusiness in Africa

In light of the G8 summit, The Economist published several articlesrelated to foreign aid to Africa in this week’s edition.One, HelpingAfrica Help Itself, advocates foreign aid on the basis thatit constitutes a relatively small amount of rich countries’s GDP, and that afew foreign aid projects, particularly in disease eradication, have had largeimpacts on the lives of the poor. Another,The$25 Billion Question,includes shocking statistics of the misuse of foreign aid, due to the inabilityof donors to properly align the incentives of government bureaucrats to ensurethat they use the aid as intended by the donors. A third, DoingBusiness in Africa, describes the healthiness of the business climate in Africa,and the success of large, African firms.

Despite the misleading byline on the cover page (HelpingAfrica Help Itself), this edition of The Economist does not include one articleon the potential of private, African firms to reduce poverty in Africa.The articles focus on the standard issues: the barriers that corrupt governmentsand their bureaucracies pose to foreign aid, the temporality of donorassistance, and the effectiveness for foreign aid at spurring economic growth.

Economic indicators suggest that other approaches to development have more potential than foreign aid. As BillKramer quoted the EU Trade Minister in his last post, a 1% increase in trade wouldequal a seven-fold increase in foreign aid. Remittances, money transfers via wire that many immigrants use to send money to their relatives and friends in their home countries, reached $116.6billion in 2003, whereas foreign aid from OECD countries only equaled $69billion in that same year, according to the World Bank. Although the authors of HelpingAfrica Help Itself rightlypoint out that foreign aid projects should not be trivialized, the relative small size of foreign aid suggests that stronger and more effective tools exist to reduce poverty inpoor countries.