Unintended consequences: After watching all the damage caused by development aid, Kenyan economist says “please just stop.”

James Shikwati is the Director of Inter Region Economic Network. He is an economist from Kenya.

In 2005, he gave an interview to Spiegel, which was titled “For God’s Sake, Please Stop the Aid!”

A bit of research revealed this long list of articles he has written.  There is far more detail in those articles than in the one interview. I will summarize a few of the ideas in the interview. Over time, I’ll try to read more of the articles he has written and comment on them.

Development aid damages the local economy

This is something I’ve mentioned here, here, and here.  He provides several examples in the interview how development aid actually harms the local economy.

Farming:

A famine breaks out, national leaders ask for help, development agencies and Western governments send tons of food, and local farmers go under:

… before long, several thousands tons of corn are shipped to Africa …… And at some point, this corn ends up in the harbor of Mombasa. A portion of the corn often goes directly into the hands of unscrupulous politicians who then pass it on to their own tribe to boost their next election campaign. Another portion of the shipment ends up on the black market where the corn is dumped at extremely low prices. Local farmers may as well put down their hoes right away; no one can compete with the UN’s World Food Program. And because the farmers go under in the face of this pressure, Kenya would have no reserves to draw on if there actually were a famine next year. It’s a simple but fatal cycle.

Farmers are hurt, go out of business, and don’t have any ability to produce food in the next cycle.

Oh, and all that corn feeds corruption.

Clothing makers:

Westerners send huge amounts of used clothes they don’t want anymore (SWEDOW) which flood the market and crowd out local manufacturers.

Why do we get these mountains of clothes? No one is freezing here. Instead, our tailors lose their livlihoods. They’re in the same position as our farmers. No one in the low-wage world of Africa can be cost-efficient enough to keep pace with donated products. In 1997, 137,000 workers were employed in Nigeria’s textile industry. By 2003, the figure had dropped to 57,000. The results are the same in all other areas where overwhelming helpfulness and fragile African markets collide.

All those donated clothes shut down the jobs of 80,000 Nigerian textile workers.

Check out that good observation again – no producer anywhere can compete with free donated goods.

Development aid produces corruption and complacency.

Here’s the one paragraph summary:

Huge bureaucracies are financed (with the aid money), corruption and complacency are promoted, Africans are taught to be beggars and not to be independent. In addition, development aid weakens the local markets everywhere and dampens the spirit of entrepreneurship that we so desperately need. As absurd as it may sound: Development aid is one of the reasons for Africa’s problems. If the West were to cancel these payments, normal Africans wouldn’t even notice. Only the functionaries would be hard hit. Which is why they maintain that the world would stop turning without this development aid.

See the full article and look at the threads throughout the article telling of corruption that is created at the national level in African countries and the intellectual corruption created in the development agencies themselves.

The biggest damage is the complacency that is created. That also shows the opportunity to actually change things. Developing that idea will take a long series of posts.

Other articles by Mr. Shikwati expand on the concept that all the development aid has destroyed the entrepreneurial drive, the interest and ability to solve one’s own problems, and the need to develop the infrastructure to thrive.

Why pouring money into post-WWII Germany was a success but the same money-pouring doesn’t work in Africa

Only the infrastructure needed repair in Germany. Mr. Shikwati says something else is needed in Africa.

In Germany’s case, only the destroyed infrastructure had to be repaired. Despite the economic crisis of the Weimar Republic, Germany was a highly- industrialized country before the war. The damages created by the tsunami in Thailand can also be fixed with a little money and some reconstruction aid. Africa, however, must take the first steps into modernity on its own. There must be a change in mentality. We have to stop perceiving ourselves as beggars. These days, Africans only perceive themselves as victims. On the other hand, no one can really picture an African as a businessman

For me, that is a big Aha! moment.  Development aid by itself will build an airport or hospital.  That won’t grow an economy just by itself.

It requires a change in attitude and perspective to see how a nearby airport could be leveraged to create trade opportunities where none existed before, build a company, and thus provide new jobs to a local village.

Good intentions don’t change anything

SPIEGEL: … The industrialized nations of the West want to eliminate hunger and poverty.

Shikwati: Such intentions have been damaging our continent for the past 40 years. If the industrial nations really want to help the Africans, they should finally terminate this awful aid. The countries that have collected the most development aid are also the ones that are in the worst shape. Despite the billions that have poured in to Africa, the continent remains poor.

Hat tip: Carpe Diem.  Thanks for introducing me to Mr. Shikwati’s writing.

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