Source: Foreign aid dreadful, unnecessary! – NewsDay Zimbabwe June 6, 2019
ZIMBABWE does not need foreign aid to escape this economic malaise. Our leaders have been saying it so many times that the country’s hope lies on a bailout package; the quicker we get it, the better, but this is a misplaced sentiment. The country has lost so much time and resources hunting for bilateral aid, which is not necessary anyway, instead we should focus more on finding solutions to our current problems with what we already have.
Though developmental economist and prominent author, Jeffrey Sachs, vehemently argued that less developing nations are faced with what he termed poverty traps and need a bailout package in the form of official development assistance in order to escape extreme poverty but I, together with other economists like Dambisa Moyo and William Easterly, believe that developmental aid is the reason why we are poor today.
Internal efforts to alleviate poverty have been a failure for the past five decades despite the West’s effort, having spent more than $2,3 trillion, but still 1,1 billion people still live in extreme poverty.
Those countries that have rejected the aid route have prospered while countries like Zimbabwe have become aid-dependent and seen poverty increasing. Over-reliance on aid has trapped developing nations in a vicious cycle of aid dependency, corruption, market distortions and further poverty, leaving us with nothing, but the need for more aid.
Moyo argued that over the past 30 years, the most aid-dependent countries have exhibited growth rates averaging minus 0,2% and when aid flows were at their peak between 1970 and 1998, poverty in Africa rose to a staggering 66%.
Ovaska (2003) empirically demonstrated that decreasing the level of developmental aid may actually have a beneficial effect on growth. He found that a 1% rise in aid as a percentage of GDP decreases annual GDP per capita growth by 3,65%. Aid incentivises citizens of poor nations to be dependent and unproductive, which ultimately harms their economic progress.
Aid is corrosive, according to Moyo, in that it encourages exceptionally talented people to become unprincipled, putting their efforts into attracting and siphoning of aid rather than focussing on being good politicians or entrepreneurs. A foreign aid environment weakens social capital by thwarting accountability mechanisms, encouraging rent-seeking behaviour, siphoning of scarce talent from employment positions and removing pressures to reform inefficient policies and institutions.
Zimbabwe has been receiving aid and some form of bailout packages for the past 29 years, yet the economic situation is worsening, and poverty rates increasing. The failure of our country’s economy is not the lack of aid or of inadequate finance, but its more to do with its governance and institutions around. It’s about politics.
Poverty is not a technical problem, according to Easterly, it is a social problem that is caused by social causes of poverty, bad institutions, bad politics, misguided policies, trading networks that exclude the poor, high transaction costs in markets and ineffectual aid donors.
Caden (2009) wrote that economic development is an institutional rather than an infrastructural and technological problem. People respond to incentives, and institutions defining those incentives have fundamental implications.
The ideas to end poverty are better learnt from Adam Smith (1776). Nations become wealthy as the scope of the market expands and their citizens are increasingly able to take advantage of the division of labour and this points out to the fact that nations that lack proper property rights, which do not enforce contracts inhibit the creation of wealth, hence will remain poor, Zimbabwe being one of them.
The success stories of India, South Korea and China are not from these kinds of bailout packages that Zimbabwe is seeking for; they are from market liberalisation and entrepreneurship. Zimbabwe’s failure is not caused by lack of foreign aid, presence of sanctions, ignorance or lack of resources, but rather, it is a result of selfish interest of the dictators to amass wealth through extractive institutions at the expense of the majority. South Africa is doing well. Botswana is one of the growth miracle countries and these are all our neighbouring countries. So it is not like our leaders are ignorant and can’t see and copy from nearby, but the presence of corruption, absence of rule of law, misgovernance, no property rights and enforceable contracts would maximise the elite’s rent-seeking activities.
Those in this bad system or linked to it are benefiting and they do not dare complain. That is why you hear them justifying corrupt tendencies, luxurious and wasteful globe-trotting trips at the expense of drugless hospitals and protection of shortage-creating fuel cartels. There is liquidity crisis in Zimbabwe and most commercial banks stopped cash withdrawals a long time ago, but money changers are in the streets with thousands of this scarce and most hunted RTGS notes, then you wonder who their supplier is. Who are the major shareholders of all these remaining companies, mining firms, and owners of major gold claims, among others? Obviously, it’s not that poor peasant farmer of Uzumba, Buhera or Gokwe, it’s those same politicians.
So if you say an economic crisis is looming, there is extreme poverty in Zimbabwe, hospitals are now in a bad state, schools are now offering the worst kind of education ever due the lack of incentives and motivation to the facilitators, who cares, who hears? Their children learn abroad. If they fell ill, they are flown abroad to India to get the best medication and attention ever. They are equally more important and you are just inferior, no matter how you cry, talk or shout. The incentive or push to make things straight is none existent, because extreme poverty is in your homes, not in theirs.
Do they use public transport, RTGS dollars, earn peanuts like the majority of civil servants, or sleep in fuel queues? Do they do shopping here in Zimbabwe? No, they don’t. So why should they make the system straight if their problems are not the same as ours? Zimbabwe has all it needs to prosper; natural resources, human resources among others; bad institutions are the binding constraints, corruption, expropriation of property, misgovernace, absence of the rule of law, lack of contract enforcement, repressed markets and poor policies, just to mention a few. Zimbabwe does not need aid, it needs sanity!
Blessing Machiva is a developmental economist and he writes in his personal capacity.