Sajid Javid: Foreign aid encourages corruption, conflict and dependency

Sajid Javid is a businessman and private investor.  He was previously a senior Managing Director at Deutsche Bank AG.  In this Platform he argues that traditional foreign aid policies have kept Africans in poverty and that we need a radical new approach.

As a financier with experience of working with developing countries, I was once asked to help restructure a defaulted £200 million loan that a consortium of banks had made to an African government.  I started by following the money trail.  It turned out that over £145 million had ended up in the pockets of government ministers and bureaucrats.

Giving aid to Africa remains one of the biggest ideas of our time.  Governments are judged by it, and that’s one reason why the Conservatives have rightly given international development such a high priority.  It’s not only morally right to help the poorest in the world, but it’s practical politics too.  The more Africa develops economically, the fewer conflicts we will get drawn into and the less illegal immigration we’ll see.

We need to look carefully into what form our help takes.  Evidence overwhelmingly suggests that government-to-government aid to Africa has made the poor poorer, and growth slower.  It has fattened the already bulging offshore bank accounts of Africa’s ruling elite, and made the majority of Africans dependent of Western handouts – unable to work hard and earn a decent living.

Over the last 40 years, at least £450 billion of development-related aid has been transferred to Africa from rich countries.  Yet real per capita income today is lower than it was in 1970.  Over two-thirds of the continent’s population lives on less than a pound a day.

Foreign aid encourages corruption

Rampant corruption in Africa is well known – far too many people go into politics only to get rich.  Despite this, much of the roughly £30 billion of international assistance that will go from the developed world to Africa each year will go as direct government to government aid – including most of the cash coming from the UK.  The economist Peter Bauer put it well half-a-century ago, foreign aid is a way of “taxing the poor in rich countries and passing it to the rich people in poor countries.”

Foreign aid has eroded the social contract between government and its citizens.  Most African governments care only about self enrichment, and most African citizens expect virtually nothing from their governments.  Unlike anywhere else in the world, many African citizens rely on foreign governments and NGOs for basic facilities such as clean water, healthcare and food.

Foreign aid encourages conflict

If we want to see less conflict in Africa, it means less traditional aid, not more.  Aid keeps corrupt governments in power.  Since being in government means personal wealth through controlling incoming aid, aid encourages violent changes in government.  Government is – quite literally – worth fighting for.

Foreign aid encourages dependency

I once met a Ugandan entrepreneur that used to run a paracetomol factory, employing around 100 people (with each of these people probably supporting 10-15 family members each).  One year, the Dutch government generously supplied Uganda with millions of paracetomol tablets through its aid program.  The factory went bust.  A couple of years later, when the free paracetomol supply had been used up, there was no factory.  Similar real life stories litter the African continent.  What incentive is there for a smart, energetic African citizen to work hard when their own government couldn’t care less, and foreign governments inadvertently hurt you?

We can do better

We need a new approach to foreign aid, that limits corruption, encourages stability and promotes personal industry.

We need to encourage African countries to adopt free market economics, and use our development budget to provide (to the best of our ability) the support structure they will need.  Despite the credit crisis, the capitalist models ability to generate wealth and move millions out of poverty in unrivalled.

The international development policies of the next Conservative government should unashamedly promote self help for Africa, rather than reliance.

• We should encourage free trade, both with Britain, the EU and the rest of the world.
• We should encourage direct private investment in Africa, perhaps with a co-investment program. 
• We should ask African citizens directly, trying to by-pass their governments and bureaucracy as much as possible, what we can do to help them help themselves.  For instance, having visited micro-finance institutions in India and Brazil, I have seen first hand the difference they can make to empower an individual – not only to earn a living, but to build self respect.  We can do far worse with our international development budget than use a chunk of it to provide micro-finance loans directly to budding entrepreneurs in Africa.

Why should Africa be shielded, as the aid lobby seems to be saying, rather than exposed to market forces?  African’s must not be treated as hopeless aid-addicts capable only of receiving charity, but equal to everyone else in ability.   We Conservatives must fight the consensus of the international aid lobby, and help Africa help itself.