ADDIS ABABA UNIVERSITY COLLEGE OF BUSINESS AND ECONOMICS

BOOK REVEIW

BY:
ALHAMDU ABDELA GSE/4312/15
BEZAWIT ABRHAM MELESSE GSE/6377/15
MEBRHIT ALEM GSE/1187/15
MENGIST FETENE GSE/9517/15

DEPARTMENT OF BUSINESS ADMINSTRATION

DR. TEFEREI
ADDIS ABABA, ETHIOPIA
 1. MAY, 2023 Lords of Poverty: The Power,
Prestige, and Corruption of the International Aid Business

1.1. The key message of the book

The key message to take away from Hancok's analysis is that the lords of poverty are an
invisible army of "international civil servants, development experts, consultants, and assorted
freeloaders" who have been unleashed on Africa to maintain and perpetuate a culture of poverty
and beggary. They are faceless, nameless, heartless, thoughtless, merciless, gutless, clueless,
conscienceless, and feckless.

1.2. The reason for projects/programs funded by development aid fail

 Poor governance or corruption

 Cronyism- the appointment of friends and associates to positions of authority, without
proper regard to their qualifications.
 Aid being used as a political ploy
 Abnormal waste
 Occasional incidents of improper conduct in aid administrations, or of
misappropriation of funds in receiving countries
 The lack of real accountability

1.3. Recommendation of how actors in the development aid arena, particularly,

recipients of development aid could make projects/programs funded by aid
successful
  A more transparent aid system- a lack of transparency is the biggest obstacle to greater
engagement and harmonization. Without real-time information as to who is doing what
where, it becomes impossible for different development partners to pursue effective
strategies based on an efficient division of labor.
 A differentiated, adequately resourced strategy for each recipient country- Aid destined
for fragile states needs to be implemented with quite different modalities than aid to well-
governed countries. Yet the characteristics of recipient countries—on governance,
geography, capabilities, political will, strength and the dynamism of the private sector—
are not systematically addressed by donors with clarity on the conditions under which
recipient countries’ systems and preferences will be fully respected by donors. Instead,
each donor uses systems designed for its own convenience and governance
accountabilities. At times, aid agencies are too slow and need to be more quick.
 A longer-term focus for aid- Resources are not commensurate with needs. Indeed, the
actual cross-border flow of resources to developing countries is only a fraction of total
aid- Resources are not commensurate with needs. Indeed, the actual cross-border flow of
resources to developing countries is only a fraction of total aid.

1.4. Summary with examples from the book citing page numbers and your own
experience or readings of other materials.

Lords of poverty is focused on international aid industry in 70-80s. The author shows that
international aid in beneficial mostly for donor-countries' economies, corrupted aid industry's
officials and workers and developing countries' governments, though poor people remains poor.
Hancock comes to the conclusion that the aid programs are "utterly beyond reform"(p.183) and
ought to be scrapped since they are so corrupt.

International aid has funded monstrous projects that, at great expense, have destroyed the
environment and ruined lives; it has supported and legitimized vicious dictatorship; it has
facilitated the emergence of fantastical and complicated bureaucracies staffed by legions of self-
serving hypocrites. It costs $60 billion in 1989 and is "a waste of time and money" for the
underdeveloped receiving nations.

''Charities established to do good works amongst the poor know that they can benefit from this
powerful but transitory altruism and go into public-relations overdrive when there is a relief
operation in prospect.''(p.3) This has led to a strong bias towards disbursing committed funds to
the designated recipient irrespective of performance. Thus, resources are not shifted towards
countries where they can be effectively utilized. Modeling reveals the advantages of reforming
this system by introducing a competitive element between recipients.

''The ugly reality is that most poor people in most poor countries most of the time never receive
or even make contact with aid in any tangible shape or form: whether it is present or absent,
increased or decreased, are thus issues that are simply irrelevant to the ways in which they
conduct their daily lives.'' (p.190) According to Hancok's analysis, an invisible army of faceless,
nameless, cruel, insensitive, merciless, cowardly, clueless, conscienceless, and useless
"international civil servants, development experts, consultants, and assorted freeloaders" have
been unleashed on Africa in order to perpetuate and sustain a culture of poverty and hunger.

His essential argument is that worldwide guide has supported the making of huge ventures that,
at tremendous cost, have crushed the climate and destroyed lives; it has upheld and legitimized
severe oppressive regimes; It is a waste of time and money that is detrimental to poor recipient
nations and cost $60 billion in 1989. It has facilitated the emergence of fantastical and Byzantine
bureaucracies staffed by legions of self-serving hypocrites. Help isn't awful in light of the fact
that it is once in a while abused, degenerate, or uncouth; rather, it is intrinsically awful, tough,
and completely past change… . It is possibly the most significant impediment to the poor's
productive endeavors. Additionally, it is a patronizing insult to their unique, unrecognized
abilities and a denial of their potential.
Hancock sees international aid as a complicated game in which public money levied in taxes
from the poor of the rich countries is transferred in the form of foreign aid to the rich in the poor
countries; the wealthy in the developing nations return it to the wealthy in the developed nations
for safekeeping. He exposes the fantasy that global guide works and should not be halted in light
of the fact that the poor couldn't make due without it. According to his argument, if the statement
that aid works, then presumably the poor should be in a much better condition than they were
before they first began receiving it a half century ago. If this is the case, then aid's work ought to
be nearly finished and a gradual withdrawal ought to be possible without harming anyone.
2. The very message of the book to providers and recipient of development aid,

2.1. The key message of the book

Moyo points out that while billions of dollars are received annually by Africa, its nations remain
mired in misery. Economic growth is extremely slow, and African nations are becoming
increasingly indebted, with their economies ruined by inflation. This increases governmental
instability, civil unrest, and of course, paralyzes social development.

The economist points out that aid is a complete disaster in political, economic, and humanitarian
terms. She supports her assertions with data: "Over the past 60 years, billions of dollars in
development aid have been transferred from rich countries to Africa. However, per capital
income today is lower than it was in the 1970s, and more than 50% of the population (350
million people) live on less than a dollar a day, a figure that has almost doubled in two decades."

She says that the victim-hood of some African groups is the biggest obstacle to the continent's
development "... look at it this way. China has a population of 1.3 billion people and only 300
million live like us (with a high standard of quality of life). There are 1 billion Chinese living
below that standard. Do you know anyone who is worried about China? No one."

Aid has helped make the poor poorer, and growth slower. Yet aid remains a centerpiece of
today’s development policy and one of the biggest ideas of our time. The notion that aid can
alleviate systemic poverty, and has done so, is a myth. Millions in Africa are poorer today
because of aid; misery and poverty have not ended but have increased. Aid has been, and
continues to be, an unmitigated political, economic, and humanitarian disaster for most parts of
the developing world. Below are some of the major implications the author forwarded;

 The Dead Aid proposal is dead easy to implement. What it needs, and what is lacking, is
political will. Political incentives are stacked against making the call.(p. 137)

 Let African countries each received a phone call (agreed upon by all their major aid donors –
the World Bank, Western countries, etc.), telling them that in exactly five years the aid taps
would be shut off – permanently? Although exceptions would be made for isolated
 emergency relief such as famine and natural disasters, aid would no longer attempt to
address Africa’s generic economic plight. (p.134)

 Large systematic cash transfers from rich countries to African governments have tended to
be in the form of concessional loans (that is, money lent at below market interest rates, and
often for much longer lending periods than ordinary commercial markets) or grants (which is
essentially money given for nothing in return). which is hindering job creation and aggravate
corruption. (p.23)

2.2. why projects/programs funded by development aid fail;

 The aid money in Africa is used for famine relief, medical emergencies, drinking water
supplies, and other basic needs, which of course is extremely important, but they only attack
the symptoms and not the cause. If the money sent is not put into production, people will
continue to barely survive with external aid, but will never be able to overcome poverty;
furthermore, part of this money sometimes serves to perpetuate and sustain totalitarian
regimes in power, because to get the resources to the population it is necessary to go through
them, and a large part of the resources is lost due to corruption.

 We were, once more, struck by the attribution of the causes of the failures and successes of
projects. Expectedly, success has many parents, but failure is an orphan. The evidence seems
to suggest to us that projects may succeed (or fail) in part because of the ancillary support
afforded (or not) by the larger, national environment in which they are conducted. Project
management with its focus on efficiency works best in a conducive environment. Therefore,
poor project management practice is the high problem for projects failed in Africa.

2.3. Recommendation

 We have offered an array of financing alternatives: trade, FDI, the capital markets,
remittances, micro-finance and savings. It should come as no surprise that the Dead Aid
prescriptions are market-based, since no economic ideology other than one rooted in the
movement of capital and competition has succeeded in getting the greatest numbers of
people out of poverty, in the fastest time. Page 135
 Aid has helped make the poor poorer, and growth slower. Yet aid remains a centrepiece of
today’s development policy and one of the biggest ideas of our time. The notion that aid can
alleviate systemic poverty, and has done so, is a myth. Millions in Africa are poorer today
because of aid; misery and poverty have not ended but have increased. Aid has been, and
continues to be, an unmitigated political, economic, and humanitarian disaster for most parts
of the developing world. With returns Africans get jobs, get roads, get food, making more
Africans better off, and (at least in the interim) the promise of some semblance of political
stability. It is the economy that matters. Places like Singapore have shown that, even in the
absence of democracy, peace prevails when the median citizen is economically better off.
Therefore work with countries like china, Indian, Brazil etc in return enjoy the return
on investment.

 If Dongo is to survive, development finance demands a new way of thinking. It needs to

abandon the obsession with aid and draw on proven financial solutions. Dongo should aim
for just 5 per cent of its total development financing to come from aid, 30 per cent from
trade (with China as the lead partner), 30 per cent from FDI, 10 per cent from the capital
markets, and the 25 per cent that is left should emanate from remittances and harnessed
domestic savings. ,Therefore, we recommend to minimize aid proportion to its budget via
financial solution. (p.131)

 Africa needs to investment in economic fields that generate structures of sustained

development. This requires education, of course, but also the promotion of an
entrepreneurial culture, to produce employment and raise the continent's production, which
is the only thing that can allow Africans to have their own homes and eat their own food in a
couple of decades, without having to depend on the arrival of money from developed
countries.

 A continent like Africa needs a diversification of its economy, it needs more transparent
and less authoritarian political systems, and at the same time, it requires constant training to
the members of its societies to inaugurate sustainable economic projects. The truth is that no
nation can get ahead or make the economy grow with eternal subsidies.
 2.4. Summary

In the past fifty years, more than $1 trillion in development-related aid has been transferred from
rich countries to Africa. Has this assistance improved the lives of Africans? No. In fact, across
the continent, the recipients of this aid are not better off as a result of it, poverty levels continue
to escalate and growth rates have steadily declined-and millions continue to suffer.Page 16

Dambisa Moyo describes the state of postwar development policy in Africa today and
unflinchingly confronts one of the greatest myths of our time: that billions of dollars in aid sent
from wealthy countries to developing African nations has helped to reduce poverty and increase
growth.

Provocatively drawing a sharp contrast between African countries that have rejected the aid
route and prospered and others that have become aid-dependent and seen poverty increase, Moyo
illuminates the way in which over reliance on aid has trapped developing nations in a vicious
circle of aid dependency, corruption, market distortion, and further poverty, leaving them with
nothing but the "need" for more aid. Debunking the current model of international aid promoted
by both Hollywood celebrities and policy makers, Moyo offers a bold new road map for
financing development of the world's poorest countries that guarantees economic growth and a
significant decline in poverty-without reliance on foreign aid or aid-related assistance. Dead Aid
is an unsettling yet optimistic work, a powerful challenge to the assumptions and arguments that
support a profoundly misguided development policy in Africa. And it is a clarion call to a new,
more hopeful vision of how to address the desperate poverty that plagues millions.

Therefore, the idea to escape from aid finance is not debating issue as Aid destined for Africa,
instead of promoting economic growth, condemned the continent to poverty and continued
dependence on international aid for survival and parallel put some mechanism to combat Dead
Aid from western as mentioned above in recommendation part.
3. Comparison

3.1. What arguments does each author provide for her/his respective idea that “aid does
not work” or “aid works”? Support with examples.

Both author's believes that AID does not work;

Hanckock's view

If the statement that 'aid works' is true, then presumably the poor should be in much better shape
than they were before they first began to receive it half a century ago. If so, then aid's job should
by now be nearly over and it ought to be possible to begin a gradual withdrawal without hurting
anyone. At a more general level, foreign aid - now worth almost $6o billion a year has changed
the shape of the world in which we live and had a profound impact on all our thinking.
Consciously or unconsciously we view many critical global problems through lenses provided by
the aid industry. When we come to analyze these problems we draw on a vast data-base that the
aid industry has generated -and that the aid industry controls. Hancock concludes that aid is a
waste of time and money, that its results are fundamentally bad, and that - far from being

Dambisa Moyo's view

Moyo points out that while billions of dollars are received annually by Africa, its nations remain
mired in misery. Economic growth is extremely slow, and African nations are becoming
increasingly indebted, with their economies ruined by inflation. This increases governmental
instability, civil unrest, and of course, paralyzes social development. This is because no control
of the aid avail to Africa, aid based relationship rather than trade based relationship, and aid for
political will.

Large systematic cash transfers from rich countries to African governments have tended to be in
the form of concessional loans (that is, money lent at below market interest rates, and often for
much longer lending periods than ordinary commercial markets) or grants (which is essentially
money given for nothing in return). which is hindering job creation and aggravate corruption.

3.2. Is there similarity or difference between the positions of the two authors towards
aid? Why?

Both Hancock and Moyo point out not without reason, but without much precision – that
countries who have not received aid have done well while those that have received aid have not
developed.
Both of them sketches development aid respectively as 'dead' and a 'betray of public trust' by 'the
lords of poverty'. They suggest that aid has to be short term and should be given with an
intention of revitalizing countries economy, not to aggravating existed problems.

3.3. Are there ways to make aid, as defined by the authors, effective in terms of
alleviating poverty in developing countries?

Hancock

'' Aid can only be achieved, however, by stopping development assistance in its present form
something that might prove to be in the best interests both of the taxpayers of the rich countries
and the poor of the South. when the middle men of the aid industry have been shut out it will
become possible for people to rediscover ways to 'help' one another directly according to their
needs and aspirations as they themselves define them, in line with priorities that they themselves
have set, and guided by their own agendas.''
The highly paid aid bureaucrats or “lords of poverty” should depart.

Moyo, Dongo Revisited; financing portfolio

If Dongo is to survive, development finance demands a new way of thinking. It needs to abandon
the obsession with aid and draw on proven financial solutions. Dongo should aim for just 5 per
cent of its total development financing to come from aid, 30 per cent from trade (with China as
the lead partner), 30 per cent from FDI, 10 per cent from the capital markets, and the 25 per cent
that is left should emanate from remittances and harnessed domestic savings. The key is to wean
countries off aid by putting them on a tight schedule instead of continuing to give them open-
ended commitments.

Clearly, however, not all African countries are equal, and what might be right for Dongo may not
be suitable for land-locked Zambia, Zimbabwe and Chad, versus oil-rich Sudan, Nigeria and
Angola. But the point is that, in order to succeed and escape the mire of poverty and despair,
they need a mix of each of these solutions and an end to aid-dependency. It has been shown,
from case to case and example to example, that this can be done. In fact, in many African
countries some of this is already being done, but on nowhere near the scale that is needed.
Implementation (as we shall see) will be challenging, but not impossible.

3.4. Is there any country that achieved development with the support of aid? Elaborate.

NO, aid is frequently criticized for not reducing poverty and economic growth.

 Discourage the recipient country's own effort to grow

 Decrease total factor productivity
 Local prices may rise as a result of foreign aid. At the point when unfamiliar guide is
presented at any left, the objective is to assist that country with making their own asset
chain that can be utilized to make the basics of life: shelter, water, clothing, and food.
Supply and demand rule the majority of markets. People will have more access to
resources if you give them more money to spend. As a result, prices rise as the local
supply decreases. Even though the gift does not cost anything, price increases may never
stop. This interaction makes a cycle where unfamiliar guide can turn out to be continually
essential. Those who operate in an economy of scale benefit from foreign aid. When
governments award contracts for the provision of foreign aid, they want to work with
businesses that can provide the highest return on investment. That implies little suppliers
can battle to remain serious for this homegrown financial increase. The largest firms that
are able to complete the work at the lowest cost will receive the majority of it. It turns
into one more illustration of how the people who have cash can make a greater amount of
it, while the individuals who don't should battle to get by.
 REFERENCE
Alesina, Alberto, and David Dollar, 2000, ‘Who Gives Foreign Aid to Whom and Why?’ Journal
of Economic Growth, Vol.5, No.1, pp.33-63.

Alemayehu G.'the lords of poverty 2009, Ethiopian News and Opinion Journal.

Arjan de H. 2009, Aid: The Drama, the Fiction, and Does it Work?

Burnside, C. and D. Dollar (2000), “Aid, Policies, and Growth”, American Economic Review,
Vol.90, No.4, pp.847-868.