15 February 2009

Rwanda: Country to Rely Less on Foreign Aid

Kigali — Top government officials have vowed to cut down reliance on foreign aid by a significant percentage as a way of heightening economic autonomy.

Officials apparently undertook the plan after being inspired by lecture from Zambian Economist Dambisa Moyo on her book 'Dead Aid' on Friday at Hotel Novotel.

In her book, Moyo talks about how aid has not effectively worked for African and sets out real opportunity for policymakers to focus on coming up with more innovative ways of financing economic development.

In a public lecture attended by the entire cabinet Ministers Moyo said that since the end of World War II, about US$1trillion in aid and soft loans has flowed from the developed world to Africa.

"Since then the aid sent to Africa but it is hard to see what benefit this has brought to a region that remains trapped in failure. The continent is still deepened in poverty and no significant sign of economic growth as a result of West aid instead it has been worse than useless," said Moyo.

She explained that aid displaces productive economic activity, cut the link between citizens and government, and increase corruption and civil war by making capture of the state the route to huge wealth.

She however offers some suggestions for how to address Africa's poverty and underdevelopment without reliance of the foreign aid and points out consideration of Trade with partner States, foreign direct investment, savings through micro-finance and capital Markets are all much healthier for a promising economy than aid.

Moyo believes that dependency on aid undermines the ability of Africans to determine their own best economic and political policies.

In fact, she proposes far more radical treatment: a telephone call from policymaker in developing countries to donors warning that in five years they stop their reliance on aid.

This, she believes, would trigger the search for alternative financing on a commercial basis, and force governments to create conditions in which business would thrive.

Asked when he would pick up a phone and call the donor to cut down the aid, the Minister of Finance James Musoni said: "our objective is to do it in phases by aligning aid to our priorities and after that I will pick up a phone and call Mr. Donor and set my conditions."

Musoni plan is to have a significant cut of foreign aid in five years. Asked if donors happen to stop their aid instantly the country's economy won't shrink he said Rwanda is capable to survive for another day.

He stressed that; "since December there is single coin that has come in the country and State activities have move on as usual however aid is not completely bad if it is effectively used."

If ideas in Dead Aid, is implemented there would be more hopeful vision of how to address the desperate poverty that plagues millions in African and according to the Principle Private Secretary to President Paul Kagame, Dr. David Himbara believes 'Rwanda can do it'.

Between 1994 and 2000, Rwanda relied 100percnt on foreign aid and from 2000 to 2008, we have cut down the percentage to 44percent; this is a clear indication that in five year, we can do it," said Himbara.

He offers additional suggestions for Rwanda point at hard work, improved policies, boost of the private sector and more emphasis on encouraging foreign direct investment.

"It all begins with a mindset, the more we think that we can do it the more we are likely to succeed and am sure we can do it," said the optimistic Himbara.

President Kagame has for long expressed his mistrust in foreign aid and 'Dead Aid' refers to his quotations on several pages; Moyo also believes Rwanda is one of the countries that are capable of forge ahead without foreign aid.

"In the past the sovereign bond issues of South African, Ghana and Gabon have shown that innovative thinking towards more transparent methods of financing Africa's development may be catching on but there is clearly scope for improvement. I believe Rwanda will be the next on this list," said Moyo an exclusive interview.

She added that no one can say for sure how long market-based financing would take to yield sturdy growth for Africa, but one thing is for sure, it will be faster than continuing to rely on aid.

Even if Moyo's prescriptions of use of micro-finance, foreign direct investment, more trade, issuing bonds to raise capital do not work in the way that she hopes, she believes that they would put Africans in control of their own destiny and give small-scale business people and entrepreneurs the opportunities that they have had elsewhere.

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