Time donors borrowed from Africa to help AfricaBy RAY NALUYAGA | Friday, June 29  2012 at  11:59

Liberia takes the biscuit when it comes to stashing Africa’s cash away in Swiss banks.

The third poorest country in Africa and second in the world has $4.3 billion in Swiss banks, according to The Swiss National Bank (SNB), the central bank of Switzerland, in its latest report on the country’s banking sector.

According to SNB, 43 African countries held $16 billion in Switzerland, or 36 per cent of the total aid Africa received in the past 44 years.

Over the past four decades, aid to Africa quadrupled from around $11 billion to $44 billion, with a net increase of almost $10 billion during the period 2005-2008 alone.

The Seychelles follow with $2.6 billion. Unlike Liberia with income per capita estimated at $500, Seychelles is characterised as a middle income country with per capita income estimated at $8,700.

The second stasher is South Africa with $1.9 billion. The country is the richest in the continent, but it is the second biggest aid recipient.

Swiss banks have a reputation of secrecy and are, therefore, popular with owners of ill-gotten wealth and discreet investors who do not wish to disclose the origins of their money.

There is no evidence to indicate whether the money was acquired through legitimate or illegitimate means.

However, the banks have long been a favourite of Africa’s kleptocrats seeking a safe place for money they acquire while in power.

According to a Wall Street Journal article published in 2009 and titled “Why foreign aid is hurting Africa”, money from rich countries has trapped many African nations in a cycle of corruption, slower economic growth, and poverty.

To support this premise, author Dambisa Moyo of Zambia says the most obvious criticism of aid is its links to corruption.

Most money in Swiss bank accounts is believed to be earnings from graft, especially kickbacks from Western firms to secure contracts in Africa, and stolen aid money.

“Aid flows destined to help the average African end up supporting bloated bureaucracies in the form of the poor-country governments and ($30.1 million), Togo ($49.8 million), Guinea ($667.2 million), Mali ($17.6 million), and Guinea Bissau ($8.3 million).

Poverty

So, what else do these countries have in common?

They appear on the regional top list of the Transparency International 2011 corruption index of African countries.

Southern Africa has a total of $4.9 billion in Switzerland. Lesotho leads that pack with a billion dollars. Others are Namibia ($32.2 million), Botswana ($22.8 million), Zambia ($44.6 million), Swaziland ($54 million), Zimbabwe ($99.7 million), and Madagascar ($107 million).

Zimbabwe is the third poorest country in the world while Madagascar is eleventh.

Of course, East Africans are not saints. Burundi, Rwanda, Uganda, Tanzania, and Kenya have at least $1.3 billion in Switzerland.

Uganda and Burundi are among the world’s 20 poorest countries at number 20 and four respectively.

Ugandans have $160 million in Switzerland while Burundians have $17.6 million.

Uganda is also among the top 10 aid recipients in Africa. Kenya tops the EAC list with $857 in offshore banks followed by Tanzania ($178 million) and Rwanda ($29.7 million).

While Kenya does not feature on the world’s 20 poorest list and top 10 aid recipients in Africa, Tanzania, The Citizen reported recently that it is the world’s third largest recipient of Official Development Aid (ODA).

While the cash classified by SNB as foreign liabilities held by Swiss banks in 2011 is not necessarily listed as dirty money, EAC countries have been grappling with capital flight, with individuals said to have set up dummy companies to operate accounts in tax havens.

The Citizen quoted the International Police Organisation (Interpol) in Dar es Salaam as having associated the country’s political bigwigs with colossal amounts of money in Swiss banks.

According to Interpol, the money was not deposited by account holders but certain oil exploration and mining firms operating in the country.

According to The Citizen, the money is held in six different accounts owned by people who have never personally deposited a cent since they opened the accounts.

Aid for dependency Moyo writes that in order to advance a country’s economic prospects, governments need an efficient civil service.

But the civil service is prone to bureaucracy, and there is always the incipient danger of self-serving cronyism and the desire to bind citizens in endless, time-consuming red tape.

What aid does is to make that danger a grim reality.

She notes: “Say, there is a mosquito net maker in small-town Africa. Say, he employs 10 people who together manufacture 500 nets a week. Typically, these 10 employees support upward of 15
relatives each.

Dutch disease

“A Western government-inspired programme generously supplies the affected region with 100,000 free mosquito nets. This promptly puts the mosquito net manufacturer out of business and now his 10 employees can no longer support their 150 dependents.”

In a couple of years, most of the donated nets will be torn and useless, but now there is no mosquito net maker to go to. They will have to get more aid. And African governments once again get to abdicate their responsibilities.

In a similar vein has been the approach to food aid, which historically has done little to support African farmers.

Under the auspices of the US Food for Peace programme, each year millions of dollars are used to buy American-grown food that has to be shipped across oceans.

One wonders how a system of flooding foreign markets with American food, which puts local farmers out of business, actually helps better Africa, she writes.

According to Moyo a better strategy would be to use aid money to buy food from farmers within the country, then distribute it to the local citizens in need.

Moyo talks of the “Dutch disease,” a term that describes how large inflows of money can kill a country’s export sector by driving up home prices, thus making their goods too expensive for export.

Aid has the same effect.

“Large dollar-denominated aid windfalls that envelop fragile developing economies cause the domestic currency to strengthen against foreign currencies. This is catastrophic for jobs in the poor country, where people’s livelihoods depend on being relatively competitive in the global market,” she says.

She adds: “To fight aid-induced inflation, countries have to issue bonds to soak up the subsequent glut of money swamping the economy.”

Moyo writes that in 2005, Uganda was forced to issue such bonds to mop up excess money in circulation to the tune of $700 million.

The interest payments alone on this was $110 million annually.