Aid vs. Investment: Stop Sending Your Old Shoes

Aid vs. Investment: Stop Sending Your Old Shoes

At a blog called “Friends of Ethiopia,” a fellow by the name of R. Todd Johnson has a serious bone to pick with the aid crowd in Africa:

Outside of direct relief aid and some of the amazing health and education research and development, much (perhaps most) of what is done in the developing world through non-profits and NGO’s, could actually be accomplished through a business model, even if it would be harder to raise investment funding. Instead, someone begins selling tax subsidized and donor subsidized water pumps in Africa, because it is easier to raise the funding through tax deductible donations rather than through the rigors of proving out the business model for investment dollars, with the great result of increased deployment of inexpensive water moving technology in the developing world to aid rural farmers, but the negative results of (1) killing the market for future indigenous entrepreneurs attempting to sell water pumps at a profit and (2) locking a potentially valuable distribution channel in a non-profit, making it difficult for other for-profits to use.

Yikes.  I agree and disagree.  I think that a lot of aid to Africa and other places is bloated, inefficient, and counterproductive. The apocryphal example is building a school without training teachers, or a hospital without any doctors.  That is why the best aid is in the form of capacity-building – offering tools and skills that can be replicated domestically.  The result is a stronger local economy, more businesses and more jobs, etc.   I also think that offering subsidized goods and services undermines the market.  Food aid, for example, distorts the local market by undermining competition.  Developed countries offer subsidies to ship food across the world to developing nations, and, in doing so, undercut local producers and run them out of business, deepening the problem of hunger.  And lastly, China is the exemplar of the investment approach in Africa, putting huge dollars into infrastructure in exchange for access to raw materials.  So there is no doubt that traditional aid that centers around just giving things away is probably ill-advised.

But there are a lot of NGOs using a market-driven approach.  Microfinance, in particular comes to mind, but there are other companies that have taken the same approach with manufacturing.  The water pump example doesn’t always hold water (pun intended) – though it certainly does some of the time.  International Development Enterprises, a Colorado-based organization that focuses on water products, created something called a treadle pump back in the 80’s, and are now offering it all over the world:

The treadle pump is a human-powered irrigation device that sits on top of a well. Pumping is activated by stepping up and down on treadles which drive pistons, creating cylinder suction that draws groundwater to the surface. Treadle pumps free farmers from dependence on rain-fed irrigation, provide capacity to raise crops in two growing seasons per year, and help farmers maximize return on their small plots of land. Pump prices, including installation, range from US$20 – $100 based on country of purchase and type of pump.

In Bangladesh, IDE played an instrumental role in popularizing treadle pump technology through focused value chain and social marketing interventions. Presently, 84 manufacturers now produce treadle pumps and 1.4 million treadle pumps have been sold to small plot Bangladeshi farmers since 1985. IDE’s successful treadle program in Bangladesh stimulated organizations such as the United Nations Food and Agricultural Organization (FAO), KickStart, and Enterprise Works to begin their own treadle pump initiatives in other countries, and triggered a groundswell of interest in the design of small-scale water technologies for poor farmers.

The treadle pump is manufactured locally and uses locally-soured materials.  This isn’t a bad thing.  IDE is not the only example of an NGO that takes a sensible market-driven approach to the problem.  So it is true that aid often undermines the people and communities it is intended to help.  If there were a line drawn in the sand, I would probably be on the same side as Mr. Johnson.  But painting a picture with broad brush strokes and depicting it as binary sells short the good and, more importantly, sustainable work being done by some NGOs.

H/T Chris Blattman and Africa Unchained

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