Failure of Past Efforts Cloud the West’s Attempt to Help

It must have seemed a wonderful idea in the late 1970s: Build a modern carpet factory in Ihiala, in southeast Nigeria, putting in place one small cog in the country’s hoped-for transition from a poor, backward nation to an African economic tiger.

The state of Anambra got a loan of $17 million from a Western bank, and a stretch of virgin land was selected. But not a single spadeful of dirt was ever turned. More than 25 years later, the loan is still being repaid.

Like the untouched land, Nigeria, and much of Africa, has not been transformed by the donor aid that has washed in during recent decades, most of which was stolen or wasted. Despite billions of dollars in grants and loans, Africa is the only continent sliding backward, worse off than it was 25 years ago.

Now, a combination of politics, goodwill and timing is giving Africa its biggest break on debt and aid in years. Finance ministers of the world’s richest countries agreed last month to forgive $40 billion in debt in an attempt to lift 18 of the poorest countries out of poverty. Fourteen of those are in Africa.

A Group of 8 meeting in Gleneagles, Scotland, this week will finalize the debt deal and perhaps go further. If a British lobbying blitz succeeds, the G-8 could double total foreign aid to Africa.

So sweeping is the effort that no one can say whether it will work wonders or repeat mistakes of the past, when aid fostered dependency, not progress.

“We don’t know. We don’t really have a precedent for it,” said Todd Moss, an analyst with the Washington-based Center for Global Development. The countries that have been most successful in reducing poverty, China and India, did so with little aid, he noted.

“The record of lots of aid leading to economic growth and transformation is an old idea from the ‘50s that’s never been shown to work,” Moss said. “I am very skeptical it will lead to sustained economic growth in Africa, absent of major changes inside some of these countries.”

In some African countries, such as corruption-plagued Nigeria, people agree that debt relief rarely trickles down to those who need it most. “The common man will not benefit from any debt forgiveness by foreign creditors. It will be shared by the leadership,” said Ernest Emefieh, 60, who runs an Internet cafe in Festac Town outside Lagos. “I do not support debt relief because we are not going to enjoy it.”

But many economists and anti-poverty activists counter that lifting the yoke of debt is the only way to reduce hardship in the poorest nations. The World Bank is beginning to favor grants, not loans, for the neediest countries to prevent them from getting buried in debt.

“That’s clearly the way we’ve got to go if we want to avoid building up another debt problem,” said Max Lawson of Oxfam, one of the British aid agencies that strongly back 100% debt forgiveness for poor countries with good governance.

The aid recipients’ record of responsibility is key. The 18 countries that qualify for the G-8 relief plan have instituted reforms to combat poverty and corruption, and the debt forgiveness should provide free education, schools and clinics for about 120 million people. Twenty-two other countries may qualify later, with debt forgiveness potentially reaching $55 billion.

Since 1980, Africa’s per-capita income has declined 25% and life expectancy has sunk to 46 years, the British Commission for Africa wrote this year.

African nations received $540 billion in loans from 1970 to 2002, according to the United Nations. Many countries spend more on servicing their debt than on health and education. But much of the money also vanishes in a fog of graft and neglect.

Some analysts question how much the West can do to end African poverty when countries make their own economic decisions and set their own budget priorities. Most concur that massive infusions of aid will be effective only if they are accompanied by trade and investment.

On the other hand, analysts such as Francis Kornegay of the Center for Policy Studies in Johannesburg argue that many more countries should have their debt wiped clean, even those with records of poor governance and entrenched corruption, including Nigeria, Angola, Congo and Sudan. These four do not now qualify for G-8 debt relief.

“These countries are very strategic. If they are stabilized, then the continent has a chance. If Nigeria becomes a failed state, which no one wants, you can imagine how that would set back West Africa and equatorial Africa,” Kornegay said.

With $33 billion in foreign debt, Nigeria illustrates why there is widespread cynicism about forgiving African debt and pumping in aid. Why, critics ask, should creditors erase the debts of a country that brings in more than $25 billion annually from oil exports, while most of its people live on less than $1 a day? Won’t the money be misused as it has been before?

Many Nigerians think it will. Father Gabriel Osu, spokesman for Lagos’ Roman Catholic archdiocese, is angry that those who squandered loans have not been punished.

“As a patriot and on the basis of sentiment, we as a people need debt forgiveness. But on a reality basis, we don’t deserve it,” he said. “We took the loans, and we must pay them back. See ... the vanity all around us. Does this support calls for debt relief?”

Nigeria is supposed to pay $2 billion a year to service its debt. It pays about half that, and officials lobbying for relief recently threatened to stop payments altogether in an Argentina-style default.

Such posturing might not seem likely to garner international sympathy, given Nigeria’s oil wealth. But much of the revenue has been guzzled by mismanagement and corruption, leaving 95 million Nigerians in extreme poverty -- out of a populace of 129 million. By comparison, about 120 million live in such conditions in the 18 countries chosen for debt relief by the G-8.

Moss and Kornegay argue that Nigeria merits a special deal because a small group of economic reformers, including President Olusegun Obasanjo and Finance Minister Ngozi Okonjo-Iweala, a former vice president of the World Bank, are struggling against powerful interests to put the country on the right track.

“You have an economic system that has deeply entrenched interests, where corruption, graft and patronage are part of the system, and their history of economic management has been awful. But ... the country, which was a military dictatorship for 15 years, now has a fragile democracy,” Moss said.

“And it has a very capable economic team in place that’s trying desperately to reform the economy and to break the stranglehold of the thugs,” he said. “If you want the reformers in Nigeria to succeed, we have to do something on debt.”

The Western commitment to Africa will be tested when the World Trade Organization meets in Hong Kong in December. There is pressure on Europe and the U.S. to cut subsidies on cotton and sugar that make it nearly impossible for struggling African farmers to compete.

But substantial changes in agricultural subsidies are unlikely, and this could undermine efforts to fight poverty through debt relief. “This year for us is about aid, debt and trade,” said Oxfam’s Lawson. “If any one of those three falls through, it means their impact is lessened.

“If you’ve got debt relief and that releases money for you to process cotton, but because of subsidies in America you can’t sell that cotton, then clearly the debt relief isn’t as effective as it could have been,” he said. “If aid is used to get kids into school for an education and when they get out there are no jobs, then clearly that’s not going to work.”

Moss says the key to raising Africa out of poverty is encouraging small farms and businesses.

“That’s where the employment comes from, that’s where the tax revenue comes from, that’s where the wealth creation comes from,” he said. “Now aid can play a role there and trade can play a role there and not having a debt burden can help, but none of those are magic bullets.”

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Special correspondent John Ndukauba in Lagos, Nigeria, contributed to this report.