• Kevin Watkins is suspicious of investment banks: "Before the financial crisis, a few African governments were starting to raise money on international bond markets. These markets were never going to replace aid. But the global credit collapse has now firmly closed the door to bond markets for Africa. It has also served to underline the lesson that African governments, like all governments, should think twice about taking advice from international investment banks."
  
• Duncan Green thinks her proposals are feeble: "But it is Dead Aid’s purported alternatives to aid that seem particularly feeble: African governments should issue lots of bonds (not too many takers at the moment - bad luck on the timing there); trust in China (and thus get stuck in commodity dependence, let alone the human rights issues); rich countries should remove barriers to trade (fine, but it won’t make much difference except in a few particular products like cotton) and invest in infrastructure (does anyone disagree with that?) and access to microfinance needs to be increased (sure, but it’s not even close to a magic bullet).
  
• Shanta Devarajan thinks Africa's not ready for the big time: "...it would be better if Africa received private capital rather than foreign aid to supplement its own resources for investment. Everyone would agree with this in principle. If Africa were such an attractive destination for private capital that foreign aid was no longer needed (as is the case in many emerging markets), we would all celebrate. The problem is that Africa is not there yet."

What I find truly frustrating in all of these reviews is the out-of-hand dismissal of these alternative strategies. Any country that relies on a single source of foreign capital—whether aid or remittances or international capital markets—will be at the mercy of whoever is providing that capital. The costs of this kind of dependence are high. Just to take one example, see research by Homi Kharas on the high price exacted on developing countries by aid volatility.

While none of Moyo's alternatives on its own is sufficient, that is not really the point. Rather, countries ought to diversify their sources of foreign capital as much as possible, much like the portfolio of an investor. Even the development of bond markets is not as far-fetched as it might first sound. As of May 2008, Fitch had assigned ratings to 15 countries in sub-Saharan Africa and was predicting (subscription required) "more sovereign debt issuance by African countries in 2008 and 2009." Granted, the financial crisis has slowed Africa's progress in this direction, but the crisis will not last forever. One doesn't need to endorse Moyo's argument about aid to agree that diversifying development finance should be a priority. It would be a shame if that point were lost in the rush to attack the first half of Dead Aid.

Firms were also asked which among the listed obstacles is most severe. The figure below shows the distribution for the full sample. Avoiding taxes is the expectedly most important but the surprise is that it is very closely followed by the difficulty in getting information on registration procedures.

An interesting side note here is that while getting information is the second highest ranked problem, only 29.7% of the firms consider it to be a serious obstacle (see table above). The implication is that availability of information affects relatively few firms but the affected ones are very seriously affected.

The data confirm this. For instance, over 51% of the firms that report the obstacle as major or very severe also rank getting information as the most important obstacle. The comparable figure for the remaining firms is only 17%. This 34 percentage point jump is much higher than what we find for the other listed problems such as registration fees (27 percentage points), taxes on registered businesses (20 percentage points) and less than 10 percentage points for the remaining problems.

These findings show that informal firms perceive real costs from registering and some of these perceived costs (such as paying taxes and getting information on registration procedures) are indeed pervasive. This raises two important questions for future research. Are these perceived costs holding firms from becoming formal despite the perceived benefits from registering? And how accurate are firms’ perceptions of the cost of registering?

But maybe the children are not terrified.

So I'll try to remain open-minded, even if they probably do spend $10k per clown trip. "That $10k would probably not have been spent on clean water anyways" is not the best thing to recommend an NGO, but perhaps it doesn't make them the "worst".

Well, the clowns have recently arrived in Africa, and they received this email:

Dear Clowns Without Borders,

We had a wonderful experience today, I have not seen smiles on childrens faces like today, and not just that, there was a lot to learn from the experience. The attendace was much bigger than we had planned at such short notice: with number getting closer to 600, with students age between 4 and 19 years coming from the neighbourhoods of Kibera and other local schools on the Langata…. Liz, Kenya (Facilitator in Nairobi, May 17 2009)

So there, Chris, take that!

So how do we reconcile all of this information? I’m inclined to believe the informal guys and suppose that access to finance would improve with formalization. But based on what the formal guys say and what the Doing Business rankings say, I bet that the improvement in access to finance would be small. If Côte d'Ivoire improved its business climate, particularly in the area of Getting Credit, many of these informal firms might decide that becoming formal is a good idea.

The findings suggest real benefits to firms from registering. This raises two important issues: First, how big are these gains? Second, why don’t firms register then? The latter question will be discussed in a future post on the PSD blog. The answer to the first question is more difficult and requires a more detailed analysis. A natural starting point is to compare formal and informal firms in terms of their performance (sales growth, investment, etc.) using data from Enterprise Surveys on firms in the same city and industry. This remains a promising yet neglected area for future research.

Recent work suggests another explanation of the resource curse – the Nigerian Disease. That is, an abundance of natural resources leads to poorer governance and conflicts. It gives rise to governments that are less accountable to the people, have little incentive for institution-building, and fail to implement growth enhancing reforms. Higher corruption, more rent-seeking activity, greater civil conflict, and erosion of social capital are some of the outcomes associated with the Nigerian Disease (see, for example, Rosser 2006). While it too early to draw any definitive conclusion on the relevance of the Nigerian Disease, the early results do suggest a possible way out of the resource curse - greater emphasis on institution-building and government accountability.

Update: I have started making my way through Dead Aid, but will reserve further judgement until I finish it. But in the meantime, a review of the book from Owen Barder makes it look like there's a big difference between the quality of Moyo's presentation and the quality of the arguments in her book:

Moyo’s evidence that aid does not work amounts to no more than this: Africa’s growth has decreased while aid has increased. This is a strangely naive argument – it is like saying that because the US spends $2 trillion a year on health care, mainly on the sick and dying, and yet people still get sick, we can conclude that health care does not work. The evidence linking aid to growth is handicapped by the weakness of our statistical tests, but if anything it does seems to show that aid is correlated with growth.

Many reasonable people believe that bad aid can be harmful. The conceptual arguments for this tend to be more persuasive than the evidence, but there is certainly a case to be made. Sadly, Moyo does not make it. She just asserts that aid causes corruption, bottlenecks, losses of competitiveness and erosion of accountability. This last concern, in particular, merits thorough consideration which it does not get here. Moyo does not support any of this with any evidence, and – more alarmingly – she misrepresents the academic literature to pretend that it supports her conclusions.

...it is good to welcome a new voice to the debate, and a black African woman too, Dambisa Moyo, a Zambian economist at Goldman Sachs. It is remarkable that so few voices have been raised in Africa, supposedly the main beneficiary of the world’s largesse, about how the aid money should be spent, or even whether it should be received at all.

Unfortunately, Ms Moyo’s contribution ends there, for “Dead Aid” does not move the debate along much. Yes, she has joined the chorus of disapproval—and that in itself might surprise a few diehards who think that Africans should just be grateful for the aid and shut up. But her arguments are scarcely original and her plodding prose makes her the least stylish of the critics.

For more views from the trenches, see Chris Blattman, Bill Easterly's take on Blattman, and Blattman's take on Easterly's take on Blattman. (Noone said blogging would be easy!) For extra credit, also see the take of our very own Africa Chief Economist, Shanta Devarajan.

Formal and informal commercial sex work is a way of life for many poor women in developing countries. Though sex workers have long been identified as crucial in affecting the spread of HIV/AIDS, particularly in Sub-Saharan Africa, the nature of sex-for-money transactions remains poorly understood. Using a unique panel dataset constructed from 192 self-reported sex worker diaries which include detailed information on sexual behavior, labor supply, and health shocks, the authors find that sex workers adjust their supply of risky, better compensated sex to cope with unexpected health shocks, exposing themselves to increased risk of HIV infection. In particular, women are...19.1 percent more likely to have unprotected sex on days in which a household member falls ill... [these results] suggest that sex workers are unable to cope with risk through other formal or informal consumption smoothing mechanisms.

The authors of the paper also suggest that "sex workers may be better able to reduce their risky sexual behavior if their children and dependents had better access to health services or sub-sidized health inputs."

Ruth is the mother of four and while she reads and writes English fluently, she hasn’t been able to find much work in her local village. She’d like to own a phone, but hasn’t been able to save up the money. Betty operates a village phone in Ruth’s village. By ‘renting’ the phone to Ruth for 50 cents/hour during off-peak times when Betty has no other customers, Ruth is able to complete 3 hours of transcription tasks – accumulating $7.50 into her savings account and $1.50 into Betty’s account. A couple of more sessions like that and Ruth will be able to afford her own phone!

It is going to be interesting to see how initiatives like these evolve over time and whether they manage to scale up.

Zain is partnering with leading international and regional banks, including Citigroup and Standard Chartered to launch Zap, which will allow Zain customers in the three countries - with others to follow - to use their mobile phone to: pay bills and pay for goods and services, receive money and send money to friends and family, send and receive money to the bank accounts, withdraw cash, top up their own airtime account or top up someone else's, send airtime to Zain customers in Africa, and manage their bank accounts.

(Hat tip: White African)

Simply put, electronic money or e-money is the electronic alternative to cash.  It is monetary value that is stored electronically on receipt of funds, and which is used for making payment transactions.  E-Money can be held on cards, devices, or on a server.  Examples include pre-paid cards, electronic purses, such as M-PESA in Kenya, or web-based services, such as PayPal.  As such, e-money can serve an umbrella term for a number of more specific electronic value products and services. 

The European Union (EU) has been involved in defining terms related to e-money since 2000, which is much longer than many other countries or regions.  The following definitions are included in the most recent proposed directive from the EU.

Electronic Money Institution.  A legal person that has been granted authorization to issue electronic money.

Hybrid Issuers.  Service providers who issue e-money as an accessory activity to their core business, ie mobile phone companies, public transport companies, etc. 

Mobile Financial Services

Mobile Financial Services or MFS is another broad term that refers to a range of financial services that can be offered across the mobile phone.  Three of the leading forms of MFS are mobile money transfer, mobile payments, and mobile banking.   
  
Mobile Money Transfer (MMT).  Services whereby customers use their mobile device to send and receive monetary value - or more simply put, to transfer money electronically from one person to another using a mobile phone.  Both domestic transfers as well as international, or cross-border, remittances are money transfer services.  

Mobile Payments.  While MMT addresses person-to-person money transfers, mobile payments refer to person-to-business payments that are made with a mobile phone.  Mobile proximity payments involve a mobile phone being used to make payments at a point-of-sale (POS) terminal.  In these cases, the mobile phone may communicate with the POS through contactless technologies, such as Near Field Communication (NCR).  Mobile remote payments involve using the phone as a mechanism to purchase mobile-related services, such as ring tones, or as an alternate payment channel for goods sold online.  Mobile bill payments tend to require interconnection with the bank account of the receiving business, and hence are considered part of mobile banking.  
  
Mobile Banking.  The connection between a mobile phone and a personnel or business bank account.  Mobile banking allows customers to use their mobile phone as another channel for their banking services, such as deposits, withdrawals, account transfer, bill payment, and balance inquiry.  Most mobile banking applications are additive in that they provide a new delivery channel to existing bank customers.  Transformative models integrate unbanked populations into the formal financial sector.  

Other Terms

Other terms that are often used in association with, or interchangeably with, e-money, mobile financial services include:
   
Electronic Wallet (eWallet).  Refers to the cash value that is stored on a card, phone, or other electronic device.  Pre-paid cards are one form of electronic wallet.  Electronic wallets can represent a fixed value.  In this case, once the value has been spent, the card can no longer be used.  Or wallets can be reloaded – to be used again and again.  The term wallet is used because the card or phone is considered a substitute for the cash normally carried in a person’s wallet.

Electronic Vouchers.  Refer to definition for electronic wallet. 

Mobile Money.  Refer to definition for mobile financial services. 

Mobile Wallet (mWallet).  An electronic wallet that is stored on a phone.  GSMA provides the following more specific definition: “mWallet is a data repository that houses consumer data sufficient to facilitate a financial transaction from a mobile handset, and the applicable intelligence to translate an instruction from a consumer through a mobile handset/bearer/application into a message that a financial institution can use to debit or credit bank accounts or payment instruments.”

Stored Value.  Refer to definition for electronic wallet.

Evaluations of whatever kind are used to discover a relationship between some variables of interest that existed in the past. The results are used to justify future interventions because the assumption is that the underlying relationship still exists. In the case of deworming, I don't see anything controversial about this assumption. It seems pretty likely that if parasites were the main culprit behind low levels of school attendance a year ago, then they probably will continue to be a year from now. The same cannot be said of corruption, though.

By it's very nature, corruption is a dynamic process. Corrupt government officials are not stupid - in fact, they are usually ingenious, and they learn over time. Put in place external audits over road contracts? It may help at first at reducing corruption, but over time the contractors will figure out a way to bribe the auditors. In other words, the underlying relationship between the variables of interest disappears, and we're back to square one.

None of this is to say that randomized evaluations shouldn't be used to assess anti-corruption interventions, nor that Fisman and Miguel are ignorant of the issues I raise here. In fact, toward the end of the book, they point out that
"[r]andomized evaluations are not a panacea, and some questions will probably never be amenable to these evaluation methods." However, they never really address the dynamic nature of corruption, as compared to many other types of development problems. How long should we evaluate the outcomes of an anti-corruption initiative? How do we evaluate anti-corruption initiatives if they must adapt over time to ever-changing corrupt officials? For how long can we trust the results of a given evaluation, and how 'portable' is it, i.e. to what extent can we rely on the results of the Indonesian anti-corruption in other countries? Hopefully, these are topics we'll be hearing more about from Fisman and Miguel in the future.

...The problem is that for a business to rise beyond its many competitors—the thousands of fruit vendors in Chennai---it has to have something special about it: The product (P) must be different or the quality (Q) must be especially high, or the firm must have special reputation for reliability (R) or the scale of operations (S) must be large enough to generate significant cost savings. And each of these requires a combination of special skills and substantial amounts of money, both beyond the reach of all but a few poor or even not so poor business owners.

It is these PQRS businesses that generate the good jobs that other aspire to, and the earnings that come out of them lead to other businesses and so on. This, to a first approximation, is my vision of the process of how growth happens. It is what China has managed to do very successfully and Africa will have to find a way of doing.

...A more ambitious approach, and one well-suited to reducing the scourge of witch killilng, would provide rainfall insurance for all poor farming households, disbursing aid funds when the rains fail, to keep stomachs at least partly full until the next harvest season. If this food aid were earmarked for the elderly, it would turn them into valuable assets to be protected rather than disposed of as witches.

Next task - compare this approach to the one Paul Collier lays out in The Bottom Billion, particularly the militarization of foreign aid. Any takers? Comments section is open!

Distributed publishing, "massive collaboration", innovative business models: is Development 2.0 set to revolutionise disaster management?

Update: Here's another example of a "niche player" NGO partnering with an IT supplier to deliver flexible, innovative solutions to help out with natural disasters in Bolivia, Burma and Haiti.