No, External Shocks Are Not Africa’s Biggest Economic Problem

Brookings has started a news series of roundtables on “identifying, managing, and mitigating the major risks to Africa’s development”, billed as “private, high-level”. The first session of this format focussed on “external risks, namely falling commodity prices, China’s economic slowdown, and rising external debt”. This framing follows the long-standing trend to view economic development in Africa primarily through the lens of globalization and Africa’s (often disadvantageous) integration into the world market.

I think that this is the wrong approach. Focussing on “external risks” conveniently limits the agency of African societies and governments in addressing their economic problems. African countries have zero influence on Chinese growth, commodity prices and the health of financial markets. Yes, these trends can be monitored and, to a very limited degree, forecasted. But even in a best case scenario this leaves African economies the sole option of finding the least bad response to adverse conditions, instead of focussing on their opportunities to shape their environment to their advantage.

International institutions have of course aided and abetted this trend. The IMF’s fetishization of GDP growth has pushed African governments to prioritize the exploitation of natural resources over local manufacturing and services. And it has made attracting foreign direct investments much more attractive than broadening the domestic tax base.

It is also disingenuous to lament exposure to China’s economic slowdown, falling commodity prices and an increasing debt burden, given that those countries who are now in trouble because of these trends celebrated financial windfalls in prior years. The commodity supercycle comes and goes, nobody on the continent or abroad should have been surprised by falling prices.

Instead of wasting time and money on “private, high-level” meetings, Africa’s decision makers should start looking at their countries’ domestic potential in earnest. This may necessitate breaking with some of the conventional wisdom espoused by international institutions, though even the IMF is now conceding that abolishing capital controls and lionizing austerity wasn’t the smartest approach.

So far every major economic success story has either involved a country intelligently limiting its interaction with world markets (e.g. China or Korea) or focussing on close regional cooperation (e.g. the European Union) with financing to a large degree being sourced from domestic sources.

What could this look like in the case of African countries? High on the list should be the reintroduction of capital controls, as well as incentives targeted to prevent the outflow of resource rents and corporate profits. This should be done in the context of a concerted push for complete transparency of international financial flows, especially beneficial ownerships of companies and property.

African countries should also demand much better deals in exchange for access to their natural resources and if these are not forthcoming simply leave them in the ground – oil, gas, copper and gold are going nowhere and can always be exploited later under more advantageous terms. Having an “investor friendly mining code” should be an insult, not a praise.

This is of course easier said than done. There are complex and relevant social and political reasons for the status quo and I don’t want to pretend that I have a solution, especially not in the specific context of every single country. But perspective matters – the lens through which one analyses the problem often predicates the range of possible outcomes. African countries have made great strides in many areas over the last two decades. But progress in access to economic opportunity and equality has been lacking, despite adherence to the conventional economic wisdom. It is high time to change the lens.

Africa is a Country: Monochrome Lagos

Africa is a Country: Monochrome Lagos

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I am a sucker for fine art photography. And this is fantastic stuff.

Lagos is known for being an assault to the senses: Swarms of bright yellow danfos maneuver stridently through lanes, and in a manner not quite unlike bumblebees — carrying a weight that seems optimistic at best. Dust often cakes the skin, but is streaked by drips of perspiration, courtesy of the blaring sun overhead. An ever-increasing soundtrack of voices booms in the background, emitting from seemingly every direction and without a recognizable source. Ever oscillating between exuberance and excess, the city is described as cacophony of sights and sounds—varying in levels of logic and function, always full of movement and energy.

Yet, in Logo Oluwamuyiwa’s ongoing project Monochrome Lagos (2013—), we encounter a Lagos that is rendered quite differently. A resistant body of work, Monochrome Lagos presents an alternative visual vocabulary through which to comprehend this city — one that strips Lagos down to its component parts, as an encounter between the individual and the built environment. Limiting his palette to black and white, Oluwamuyiwa presents high-contrast images that demonstrate a close attention to line and architectural forms. A rumination on presence and absence, Monochrome Lagos muffles the sensorial tropes of Lagos, bringing to the fore the spaces wherein once can find solace within the city.

Check out the full article for more photos and info on Logo Oluwamuyiwa’s fantastic project.

Planet Money: Nigeria, You Win!

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A really nice and positive podcast on Nigeria’s effort to provide young entrepreneurs with capital to grow their businesses:

The episode is well worth your time, but Chris Blattman has the gist of it:

In 2011 the Nigerian government handed out 60 million dollars to about 1200 entrepreneurs, and three years later there are hundreds more new companies, generating tons of profit, and employing about 7000 new people.

David McKenzie did the incredible study.

24,000 Nigerians applied, the government selected about 6,000 to get some training and advice to develop their plan, the plans were scored, and about 1,200 were funded. They got an average of $50,000 each. Fifty thousand US dollars! Who the hell thought this was a good idea?

All the highest scoring plans got funded automatically, but McKenzie worked with the government to randomize among the runners up.

The results are amazing. Looking just at the people who had no firm to begin with, 54% of the control group have a firm after three years, compared to 93% of those who got the grant. And these firms are bigger. Just 11% of the control group have a firm with at least 10 employees, compared to 34% of those who got the grant. They’re more profitable too.

The Nigerians did a lot of things right for this one, especially when it came to choosing the winners and avoiding graft. The results are amazing and inspiring.

The important implication of findings like these is that while there will always be a minority who will waste the money, the vast majority of humans are a good investment under the right circumstances. And the cost of weeding out the duds (like in social security and development programs that require extensive proof of need and high prescribed standards to meet) is far higher than the cost of just giving away cash and accepting a few failures.

Germany to Build Internment Camps for Sudanese Government

I’ve written about E.U. plans to cozy up to East African authoritarian regimes in exchange for these governments blocking migrant routes to the Mediterranean. Bad enough. But new revelations by the SPIEGEL are adding whole new levels of disgust to the story:

documents relating to the project indicate that Europe want to send cameras, scanners and servers for registering refugees to the Sudanese regime in addition to training their border police and assisting with the construction of two camps with detention rooms for migrants. The German Ministry for Economic Cooperation and Development has confirmed that action plan is binding, although no concrete decisions have yet been made regarding its implementation.

The German development agency GIZ is expected to coordinate the project. The organization, which is a government enterprise, has experience working with authoritarian countries. In Saudi Arabia, for example, German federal police are providing their Saudi colleagues with training in German high-tech border installations. The money for the training comes not directly from the federal budget but rather from GIZ. When it comes to questions of finance, the organization has become a vehicle the government can use to be less transparent, a government official confirms.

How can anyone, especially the German government, be so ignorant and/or cruel to provide a country whose president is charged with genocide with money, advice and technology for imprisoning people? Are we as Germans/Europeans/rich people really so afraid of those who are coming in search of a better life that we are willing to sacrifice our last inch of humanity in an attempt to keep them away?

There would, of course, be another way. They way I see it, there are two overlapping migration phenomena: a refugee crisis, with people fleeing from violence and terror and an economic migration crisis, which sees many young people look for opportunities abroad.

To a certain extend, European countries should indeed just throw money at the problem, just not the way they currently do. The United Nations Office for the Coordination of Humanitarian Affairs tracks humanitarian appeals and funding. And the 2016 appeals have so far only been financed to the tune of 26 percent, falling short $10.9 billion. Filling this gap would go a long way to reduce the suffering of refugees, alleviating some of the pressure on migration routes.

But maybe even more importantly, the E.U. needs to overhaul its immigration procedures. As it stands now, it is practically impossible for most of the worlds population to apply for and attain a visa to lawfully migrate to an E.U. country. As thousands of boat people have demonstrated, many by loosing their lives, this is an ineffective and stupid way to manage migration.

Instead, the E.U. should introduce generous quotas for visa and allocate these based on points system similar to what Canada has done for years. Making available a legitimate, transparent and fair option for would-be migrants and refugees to attain legal status prior to arriving in Europe is the E.U.’s best bet to take the drama out of the current migrant crisis.

On a fundamental level, though, we as European citizens should reflect on our attitude towards migration more generally, especially given the continent’s historical experience with similar patterns in the past, especially during and after WWII. And we should contemplate the responsibility of our own economic and foreign policy decisions for the dynamics that push people out of their own societies and across the Mediterranean on dingy death traps.

Why “The Will of the People” is a Terrible Reason to Stay in Power

An interesting report on Quartz Africa on Paul Kagame’s reasoning to run for a third term as President of Rwanda:

His answer to the pointed question, “Why pursue a third term,” asked on panel by former UK prime minister Tony Blair?

Democracy.

Speaking on stage at the World Economic Forum on Africa, which Rwanda is hosting for the first time, with Blair on one side and investor/philanthropist Howard Buffett on the other, Kagame said in deciding to run for a third seven-year term in 2017 and extend his presidency, he was simply respecting the wishes of the Rwandan people.

“I didn’t ask for this thing,” he said, adding that there had been a very healthy debate within his party and with ordinary citizens about whether he should continue on as president. “I’ve told Rwandans it’s not just not what you think of for yourselves, but what others think of us.” Kagame has been president since 2000.

“I said, maybe you need to take a risk with someone else,” Kagame said, suggesting they pick someone from the ruling party RPF or elsewhere. “But they kept saying no, we want you to stay.”

There are some obvious problems with Kagame’s argumentation, if you look at the reality of Rwanda’s politics. While it is true that there was “a very healthy debate” and a referendum, Rwanda simply has no space for dissenting opinions. Opposition politicians have been murdered, an independent press is nonexistent and dissidents have even been intimidated and attacked abroad. So in the best case, Kagame doesn’t know if his renewed candidature really reflects the will of the people. In the worst case he knows it doesn’t and he has worked to actively suppress this will.

But that is beside the larger point I want to make.

“People” want a lot of things. And in many, if not most cases, politicians should respect these wants and work to fulfill them as best as possible. But the reason we even have politicians in a democracy (and don’t rely purely on direct votes) is that sometimes we want them to do something unpopular.

Accepting refugees is, for example, hugely unpopular in Europe right now, but it still remains the right and sensible thing to do. Not only for moral reasons, but also because there are very good long-term arguments to do so. “The tyranny of the majority” is a real thing and it can be created and misused against the interests of the very people that are part of it.

Kagame has been in power in Rwanda in one form or another since 1994. He is without a doubt an outstanding military commander and politician. But after more than 20 years of almost complete control over the Rwandan state, one of the highest per capita recipients of foreign aid, what does he still have to contribute except for himself?

There is simply little reason to assume that he will be able to realize any of his remaining political priorities if he hasn’t done so already over the last two decades. But that isn’t even the argument of his supporters. They say that Kagame himself is essential to the success of the Rwandan project:

“If I didn’t think president Kagame was going to be here for another seven years, we wouldn’t even consider doing some of the things we’re trying to do,” Buffett said to audience applause.

The obvious problem: Kagame is human and will inevitably die sooner or later. And more likely than not his mental and physical capacities will significantly deteriorate significantly earlier. That point may still be far into the future, maybe even more than the seven years of Kagame’s third term. But it could also be tomorrow. Or in six months.

If Kagame is the sensible and outstanding politician that his supporters have declared him to be, he would have recognized this. He would have devoted a significant share of his time and effort to establish institutions and mentor individuals that can take over from him. Maybe no single person can replace Kagame, but he had two decades to nurture a system that can.

Of course he didn’t and there is little reason to assume that he will do so over the next seven years. He has said nothing to that end in public and the question of succession hasn’t figured in the “healthy public debate” that precipitated his anointment as Rwanda’s patron saint. Kagame has certainly avoided the more ridiculous aspects of a personality cult à la Gaddafi or Idi Amin. But by clinging to power he makes the same fundamental mistake of equating his own continued leadership with the welfare of his nation.

This is of course not only a Rwandan, nor even an exclusively African problem. Angela Merkel is on her way to a fourth four year term in Germany. Russia’s Putin has proven to be a real innovator when it comes to working the system to stay in power (also citing popular demand, by the way). And one or two term limits are no guarantee for the good stewardship of a country, either.

But specifically in the case of Rwanda, Kagame’s renewed candidature is the tacit acknowledgment that he has failed at creating the stable and tolerant post-genocide society that the Rwandan government claims exist. By his own and other people’s admission, Kagame remains the lynchpin of the state. Statements like that of Warren Buffet above show that neither the Rwandan elite, nor their foreign partners have any confidence in the durability of his legacy. And until today, nobody has offered a plan to change this deplorable status quo. Least of all Kagame himself.

Kenya Wants to Displace the Displaced

Kenya has threatened to close down all refugee camps within its territory and send all refugees, all 600,000 of them, back to their home countries.

This is not the first time that the Kenyan government has announced to make the country a refugee-free zone. But previous threats have been squarely aimed at increasing international funding for supporting the refugee population, which largely originates from neighboring Somalia, South Sudan and Ethiopia. But this time, many observers think that the government is serious, as it has already shuttered the government agency responsible for dealing with refugees.

Kenya has been a hostile environment for refugees for a few years now, in many ways providing the template for the European reaction to the massive influx of Syrian refugees. Kenya, a developing nation, has some legitimate concerns: housing and feeding such a massive refugee population has economic ramifications and Kenyan security services has identified camps like Dadaab, the world’s largest, as a staging ground for terrorist attacks by the Somali group al-Shabab.

For these reasons, the refugee question has become highly politicized. And with presidential elections coming up in August 2017, it doesn’t take a great amount of cynicism to see this as a campaign move by President Kenyatta.

The Kenyan government has of course to answer for their own responsibility for the ongoing violence in Somalia. Kenyan troops invaded the southern part of their neighbor in 2011, intent on creating a buffer zone towards the notoriously unstable neighbor in anticipation of the development of a major pipeline and infrastructure project along the common border. But instead of working with the federal Somali government, Kenya has chosen to support a local strong man, Sheikh Madobe and push for the autonomy of the buffer zone, greatly compromising efforts to unify Somalia after decades of civil war.

The Kenyan army has also failed to expel al-Shabab from the southern parts of Somalia. And Kenyan officers have been implicated in profiting from sugar and charcoal trafficking, al-Shabab’s major source of income. Scapegoating the Somali refugee and immigrant population has also been used to deflect from the incapability of Kenyan security forces to prevent and contain terror attacks. In contrast to statements by the Kenyan government, many of the local operatives of al-Shabab are Kenyan citizens and wouldn’t be affected by an expulsion of the refugee population.

These arguments of course won’t sway the Kenyan government. Western pressure and money would, though. But it is questionable if the E.U. and U.S. can muster the motivation and resources to do so. Both powers face highly controversial debates over refugees and immigration domestically and have not reacted to increased refugee populations with commensurate funding.

So what would happen if Kenya actually does close down the camps? One scenario would be that a significant part of the refugee population stays in Kenya, but moves within the country to find ways and means to support itself. But this outcome would actually be worse for the Kenyan government than the status quo. It would loose the ability to effectively control and supply these refugees and given Kenya’s inclination to nasty intercommunal conflicts over land rights, having several hundred thousand people roaming the country in search for a place to settle down would be a recipe for disaster.

The government’s only priority can therefore be to expel these people. As no other country in the region will be willing to accept more than half a million refugees, their countries of origin are the only option. But neither Somalia, nor South Sudan have overcome the instability and conflicts that have motivated these people to flee in the first place. And without a well-organized and prepared effort, simply herding people back over the border will doom many of them to misery and death because they will have no means of supporting themselves.

To be clear: Kenya, like other African countries with considerable refugee populations, should have earned our respect for providing shelter to such a large number of refugees for a considerable length of time. But despite the challenges associated with this, giving up now is simply not an option. Both international law and basic human decency leave only one response to the Kenyan government’s threats: Suck it up. And think about your own potential to alleviate the conflicts in Somalia and South Sudan. There’s a lot of it.

But the international community has to accept responsibility as well. The easiest is financial: overall funding for all 2016 humanitarian appeals is currently at only 22 percent of the required $14.7 billion (a mere 0.4 percent of U.S. federal spending). Dedicating only a fraction of the world’s military expenditure to humanitarian assistance would reduce many of the problems that countries like Kenya face.

But there is also a political responsibility. With the number of refugees, asylum seekers and internally displaced persons the highest it has been since the end of the Second World War, wealthy industrialized nations have welcomed only a fraction of those in need world wide. The overwhelming majority have found refuge in countries of the global South. All countries should therefore re-examine their capacity to accept more victims of war, violence and displacement.

With One Arrest, Congo May Have Broken a Notorious Rebel Group

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In a heavy blow against one of Africa’s most notorious militias, Col. Leopold Mujyambere — chief of staff of the Democratic Forces for the Liberation of Rwanda, or FDLR — was arrested last week by Congolese intelligence officers in the town of Goma and later transferred to the capital Kinshasa, where he awaits either a trial or extradition.

Read the rest of my latest article on War is Boring!

Simon Allison: The new Zimbabwean dollar that isn’t

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He hits the nail on the head:

The last time Zimbabwe was in this kind of position, it did something few economists would recommend: it simply printed more money, with disastrous consequences. The sudden, poorly-managed influx of Zimbabwean dollars into the economy was the direct cause of the economy-wrecking, poverty-inducing, development-stunting hyperinflation that followed. Surely, surely, Zimbabwe would not go down this route again, no matter how severe the cash crunch?

Sure they will.

I think most people will agree that this latest move is just another symptom of the mismanagement that Zimbabwe has experienced at the hands of President Mugabe and his cronies. But I’d be interested in better reporting on the politics behind this step.

Zimbabwe will introduce so-called “bond-notes”. These look deceptively like paper currency and coins, but actually are bonds, secured by a $200 million loan by the African Import Export Bank. In theory, the bearer could therefore go to the bank and/or government and ask for the bond to be exchanged into U.S. currency. But in practice, one can doubt that this would actually work. No one (who isn’t forced to) will recognize these for their nominal worth, especially not outside Zimbabwe, rendering them quite useless to ease the country’s trade and hard currency deficit.

In the best case, they will trade at a discounted value, leading to higher costs for importers. In the worst case, they will tempt the government into a new round of money printing, only this time with the added bonus of skyrocketing debt.

So who came up with this idea and how was the AfrImEx Bank convinced to back the scheme? How will the distribution mechanism work and who is guaranteeing a transparent process (my guess: nobody). Will there be any accountability? And as this is clearly a stopgap measure at best, where are Zimbabwe’s fundamental economic reforms, which have to be linked to a reform of the political system to be effective? I’m not sure that we will get any satisfactory answers to these questions any time soon.

Alex de Waal: How to steal from Africa, all perfectly legally

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Not a new story, but a good overview about the problem with more-or-less legal capital outflows from Africa:

Africa loses at least $50 billion a year — and probably much, much more than that — perfectly lawfully. About 60% of this loss is from aggressive tax avoidance by multinational corporations, which organise their accounts so that they make their profits in tax havens, where they pay little or no tax. Much of the remainder is from organised crime with a smaller amount from corruption. This was the headline finding of the High Level Panel on Illicit Financial Flows from Africa, headed by former South African President Thabo Mbeki, a year ago.

This amount is the same or smaller than international development assistance ($52 billion per year) or remittances ($62 billion). If we take the accumulated stock of these illicit financial flows since 1970 and factor in the returns on this capital, Africa has provided the rest of the world with $1.7 trillion, at a conservative estimate. Africa is a capital exporter.

While this type of aggressive tax avoidance might be legal, strictly speaking, it really highlights the question of power. Off shore tax havens are simply not accessible for “normal” tax payers. They only make sense as an instrument for the rich, super rich and international corporations. The system is rigged in a very fundamental way to the detriment of poor people and countries with low institutional capacity (for whatever reason) to combat these illicit financial flows. Of both categories, Africa unfortunately has more than enough, putting the continent as a whole at a severe disadvantage on a global scale.

How Not to Spend $1.4 Billion

From a recent article in HealthAffairs:

The President’s Emergency Plan for AIDS Relief (PEPFAR) has been the largest funder of abstinence and faithfulness programming in sub-Saharan Africa, with a cumulative investment of over US $1.4 billion in the period 2004–13. […]

Using nationally representative surveys from twenty-two sub-Saharan African countries, we compared trends between people living in countries that received PEPFAR abstinence and faithfulness funding and those living in countries that did not in the period 1998–2013. We found no evidence to suggest that PEPFAR funding was associated with population-level reductions in any of the five [tested outcomes indicative of risky sexual behavior].

In other words: For most people, abstinence sucks and telling them that it’s cool doesn’t change their minds, even if you spend $1.4 billion on it. Not very surprising, because as NPR notes:

At the time, there was little evidence to suggest abstinence programs work. Randomized-control trials in the U.S. had shown that abstinence education programs didn’t prevent teenage pregnancies or decrease high-risk sexual behavior.

The results of the study are pretty damming:

PEPFAR funding wasn’t associated with changes in young people’s choices about sex. Bendavid and his team could find no detectable differences in the rates of teenage pregnancies, average number of sexual partners and age at first sexual intercourse in countries that had received PEFPAR money compared with those that hadn’t.

As the NPR story points out, PEPFAR is credited with saving millions of lives by providing HIV drugs and preventing HIV transmissions from mothers to newborns. That work is commendable. But it makes me sad to think about how many more lives could have been saved, if some conservative politicians wouldn’t have insisted on spending a ridiculous amount of money on programs that had little hope of achieving the desired outcomes, simply because they hoped to push their opinion about the right way to have sex on others.