Wednesday, September 30, 2009

Aligning goals and capabilities

I'm generally not much of a Frank Rich fan, but his article as well as recent quotes from Obama and Gates have me tacking back a bit on my post from the Friday before last.

According to a Defense Department official, Gates is unsure of McChrystal's suggestion to send additional troops to Afghanistan. This official reasoned, "Even 40,000 more troops don't give you enough boots on the ground to protect the Afghans if the north and west continue to deteriorate." Although the WSJ article that ran this story said that Gates remains equally skeptical about Biden's suggested course of action, it seems to suggest that he is weighing and exploring middle options--alternatives to drastic troop reduction or sending additional troops.

Similarly, Obama seems to be similarly exploring middle options. According to White House officials, he wants to "dispense with the straw man argument that this is about either doubling down or leaving Afghanistan" (NY Times).

So I think my initial agreement with Brooks may have been a bit hasty. I think middle options are absolutely necessary to explore--especially when the two extreme options seems so guarantee such uncertain and pessimistic results. I think the important thing is to ratchet down expectations to a level suitable to the prescribed course of action. Rumsfield tried to do nation-building on the cheap; as long as the US realistically ratchets down its goals and expectations the US can avoid making the same reckless mistake twice. The key is aligning goals and capabilities. In other words, if the expectations for "half measures" are realistic, I see no reason why they won't work. They're not destined to fail in and of themselves; they're just destined to fail when the simplified, polar goals of "failure" and "success" are the only options thought possible.

Tuesday, September 29, 2009

Is Coetzee's "Disgrace" racist?

...or is the ANC too sensitive?

I saw the movie last week with my mom. I've always enjoyed Coetzee, and as skeptical as I was before seeing it, the movie did justice to the book. The final scene was different, which bothered me a bit. It ends not with David Lurie sitting on his plastic chair plucking his banjo, composing his opera, but instead with him having tea with his daughter. A reconciliation, a recognition that change and compromise is necessary. Perhaps it's the same idea, but the message resonates more in the book's final scene rather than the movie's.

I read Disgrace for an African Lit course I took at the University of Cape Town. While I thought the book was powerful, what really made it resonate was when I heard about the ANC's reactions to the book. They congratulated Coetzee in 2003 upon winning the Nobel Prize; however, shortly afterwards, they tacked backwards, clumsily calling the book racist.

And I agree with this view. Disgrace is a racist book. But that doesn't mean it's not brilliant, nor doesn't mean that it's not important and enlightening. It's productively racist--as idiotic as that phrase may sound. It's a book that powerfully captures Afrikaaner angst and frustration, while at the same time it shows the remnants of a racist Apartheid power structure that still hurts South African blacks and coloureds (captured by Lurie's lustful gall).

It lays bare post-Apartheid society; it brings the feel-good unity that Mandela's presidency ushered in, crashing back to earth. Crime and acrimony remain. And the characters struggle to deal with this reality.

But these characters are nearly all white. Nadine Gordimer captures this well, point out that, "[in Disgrace,] there is not one black person who is a real human being" (NY Times, 12/16/07). Petrus is a malevolent character driven by entrepreneurial greed. He protects his rapist brother-in-law, and exploits the defenseless Lucy. The white angst towards this character is tangible. Petrus is powerful. He protects his own without any moral qualms, and he underhandedly gobbles up white-owned land. He seems to taunt Lurie, by simply stating a banal fact of contemporary South Africa: "Everything dangerous today." And the only other black characters Coetzee introduces are rapists.

But while Disgrace recreates racist stereotypes--black men raping white women--it is not that simple a book. It's goes well beyond these stereotypes. For me, this point resonated when Lucy talks about her rape. In response to David's frustration and vengeful grief, she points the finger back at him, saying, "Maybe hating a woman or a man can make sex
more exciting. It must be a bit like killing …you’re a man … you should know."

Although Disgrace recreates racist stereotypes, I believe it's mistake to dismiss it as racist. I believe the ANC shows its thin skin by failing to recognize the depth of this book.

Nonetheless, I can understand their frustration. If I were a black South African, I don't think I'd feel much affinity towards this book. Disgrace seems to speak to and for Whites alone. It captures white fear and frustration, and it captures the difficulty and the pain of dealing with a new social order--one that seems to victimize progressive Whites more than racist old Afrikaaners.


Sunday, September 27, 2009

A Travel Guide to The Paradox of Plenty

Untapped: The Scramble for Africa’s Oil by John Ghazvinian
John Ghazvinian’s Untapped: The Scramble for Africa’s Oil is about the resource curse in Africa. Although Ghazvinian ends on a somewhat optimistic note, his thesis can be distilled to the following: the resource curse exists in Africa. It has already shown its damage in Nigeria, Gabon, the Republic of Congo, and (to a lesser extent) Angola, and the future does not bode well for emerging Afro-petrostates.

Ghazvinian is a journalist, but he does a solid job explaining of the resource curse and describing the political history of the nations he visits. At times though, his writing seemed too journalistic—snarky and informal.

His writing is a travel book of land I want to visit, and a history of states I crave to learn more about. What’s more, it is a contemporary affairs piece dealing with issues (Equatorial Guinea’s history, deep water drilling, etc.) I have found nowhere else.

Summary
Ghazvinian spends the bulk of the book in the four African nations that are already established oil-states: Nigeria, Gabon, the Republic of Congo, and Angola.

All of these states have had similar post-oil-discovery histories (except perhaps Angola—which I believe does not deserve to be lumped into this group): ubiquitous corruption, government instability, insurrection in oil rich provinces, and—of course—stagnant or declining economies.

Nigeria, the grandfather of the oil states, has the most notorious oil history of the four. Nigeria is the leading oil producer in sub-Saharan Africa, yet its oil reserves have brought mostly corruption and instability rather than economic development. Its oil-producing regions are seemingly in a state of perpetual violence. Successive military regimes (which finally ended in the late 1990s) squashed any nationalist, human rights, or environmental movements that emerged. And after the fall of this repressive regime, stability and development have remained fleeting goals.

One of the big cruxes of Nigeria’s instability is the issue of resource control. The many ethnic groups of Nigeria’s oil producing Niger Delta demand greater resource control. After all, it is their communities whose livelihoods have been most disrupted by drilling. They’ve suffered the brunt of oil spills and exploitative contracts; and perhaps worst of all they’ve seen incredible wealth pumped out of their soil and far from their pockets. They feel entitled to some of this wealth and they are frustrated that oil has destabilized, rather than enriched them. And in turn, they’ve become obsessed with “getting a piece of the pie” even if it’s to the detriment of their own community and environment. In Niger Delta communities, the position of traditional chief has often become a battleground between self-interested individuals. And some of the most frustrated have resorted to destroying pipelines to collect the rewards given for oil spills. The government and profiting oil companies have not built the infrastructure that these struggling communities need and demand, and this further radicalizes and corrupts all involved.

And parallel to the oil and natural gas extraction done by multinational oil companies, highly organized, illicit oil and natural gas cartels have emerged. “Illegal bunkering”—the stealing of crude oil by sawing and drilling into existing pipelines—has become an enormous operation run by well-connected elites with some shadowy government links. And even more absolutely insane is the practice of “local bunkering”—stealing natural gas by drilling holes in underwater gas pipelines. This, in contrast to “illegal bunkering,” is sort of the everyman’s corruption. It is smaller in scale, with higher risk and lower reward. The process itself is so incredible, I have to quote it:

Enterprising youth had discovered the Shell gas pipeline going through Oluasiri, laid deep at the bottom of the riverbed. They had hired teams of divers to drill holes at three different points along the gas pipeline and attach hoses to the boreholes. Where the hoses came up to the surface, valves had been attached to control the flow of gas coming from the pipeline. The product that comes out of those valves is a volatile substance that is not quite crude oil and not quite kerosene (which is what crude turns into when the gas has been distilled out of it), but something in between that still has a lot of gas in it. The bunkerers let it sit for two or three days until it turns into kerosene, which is then sold to villagers for use as a cooking fuel. This bootleg kerosene is not as pure as what is sold legally, and when people put it in their stoves, it can explode and kill them. But it costs a fraction of what it otherwise would, and provides a handsome income for the unemployed youths of the area. (Pp. 48-49)

So in sum, a nation with great resource wealth is likely to be as poor (if not poorer)—and far more unstable—than most other sub-Saharan African nations. This is the paradox of plenty, and Ghazvinian has this story on repeat throughout much of the rest of the book. He alters it to each local context put his analysis and conclusions remain the same.

The Resource Curse
Before continuing on to summarize some of the other nations along Ghazvinian’s Paradox-of-Plenty tour, I want to concisely explain why the resource curse is a curse. After all, it’s a pretty counter-intuitive; having resource wealth should be an engine for growth. Describing the resource curse seems like a rich kid lamenting a free car. But it ain’t. Here goes.

In developing countries (with small economies and weak governments), having an abundance of one commodity (copper, lithium, diamonds, and yes, oil) is a political and economic curse. It is economically ruinous because it engenders “Dutch Disease” whereby all efforts to diversify oil wealth and build other sectors of the economy hit almost insurmountable impediments. Pumping oil out of the ground, pumps large amounts of foreign currency in to the nation. A seemingly good thing. This infusion of foreign currency, however, strengthens the local currency. This may seem like a good thing, but a stronger currency makes it difficult to develop other sectors of the economy.

With a stronger currency, it becomes more expensive to grow crops or produce manufactured goods. Everything that goes into an economic sector costs more. Labor and all the parts that enable a plant to grow or a machine part to be built cost more. All of a sudden a poor developing nation cannot produce its crops and its goods as cheaply, and thus are unable to export their products and further grow. As Naim writes, it’s not that these leaders fail to recognize that its necessary to diversity their economies, it’s that “the exchange rate stunts” other sectors of the economy. Additionally, oil and other extractive industries create few jobs, and their roller-coaster prices make macro-economic planning difficult.

And the curse is political ruinous because it breeds corruption. It turns the nation into a rentier state whereby the government becomes a source of wealth—a gold mine that is to be raided—rather than an engine for growth. Constituents are taxed less, which essentially makes them care less about government corruption, and an unending tap of wealth allows governments to buy off or repress dissidence. According to Naim, oil rich nations spend between 2 and 10 times more on their military than non-oil producing nations. Thus oil militarizes the state and spread a culture of conflict.

The most frustrating part of the resource curse is that it only damns developing nations. “Countries that have institutional strength need not worry” (Naim). Thus, nations like the US and Norway can use their resource wealth to enhance their economic growth. Yet, nations without institutional strength—a diverse economy and a political organization that can ensure that oil does not go into the coffers of a few politicians—languish under the curse. Again this is the most frustrating part. The general consensus is that developing nations need strong institutions in order to fend off the curse, and yet the curse ensures that it will be very difficult to develop strong institutions.

(Note: Foreign Policy’s Editor Moises Naim does a good job of succinctly summarizing the curse.)

Summary Part II
Although the overall story remains pretty much the same for each of the nations that Ghazvinian travels to, I still found the content of the book interesting. It’s chalked full of historical facts and journalistic descriptions that give depth and uniqueness to the seemingly repetitive subject matter (poverty → oil → greed & violence → greater poverty).

Ghazvinian’s travels in each further support his argument that oil has been a curse. Visiting Gabon, he describes Libreville (its capital) as a city of extreme wealth with majestic government buildings—akin to the “French Riviera” (98). And in contrast to the exorbitant governmental wealth, he offers perhaps the best example of the “Dutch Disease” I’ve read; banana-rich Gabon has its ripened fruit fall off trees and rot uneaten. Despite the abundance of uncultivated bananas, an undeveloped agricultural sector means that Gabon is reliant on Cameroon for bananas and must import most of its food—a sad reality for a fertile nation. He describes Omar Bongo and the mismanagement and wastefulness that went on under his rule; the 400-mile Trans-Gabonais railway that cost far too much to build and the title for highest per capita champagne consumption that Gabon captured in 1984. Most interestingly, he asks the question, what will happen to Afro petrostates when the oil runs out, as Gabon’s oil output has been steadily declining since 1997.

He also travels to the Brazzaville, which from his description sounds like a ghost town, in a nation where oil is inescapable. 90 to 95 percent of the nation’s export revenue comes from oil, and fighting to control this source of wealth and power has contributed to civil wars that spanned the 1990s and early 2000s. What’s more, in the Republic of Congo he describes a defeated civil society—a church-led dissident movement that has met strong repression.

In contrast, his travels in Angola seem like an anomaly—an outlier to the group of states that seem irreparably damaged by the resource curse. I was amazed to read about Lusaka and its astounding growth as a result of oil: the ritzy glass hotel and office towers going up over night, and the “overpriced and overbooked” (129) flights from JFK, Houston, and London to the booming city.

Angola is one of the few nations in sub-Saharan Africa that has never been reliant on foreign aid, and over the past decade the lusophone nation has had up astounding economic growth. In 2006, Angola’s GDP grew nearly 20%, and in 2008, Angola had the fourth highest growth rate in the world (CIA World Factbook). The only states that enjoyed greater growth were Qatar, Bhutan, and Macau, which have a combined population that is less than one-seventh of Angola’s.

This is not to say that there is not substantial poverty and social problems in Angola. Ghazvinian describes the decades long war between the MLPA and UNITA, which was both a civil war between Angolans and a proxy war between East and West, Marxism and Capitalism. He also describes, with patience, the debates about governmental and corporate transparency in Angola; where the international community continues to pressure major oil companies (or the Angolan government) to disclose how much money is coming out of the oil, and where this money is going. These are significant obstacles that Angola must over come, and in her recent visit Hillary Clinton voiced some of the contemporary political problems that Angola faces. Yet in his descriptions of Angola, the resource curse seems like much less of a curse. The boom is still so great and optimism continues to swell.

As with much of Africa’s oil, Angola’s oil has come from the waters off its shores (129). I was amazed to read about the so-called “Deep Water Revolution” Ghazvinian describes; where in the past couple decades, oil companies have begun exploring and extracting more and more from the deep depths of the ocean. Oil companies are now capable of drilling at depths of 7 and 8,000 feet, and as deepwater drilling technology develops, depths of over 10,000 feet will become possible. That’s 2 miles! What’s more there’s a ton of oil at these depths. Ghazvinian quotes two renowned oil consultants that predict that deepwater reservoirs contain more than twice the amount of oil already discovered on earth (85). That’s astounding, and although Africa may not hold a monopoly of these reservoirs, the continent sure holds a lot of them. As the continents were forming, and South America separated from Africa, a great deal of sediment and fossils fell off the African coast and into the Gulf of Guinea. That is one reason why today, the Gulf of Guinea holds substantial oil reserves.

I find it incredible that a nation can gain extraordinary wealth from a resource that most people in the host nation will never even see. A government can commission a large oil company to drill for oil 100-miles from its coast, and then ship it to another nation to be refined—thus never having to touch the land of the host nation. I also find it bizarre that a nation can own parcels of ocean—especially deep sea areas far from the coast. (Perhaps this is why the ocean between Nigeria and Sao Tome and Principe had to be negotiated before deep water drilling began.) I mean who feels a closeness or an affinity to a piece of ocean that you can’t even see from the coast? I’ve never stood on the beach of Robert Moses State Park, gazing longingly out to sea, thinking, “That’s America, that’s our land.” So I’m amazed that something so distant from a people can set them on a completely different macroeconomic course. It’s like hitting the lottery…a cursed lottery.


Wrapping all this up: Further Thoughts
Untapped is meant to serve as a warning and a lamentation for new oil states in Africa. Ghazvinian writes:

Nigeria, Angola, Gabon and Congo-Brazzaville, along with, to a lesser extent, Cameroon, make up an old boys’ club of African oil exporters…[Beginning in the early 1990s] Four African countries—Equatorial Guinea, Chad, Sao Tome and Principe, and Mauritania—have joined (or are about to join) the ranks of the world’s oil-producing nations, and several more—including Mozambique, Madagascar, Uganda, Kenya and Ethiopia—seem likely to follow. Another dozen appear more doubtful, but their leaders are crossing their fingers (166).

But is there anything that these nations can do to avert the curse? Or at least to mitigate the political and economic regression it causes?

Promoting transparency, strong economic planning (to overcome “Dutch Disease), and building institutional strength can help.

Equatorial Guinea—a truly unique African nation—makes the reader skeptical. The nation was formed when the Portuguese gave the Spanish a small tract of land on the West African coast, and a small island in the Gulf of Guinea. As the only former Spanish colony in Africa, this nation has perhaps the most bizarre and depressing history of any of the new oil states. Its wealth has been squandered. It has one of the most restrictive police states, yet has resort-like compounds for oil company employees. And most strangely of all, the existing government almost feel at the hands of a group of mercenaries hired by shady international businessmen. The warped political events of the past two decades, do not offer much hope to overcoming the resource curse.

Additionally depressing is the fact that Jeffrey Sachs and the World Bank have tried their hand at defeating the resource curse.

In Chad, the World Bank essentially set the nation’s economic policy, forcing the government to put substantial amounts of its profits in foreign banks and requiring all spending to be approved by civil society organizations. This failed (largely because the plan was never fully implemented). And in Sao Tome, the government brought in Jeffrey Sachs and his team of graduate students to help them write Sao Tome’s “Oil Revenue Management Law” (241). Time will tell how this transparency-promoting legislation fares.

It’s depressing that Western experts and institutions have struggled to help oil-rich nations to solve the resource curse. But what’s even more depressing is that national governments have become exasperated to the point that they’ve turned to distant outsiders like American professors and their grad students.

Yet, I don’t think the resource curse is as damning as Ghazvinian’s doomsday tour makes it out to be. I disagree with his fatalistic conclusion upon leaving Gabon: “Stories about Gabon in the international press are virtually nonexistent and, sadly, in a continent of plagues and famines, wars and genocides, this splendid anonymity, this tacit acknowledgement that nothing much ever happens here, is probably as close as Africa gets to a real success story” (116-7).

I don’t know if developing nations that lack the political and economic strength to handle a mass infusion of oil wealth can overcome the resource curse. But I don’t think the future of Africa does not have to be defined by the resource curse.

Nonetheless, Untapped serves as an important and relevant warning for African nations.

Friday, September 25, 2009

Nation Building

David Brooks has a column in today's New York Times arguing for McChrrystal's recommendation to increase the amount of US troops in Afghanistan.

And David Brooks hits the nail on the head on at least one major point. "You [cannot] fight a counterinsurgency war with a light footprint." The US cannot make the same mistake that Rumsfeld made in Iraq. Either the US must hunker down and send more troops and prepare itself for a difficult, long, and maybe winnable road ahead. Or the US must pack up and leave. Brooks does not shy away from using even stronger language to describe the choices. He writes, the US must "surrender the place to the Taliban or do armed nation-building."

And this is something that almost all supporters of the War in Afghanistan have refused to say. No one wants to call it "nation building." The neoconservative ghosts of old are supposed to be dead and buried. But the truth seems to be that in a nation that is as complex as Afghanistan (diversity and drug cartels among other things), and that has as strong an insurgency as it does, the only real options are committing to a long haul which includes substantial infrastructure-building or packing up.

This, however, is the point where Brooks and I deviate. He goes on to argue that the war is a war of necessity (something even Richard Haas has questioned). He reasons that the US must fight in Afghanistan; if it does not then Afghanistan will fall to the Taliban (probably true), and if it falls to Taliban then al-Qaeda will have a safe haven (maybe) and nuclear-armed Pakistan will be in grave danger (I'm not so sure).

Of all the bold broad strokes that he paints, this is the one that I'm most intrigued by and most unsure of. In all that I've read about Afghanistan, I still don't fully understand how the conflict in Afghanistan affects Pakistan. I know that much of the fighting in Afghanistan is along its mountainous border with Pakistan. But the Taliban is not a monolith, as Brooks suggests when he writes that "the Taliban is a transnational Pashtun movement active in both Afghanistan and Pakistan." As Christia and Semple argue in the July/August issue of Foreign Affairs, the Taliban is more of a patchwork of self-interested and pragmatic tribal groups that first and foremost look out for their own political survival. They may fight in two nations, but they are not a movement as Brooks argues. And I don't understand the relationship between the Taliban and al-Qaeda either. I know the two share similar visions of a shar'ia rule South Asia. But how much do they work together, and how willing would Taliban factions be to fight against al-Qaeda?

Figuring out these questions affects where I stand on whether this a war of choice or a war of necessity. These two questions seem integral to the debate over a US troop increase. Brooks makes a strong argument about how the war must be fought, it's arguing if the war must be fought (and if not, what viable alternatives exist) that is lacking.

Wednesday, September 23, 2009

Qaddafi goes on a rant

There seems to be a bit of a media craze with Omar Qaddafi, so I thought I'd check out his speech at the UN.

Qaddafi is better known for his eccentric behavior, but (I think) there's a lot more to him then pitching bedouin tents and hiring female bodyguards. He's been in power for four decades--the longest of any African head of state--and inevitably a tenure that long is bound to be full of plenty of diplomatic ups and downs. One of the things that amazes me is he's gone from being one of the most loathed heads of state in the West (the CIA must've tried to assassinate him at some time or other) to being a huge trade partner with the US and a temporary member of the UN Security Council.

And despite his shadowy history with the Lockerbie bombing (a tragedy for the West) and the assassination of Musa al-Sadr (a tragedy for the Shi'a world), I had the impression that he had since moderated his actions and his outlook on the world. After all, he's the head of the African Union. He's received praise from some respected African politicians, and I've found some of his Pan-African ideas (United States of Africa?) striking although a bit absurd. And so I thought his speech at the 2009 UN General Assembly he would try to speak as a leader of Africa, building momentum and optimism for the century ahead.

But all I was able to find online was the first 10 minutes of his 90 minute speech. Mixed blessing. Watching those first 10 minutes was sort of painful. Qaddafi took his time, leisurely trudging from topic to topic. He jumped from a swine flu conspiracies to a close reading of the UN Charter's preamble. And to me, this slow, winding pace seemed to show an arrogance and contempt for the audience. As though his agenda is to hear his own voice rather than to speak for Libya or the AU which he heads or address global issues that require multilateralism.

Nonetheless, he raised a couple rational points (amidst the majority of totally insane ones). He argued that there should be no foreign intervention in intrastate conflicts (civil wars), but more UN intervention in interstate conflicts. He argued that the distribution of power in the UN (whereby a handful of the most powerful nations had veto power) was unfair and undemocratic. And he argued that the US and NATO forces should not be fighting the Taliban (...although he did take it a step too far, saying a Taliban-run Islamic emirate in Afghanistan would be fine...which I strongly disagree with).

All in all, from what I saw it was sort of a train wreck of a speech. Some of his points are interesting and worthy of further discussion, but he surrounds them with shock-jock inanities that make them lose their credibility.

Luckily 50 other African heads of state/foreign ministers will get to speak before the General Assembly is over.

Wednesday, September 16, 2009

The Cabinda Province: Incredible resource wealth in tiny pieces of land

As part of an effort to blog more frequently--every other day--I wanted to share something interesting that I read.

I just finished reading Untapped: The Scramble for Africa's Oil by John Ghazvinian.

This book is chalked full of information I never knew anything about. (For now) Rather than go too much into this, I just wanted to give one prime example: the Cabinda Province.

The Cabinda Province is a small sliver of land on the western coast of Africa, sandwiched between the Republic of Congo to the North and the DRC to the South. Despite the fact that it does not touch the rest of Angola, it is a part of Angola. In the late 19th century, the three kingdoms living on this land asked to become a protectorate of Portugal. As they were surrounded by King Leopold's notoriously cruel colony to the east and expanding French colonies to the north, turning to Portugal for protection was perhaps the best option.

The Cabinda Province remained under Portuguese rule until 1975, when Portugal's fascist regime fell at home. With this, Angola (as well as Mozambique) was liberated, and the MPLA (the Marxist party that fought for independence and took over after the Portuguese left) immediately sent troops to the Cabinda province declaring it a part of Angola. Since the people of Cabinda speak Portuguese, shared the same colonial rulers, and are so close to Angola this isn't a huge stretch. However, most Cabindans consider themselves ethnically distinct. They consider themselves culturally more similar to their DRC and Republic of Congo neighbors. The rest of Angola had been a Portuguese colony since the 15th century, but Cabinda had been independent until the later 19th century and even after that had enjoyed more autonomy than the rest of the Angola under Portuguese rule.

And to complicate matters more, 60% of Angolan oil comes (and 71% of Angolan oil revenue) from Cabinda. Like the Katanga Province in the DRC or the Sahel area of Chad, this small province has the majority of its nations natural resources. Thus it is heavily contested.

When the MPLA first declared Cabinda a part of Angola, they did not know this strip of land, making up 1% of Angola's total land area would contribute the majority of the nation's oil. But this integral fact has since made the land even more heavily contested. And for a nation that puts out over 2 million barrels of oil a day--second in Africa only to longtime OPEC-member, Nigeria--the value of this small piece of land for Angola cannot be understated. This small province is the reason why, today, Angola is China's number one source of foreign oil. It's the engine behind Angola's phenomenal double-digit growth over the past few years (insane numbers like 15% growth in 2005), and it is the reason why Angola is one of the few African nations that has never been reliant on foreign aid for its economic survival (Ghazvinian, 148). The future of this small parcel of land largely determines the future of Angola, and whether it will continue its emergence as one of Africa's economic power houses.

Saturday, September 5, 2009

Dead Aid

Dead Aid by Dambisa Moyo

The subject matter—how to better develop African states—and the author’s bio—a Zambian woman who received a master’s at Harvard, a doctorate at Oxford, and worked at Goldman Sachs and the World Bank—pulled me to this book. And the first sentence of Niall Ferguson’s foreword only added to this: “It has long seemed to me problematic, and even a little embarrassing, that so much of the public debate about Africa’s economic problems should be conducted by non-African white men” (ix). Before beginning it, I was excited.

Moyo’s brief book, Dead Aid, can be divided up into two arguments: (1) firstly, that aid is not working, and (2) secondly, that a handful of innovative, market-based strategies should act as a new strategy for financing the economic development of sub-Saharan African states.

And at the end of her book, I largely agree with her two arguments. Nonetheless, I believe that each argument could have been made a bit more convincingly. With the first argument, Moyo is big on sensible anecdotes and sparse on hard, academic evidence. Perhaps because this book is a bestseller (written for a general audience), and not a piece of academic writing published by a University press, the book shies away from using enough hard data to support her argument. Instead, Moyo seems to believe that the argument against aid is obvious enough that it doesn’t need hard data. “The proof of the pudding is in the eating, and ever so clearly the preponderance of evidence is on this side” (28), she writes early in the book.

The Missing Link
And she is somewhat correct: the proof that aid is not working is glaringly obvious. Just look at the history of African states since post-1960 independence. They have failed miserably to economically develop, and, once filled with promise and optimism, they have regressed. Once ahead in GDP per capita of fledging “Asian tigers,” they have fallen well behind. And all along they have been flooded with aid.

These two facts—that African states have been inundated with aid, and that they have not economically developed—are unquestionable. It’s Moyo’s ability to link the two, and explain the connection between them, that seems weak. The reader knows aid is not working. The reader can see that more aid seems to destine a state to higher levels of poverty and less economic development—that states that have received less aid have fared better. But the reader is not given a firm enough explanation of why aid is not working and why aid seems to be a curse in the guise of a blessing. This is where, Moyo could have used hard data to strengthen her argument—in linking and explaining the relationship between aid and macroeconomic regression.

So, first, I’ll summarize why based on Moyo’s writing, I believe aid is not working and why aid is bad for economic development.

Moyo’s argument against aid
Aid isn’t inherently bad. Emergency aid in the time of natural disasters is necessary to save lives and mitigate suffering. Additionally, aid has historically worked in some contexts. Most notably, the Marshall Plan is a shining success story for aid. The US sent a massive amount of cash to Europe following World War II, and this aid enabled Western Europe to get back on their feet and become the economically stable, cozy democracies that they are today; because of this aid, Europe regained its economic strength and political stability. But this aid—known as reconstruction aid—and the aid that natural disaster-struck states receive— known as emergency aid—are different from the aid that has flooded sub-Saharan Africa.

With the Marshall Plan, aid was used to reconstruct institutions and infrastructure that formerly existed. The billions of dollars of aid that African states have received has been to build and develop institutions and infrastructure that never existed (except in the form of antiquated colonial institutions). And, aid has shown to be inherently bad in this role. Aid is a terrible form of development. Why is this?

One reason is that aid promotes consumption, rather than investment. Moyo cites research that has shown a negative relationship between receiving aid and saving money. The more loans (with interest rates below the market average) and grants (which are basically free cash) that a state receives, the more they spend. Which makes sense. Aid is mean to be spent, isn’t it? But the problem with this is that in order to create sustained economic growth, a state must invest and save this money. This is the only way to fuel sustained growth and lead to bigger, greater growth in the long run. Creating a culture of consumption and spending is detrimental to economic development. And aid does just this. It promotes a greater percentage of the GDP to be put towards consumption (often of corrupt, extraneous things) when a greater percentage of the GDP should be put towards investment and saving. It does not help that aid often comes with strings attached that require consumption. For instance, procurement requirements force an aid-receiving state to turn around and spend the aid they receive on the donor nation’s foreign goods. In addition to forcing consumption, rather than savings, procurement requirements also hurt local industries that are crowded out of selling their goods on the domestic market because of this.

There are also economic reasons that Moyo gives for why aid does not work to economically develop a nation. (I’ll admit, I don’t have as firm a grasp on these reasons as I would like, but here it goes.) For instance, aid can promote inflation. When a state is flood with aid money, it creates a high demand for goods. Suddenly the government (and businesses/people that receive aid) has a lot of cash that can be spent on local goods. Oftentimes, however, supply is not able to keep up with this sudden spike in demand. Thus, there is an overly high demand for a limited amount of supplies. This can raise prices tremendously and lead to runaway inflation. Aid can also weaken a developing state’s ability to export goods. This is a bit complicated to explain. Basically, a large inflow of a foreign currency (aid) requires that this cash be converted to the local currency. This creates a huge demand for currency conversion, which sort of shocks a local currency’s exchange rate (that is if the local currency is free-floating—meaning not pegged). A huge demand to convert foreign currency into a local currency with limited reserves strengthens the local currency (meaning one US dollar converts to less Kenyan shilling). And this stronger local currency makes exported goods more expensive and less attractive on the international market. So, long story short, aid and the huge infusion of cash it brings, can hurt developing economies.

Another quick point that Moyo makes is that some forms of aid can just be plain stupid and myopic. She gives the example (which I think she took from William Easterly) of the mosquito net producer. In this example, a local mosquito net producer makes 100 mosquito nets a year to help prevent malaria. The mosquito net producer’s business is doing well, but people still need more mosquito nets. So along comes Bono singing about malaria and demanding that a million mosquito nets be donated to the mosquito-net producers home nation. This huge infusion of free mosquito nets is good for the short-term: many people without mosquito nets now have them, and more importantly, Bono feels pretty damn good about himself.

However, this donation puts the local mosquito net producer out of business. Now this entrepreneur and the people he employed are all out of business; they are poorer and with less options than before. And to make matters worse, the mosquito net problem has not been solved. Now there are no existing local mosquito-net producers. So when the donated mosquito nets become torn in five years, it will require another huge infusion of donated mosquito nets to replenish the supply. Instead of a promoting a local industry that already exists, aid has put it out of business and created more poverty and more frustrating dependency.

But this, admittedly, is an example of stupid aid. It does, however, underlie another of Moyo’s points: aid is unsustainable and unpredictable. Aid is unsustainable in that it can’t be relied on forever. Instead of creating growth, it creates a need for more aid. And a strategy that relies on continually receiving more aid can’t last. Aid may be scaled back in the face of global financial recessions or may dry up because of donor weariness. Aid flows to African states are unpredictable and could dry up.

All of these points are good, but I was expecting one simple and overwhelmingly strong answer to why aid cannot fuel economic growth. Sure aid can be stupid (in the case of the mosquito nets), but it doesn’t have to be. Likewise, aid can promote consumption rather than investment, but (if procurement requirements are abolished) it doesn’t have to. African governments can be more austere with aid money and invest more of it. And lastly aid can cause inflation and hurt exports, but if it is given and received intelligently, it doesn’t have to.

This is not to say that these are not all very good reasons for why aid is a bad route for development. It’s just to say that Moyo’s points don’t extinguish the hope that aid can work. I want to stress that I think that this list is more than enough to show the dangers of aid, and to make rational policy makers search for new strategies to economic development. But I was hoping for an irrefutable reason of why aid does not work. Moyo showed why aid is very difficult to have work, but I believe more would be needed to convert the myopic, humanitarian Bonos of the world.

And this brings me to her final, most powerful, and yet most frustrating reason for why aid does not work. Moyo argues that aid promotes lazy and (more importantly) corrupt governance. She argues that aid (or any type of free money or discounted loans) encourages governments to pursue foolish, myopic, and oftentimes corrupt policies because they know they will receive an unending flow of aid money. Aid money enables bad governments to continually make mistakes and it sustains corrupt governments that might otherwise fail. Aid thus subverts smart, uncorrupt, democratic regimes. What’s more, aid promotes instability and violence. Since an aid-receiving government will be awash with a free (and unquestioned) cash flow, the fight over this cash cow will become fiercer. The bigger the aid flow, the greater the reward there will be for sitting atop it. And since, aid will flow regardless of the violence or corruption of the ruling power, violent tactics will emerge as strategies to gain power. In short, the bigger the aid pie, the more militarized a state can become.

Additionally, these governments are able to tax constituents less. While this may sound good, it means that citizens have less of a stake in the functioning of their government. An untaxed person is less likely to demand a fair, functioning regime than a taxed person. Thus, any nascent middle class is less likely to push for democratic reform and less likely to build civil society.

I believe this point—that aid encourages corruption—is Moyo’s strongest and most attractive point. And yet, I believe it is also her most tenuous point. There’s no questioning that aid that is given to a corrupt government sustains their existence. For instance, aid given to Mobutu Sese Seko of then-Zaire, enabled his dictatorial regime to exist for as long as it did. Had the aid flows been cut off from the then-Zaire, a less corrupt, fairer, and smarter regime would have emerged much more quickly. But Moyo’s point that aid encourages corruption and laziness does not receive the evidence is deserves. For instance, if aid is given to a democratically elected regime with no history of corruption, will it make them corrupt? Will it engender sullied hands and lazy policy?

Moyo argues yes—and I agree with her—but I believe that this is an essential question for future development strategies and must be better answered. A convincing study must be published to show that aid destabilizes and corrupts democratic regimes, in order to answer aid-advocates of the world.

I should note that the Moyo believe that, in theory, the idea of giving aid based on certain economic and political benchmarks. That way, aid is only given to un-corrupt states that undertake “smart” economic policies. However, this brings up too many questions about what is “corrupt” and what is “smart.” What’s more, Moyo argues it’s impossible to enforce, and thus an unrealistic plan.

Moyo’s alternate suggestion for non-aid ways to fund/fuel development

Moyo spends the second part of Dead Aid articulating an alternate strategy for funding and fueling development. Moyo suggests that foreign aid should be lowered from 75% to 5% of a nation’s income (75% is the approximate average that most sub-Saharan states receive in aid, as a percentage of their income). In its place, new tools such as: trade, foreign direct investment (FDI), capital markets (meaning among other things, selling bonds on the international market), savings, remittances, and micro-finance should be used in a new strategy for funding development.

I largely agree with these suggestions.

Moyo is at her strongest in explaining why and how African states can benefit from FDI, capital markets, trade, and microfinance.

Moyo’s argument for greater trade (to be added later)

Moyo’s case for FDI and capital markets go hand-in-hand with her case against foreign aid. While foreign aid facilitates (and likely promotes) corruption and ineffective policy-making, FDI and capital markets incentivize fair and effective governance. It seems counterintuitive that borrowing money at a higher interest rate would make all the difference, but Moyo argues that it does. And I’m mostly (but not entirely) convinced. By selling bonds on the international market, African states can take the first steps towards integration into the international finance. They can enter the financial world as real actors rather than as special aid cases. And by selling international bonds, regimes will be forced to improve their functioning. If leaders funnel this money towards corrupt and extraneous uses then they will default on their loans and will not receive a subsequent loan. Selling bonds pressure states to act responsibly and intelligently. What’s more states pay off more and more loans, their image improves and they attract more investment. It’s a tool in which African states are treated with the respect and challenge that other states are treated. Emerging markets often are extremely attractive to investors. They give back higher annual rates of return (on average) than most Western markets. This (I think) is because investors can lend at higher rates and because developing states have the potential for greater national growth (8 to 10% of GDP annually, while economies like the US average 4-6% in good years).

The Gabon Example
There are, however, serious cautions to Moyo’s free-market prescriptions. Her prescriptions are not destined to work by simply flipping on a policy switch. The example that I think of is Gabon. On page 93, Moyo writes, “In the past ten years forty-three developing countries have issued international bonds – only three were African: South Africa, Ghana, and Gabon.”

Moyo implies that African states must follow the example set forth by these nations. African states must make themselves attractive to foreign investment. They must rid themselves of corruption. They must increase political stabilize and endorse strong, sound, and fair policy. Otherwise, international investors will shy away from them. And without these investors, African states will be unable to sell international bonds that are essential to funding development. And once, African states have attracted foreign capital, this will incentive further stability: the course towards development will be on track.

Yet, in the past week Gabon has become increasingly unstable. Although Gabon’s economy may have been stable and attractive enough to enable it to obtain a credit rating, this stability and attractiveness was short-lived (and never guaranteed). In the past week, following the election of the late-dictator, Omar Bongo’s son, Ali Bongo, riots broke out throughout the nation. Gabon, which was starting to appear as a stable economy to invest in and give market-rate loans to, now appears to be falling into the all-to-familiar instability and political violence of a disputed election. Clearly, the free-market tools of FDI and capital markets are not strong enough to ensure that regimes are stable and peaceful. Power struggles still can emerge. Violence can still break out. And investors can still be frightened off. Although stability and sound governance may be incentivized, these futures were not etched in stone. Resource curses (in this case, Gabon’s oil wealth) and national histories (in this case, Gabon’s history under colonial rule and Bongo dictatorial rule) can create a situation of paranoia, frustration, and instability that underlies a surface of sound, stable investment. Thus, the tools that Moyo prescribes are strong, but can fall subject to the same forces that aid has fallen to. (As a side note, how wasGabon able to obtain a credit rating in the first place—after all it was under Omar Bongo’s rule for so long, and in the past year it has seen the death of its ossified leader and the emergence of many contenders for his political post. How would this in anyway make foreign investors believe that Gabon was a stable and attractive nation to invest in? Was it just the oil wealth that attracted them?)

Moyo’s Prescription (Continued)
The case for foreign direct investment (FDI) is similar. With FDI, Moyo essentially argues that African states barter their energy reserves for infrastructure. Foreign direct investment can create local jobs, it can transfer technology, it can bring capital into African nations and attract further investment, and most importantly it can build infrastructure. The example that sticks out in my mind is the one that Moyo uses at the beginning of chapter 7; she describes the surprise of a rich mine-owning motorcycle enthusiast who rode his motorcycle form Cairo to Cape Town and found that approximately 85% of the roads he travelled on were paved just as they would be on any US highway. According to Moyo these roads were paved largely by the Chinese government and Chinese private firms. Foreign states and companies that invest in African resources have an interest an ensuring that the good they obtain are done so in the cheapest and safest way. Having to worry that their goods will be stolen by corrupt government officials, or will take months to travel along unpaved roads are unattractive options. Thus foreign investors have an incentive to see African states develop, and African states have an incentive to govern effectively in order to attract more foreign investment that can fuel economic growth.

The FDI Caveat
There are, however, large caveats to using FDI as a tool of economic growth and development.

Firstly, local governments must regulate it. They must ensure that foreign investors hire locally and that their foreign companies ensure safety standards. What’s more host governments must be sure that this is part of greater plan. They can’t let foreign investors simply mine their lands until they’re exhausted of resources. Governments must ensure that investment in extractive commodities is a stepping stone towards low-tech industry and future high-tech industry. African governments must ensure that investors help build infrastructure and fund education. They must ensure that, in addition to giant oil derricks, textile companies must be established in African states. The path that Asian tigers have followed form textile production to state-of-the-art technological production must be paved, just as the roads to transport extracted commodities must be paved.

African states must get the best damn deal they can get for the FDI that’s rightfully interested in the continent.

And African states must do all they can to attract American and European FDI. After all, Moyo explains that it makes much more sense for Europeans to buy manufactured goods from African states since they have weaker economies and are closer in proximity than Asian states. Yet, until African states can improve governance and infrastructure, African states will be unable to harness their full FDI potential.

Yet, there despite these large caveats regarding FDI and capital markets, serious questions remain. While Moyo’s technocratic prescriptions are strong, they have dangers to them.

Concluding Points
One last quick point. Throughout the course of her writing, Moyo refers to the Republic of Dongo—a fictitious African state, meant to act as the typical African state to which Moyo can prescribe her solutions. My only complaint here is for lack of creativity. Republic of Dongo? Really? Moyo just dropped the C from Congo. What a stale name for a fictitious nation. Interestingly enough, there is a town in Angola and a village in C.A.R. called Dongo. I would suggest that Moyo instead have created a state called the “Central African Republic”—a state generic enough to sound like any on the continent, but obviously this nation exists in reality.

Finishing the book I remain excited. I want find evidence that can better support Moyo’s ideas, but I also want to learn to challenge them. I want to better understand the economic concepts that I am not yet capable of using comfortably and adeptly; and I want to explore in greater focus and detail Moyo’s ideas.