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African countries received $162bn in 2015, mainly in loans, aid and personal remittances. But in the same year, $203bn was taken from the continent, either directly through multinationals repatriating profits and illegally moving money into tax havens, or by costs imposed by the rest of the world through climate change adaptation and mitigation. This led to an annual financial deficit of $41.3bn from the 47 African countries where many people remain trapped in poverty. – Honest Accounts 2017.
The headquarters of the African Union in Addis Ababa, Ethiopia. Campaigners said illicit financial flows account for $68bn a year. Photograph: Sean Gallup/Getty Images
More wealth leaves Africa every year than enters it – by more than $40bn (£31bn) – according to research that challenges “misleading” perceptions of foreign aid.
Analysis by a coalition of UK and African equality and development campaigners including Global Justice Now, published on Wednesday, claims the rest of the world is profiting more than most African citizens from the continent’s wealth.
It said African countries received $162bn in 2015, mainly in loans, aid and personal remittances. But in the same year, $203bn was taken from the continent, either directly through multinationals repatriating profits and illegally moving money into tax havens, or by costs imposed by the rest of the world through climate change adaptation and mitigation.
This led to an annual financial deficit of $41.3bn from the 47 African countries where many people remain trapped in poverty, according to the report, Honest Accounts 2017.
The campaigners said illicit financial flows, defined as the illegal movement of cash between countries, account for $68bn a year, three times as much as the $19bn Africa receives in aid.
Tim Jones, an economist from the Jubilee Debt Campaign, said: “The key message we want to get across is that more money flows out of Africa than goes in, and if we are to address poverty and income inequality we have to help to get it back.”
The key factors contributing to this inequality include unjust debt payments and multinational companies hiding proceeds through tax avoidance and corruption, he said.
African governments received $32bn in loans in 2015, but paid more than half of that – $18bn – in debt interest, with the level of debt rising rapidly.
The prevailing narrative, where rich country governments say their foreign aid is helping Africa, is “a distraction and misleading”, the campaigners said.
Aisha Dodwell, a campaigner for Global Justice Now, said: “There’s such a powerful narrative in western societies that Africa is poor and that it needs our help. This research shows that what African countries really need is for the rest of the world to stop systematically looting them. While the form of colonial plunder may have changed over time, its basic nature remains unchanged.”
The report points out that Africa has considerable riches. South Africa’s potential mineral wealth is estimated to be around $2.5tn, while the mineral reserves of the Democratic Republic of the Congo are thought to be worth $24tn.
However, the continent’s natural resources are owned and exploited by foreign, private corporations, the report said.
Bernard Adaba, policy analyst with Isodec (Integrated Social Development Centre) in Ghana said: “Development is a lost cause in Africa while we are haemorrhaging billions every year to extractive industries, western tax havens and illegal logging and fishing. Some serious structural changes need to be made to promote economic policies that enable African countries to best serve the needs of their people, rather than simply being cash cows for western corporations and governments. The bleeding of Africa must stop!”
However, Maya Forstater, a visiting fellow for the Centre for Global Development, a development thinktank, said the report did not provide a meaningful look at the issues.
Forstater said: “There are 1.2 billion people in Africa. This report seems to view these people and their institutions as an inert bucket into which money is poured or stolen away, rather than as part of dynamic and growing economies. The $41bn headline they come up with needs to be put into context that the overall GDP of Africa is some $7.7tn. Economies do not grow by stockpiling inflows and preventing outflows but by enabling people to invest and learn, adapt technologies and access markets.
“Some of the issues that the report raises – such as illegal logging, fishing and the cost of adapting to climate change – are important, but adding together all apparent inflows and outflows is meaningless.”
Forstater also questioned some of the report’s methodology.
The coalition of campaigners, including Jubilee Debt Campaign, Health Poverty Action, and Uganda Debt Network, said those claiming to help Africa “need to rethink their role”, and singled out the British government as bearing special responsibility because of its position as the head of a network of overseas tax havens.
Dr Jason Hickel, an economic anthropologist at the London School of Economics, commenting on the report, agreed that the prevailing view of foreign aid was skewed. Hickel said: “One of the many problems with the aid narrative is it leads the public to believe that rich countries are helping developing countries, but that narrative skews the often extractive relationship that exists between rich and poor countries.”
A key issue, he said, was illicit financial flows, via multinational corporations, to overseas tax havens. “Britain has a direct responsibility to fix the problem if they want to claim to care about international poverty at all,” he said.
The report makes a series of recommendations, including preventing companies with subsidiaries based in tax havens from operations in African countries, transforming aid into a process that genuinely benefits the continent, and reconfiguring aid from a system of voluntary donations to one of repatriation for damage caused.
There’s one drawback to the project observers are calling China’s Marshall Plan. The One Belt One Road initiative, marketed as a modern-day recreation of the ancient Silk Road trading route, is about gaining access to new markets for Chinese goods. (Soft power and finding work for Chinese construction companies are important factors too.)
In this way, One Belt, One Road is similar to Britain’s colonial trade routes, used to take natural resources from its outposts as well as ship finished goods back to its colonial subjects, Eric Olander and Cobus van Staden at the China Africa podcast have observed.
African countries are already flooded with Chinese products. Chinese exports to African countries reached $103 billion in 2015, a figure that is likely much higher because of underreporting and smuggled goods. African countries are exporting far less to China than they’re importing. After years of falling commodity prices, now only 10 out of 53 sub-Saharan African countries have a trade surplus with China, according to 2015 data.– qz.com
China’s campaign to build a massive network of land and sea links connecting Asia, Europe, the Middle East, and Africa is expected to benefit the African countries along the route. Chinese companies will spend at least $1 trillion on roads, ports, and other updates to infrastructure in more than 60 countries that make up the…
Leaked Bank Loan Record of Land Grabbers in Gambella
(The Gulele Post) – The following document contains names of individuals and companies who borrowed money from a branch of Development Bank of Ethiopia located in Western Ethiopia for the purpose of investment on farm land development. We have redacted some information to protect our sources. The data shows how much money has been borrowed, by whom and where the supported farm land is located. With exception of few cases, most of the land is taken from Gambella. http://www.gulelepost.com/wp-content/uploads/2014/09/Bank-Loan-for-Land-Grab_Ethiopia.pdf
78 % of land grabbers in Gambella are fascist TPLF from Tigray, evidence from Gambella state. Dhiba keessa qabxii 78 saamicha lafaa Gambella irratti kan bobba’ani woyyaanota/ ilmaan Tigreeti. Ragaa motummaa Gambeellaa irraa argame kan armaa gadiitiin mirkaneessa.
Laurent Kabila, the former president of the Democratic Republic of Congo, who received ‘at least $4m a week in cash-filled suitcases from mining companies’. Photograph: Adil Bradlow/AP
Augustin Katumba Mwanke was a young banker in South Africa when persuaded to return home to help rebuild the Democratic Republic of Congo by the new government of Laurent Kabila. A year later he got a call from the president, a fellow Katangan, and was stunned to be appointed governor of an area the size of France, with control over some of the world’s most valuable mineral seams.
This marked the start of his rapid rise to power beside the president, placed at the core of a network of Congolese officials, foreign businessmen and organised criminals plundering the nation’s immense wealth. First, they transferred $5bn of state assets into the pockets of private firms with no benefit to the state, then after this was exposed, Katumba created a shadow state to steal funds, buy elections and bribe supporters. One witness says Kabila was being handed at least $4m a week in cash-filled suitcases from mining companies.
The victims, of course, are those millions condemned by the “resource curse” to conflict and poverty in a country that remains among the world’s poorest, despite the huge riches beneath their feet. As this timely book shows, similar shadow states are pillaging Africa’s immense wealth, from Angola to Zimbabwe, while corroding its societies. The result is a nation such as Nigeria, one of the world’s major oil producers, generating half as much electricity as North Korea – only enough to power one toaster for every 44 of its citizens.
After nine years reporting on Africa for the Financial Times, Tom Burgis exposes how the extractive industries have turned into a hideous looting machine, the west guilty of complicity in the raping of a continent. As he says, corruption does not end at the borders; kleptocratic regimes use avaricious allies to sell their commodities and stash illicit cash. “Its proponents include some of the world’s biggest companies, among them blue-chip multinationals in which, if you live in the west and have a pension, your money is almost certainly invested.”
Burgis shows how even the World Bank is linked to this looting, although it would have been good to see recognition of the role of aid propping up awful regimes. But the author makes an important case colourfully, convincingly and at times courageously as he confronts some of those involved in the pillaging. He examines countries cursed in similar style, whether by oil in Angola, coltan in the Congo, iron ore in Guinea, uranium in Niger or diamonds in Zimbabwe. There are lots of dodged questions and unanswered emails, but also surprising admissions, such as the Nigerian governor defending his need to “settle” payments for political survival. “If I don’t, I’ve got a big political enemy,” he says.
South Africa is home to the world’s most valuable mineral resources – yet the gap between rich and poor probably widened since the end of apartheid. This fits a pattern of inequality stemming from the resource curse, argues Burgis, pointing out how some leaders fought against racist regimes only to preside over elites that resemble in structure minority rulers they overthrew. “It’s like a virus, transmitted from the colonial regime to the post-independence rulers,” says one Nigerian critic. “And these extractors, they are the opposite of a society that is governed for the public good.”
Then there is the questionable role of China. The author is right to say there is a “distinct whiff of hypocrisy” to western criticism of the nation’s advance into Africa. Yet he grapples with the role played by the secretive Sam Pa. Burgis speculates about links to Chinese intelligence as he details Pa’s steady, lucrative cultivation of top-level contacts. His informative book ends with the words of Nigeria’s impassioned singer Nneka: “Don’t think you’re not involved.”
The Looting Machine is published by Harper Collins. Click here to buy it for £16
Discussions about the fate of Africa have long had a cyclical quality. That is especially the case when it comes to the question of how to explain the region’s persistent underdevelopment. At times, the dominant view has stressed the importance of centuries of exploitation by outsiders, from the distant past all the way to the present. Scholars such as the economist William Easterly, for example, have argued that even now, the effects of the African slave trade can be measured on the continent, with areas that experienced intensive slaving still showing greater instability, a lack of social trust, and lower growth. Others observers have focused on different external factors, such as the support that powerful countries offered corrupt African dictatorships during the Cold War and the structural-adjustment policies imposed by Western-led institutions in the 1980s—which, some argue, favored disinvestment in national education, health care, and other vital services.
At other times, a consensus has formed around arguments that pin the blame on poor African leadership in the decades since most of the continent achieved independence in the 1960s. According to this view, the outside world has been generous to Africa, providing substantial aid in recent decades, leaving no excuse for the continent’s debility. There’s little wrong with African countries that an end to the corruption and thievery of their leaders wouldn’t fix, voices from this camp say. Western media coverage of Africa has tended to provide fodder for that argument, highlighting the shortcomings and excesses of the region’s leaders while saying little about the influence of powerful international institutions and corporations. It’s easy to understand why: Africa’s supply of incompetent or colorful villains has been so plentiful over the years, and reading about them is perversely comforting for many Westerners who, like audiences everywhere, would rather not dwell on their own complicity in the world’s problems.
Reading about African villains is perversely comforting for many Westerners who, like audiences everywhere, would rather not dwell on their own complicity in the world’s problems.
One of the many strengths of Tom Burgis’ The Looting Machine is the way it avoids falling firmly into either camp in this long-running debate. Burgis, who writes about Africa for theFinancial Times, brings the tools of an investigative reporter and the sensibility of a foreign correspondent to his story, narrating scenes of graft in the swamps of Nigeria’s oil-producing coastal delta region and in the lush mining country of the eastern Democratic Republic of the Congo, while also sniffing out corruption in the lobbies of Hong Kong skyscrapers, where shell corporations engineer murky deals that earn huge sums of money for a host of shady international players. Although Burgis’ emphasis is ultimately on Africa’s exploitation by outsiders, he never loses sight of local culprits.
GIMME THE LOOT
Sure signs that Burgis is no knee-jerk apologist for African elites arrive early in the book, beginning with his fascinating and lengthy account of “the Futungo,” a shadowy clique of Angolan insiders who he claims control their country’s immense oil wealth, personally profiting from it and also using it to keep a repressive ruling regime in power. The country’s leader, José Eduardo dos Santos, has been president since 1979, and in 2013, Forbes magazine identified his daughter, Isabel, as Africa’s first female billionaire. “When the International Monetary Fund [IMF] examined Angola’s national accounts in 2011,” Burgis writes, it found that between 2007 and 2010, “$32 billion had gone missing, a sum greater than the gross domestic product of each of forty-three African countries and equivalent to one in every four dollars that the Angolan economy generates annually.” Meanwhile, according to Burgis, even though the country is at peace, in 2013 the Angolan government spent 18 percent of its budget on the Futungo-dominated military and police forces that prop up dos Santos’ rule—almost 40 percent more than it spends on health and education combined.
Those who tend to blame Africa’s woes on elite thievery seize on such examples with relish. But Burgis tells a much fuller story. Angola’s leaders may seem more clever and perhaps possess more agency than other African regimes—and indeed, other African states seem to be eagerly adopting the Angolan model. But the regime relies on the complicity of a number of actors in the international system—and the willful ignorance of many others—to facilitate the dispossession of the Angolan people: Western governments, which remain largely mute about governance in Angola; major banks; big oil companies; weapons dealers; and even the IMF. They provide the political cover, the capital, and the technology necessary to extract oil from the country’s rich offshore wells and have facilitated the concealment (and overseas investment) of enormous sums of money on behalf of a small cabal of Angolans and their foreign enablers. Because Angola’s primary resource, oil, is deemed so important to the global economy, and because its production is so lucrative for others, Angola is rarely pressed to account for how it uses its profits, much less over questions of democracy or human rights. Burgis shows how even the IMF, after uncovering the $32 billion theft, docilely reverted to its role as a facilitator of the regime’s dubious economic programs.
Angolan President Jose Eduardo dos Santos leaves a meeting at the Elysee Palace in Paris, France, April 2014.
For those who insist that foreign aid to Africa compensates for the role that rich countries, big businesses, and international organizations play in plundering the continent’s resource wealth, Burgis has a ready rejoinder. “In 2010,” he writes, “fuel and mineral exports from Africa were worth $333 billion, more than seven times the value of the aid that went in the opposite direction.” And African countries generally receive only a small fraction of the value that their extractive industries produce, at least relative to the sums that states in other parts of the world earn from their resources. As Burgis reveals, that is because multilateral financial institutions, led by the World Bank and its International Finance Corporation (IFC), often put intense pressure on African countries to accept tiny royalties on the sales of their natural resources, warning them that otherwise, they will be labeled as “resource nationalists” and shunned by foreign investors. “The result,” Burgis writes, “is like an inverted auction, in which poor countries compete to sell the family silver at the lowest price.”
Meanwhile, oil, gas, and mining giants employ crafty tax-avoidance strategies, severely understating the value of their assets in African countries and assigning the bulk of their income to subsidiaries in tax havens such as Bermuda, the Cayman Islands, and the Marshall Islands. Some Western governments tolerate and even defend such arrangements, which increase the profits of Western companies and major multinational firms. But these tax dodges further shrink the proceeds that African states earn from their resources. According to Burgis, in Zambia, one of the world’s top copper producers, major mining companies pay lower tax rates than the country’s poor miners themselves. Partly as a result, he reports, in 2011, “only 2.4 percent of the $10 billion of revenues from exports of Zambian copper accrued to the government.” Ghana, a major gold producer, fared slightly better, with foreign mining companies paying seven percent of the revenue they earned in taxes—still a tiny amount, Burgis points out, “compared with the 45 to 65 percent that the IMF estimates to be the global average effective tax rate in mining.”
A RACE TO THE BOTTOM
African countries’ unequal relationships with powerful international financial organizations and large multinational firms help explain the “resource curse” so frequently lamented in discussions of the continent’s economies. Rather than issuing from some mysterious invisible force, the curse is to a large degree the product of greed and the disparities in leverage between rich and poor—and its effects are undeniable. Burgis quotes a 2004 internal IFC review that found that between 1960 and 2000, “poor countries that were rich in natural resources grew two to three times more slowly than those that were not.” Without exception, the IFC found, “every country that borrowed from the World Bank did worse the more it depended on extractive industries.”
A case in point is the arid, Sahelian country of Niger, which for decades has served as a major supplier of uranium to France, its former colonial master. According to Burgis, the French company Areva pays tiny royalties for Niger’s uranium—an estimated 5.5 percent of its market value. And the details of the company’s contracts with Niger’s government are not publicly disclosed. Reflecting on this situation during an interview with Burgis, China’s ambassador to Niger adopts a posture of moral outrage, proclaiming that Niger’s “direct receipts from uranium are more or less equivalent to those from the export of onions.”
Rather than issuing from some mysterious invisible force, the “resource curse” is to a large degree the product of greed and the disparities in leverage between rich and poor.
This is a telling exchange, since many Africans believed that Chinese investment and influence on the continent would offer a way to lift the resource curse. Many greeted the arrival of the Chinese as big economic players in the region, which began in the mid-1990s, with great enthusiasm—especially the leaders of states whose economies depend heavily on minerals. China’s share of the global consumption of refined metals rose from five percent in the early 1990s to 45 percent in 2010; its oil consumption increased fivefold during the same period. In 2002, Chinese trade with Africa was worth $13 billion; a mere decade later, that figure had soared to $180 billion, three times the value of U.S. trade with the continent.
The hope was that with China directly competing with Africa’s economic partners in the West, African countries would win better terms for themselves. But as Burgis makes painfully clear, what has happened more often is a race to the bottom, in which Chinese firms focus their attention on African countries that face sharp credit restrictions or economic boycotts from the West, owing to coups d’état or human rights abuses. In many such countries, including Angola, the Democratic Republic of the Congo, and Guinea, the Chinese have extended easy financing to governments, crafting secretive deals that reward Chinese investors with even more lopsided terms than Western governments and firms tend to enjoy. “Access to easy Chinese loans might have looked like a chance for African governments to reassert sovereignty after decades of hectoring by the [World] Bank, the IMF, and Western donors,” Burgis writes, but, “like a credit card issued with no credit check, it also removed a source of pressure for sensible economic management.” In addition to this, critics point out that Chinese companies frequently bring in their own workers from China, providing little employment for Africans and few opportunities for Africans to master new skills and technologies.
Some of Burgis’ strongest work follows the dealmaking of a shadowy Hong Kong–based outfit called the 88 Queensway Group, which was founded by a man sometimes known as Sam Pa, whose background is reportedly in Chinese intelligence. By tracing a complex web of corporate relations, Burgis shows how Pa’s group has put together lucrative deals in one African country after another, since starting seemingly from scratch in Angola during the early phases of China’s push into Africa.
In Burgis’ telling, one mission of Pa’s 88 Queensway Group and its associated companies, including China Sonangol and the China International Fund, seems to be offering the Chinese government plausible deniability when it comes to major transactions and contracts with some of Africa’s most corrupt and violent regimes. But some African elites at the receiving end of Pa’s entreaties have been left with little doubt that dealing with Queensway would in fact put them in contact with the highest levels of the Chinese state. Mahmoud Thiam served as the minister of mines in Guinea under President Moussa Dadis Camara, a junta leader who faced international outrage after his forces opened fire on a peaceful opposition rally in September 2009, killing at least 150 and gang-raping many who tried to flee the assault. In 2009, Thiam traveled to China at Queensway’s invitation and later told Burgis about being whisked around Beijing by Pa’s associates. “If they were not a government entity, they definitely had strong backing and strong ties,” Thiam recalled. “The level of clearances they had to do things that are difficult in China, the facility they had in getting people to see us [and] the military motorcade gave us the impression that they were strongly connected.” In the case of Guinea and other places, Burgis reports that Queensway was able to provide tens of millions of dollars to African governments on short notice, with virtually no strings attached, sometimes to help bail out leaders presiding over economic crises and sometimes merely to prove the company’s bona fides.
The hope was that with China directly competing with Africa’s economic partners in the West, African countries would win better terms for themselves. But what has happened more often is a race to the bottom.
In the hands of a less astute observer, Pa could come off as something like a Bond villain. But Burgis rightly reminds readers that it hardly takes a conniving mastermind to profit off the inequities and shortcomings of African political systems. “If it weren’t him, it would be someone else,” as a U.S. congressional researcher puts it to Burgis. The researcher adds that even if Pa’s operation were shut down, “the system is still there: these investors can still form a company without saying who they are, they can still anchor their business in a country that is not concerned about investors’ behavior overseas, and, sadly, there’s no shortage of resource-rich fragile states on which these investors can prey.”
LOSS PREVENTION
By showing how “the looting machine” is operated by people and institutions both inside and outside Africa, Burgis transcends the tired binary debate about the root causes of the continent’s misery. But if the problem is as complex as he makes it out to be, with avarice flowing from so many different sources, how can ordinary Africans—and African elites intent on leading more just, prosperous, and equitable societies—improve their prospects?
For Africans, the answer lies in large part in insisting on more open and accountable government. Although the outside world has taken little notice, democracy has spread significantly around the continent in the last two decades, and although conflicts grab the headlines, evidence suggests that war and other forms of large-scale violence have declined during this same period. Stronger civil societies and regular, free, and fair elections would prevent leaders such as Angola’s dos Santos from perpetuating their rule for decades and might allow more responsive elites to put Africa’s resources in the service of more equitable development strategies.
For the outside world, the priority should be getting foreign powers, including China, to agree on more stringent measures to combat corrupt business practices. The U.S. Treasury Department is cracking down on foreign banks that enable Americans to evade taxes; Washington should expand its efforts to prevent illicit financial flows involving other countries as well, reducing the amount of revenue that African countries lose owing to tax havens.
Finally, as Burgis’ book strongly implies (although does not explicitly argue), international financial institutions such as the World Bank and the IMF must be made much more accountable. In Africa, that would mean publicly measuring their programs’ performance in terms of their impact on economic growth. Over the years, such institutions have demanded rigorous compliance from their poorest clients while never holding their own performance or the soundness of their advice up to public scrutiny. The internal IFC review Burgis cites made the same point more than a decade ago. But its findings were largely ignored as the World Bank continued to promote extractive industries in Africa even when they contributed nothing to development. Today, with Africans seeking to cross the Mediterranean Sea by the thousands to escape misery, a simple recommendation from that review is perhaps more pertinent than ever: World Bank and IFC staff should be rewarded not simply for allocating money to projects but for demonstrably reducing poverty. After all, whatever the causes of African poverty, any efforts to address it will fail if they are blind to their own effects.
Director of the Global Justice Now Nick Dearden said:
“It’s scandalous that UK aid money is being used to carve up Africa in the interests of big business. This is the exact opposite of what is needed, which is support to small-scale farmers and fairer distribution of land and resources to give African countries more control over their food systems. Africa can produce enough food to feed its people. The problem is that our food system is geared to the luxury tastes of the richest, not the needs of ordinary people. Here the British government is using aid money to make the problem even worse.”
Ethiopia, Ghana, Tanzania, Burkina Faso, Côte d’Ivoire, Mozambique, Nigeria, Benin, Malawi and Senegal are all involved in the New Alliance.
In a January 2015 piece in The Guardian, Dearden continued by saying that development was once regarded as a process of breaking with colonial exploitation and transferring power over resources from the ‘first’ to the ‘third world’, involving a revolutionary struggle over the world’s resources. However, the current paradigm is based on the assumption that developing countries need to adopt neo-liberal policies and that public money in the guise of aid should facilitate this. The notion of ‘development’ has become hijacked by rich corporations and the concept of poverty depoliticised and separated from structurally embedded power relations.
Some £600 million in UK aid money courtesy of the taxpayer is helping big business increase its profits in Africa via the New Alliance for Food Security and Nutrition. In return for receiving aid money and corporate investment, African countries have to change their laws, making it easier for corporations to acquire farmland, control seed supplies and export produce.
Last year, Director of the Global Justice Now Nick Dearden said:
“It’s scandalous that UK aid money is being used to carve up Africa in the interests of big business. This is the exact opposite of what is needed, which is support to small-scale farmers and fairer distribution of land and resources to give African countries more control over their food systems. Africa can produce enough food to feed its people. The problem is that our food system is geared to the luxury tastes of the…
With Nigeria leading the pack of top loser counties in Africa, Ethiopia alone lost a cumulative of USD 16.5 billion between 1970 and 2008. But, since 2010, Ethiopia more likely lost USD 10 billion which could have shortened significantly the 13 years journey that the country have taken to achieve MDG4 (reduce child mortality by two thirds ) to nine years. In addition to that, the panel found out that failing to curtail illicit financial flows cost the country some six percent of its GDP annually.
Ethiopia: Panel Names One of Ethiopia Top Sources for Illicit Financial Flow
By Berhanu Fekade, All Africa
A high level panel delegated by the African Union (AU) and chaired by Thabo Mbeki, the former president of South Africa, has found Ethiopia to be among the top African nations in terms of being a source of illicit financial flows (IFFs), most of which makes ways to the developed world.
The panel was tasked to find out how prone Africa is for a systematic financial theft which mostly is orchestrated by giant multinational companies operating in the continent. The panel’s report dubbed “track it, stop it and get it” found that in five decades alone, the continent is estimated to have lost one trillion dollars; and currently nations including Ethiopia are losing some 60 billion dollars due to illicit financial flows across the board. With Nigeria leading the pack of top loser counties in Africa, Ethiopia alone lost a cumulative of USD 16.5 billion between 1970 and 2008. But, since 2010, Ethiopia more likely lost USD 10 billion which could have shortened significantly the 13 years journey that the country have taken to achieve MDG4 (reduce child mortality by two thirds ) to nine years. In addition to that, the panel found out that failing to curtail illicit financial flows cost the country some six percent of its GDP annually.
This figure puts the country among the top ten losers; rather creditors via illicit financial flows. Next to Nigeria, countries like Egypt, South Africa, Morocco, Angola, Algeria, Cote d’Ivorie, Sudan, Ethiopia and the Democratic Republic of Congo are the top ten countries which are still losing out billions of dollars in form of “illegally earned, transferred or used” money as it (illicit financial flow) is defined by the panel. Names of the top illicit finance receiving nations include the US, China, India, Spain, France, Japan, Germany, South Korea, Mexico, and the like.
During the summit of heads of state and government which was concluded late last week, the panel appeared before the leaders to present its report on the findings of the three-year-long study that the panel has conducted. In its 15 main findings, the report made it loud and clear that the amount of money leaving Africa via IFFs is muscling up over the years. In 2010, the sums of dollars that flew out of the continent are estimated to be 60 billion dollars. Hence, the report went on to indicate that time has come to prompt the continent to the fact that illicit financial flows are political issues. According to Mbeki, the leaders have decided to adopt the report during the 24th ordinary summit.
The report basically made three classifications regarding the way illicit finances are flowing: via commercial activities, falsification of prices (trade mispricing), quantities and qualities of traded goods. Transfer pricing, profit shifting, tax evasion and the tax incentives which lack cost benefit analysis are some of the systemic commercial thefts the high level panel reported upon. Arms and drugs smuggling, human trafficking, poaching, oil and mineral theft are the criminal activities facilitated by illicit financial flows, the panel argued. Corruption and nontransparent deals are also the impeding factors to curtail the flight of finance from Africa. However, some studies allude to the fact that it is corruption which is extremely bleeding the continent really bad. These studies indicate that, up to 150 billion dollars annually is lost due to corrupt systems along the board in the continent.
To make matters worse, the continent faces huge gaps to finance infrastructural requirements as well as human development issues. The illicit flights alone largely exceed the official development assistants many African nations receive, Mbeki noted.
Companies allegedly linked to African criminals, fraudsters and money launderers have been given tens of millions of pounds of taxpayers’ money, a report has found, as the full scale of the UK’s foreign aid folly emerged.
The Private Infrastructure Development Group, an aid group set up by the Department for International Development which invests in projects in developing countries, also spent thousands of pounds on business class flights.
The report will raise further questions about the Government’s overseas aid budget, which has grown in recent years as ministers try to meet a commitment in the Coalition agreement to spend 0.7 per cent of the GDP on developing countries from 2013.
The UK government will have given PIDG £700million over the three years leading up to this March, meaning Britain has given around 70 per cent of the group’s income since it was set up.
However the report by the influential committee of MPs criticised the department’s management of the agency, saying DFID’s oversight of the group has been “unacceptably poor”.
In one case, PIDG’s Emerging Africa Infrastructure Fund invested almost £20million in a project designed to support the gas processing and distribution activities of Seven Energy, a Nigerian energy company.
“Seven Energy was named by the former Governor of the Central Bank of Nigeria in a 2014 investigation he conducted into the allegations of looting of Nigerian oil revenues,” noted the MPs.
PIDG’s Emerging Africa Infrastructure Fund also put almost £19 million into a power plant in the Ivory Coast, where a fellow investor was allegedly a notorious fraudster called James Ibori.
Ibori was jailed in 2012 for 13 years after admitting fraud of nearly £50million. The judge in his case said that the £50million figure could be “ludicrously low”, and that the amount pocketed by the former governor of Nigeria’s Delta state was “unquantified”.
Margaret Hodge, the chair of the Committee of Public Accounts, said that DFID’s oversight of the group had left it open to questions about the integrity of PIDG’s investments and some of the companies it partnered.
“Concerns were raised with us about the complex corporate structures that PIDG’s partners have sometimes established, making it difficult to be certain about the ownership of companies and creating a risk that those involved may have criminal connections,” she said.
PIDG operates around the world, in countries including Ivory Coast, the Democratic of Congo and Sierra Leone. Mrs Hodge said MPs accepted that these countries could be “challenging”, but that PIDG needed “much tougher scrutiny” from the department, which is headed by Justine Greening.
PIDG also left an average of £27million in a bank account for almost two years – earning interest of 0.016 per cent a year. The MPS said that the loss was likely to have been between £200,000 and £2million and said that the bank in question, SG Hambros, was likely to have made a financial return from the “idle” funds.
“We questioned how it had been possible for the Department, PIDG, and [SG Hambros] not to have been aware of this matter for 18 months,” stated the report.
DFID has been ordered to write to SG Hambros and demand a donation to charity working against Ebola in west Africa in return for the lost interest.
The foreign-aid quango also continued to allow staff to book fully flexible business class flights for two years after DFID ordered the group to “tighten up” its travel policy.
The National Audit Office found that between January 2011 and July 2014, PIDG employees booked 15 flights which cost more than £5,000 each, at a total cost in excess of £75,000.
“It is essential for public confidence in spending on overseas aid that the Department for International Development is able to demonstrate that UK taxpayers’ money is being used for its intended purpose – of helping the world’s poorest people – and not ending up in the wrong hands,” said Mrs Hodge.
“Every pound that is lost to fraud and corruption is a pound that could have been spent on educating a child, improving health systems or supporting economic development.”
Mary Creagh MP, Labour’s Shadow Development Secretary, attacked the government’s management of the agency.
“David Cameron promised value for money on aid but this report shows he has failed to deliver. The NAO and now the Public Accounts Committee have exposed that the Tory-led Government has been pouring hundreds of millions of pounds of taxpayers’ money into projects without checking where it went,” said Ms Creagh.
“Ministers have sat on their hands while Britain’s aid efforts have been undermined. If the Tories and Lib Dems don’t know where aid money is going then how can they measure if it is working?”
A DFID spokesman denied that PIDG had links to known criminals.
He said: “Britain’s investment in the Private Infrastructure Development Group (PIDG) has helped to create 200,000 jobs and driven £6.8billion of private investment into some of the world’s poorest countries, developing their economies and making them less dependent on aid.
“This PAC report suggests that UK funds are at risk of ending up in the wrong hands, citing alleged links between a convicted fraudster and a PIDG-backed company.
“These have been investigated thoroughly by the National Audit Office, as well as DFID and PIDG, and absolutely no evidence has been found to substantiate them.
“We already have strong oversight of PIDG’s activities and have recently clamped down on excessive travel rates. An independent review of their operations, backed by Britain, will ensure they continue to kick start growth in the developing world.”
DFID spending has attracted criticism over the years. Last year, the Independent Commission for Aid Impact so found that some British aid money was funding corruption abroad.
One development project in Nepal encouraged people to forge documents to gain grants while police stations in Nigeria linked to British aid were increasingly demanding bribes, the report discovered.
It also emerged that civil servants went on a £1billion spending spree in just eight weeks to hit the 0.7 per cent spending target.
“The new battle for Africa does not deploy strong-arm tactics, it is now a soft power game: economic and humanitarian aid, interest-free loans, preferential trade agreements and investments in infrastructure are currency across a continent that is, for the world’s established and emerging powers, seemingly up for grabs.” Al Jazeera
“Some private-equity money is going into private health clinics and educational institutions such as universities. In much of the rich world, bringing the profit motive into public services is controversial; in Africa, where there is so much unmet need for such services, there is less of a taboo. In general, African entrepreneurs have begun to appreciate how private equity can help their businesses expand and, by improving such things as internal auditing and book-keeping, make them more robust. The rich world’s negative association of private equity with asset-stripping “vultures” does not apply here.” The Economist
Decades after the European powers carved up the African continent for their own imperial needs, Africa is undergoing a new wave of resource and strategic exploitation – some are calling it the new scramble for Africa.
The United States is increasing its footprint across Africa with AFRICOM, fighting terrorism and ensuring stability are the trumpeted motivations. Resource security is a more hushed objective.
But it is not just about the US.
During the last decade, China’s trade with Africa not only caught up with America’s, it has more than doubled it.
The new battle for Africa does not deploy strong-arm tactics, it is now a soft power game: economic and humanitarian aid, interest-free loans, preferential trade agreements and investments in infrastructure are currency across a continent that is, for the world’s established and emerging powers, seemingly up for grabs.
India, Brazil and Russia are all invested in Africa’s present and future, and old imperial powers like France are fixing to retain their loosening grip on the riches of former colonies.
So what does all this mean for Africa and Africans?
ACROSS Africa, radio call-in programmes are buzzing with tales of Africans, usually men, bemoaning the loss of their spouses and partners to rich Chinese men. “He looks short and ugly like a pygmy but I guess he has money,” complained one lovelorn man on a recent Kenyan show. True or imagined, such stories say much about the perceived economic power of Chinese businessmen in Africa, and of the growing backlash against them.
China has become by far Africa’s biggest trading partner, exchanging about $160 billion-worth of goods a year; more than 1m Chinese, most of them labourers and traders, have moved to the continent in the past decade. The mutual adoration between governments continues, with ever more African roads and mines built by Chinese firms. But the talk of Africa becoming Chinese—or “China’s second continent”, as the title of one American book puts it—is overdone.
The African boom, which China helped to stoke in recent years, is attracting many other investors. The non-Western ones compete especially fiercely. African trade with India is projected to reach $100 billion this year. It is growing at a faster rate than Chinese trade, and is likely to overtake trade with America. Brazil and Turkey are superseding many European countries. In terms of investment in Africa, though, China lags behind Britain, America and Italy (see charts).
If Chinese businessmen seem unfazed by the contest it is in part because they themselves are looking beyond the continent. “This is a good place for business but there are many others around the world,” says He Lingguo, a sunburnt Chinese construction manager in Kenya who hopes to move to Venezuela.
A decade ago Africa seemed an uncontested space and a training ground for foreign investment as China’s economy took off. But these days China’s ambitions are bigger than winning business, or seeking access to commodities, on the world’s poorest continent. The days when Chinese leaders make long state visits to countries like Tanzania are numbered. Instead, China’s president, Xi Jinping, has promised to invest $250 billion in Latin America over the coming decade (see article).
The growth in Chinese demand for commodities is slowing and prices of many raw materials are falling. That said, China’s hunger for agricultural goods, and perhaps for farm land, may grow as China’s population expands and the middle class becomes richer.
Yet Africans are increasingly suspicious of Chinese firms, worrying about unfair deals and environmental damage. Opposition is fuelled by Africa’s thriving civil society, which demands more transparency and an accounting for human rights. This can be an unfamiliar challenge for authoritarian China, whose foreign policy is heavily based on state-to-state relations, with little appreciation of the gulf between African rulers and their people. In Senegal residents’ organisations last year blocked a deal that would have handed a prime section of property in the centre of the capital, Dakar, to Chinese developers. In Tanzania labour unions criticised the government for letting in Chinese petty traders.
Some African officials are voicing criticism of China. Lamido Sanusi, Nigeria’s former central bank governor, says Africa is opening itself up to a “new form of imperialism”, in which China takes African primary goods and sells it manufactured ones, without transferring skills.
After years of bland talk about “win-win” partnerships, China seems belatedly aware of the problem. On a tour of the continent, the Chinese foreign minister, Wang Yi, said on January 12th that “we absolutely will not take the old path of Western colonists”. Last May the prime minister, Li Keqiang, acknowledged “growing pains” in the relationship.
China has few political ambitions in Africa. It co-operates with democracies as much as with authoritarian regimes. Its aid budget is puny. The few peacekeepers it sends stay out of harm’s way. China’s corporatist development model has attracted few followers beyond Ethiopia and Rwanda. Most fast-growing African nations hew closer to Western free-market ideas. In South Sudan, the one place where China has tried to flex its diplomatic muscle, it has achieved embarrassingly little. Attempts to stop a civil war that is endangering its oil supply failed miserably.
Chinese immigrants in Africa chuckle at the idea that they could lord it over the locals. Most congregate in second-tier countries like Zambia; they are less of a presence in hyper-competitive Nigeria. Unlike other expatriates, they often live in segregated camps. Some thought, after a decade of high-octane engagement, that China would dominate Africa. Instead it is likely to be just one more foreign investor jostling for advantage.
Consumerism is killing us softly. The catalyst is Advertising. Uniformed citizens are trapped in a vicious cycle. Their Achilles Heel is their illusion.
Advertising is the foundation of Mass Media and its primary purpose of Mass Media is to sell products. It also sells values, images, concepts of love and sexuality, of romance, of success and perhaps most important of normalcy: it tells who we are and who we should be.
Advertising reinforces a deceiving association between the consumer and happiness; it focuses on immediate and short term needs, diverges the focus from its bogus message, eliminates any discussion of the social & long-term needs, and leads into more squandered resources.
Common Scenario
When consumers visit the store to buy their brand, they definitely don’t ask who made that product and what resources were used. Unfortunately, some consumers are not aware that huge resources (human and natural) were wasted in the production process. The most common info they know is: Made in China.
Vicious Circle
Consumers associate with the utility and satisfaction that result from purchasing these products. However, what consumers fail to realize is that utility always decreases as the number of items/products purchased increases. And thus their satisfaction ceases to exist which would lead them into a state of emptiness, that is usually compensated by consuming more.
Awareness
Realizing that this bogus content can’t be integrated with their happiness might happen at a late stage. But hopefully not too late.
Consumerism is killing us softly. The catalyst is Advertising. Uniformed citizens are trapped in a vicious cycle. Their Achilles Heel is their illusion.
Advertising is the foundation of Mass Media and its primary purpose of Mass Media is to sell products. It also sells values, images, concepts of love and sexuality, of romance, of success and perhaps most important of normalcy: it tells who we are and who we should be.
Advertising reinforces a deceiving association between the consumer and happiness; it focuses on immediate and short term needs, diverges the focus from its bogus message, eliminates any discussion of the social & long-term needs, and leads into more squandered resources.
Common Scenario
When consumers visit the store to buy their brand, they definitely don’t ask who made that product and what resources were used. Unfortunately, some consumers are not aware that huge resources (human and natural) were wasted in the production process. The…
The AU Commissioner for Economic Affairs, Anthony Maruping, told journalists in Malabo on Monday that the Fund would work to correct balances of payment positions across Africa.
He said such positions were mainly caused by low export of commodities and high import volumes which exerted negative burden on currency stability.
The AMF would be established to basically help to tackle macro-economic matters in Africa, he added.
The commissioner said, “It is not true that there has been an economic leadership gap in Africa. We are creating an African institution because the UN Economic Commission for Africa is a global body.”
Mr. Maruping said the Fund was expected to create proper lending system in Africa to correct imbalance in payments within the continent and ensure exchange rate stability.
“It will also work toward African currency convertibility, ensuring that currencies across Africa can be exchangeable. The Fund will promote monetary cooperation on the continent and speed up economic development. To achieve these objectives, the Fund will design formulas to lower the debt burden and other debt management policies in Africa and facilitate development of the African financial markets,” he said.
The AU official said the Fund would have an authorised share capital denomination of $100 (N16,285) per share with a callable share capital of 50 per cent of the authorised share capital, which is $11.32 (N1,845).
The paid up share capital would be at least 50 per cent of the callable share capital $5.66 billion (N922 billion) denominated in $100, he added.
He said South Africa was expected to get the highest allocation of the 500,000 shares, with an 8.05 per share, translating into nearly $1billion (N163 billion), followed by Nigeria at 7.94 per cent, translating into $899 million (N16 billion) in capital contributions.
Egypt, Africa’s third largest economy, was expected to subscribe for 6.12 per cent of the shares, contributing $693 million (N112 billion), followed by Algeria, to be allocated 4.59 per cent of the shares at $520 million (N84 billion).
Each country was expected to pay for its subscription at once or in four instalments of 25 per cent of the amount and payment period would last between the initial four years and eight years.
The first payment is expected 60 days after the AMF treaty enters force.
The countries are also allowed to issue bonds in U.S. dollars which are non-interest earning.
The Fund would invest in international financial markets and expected to maintain a sound credit rating.
The AMF will be based in Yaounde, Cameroon.
(PANA/NAN)
See also The Creation of the African Monetary Fund @ http://openanthropology.org/libya/AUamf.pdf
(NEW YORK) – In recent years, a growing number of African governments have issued Eurobonds, diversifying away from traditional sources of finance such as concessional debt and foreign direct investment. Taking the lead in October 2007, when it issued a $750 million Eurobond with an 8.5% coupon rate, Ghana earned the distinction of being the first Sub-Saharan country – other than South Africa – to issue bonds in 30 years.
This debut Sub-Saharan issue, which was four times oversubscribed, sparked a sovereign borrowing spree in the region. Nine other countries – Gabon, the Democratic Republic of the Congo, Côte d’Ivoire, Senegal, Angola, Nigeria, Namibia, Zambia, and Tanzania – followed suit. By February 2013, these ten African economies had collectively raised $8.1 billion from their maiden sovereign-bond issues, with an average maturity of 11.2 years and an average coupon rate of 6.2%. These countries’ existing foreign debt, by contrast, carried an average interest rate of 1.6% with an average maturity of 28.7 years.
It is no secret that sovereign bonds carry significantly higher borrowing costs than concessional debt does. So why are an increasing number of developing countries resorting to sovereign-bond issues? And why have lenders suddenly found these countries desirable?
With quantitative easing having driven interest rates to record lows, one explanation is that this is just another, more obscure manifestation of investors’ search for yield. Moreover, recent analyses, carried out in conjunction with the establishment of the new BRICS bank, have demonstrated the woeful inadequacy of official assistance and concessional lending for meeting Africa’s infrastructure needs, let alone for achieving the levels of sustained growth needed to reduce poverty significantly.
Moreover, the conditionality and close monitoring typically associated with the multilateral institutions make them less attractive sources of financing. What politician wouldn’t prefer money that gives him more freedom to do what he likes? It will be years before any problems become manifest – and, then, some future politician will have to resolve them.
To the extent that this new lending is based on Africa’s strengthening economic fundamentals, the recent spate of sovereign-bond issues is a welcome sign. But here, as elsewhere, the record of private-sector credit assessments should leave one wary. So, are shortsighted financial markets, working with shortsighted governments, laying the groundwork for the world’s next debt crisis?
The risks will undoubtedly grow if sub-national authorities and private-sector entities gain similar access to the international capital markets, which could result in excessive borrowing. Nigerian commercial banks have already issued international bonds; in Zambia, the power utility, railway operator, and road builder are planning to issue as much as $4.5 billion in international bonds.
Evidence of either irrational exuberance or market expectations of a bailout is already mounting. How else can one explain Zambia’s ability to lock in a rate that was lower than the yield on a Spanish bond issue, even though Spain’s credit rating is four grades higher? Indeed, except for Namibia, all of these Sub-Saharan sovereign-bond issuers have “speculative” credit ratings, putting their issues in the “junk bond” category and signaling significant default risk.
Signs of default stress are already showing. In March 2009 – less than two years after the issue – Congolese bonds were trading for 20 cents on the dollar, pushing the yield to a record high. In January 2011, Côte d’Ivoire became the first country to default on its sovereign debt since Jamaica in January 2010.
In June 2012, Gabon delayed the coupon payment on its $1 billion bond, pending the outcome of a legal dispute, and was on the verge of a default. Should oil and copper prices collapse, Angola, Gabon, Congo, and Zambia may encounter difficulties in servicing their sovereign bonds.
To ensure that their sovereign-bond issues do not turn into a financial disaster, these countries should put in place a sound, forward-looking, and comprehensive debt-management structure. They need not only to invest the proceeds in the right type of high-return projects, but also to ensure that they do not have to borrow further to service their debt.
These countries can perhaps learn from the bitter experience of Detroit, which issued $1.4 billion worth of municipal bonds in 2005 to ward off an impending financial crisis. Since then, the city has continued to borrow, mostly to service its outstanding bonds. In the process, four Wall Street banks that enabled Detroit to issue a total of $3.7 billion in bonds since 2005 have reaped $474 million in underwriting fees, insurance premiums, and swaps.
Understanding the risks of excessive private-sector borrowing, the inadequacy of private lenders’ credit assessments, and the conflicts of interest that are endemic in banks, Sub-Saharan countries should impose constraints on such borrowing, especially when there are significant exchange-rate and maturity mismatches.
Countries contemplating joining the bandwagon of sovereign-bond issuers would do well to learn the lessons of the all-too-frequent debt crises of the past three decades. Matters may become even worse in the future, because so-called “vulture” funds have learned how to take full advantage of countries in distress. Recent court rulings in the United States have given the vultures the upper hand, and may make debt restructuring even more difficult, while enthusiasm for bailouts is clearly waning. The international community may rightly believe that both borrowers and lenders have been forewarned.
There are no easy, risk-free paths to development and prosperity. But borrowing money from international financial markets is a strategy with enormous downside risks, and only limited upside potential – except for the banks, which take their fees up front. Sub-Saharan Africa’s economies, one hopes, will not have to repeat the costly lessons that other developing countries have learned over the past three decades.
The following is the case study on Ethiopia from Opride Contributors http://www.opride.com/oromsis/articles/opride-contributors/3781-sovereign-bond-may-prove-to-be-a-nightmare-for-ethiopia
SOVEREIGN BOND MAY PROVE TO BE A NIGHTMARE FOR ETHIOPIA
By J. Bonsa
Ethiopian has recently joined the sovereign bond market, where governments sell debt to investors with a guarantee that they would pay periodic interest rates and the initial investment value at maturity.The bulk of sovereign bonds are bought by institutions and governments, individual investors constitute a relatively small proportion of total bond buyers. Sovereign bonds are often denominated in local currencies.
Ethiopia’s foray into the sovereign bond market has raised eyebrows in the world of financial market for at least three reasons. First, Ethiopia is the poorest country ever to venture into this market. Second, the real value of Ethiopia’s currency has been deteriorating at alarming rates, devalued by close to 40 percent in the last three years alone. Third, the108-page long prospectus that the Ethiopian government prepared and submitted to formally enter the market contained astonishing revelations. In a bizarre twist, the government made unfamiliar and strange declarations about risks associated with purchasing the bond it is about to issue.
Among other things, authorities warned about: famine, Ethio-Eritrean war, social unrest and upheaval in the aftermath of the May 2015 election. These are extra-ordinary admissions of risks to a scale not heard in this market before. But what is the motive of the Ethiopian government in exhibiting such an extraordinary behavior? What are the triggers for the move to enter the sovereign bond market? In this piece, I will attempt to seek answers to these questions.
Carrot and stick
The local English weekly Addis Fortune reported rumors in Addis Ababa that the unusual admission of the risks was due to naivety of junior staff. However, central government in Ethiopia is known for ordering lower level units to do things a certain way only to deny involvement to avoid blame at a later stage. For example, federal government officials often deny and attribute human rights abuses to local authorities. The latest screw up seems to be an extension of that logic to international diplomacy. The fact that this rumor was leaked through a pro-government newspaper provides further clue about some sinister motives beyond a simple act of incompetence by those who prepared the prospectus.
It is likely that the government used the document as a carrot and stick tactic aimed at Western governments. An evidence of this comes from the revelations about Ethiopia’s “credit lines from China and Chinese entities accounted for 42 per cent of all external loan disbursements in 2013-14, and for 69 percent in 2012-13.” This fact underscores Ethio-Chinese partnerships have been considerably strengthened. Western countries, particularly the U.S., recognize Ethiopia’s support in the global fight against terrorism. But they also know that that support has often been offered to them so officiously with hidden motives, which at times jeopardized Western interests in the Horn of Africa.
The issuance of the sovereign bond and rare admission about the scale of Ethio-China relations appear like a warning to the U.S.: Buy the bond generously if you want to stop us from lurching toward China. The categories of hazards the government chose are even more telling. For instance, the possibility of another war with Eritrea is inserted to gain sympathy and also imply that terrorism is still rampant in Horn of Africa. The likelihood of social unrest after the next election is meant to warn the West that they should not seriously consider pressing the government on human rights and democratization.
Other motivations are rooted in domestic politics. The government knows that the risks are real and investors will find out sooner or later. In that case, by declaring the risks upfront, the regime tries to present itself as a brutally honest and transparent government. In doing so, they might be trying to pre-empt opposition claims about lack of transparency in areas of governance and economic management.
Liquidity crisis
The Ethiopian government has a strange habit of biting more than it could chew. For example, it plans to invest about $5.1 billion per year over the next decade on mega infrastructural projects: power, roads, and telecommunications. Another $6 billion is required to build a 2.4 thousands km railway network. The construction of the Grand Ethiopian Renaissance Dam (GERD) on the Nile River is expected to cost about $4.8 billion. The World Bank has warned that this level of investment (more than 40 percent of GDP and three times the $1.3 billion in infrastructure spending that the country managed during the mid-2000s) is well beyond the country’s modest means.
This created a self-inflicted wound in the form of a very messy liquidity crisis: an acute shortage or drying up of funds in the economy. This crisis is the main trigger for the foray to the sovereign bond market. The shortage of funds is specially manifested in difficulty to borrow funds from the banking system. The crisis has been around in the Ethiopian economy for a good part of the last decade. The government left no stone unturned in the sphere of the domestic economy to overcome the severe liquidity crisis.
But the regime squandered huge sums of free grants and concessionary or low interest loans from donors, annual net-inflows in the upwards of $2 billion, excluding other humanitarian aid.
The debacle from the 2005 election and the 2009 Charities Law, which restricted operations of foreign NGOs, saw a noticeable reduction in foreign aid. The government had to seek non-concessionary loans, particularly from China, to finance its mega projects. Meanwhile, the ill-designed project locations in less productive sectors or regions means sharp declines in export earnings.
For much of the last decade, the government simply printed more and more birr and engaged in a spending spree. However, a limit was reached when inflation hit the roof, approaching 60 percent in 2008. Fearing political backlash through social unrest and also due to pressures from international financial institutions, the government backed down from its inflationary financing strategy.
Involuntary savings
Absent foreign funds, the government maintained a dogged determination and vowed to proceed with the mega projects by entirely relying on domestic savings. This began with sales of government savings bonds to domestic institutions, to raise about $892.2 million in five years. Obviously, this was not realistic. About 70 percent of Ethiopians still live in extreme poverty, and one cannot expect households to voluntarily save even a small proportion of the target amount of saving. Consequently, the government resorted to force savings, using unorthodox methods.
The involuntary savings was accompanied by an intensive propaganda campaign to rally the public around the mega infrastructural projects by creating wartime like atmosphere. It is not only “unpatriotic” to question the suitability or merit of the large projects, it borders with criminality to express any reservations specifically about the GERD. Every civil servant has been forced to buy a saving bond paying her one-month salary in 12 installments. They have also made a relentless but unsuccessful campaign to entice the Ethiopian diaspora. The perverse method applied to sell bonds to households was followed by an even more crude procedures meant to force bonds on the business community. Private Banks have been compelled to purchase bonds equivalent to 27 percent of their annual loans. However, this does not apply to government owned banks. Banking is effectivelygovernment monopoly, the three major state-owned banks hold 73 percent of the total bank assets in the country, 63 percent for the Commercial Bank of Ethiopia alone.
The extent of ignorance among Ethiopia’s policy makers is baffling. The involuntary saving is meant to boost publicinvestment expenditure, which is part of aggregate demand that fuels economic growth. But the authorities grossly overlooked the very act of involuntary saving is bound to reduce the other components of expenditure — household consumption expenditure on goods and services as well asbusiness investment expenditure. Sure enough, the government has belatedly realized there was a limit to achieving their goals through involuntary savings, and with all options in the domestic economy already exhausted.
Sovereign bond
The sovereign bond saga is a yet another maneuver to raise funds the government so desperately needed to finance the ill-conceived mega projects. This time the movement is on a less comfortable and unfamiliar terrain beyond Ethiopia’s borders, in the international market arena where the regime cannot apply brute methods to enforce bond purchases. Perhaps for the first time in its rein, Ethiopia’s ruling party will have to play by the rules.
Accordingly, it set out with a calculated move to secure a “sound” credit rating from known global agencies. In a quick succession during the first half of May 2013, credit rating agencies offered the government exactly what it needed. Fitch Ratings and Moody’s assigned ‘B’ and ‘B1’ ratings to Ethiopia, respectively. These endorsements opened the door for a debut on international capital markets.
However, the government rhetoric notwithstanding, most economic analysts know that the fundamentals of the Ethiopian economy have not reached the level that warranty the kinds of credit ratings offered to Ethiopia. For instance, in May 2012, three months before Meles Zenawi died, theEconomist observed:
JUST how sustainable is Ethiopia’s advance out of poverty? This is a vexed topic among bankers and others in Ethiopia who hold large wads of birr, the oft devalued currency. Despite hard work by the World Bank, oversight from the International Monetary Fund, and studies by economists from donor countries, it is not clear how factual Ethiopia’s economic data are. Life is intolerably expensive for Ethiopians in Addis Ababa, the capital, and its outlying towns. Some think Ethiopia’s inflation figures are fiddled with even more than those in Argentina. Even if the data are deemed usable, the double-digit growth rates predicted by the government of Prime Minister Meles Zenawi look fanciful.
Similarly, soon after Ethiopia received the favorable credit ratings, the International Monetary Fund“warned that the pace of accumulation of public sector debt to finance major investments in dams, factories and housing construction “deserves close attention.”’ Given these reservations about the credibility of Ethiopian authorities, it is perplexing as to why the ratings agencies endorsed Ethiopia to enter the global capital market.
This could have happened only if Ethiopian authorities have utilized their familiar strategy: buying the services of powerful and highly connected lobbying firms. This has become a familiar last resort forauthoritarian regimes in Africa. Ethiopia reportedly allocates a sizeable budget to pay for prohibitively expensive lobbyist service fees.
Public sector debt has been growing at alarming rate. As Horn Affairs reported recently, “Ethiopia’s public sector debt grew threefold in the past five years. The total outstanding external debt surged from $5.6 Billion in 2009/10 to $14 Billion in 2013/14.”These are increasingly becoming commercial or non-concessionary loans such as those from China. Ethiopia’s premature entry into the sovereign bond market amounts to adding fuel to a flame.
IMF predicts Ethiopia’s “total debt to GDP increases from 24 percent to 48 percent of GDP in 5 years, posing risks to debt sustainability. External commercial borrowing entails risks even under the assumption of a highly efficient big-push public investment program.” This means unlike in the past when funds have been flowing in through free grants or soft loans, debt servicing will soon become a huge burden on the Ethiopian economy, given the government’s wasteful investment and a shift from soft to commercial loans. However, it is anybody’s guess whether or not the regime will stay long enough to face the consequences of its decisions.
*The writer, J. Bonsa, is a regular OPride contributor and researcher-based in Asia.
It is not often you hear a Vice President of the World Bank calling for revolution, but Oby Ezekweseli did just that at the Royal African Society’s Annual Lecture last week.
There is an unwritten rule among politicians globally that they do not rubbish their rulers when they are abroad, but Oby – who would not describe herself as a politician – did not hold back.
We should have guessed how fired up she was when the former minister in President Obasanjo’s government in Nigeria and World Bank Vice President set the title: “Africa Rising? What will happen when her citizens arise?” You can watch her presentation here
She traced the lack of participation by the vast majority of Africans in their own development over the past 50 years which has left 70 – 80% of them absolutely poor. She blamed the “parasitic” African elites, not just for looting their countries, but for preventing any of the benefits of economic growth reaching their people. Her own country, Nigeria, is very rich but has some of the worst human development figures in the world.
She also pointed out that external actors, the aid donors, the World Bank and the IMF who drove the structural adjustment economic reforms of the 1990s and 2000s and left African citizens with no part to play in making the national choices for development. These reforms were necessary, she said, but “externals cannot give development to any country or any people… The ownership of the process by African citizens has been the missing link.”
Dismissing the current crop of African rulers, she expressed her pride in the people of Burkina Faso for the uprising that ejected President Blaise Compaoré
, who ruled there for 27 years. The leaders “absolutely don’t care” about their own citizens, she said, but spend their time among the global elite “all of whom have each other’s’ phone numbers”.
The next stage of development, said Oby, can only be done with the participation of the people, “no external force can do that…The change you have been waiting for will not come from the elite class waking up and having an epiphany. The change has to be made by the people. They are the only ones who can.”
And she urged the African diaspora to return to Africa and lead the struggle, a remark that created a moment of awkwardness in the room I noticed.
But I am sure you will agree this was an inspiring, energising message: People of Africa, you are citizens, not slaves. Rise up and demand what is yours and remove the people who have stolen it from you. Could the removal of Compaoré
by mass demonstrations followed by the refusal to accept an interim military ruler be the beginning of an Africa-wide trend as a 21st Century generation comes of age? It is not the usual message that you hear from African ministers or the World Bank.
But there is an anomaly here. If Oby is right then the most democratic countries with the most widespread political participation would be the most prosperous. And the most equal in terms of sharing the national cake. But this is not so.
Put aside the oil and mineral-rich countries in Africa, and, as Oby pointed out, you find that the fastest growers are those with stability and strong institutions such as effective ministries that deliver health and education to their people. In turn these attract aid and investment. These countries are Rwanda, Ethiopia, Uganda, Mozambique and Tanzania.
But what else do they have in common? Ethiopia and Rwanda are top-down dictatorships ruled by parties that fought their way to power and have ruled since 1991 and 1994 respectively. They deliver health and education to their people but they do not allow freedom of speech or association. Their media are tightly controlled. Uganda is a less powerful dictatorship but President Yoweri Museveni also came to power through the barrel of a gun in 1986 and his army has controlled the country ever since. The ‘Walk to Work’ mass movement in 2011, which complained about lack of services and high prices, was brutally suppressed.
Museveni was forced by aid donors to open up politics and he now has to put up with a rumbustious parliament and a moderately free press. A grumpy population, especially in the capital, might vote for someone else if they were sure that someone was allowed to run in a fair election. That is unlikely. At election times the state, including the police and the army, is an extension of the ruling party.
Mozambique and Tanzania are still run by the parties that led those countries at independence. Both will soon become exceedingly rich because of oil and gas; God-given resources that are profoundly anti-democratic. Oil-rich countries do not need to raise taxes from their people, they mainline millions from oil companies straight into the treasury. So whoever is in power when those revenues begin to flow may stay there for decades. There is still some democratic space in these countries and there are real national debates with opposition parties in both of them, although it is unlikely that an opposition party could win without provoking violent reactions from the ruling parties.
So is benign dictatorship the best Africans can hope for? There are certain advantages – stability and consistency. The downside is that it is dangerous to think or speak out so there is no national debate. Meanwhile new generations emerge – especially in Africa where birth rates are high – and dictators become out of touch. If the new generation follow Oby Ezekwesili’s call, Africa will remain exceedingly interesting and exciting and should also become prosperous and powerful.
See more @ http://africanarguments.org/2014/12/11/citizens-of-africa-arise-you-have-nothing-to-lose-but-your-chains-says-oby-ezekwesili-by-richard-dowden/
” The benefits of trade have been well documented throughout history. The economic case is quite straightforward. Opening up to trade allows countries to shift their patterns of production, exporting goods that they are relatively efficient at producing and importing goods at a lower price that they can’t produce resourcefully at home. This lets resources to be allocated more efficiently allowing a nation’s economy to grow. Fruits of trade can be seen in many countries. In the last 30 years, trade has grown around 7% per year on average (WTO, 2013). During this time period, developing nations have seen their share in world export increase from 34% to 47% (WTO, 2013) which at first glance seem incredible. However if we dig a little deeper, it is quickly apparent that China is the key reason for the majority of the growth and that a bulk of these developing countries aren’t benefiting fully from international trade. Why is this? Many developing countries depend on the export of a few primary products and in some cases a single primary commodity for the majority of their export earnings. In fact, 95 of the 141 developing countries rely of the export of commodities for at least 50% of their export income (Brown, 2008). This is where the problem starts. Prices in the primary good’s market tend to be highly volatile sometimes varying up to 50% in a single year (South Centre, 2005). Often, the fluctuation of these products are out of the hands of the developing countries as they individually have only a small portion of the world supply which is not enough to affect world prices. At the same time, some shocks (ie. Weather) are unpredictable. The unstable commodity price brings uncertainty, instability and often negative economic consequences for the developing countries. This also affects the policymaking in the country as it is hard to implement a sustainable development scheme or a fiscal expansionary policy with uncertain revenue. Positive shocks do increase income in the short run however a study by Dehn (2000) found that there are no permanent effect on the increase on income in the long run. Furthermore, there is often very little scope to growth through primary products as it is very hard to increase volumes of sale. This is due to the demand being inelastic. The over dependence on the export of primary products also causes another problem – a risk of a large trade deficit. Several studies (Olukoshi, 1989, Mundell, 1989) have shown that primary commodity prices are the main cause for the debt problems in many developing countries. In an empirical research done by Swaray (2005), he shows the main reason behind this is the deteriorating terms of trade, developing countries face. Terms of Trade is equal to the value of export over the value of import. Over time there has been a general trend of primary products falling in value. 41 of 46 leading commodities fell in real value over the last 30 years with an average decline of 47% in real prices, according to the World Bank (cited in CFC, 2005). This has occurs due to inelastic demand for commodities and lack of differentiation among producers hence making it a competitive market. The creation of synthetic substitutes has also suppressed prices. At the same time, manufacturing products (which generally developing countries tend to import) see a general rise in prices. Put these trends together, over time, developing countries have seen their terms of trade worsen. A study by CFC (2005), shows that the terms of trade have declined as much as 20% since the 1980s. This, alongside the difficulty to increase volumes of sales has meant many developing countries have a trade deficit. According Bhagwati (1958), it is possible that this decline in the terms of trade could result in diminished welfare. In other words, growth from trade can be negative rather than positive. ”
The benefits of trade have been well documented throughout history. The economic case is quite straightforward. Opening up to trade allows countries to shift their patterns of production, exporting goods that they are relatively efficient at producing and importing goods at a lower price that they can’t produce resourcefully at home. This lets resources to be allocated more efficiently allowing a nation’s economy to grow. Fruits of trade can be seen in many countries. In the last 30 years, trade has grown around 7% per year on average (WTO, 2013). During this time period, developing nations have seen their share in world export increase from 34% to 47% (WTO, 2013) which at first glance seem incredible. However if we dig a little deeper, it is quickly apparent that China is the key reason for the majority of the growth and that a bulk of these developing countries aren’t benefiting fully…
Since 1970, Africa has lost at least $854 billion through capital flight which is not only enough to wipe out the continent’s total external debt of $250 billion but leaving around $600 billion for poverty alleviation.
By Menelaos Agaloglou
October 21, 2014 (Open Democracy) — Illicit flows are difficult to measure due to lack of reliable data. Global Financial Integrity in 2008 reported that Africa has lost between $854 billion and $1.8 trillion in the last four decades.
The flows seeking higher returns are directed towards western financial institutions and the process is being facilitated by tax havens, trade mispricing (by overpricing imports and underpinning exports on customs documents, residents can illegally transfer money abroad), fake foundations and money-laundering techniques.
Sometimes it is a response to economic and political instability or to high taxes placed on international trade. Frequently it is a way of hiding the illegal accumulation of wealth owed to corruption or criminal activity. Additionally, massive illicit flows can also be a reaction to a defaulting government debt or to a lost confidence on the economic strength of the country.
These outflows of capital seriously harm the efforts for poverty alleviation and socio-economic development. In the first place, investment has decreased, yielding negative implications for job creation, improvement of infrastructure and industrialization.
Illicit flows of money harm economic growth by stifling private capital formation and causing the tax base to remain narrow. Since it drains hard currency reserves, it encourages poor countries to borrow money from abroad making their debt crisis worse and curtailing public investment further. This burden is paid more by the poor since high levels of unemployment and increased inflation affects them more. Illicit flows increase inequality that can lead to political tensions and further poverty.
Interestingly, Africa has become a net creditor to the world despite its global image as an inactive recipient of aid and loans. It has the highest share of private external assets among developing regions. Since 1970, Africa has lost at least $854 billion through capital flight which is not only enough to wipe out the continent’s total external debt of $250 billion but leaving around $600 billion for poverty alleviation and pro poor growth.
Africa is the largest recipient of aid in the world. Vast amount of resources are being spent every year with the task of achieving poverty reduction and meeting the Millennium Development Goals.
But what’s the point of sending money in the region if the region sends it back? For the region as a whole, illicit outflows outpaced official development assistance by a ratio of around 2:1. Taking other statistics into account, developing countries lose at least $10 through illegal flight for every $1 they receive via the aid regime. It is logical to conclude here that it would have been more beneficial to keep the locally produced wealth and invest it in the continent rather than waiting for aid from abroad to safeguard basic needs.
A serious inquiry that needs further investigation is what exactly this amount (between $1 trillion and $2 trillion) being lost means in terms of schools, hospitals and infrastructure. For example, the Education For All 2011 report stated that current aid levels fall short of the $16 billion required annually to close the external financing gap in low-income countries.
This crime kills the economic chances of the region. In 1970 it sent abroad 2% of Africa’s GDP, in 1987 it sent abroad 11% and 8% of its 2007 GDP. Illicit outflows from Africa grew at an average 12% a year over the four decades. To have a chance to meet the Millennium Development Goals, African countries must attack the illicit outflow and try to recover what is now held abroad. If the amount lost could be returned, then development can be achieved painlessly with local resources finally putting an end to aid dependency.
Economic growth without reform that can keep the wealth locally reinvested will lead to more illicit capital flight, and not to less. Sub Saharan Africa had high growth-rates over the last decade. Illicit outflows have also increased during this period. If the resources gained from growth cannot be invested locally then pro poor growth will not be achieved and the continent will continue suffering from extreme poverty. The region crucially needs diversification of its economy, research and development in relation to its agriculture and an expansion of its social services both in urban and rural areas. Only locally-led efforts, with local resources, can succeed in bringing prosperity.
Former South African president Mbeki blamed multinational companies for the flow of capital out of Africa, whereas other people are blaming the growing African elite for wanting higher returns for their money. The alternative view is that this economic problem of the outflow of money is just one of the consequences of the real problem that generates all others: in many African countries, governments (even the whole apparatus of the state) lack legitimacy, and their policies and actions do not represent the whole of society but special groups with economic and political power. In most African countries there is no bargain among groups; just the imposition of power by a small elite.
An effective state can tax its citizens with a political settlement, a rational consensus between state and citizens whereby taxes will be used to further guarantee and protect their interests. At this point we can start perceiving the problem of illicit flows more as a political problem and less an economic one. It is necessary for African societies to address their weak state legitimacy by becoming more open political units, which will integrate the different groups from the societies they supposedly lead. On the other hand businessmen, in order to keep their wealth inside their countries, need to be sure that they will profit with a positive real rate of interest. Serious macroeconomic policies, such as lower fiscal deficits, low inflation and reduced monetary expansion need to follow.
In conclusion, capital flight places the whole burden of solving the problem upon African countries. However one views the problem, either as an economic or a political one, the burden is placed on these societies to solve problems through their own efforts.
It is true that African financial institutions are the smallest and least developed in the world. It is also true that they are not transparent – probably a symptom of their connection with the political establishment which also lacks credibility among the locals. But credibility, transparency and legitimacy are central ideas to development. It would be wiser to start our development discussions from these basics rather than wasting more resources and time setting more and more millennium goals.
About the author
Menelaos Agaloglou is the Head of Geography in the International Division of the Greek Community School in Addis Ababa. He is a researcher of the Center of Middle Eastern and Islamic Studies (CEMMIS), part of the University of Peloponnese in Greece. He has taught Conflict Resolution and English in the University of Hargeisa in Somalia and Social Studies at the Ahmadiyya elementary school in Sierra Leone.
Read @ Open Democracy http://ayyaantuu.com/horn-of-africa-news/draining-development-illicit-flows-from-africa/
The ‘hidden hunger’ due to micronutrient deficiency does not produce hunger as we know it. You might not feel it in the belly, but it strikes at the core of your health and vitality.
– International Food Policy Research Institute
Ethiopia and its Hidden Hunger in the Shadows of Fastest Economic Growth Hype
Ethiopia is making the 7th worst country (marked alarming) in Global Hunger Index (GHI) 2014. It is the 70th of the 76 with GHI score of 24.4 and Proportion of undernourished in the population (%) 37.1. http://www.ifpri.org/tools/2014-ghi-map
The 10 worst countries in 2014 GHI Score are: Ethiopia, Chad, Sudan/South Sudan, East Timor-Leste, Comoros, Eritrea, Burundi, Haiti, Zambia and Yemen.
According to the IFPRS report 2014 which was released on 13th October, more than 2 billion people worldwide suffer from hidden hunger, more than double the 805 million people who do not have enough calories to eat (FAO, IFAD, and WFP 2014). Much of Africa South of the Sahara and South Asian subcontinent are hotspots where the prevalence of hidden hunger is high. The rate are relatively low in Latin America and the Caribbean where diets rely less on single staples and are more affected by widespread deployment of micronutrient interventions, nutrition education, and basic health services.
Definitions:
Hunger: distress related to lack of food
Malnutrition: an abnormal physiological condition, typically due to eating the wrong amount and/or kinds of foods; encompasses undernutrition and overnutrition
Undernutrition: deficiencies in energy, protein, and/or micronutrients Causes include poor diet, disease, or increased micronutrient needs not met during pregnancy and lactation
Undernourishment: chronic calorie deficiency, with consumption of less than 1,800 kilocalories a day, the minimum most people need to live a healthy, productive life
Overnutrition: excess intake of energy or micronutrients
Micronutrient deficiency (also known as hidden hunger): a form
of undernutrition that occurs when intake or absorption of vitamins and minerals is too low to sustain good health and development in children and normal physical and mental function in adults
Undernourishment: chronic calorie deficiency, with consumption of less than 1,800 kilocalories a day, the minimum most people need to live a healthy, productive life
Overnutrition: excess intake of energy or micronutrients
The absolute number of hungry people—which takes into account both progress against hunger and population growth—fell in most regions. The exceptions were Sub-Saharan Africa, North Africa, and West Asia.
The 2014 FAO’s report which is published in September indicates that while Sub-Saharan Africa is the worst of all regions in prevalence of undernourishment and food insecurity, Ethiopia (ranking no.1) is the worst of all African countries as 32 .9 million people are suffering from chronic undernourishment and food insecurity. Which means Ethiopia has one of the highest levels of food insecurity in the world, in which more than 35% of its total population is chronically undernourished.
FAO in its key findings reports that: overall, the results confirm that developing countries have made significant progress in improving food security and nutrition, but that progress has been uneven across both regions and food security dimensions. Food availability remains a major element of food insecurity in the poorer regions of the world, notably sub-Saharan Africa and parts of Southern Asia, where progress has been relatively limited. Access to food has improved fast and significantly in countries that have experienced rapid overall economic progress, notably in Eastern and South-Eastern Asia.Access has also improved in Southern Asia and Latin America, but only in countries with adequate safety nets and other forms of social protection. By contrast, access is still a challenge in Sub Saharan Africa, where income growth has been sluggish, poverty rates have remained high and rural infrastructure remains limited and has often deteriorated.
According to the new report, many developing countries have made significant progress in improving food security and nutrition, but this progress has been uneven across both regions and dimensions of food security. Large challenges remain in the area of food utilization. Despite considerable improvements over the last two decades, stunting, underweight and micronutrient deficiencies remain stubbornly high, even where availability and access no longer pose problems. At the same time, access to food remains an important challenge for many developing countries, even if significant progress has been made over the last two decades, due to income growth and poverty reduction in many countries.Food availability has also improved considerably over the past two decades, with more food available than ever and international food price volatility before. This increase is reflected in the improved adequacy of dietary energy and higher average supplies of protein. Of the four dimensions, the least progress has been made in stability, reflecting the effects of growing political instability.Overall, the analyses reveal positive trends, but it also masks important divergences across various sub- regions. The two sub- regions that have made the least headway are sub-Saharan Africa and Southern Asia, with almost all indicators still pointing to low levels of food security.On the other hand, Eastern (including South Eastern) Asia and Latin America have made the most progress in improving food security, with Eastern Asia experiencing rapid progress on all four dimensions over the past two decades.The greatest food security challenges overall remain in sub-Saharan Africa, which has seen particularly slow progress in improving access to food, with sluggish income growth, high poverty rates and poor infrastructure, which hampers physical and distributional access. Food availability remains low, even though energy and protein supplies have improved. Food utilization remains a major concern, as indicated by the high anthropometric prevalence of stunted and underweight children under five years of age. Limited progress has been made in improving access to safe drinking-water and providing adequate sanitation facilities, while the region continues to face challenges in improving dietary quality and diversity, particularly for the poor. The stability of food supplies has deteriorated, mainly owing to political instability, war and civil strife.
Prevalence of undernourishment in Africa/ #Ethiopia
Summary of Africa Scorecard on Number of People in State of Undernourishment / Hunger Country Name and Number of People in State of Undernourishment / Hunger (2012-2014, Millions):-
1st Ethiopia ( 32.9 million)
2nd Tanzania (17.0)
3 Nigeria (11.2)
4 Kenya (10.8)
5 Uganda (9.7)
6 Mozambique (7.2)
7 Zambia (7.0)
8 Madagascar (7.0)
9 Chad (4.5)
10 Zimbabwe (4.5)
11 Rwanda (4.0)
12 Angola (3.9)
13 Malawi (3.6)
14 Burkina Faso (3.5)
15 Ivory Coast (3.0)
16 Senegal (2.4)
17 Cameroon (2.3)
18 Guinea (2.1)
19 Algeria (2.1)
20 Niger 2.0
21 Central Africa Republic (1.7)
22 Sierra Leone (1.6)
23 Morocco (1.5)
24 Benin (1.0)
25 Togo (1.0)
26 Namibia (.9)
27 Botswana (.05)
28 Guinea Bissau (.03)
29 Swaziland (.03)
30 Djibouti (.02)
31. Lesotho (.02)
Data for South Africa, Sao Tome and Principal, Gabon, Ghana, Mali, Tunisia, Mauritius and Egypt indicate that Prevalence of undernourishment is insignificant or under .01 million. There are no reported data for some countries such as Libya, Sudan, Eritrea, Somalia, Burundi and Gambia.
Read more @ The State of Food Insecurity in the World Strengthening the enabling environment for food security and nutritionhttp://www.fao.org/3/a-i4030e.pdf
BBC (4 September 2014) The ONE group says money lost because of corruption would otherwise be spent on school and medicine. An estimated $1tn (£600bn) a year is being taken out of poor countries and millions of lives are lost because of corruption, according to campaigners.A report by the anti-poverty organisation One says much of the progress made over the past two decades in tackling extreme poverty has been put at risk by corruption and crime.
Corrupt activities include the use of phantom firms and money laundering. The report blames corruption for 3.6 million deaths every year.
If action were taken to end secrecy that allows corruption to thrive – and if the recovered revenues were invested in health – the group calculates that many deaths could be prevented in low-income countries.
Corruption is overshadowing natural disasters and disease as the scourge of poor countries, the report says.
One describes its findings as a “trillion dollar scandal”.
“Corruption inhibits private investment, reduces economic growth, increases the cost of doing business and can lead to political instability,” the report says.
“But in developing countries, corruption is a killer. When governments are deprived of their own resources to invest in health care, food security or essential infrastructure, it costs lives and the biggest toll is on children.”
The report says that if corruption was eradicated in sub-Saharan Africa:
Education would be provided to an additional 10 million children per year
Money would be available to pay for an additional 500,000 primary school teachers
Antiretroviral drugs for more than 11 million people with HIV/Aids would be provided
One is urging G-20 leaders meeting in Australia in November to take various measures to tackle the problem including making information public about who owns companies and trusts to prevent them being used to launder money and conceal the identity of criminals.
It is advocating the introduction of mandatory reporting laws for the oil, gas and mining sectors so that countries’ natural resources “are not effectively stolen from the people living above them”.
It is recommending action against tax evaders “so that developing countries have the information they need to collect the taxes they are due” and more open government so that people can hold authorities accountable for the delivery of essential services.
September 2, 2014 (The baines report) — Poverty can easily be seen throughout the capital of Ethiopia, but nowhere is it more evident than when you pass a beggar on the street. Beggars are everywhere in Addis Ababa, and they represent a vast range of demographics. There are men, women, children of all ages and conditions– some with their mothers, some without, and the severely disabled.
Older children, rather than begging, try to sell you gum or clean your shoes, while the younger children walk in front of you asking for money or food, not leaving you until they spot another person to ask. The women are often with young children, sometimes babies, and usually with more than one. I was once walking down the street and a young child no older than 2 or 3 who was being held by his mother made the signal they all make to ask for food or money while calling me sister. I thought this child probably learned this signal before he even learned how to speak. Women are often seen grilling corn on the sidewalk on a small grill to sell to people passing by.
I have been told the severely disabled have most likely suffered from stunting, polio or the war. I have seen men with disfigured legs so mangled that they can not walk but instead drag themselves down the sidewalk. Others are in wheelchairs and unable to walk. And this city is not easy for the disabled. The sidewalks, where they exist, are not always flat and not always paved. There are also often giant holes in the middle of the sidewalk or loose concrete slabs covering gutters. On the main roads, near where I’m staying there are tarps and blankets off to the side of the road where the beggars must sleep or live.
It is a very difficult scene to walk through. You want to help them all and give everyone a little bit of money or food. But there are so many it would be nearly impossible to give to them all. We have been told to not give to beggars because once you give to one you will be surrounded by others. When people do give money to beggars it is often very small bills or coins that will not go very far.
I have often wondered how much money they actually receive. Perhaps it would be beneficial to do more in depth look at why these people became beggars and where they come from. After a cursory search for research and reports on beggars in Addis Ababa, I found very little. There is a study on the disabled beggars and a report focusing on children. There is a documentary that follows two women who come to the capital from a rural town and become beggars in order to raise money for their family when climate change creates a food shortage.
Both the government of Ethiopia and large NGO’s, like USAID and the UN, are working to stop the “cycle of poverty.” There are major health and nutrition projects being implemented all over the country, but these are long-term projects that do not address the immediate needs of people on the streets. Short term solutions such as creating shelters or centers for the disabled and homeless could allow beggars more opportunities for housing but could also generate income potential through workshops and other skill development programs.
‘Most of the time we simply do not know enough to assert accurate growth rates. There are also known biases and manipulations. Ethiopia, for example, is notable for having long-standing disagreements with the IMF regarding their growth rates. Whereas the official numbers have been quoted in double digits for the past decade, a thorough analysis suggested the actual growth rates were around 5 to 6 percent per annum. More generally, one study used satellite imaging of nighttime lights to calculate alternative growth rates, and found that authoritarian regimes overstate reported rates of growth by about 0.5 to 1.5 percentage points. Another recent study argues that inflation is systematically understated in African countries – which in turn means that growth and poverty reduction is overstated.’ http://africanarguments.org/2014/08/26/why-saying-seven-out-of-ten-fastest-growing-economies-are-in-africa-carries-no-real-meaning-by-morten-jerven/
Why saying ‘seven out of ten fastest growing economies are in Africa’ carries no real meaning
By Morten Jerven @ AfricanArguments
Before, during and after the US Africa summit one of the most frequently repeated factoids supporting the Africa Rising meme was that ‘seven out of ten fastest growing economies are in Africa.’ In reality this is both a far less accurate and much less impressive statistic than it sounds. More generally, narratives on African economic development tend to be loosely connected to facts, and instead are driven more by hype.
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The ‘seven out of ten’ meme derives from a data exercise done in 2011 by The Economist. The exercise excluded countries with a population of less than 10 million and also the post-conflict booming Iraq and Afghanistan. This left 81 countries, 28 of them in Africa (more than 3 out of 10) and, if you take out the OECD countries from the sample, (which are unlikely to grow at more than 7 percent per annum), you find that every second economy in the sample is in Africa. It might not give the same rhetorical effect to say: ‘on average some African economies are expected to grow slightly faster than other non-OECD countries,’ but that would be more accurate.
And before we literally get ahead of ourselves (The Economist was reporting forecasts made for 2011 to 2015) there is a difference between forecasted and actually measured growth. According to John Kenneth Galbraith, the only function of economic forecasting is to make astrology look respectable. So how good is the IMF at forecasting growth in Low Income Countries?
According to their own evaluation, IMF forecasts “over-predicted GDP growth and under-predicted inflation.” Another study looked at the difference between the forecasts and the subsequent growth revisions in low income countries, and found that “output data revisions in low-income countries are, on average, larger than in other countries, and that they are much more optimistic.” Forecasts are systematically optimistic all over the world, but in Low Income Countries even more so.
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Among those on the list of the fastest growers were countries like Nigeria, Ghana and Ethiopia. The news that both Nigerian and Ghanaian GDP doubled following the introduction of new benchmark years for estimating GDP in 2010 and 2014 should remind us that the pinpoint accuracy of these growth estimates is lacking. How confident should you be about a 7 percent growth rate when 50 percent of the economy is missing in the official baseline? Recent growth in countries with outdated base years is also overstated.
While Ghana has reportedly had the highest growth rates in the world over the past years, a peer review of the Ghana national accounts noted that “neither a national census of agriculture nor other surveys, such as a crop and live-stock survey, have been conducted…there is no survey to provide benchmark data for construction, domestic trade and services.” It was recently reported that an economic census is being planned for next year. What we do know is that Ghana (together with Zambia, another of the projected ‘top ten growers’) has returned to the IMF to seek assistance following their entry into international lending markets.
Most of the time we simply do not know enough to assert accurate growth rates. There are also known biases and manipulations. Ethiopia, for example, is notable for having long-standing disagreements with the IMF regarding their growth rates. Whereas the official numbers have been quoted in double digits for the past decade, a thorough analysis suggested the actual growth rates were around 5 to 6 percent per annum. More generally, one study used satellite imaging of nighttime lights to calculate alternative growth rates, and found that authoritarian regimes overstate reported rates of growth by about 0.5 to 1.5 percentage points. Another recent study argues that inflation is systematically understated in African countries – which in turn means that growth and poverty reduction is overstated.
***
Data bias is carried across from economic growth to other metrics. The pressure on scholars, journalists and other commentators to say something general about ‘Africa’ is relentless, and so the general rule is to oblige willingly. When talking about average trends in African politics and opinion, analysis is influence by the availability of survey data, such as Afrobarometer, and the data availability is biased. According to Kim Yi Donne, on The Washington Post’s ‘Monkey Cage’ blog, of the 15 African countries with the lowest Polity IV rankings, only seven have ever been included in the Afrobarometer, whereas all but one African country rated as a democracy by the same index is included.
Any quantitative study which says something about the relationship between growth and trends in inequality and poverty, relies on the availability of household survey data. One paper boldly stated that African Poverty is Falling…Much Faster than You Think! The data basis was very sparse and unevenly distributed. There were no data points for Angola, Congo, Comoros, Cape Verde, D.R. Congo, Eritrea, Equatorial Guinea, Seychelles, Togo, Sao Tome and Principe, Chad, Liberia, and Sudan. In addition, six countries only have one survey. The database included no observations since 2004 – so the trend in poverty was based entirely on conjecture. Famously you need at least two data points to draw a line. Yet the study included a graph of poverty lines in the Democratic Republic of Congo from 1970 to 2006 – based on zero data points.
A result of doubts about the accuracy of the official evidence, and a dearth of evidence on income distributions, scholars have turned to other measurements. Data on access to education and ownership of goods such as television sets from Demographic and Health Surveys were used to compile new asset indices. In turn, these data were used to proxy economic growth and in place of having a measure of the middle class. In both cases the data may paint a misleadingly positive picture. While claiming to describe all of Africa over the past two decades, these surveys are only available for some countries sometimes.
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The statement ‘seven out of ten fastest growing economies are in Africa’ carries no real meaning. To utter it is merely stating that you subscribe to the hype. It is particularly frustrating, and it surely stands in way of objective evaluation, that the narratives in African Economic Development switches from one extreme to the other so swiftly. The truth lies somewhere between the ‘miracles’ and ‘tragedies’. It is nothing short of stunning that in a matter of 3-4 years the most famous phrase relating to African economies has turned from ‘Bottom Billion’ to ‘Africa Rising’.
Because of a lack of awareness on historical data on economic growth it was long claimed that Africa was suffering “a chronic failure of growth”, but growth is not new to the African economies, growth has been recurring. There is no doubt that there are more goods leaving and entering the African continent today than fifteen years ago. More roads and hotels are being built and more capital is flowing in and out of the African continent than before. But what is the real pace of economic growth? Does the increase in the volume of transaction result in a sustained increase in living standards? The evidence does not yet readily provide us with an answer. It is the job of scholars to give tempered assessments that navigate between what is make-believe and what passes as plausible evidence.
Morten Jerven is Associate Professor at the Simon Fraser University, School for International Studies. His book Poor Numbers: how we are misled by African development statistics and what to do about it is published by Cornell University Press. @MJerven
Since the term “data revolution” was introduced, there has been a flurry of activity to define, develop, and implement an agenda to transform the collection, use, and distribution of development statistics. That makes sense. Assessing the international community’s next development agenda, regardless of its details, will be impossible without accurate data.
Yet, in Sub-Saharan Africa – the region with the most potential for progress under the forthcoming Sustainable Development Goals – accurate data are severely lacking. From 1990 to 2009, only one Sub-Saharan country had data on all 12 indicators established in 2000 by the Millennium Development Goals. Indeed, of the 60 countries with complete vital statistics, not one is in Africa. While most African countries have likely experienced economic growth during the last decade, the accuracy of the data on which growth estimates are based – not to mention data on inflation, food production, education, and vaccination rates – remains far from adequate.
Inaccurate data can have serious consequences. Consider Nigeria’s experience earlier this year, when GDP rebasing showed that the economy was nearly 90% larger than previously thought. The distorted picture of Nigeria’s economy provided by the previous statistics likely led to misguided decisions regarding private investment, credit ratings, and taxation. Moreover, it meant that Nigeria was allocated more international aid than it merited – aid that could have gone to needier countries.
Contrary to popular belief, the constraints on the production and use of basic data stem not from a shortage of technical capacity and knowhow, but from underlying political and systemic challenges. For starters, national statistical offices often lack the institutional autonomy needed to protect the integrity of data, production of which thus tends to be influenced by political forces and special interest groups.
Poorly designed policies also undermine the accuracy of data. For example, governments and donors sometimes tie funding to self-reported measures, which creates incentives for recipients to over-report key data like vaccination or school-enrollment rates. Without effective oversight, these well-intentioned efforts to reward progress can go awry.
Despite these failings, national governments and international donors continue to devote far too few resources to ensuring the collection of adequate data. Only 2% of official development aid is earmarked for improving the quality of statistics – an amount wholly insufficient to assess accurately the impact of the other 98% of aid. And governments’ dependency on donors to fund and gather their core statistics is unsustainable.
In fact, stronger national statistical systems are the first step toward improving the accuracy, timeliness, and availability of the data that are essential to calculating almost any major economic or social-welfare indicator. These include statistics on births and deaths; growth and poverty; tax and trade; health, education, and safety; and land and the environment.
Developing such systems is an ambitious but achievable goal. All that is needed is a willingness to experiment with new approaches to collecting, using, and sharing data.
This is where the public comes in. If private firms, media, and civil-society organizations identify specific problems and call publicly for change, their governments will feel pressure to take the steps needed to produce accurate, unbiased data – for example, by enhancing the autonomy of national statistical offices or providing sufficient funds to hire more qualified personnel. While it may be tempting to bypass government and hope for an easy technology-based solution, sustainable, credible progress will be difficult without public-sector involvement.
The recognition by governments and external donors of the need for more – and more efficient – funding, particularly to national statistical systems, will be integral to such a shift. Establishing stronger incentives for agencies to produce good data – that is, data that are accurate, timely, relevant, and readily available – would also help, with clearly delineated metrics defining what qualifies as “good.” In fact, tying progress on those metrics to funding via pay-for-performance agreements could improve development outcomes considerably.
One concrete strategy to achieve these goals would be to create a country-donor compact for better data.
The UN claims that its Millennium Development Campaign has reduced poverty globally, an assertion that is far from true.
The received wisdom comes to us from all directions: Poverty rates are declining and extreme poverty will soon be eradicated. The World Bank, the governments of wealthy countries, and – most importantly – the United Nations Millennium Campaign all agree on this narrative. Relax, they tell us. The world is getting better, thanks to the spread of free market capitalism and western aid. Development is working, and soon, one day in the very near future, poverty will be no more.
It is a comforting story, but unfortunately it is just not true. Poverty is not disappearing as quickly as they say. In fact, according to some measures, poverty has been getting significantly worse. If we are to be serious about eradicating poverty, we need to cut through the sugarcoating and face up to some hard facts.
False accounting
The most powerful expression of the poverty reduction narrative comes from the UN’s Millennium Campaign. Building on the Millennium Declaration of 2000, the Campaign’s main goal has been to reduce global poverty by half by 2015 – an objective that it proudly claims to have achieved ahead of schedule. But if we look beyond the celebratory rhetoric, it becomes clear that this assertion is deeply misleading.
The world’s governments first pledged to end extreme poverty during the World Food Summit in Rome in 1996. They committed to reducing the number of undernourished people by half before 2015, which, given the population at the time, meant slashing the poverty headcount by 836 million. Many critics claimed that this goal was inadequate given that, with the right redistributive policies, extreme poverty could be ended much more quickly.
But instead of making the goals more robust, global leaders surreptitiously diluted it. Yale professor and development watchdog Thomas Pogge points out that when the Millennium Declaration was signed, the goal was rewritten as “Millennium Developmental Goal 1” (MDG-1) and was altered to halve the proportion (as opposed to the absolute number) of the world’s people living on less than a dollar a day. By shifting the focus to income levels and switching from absolute numbers to proportional ones, the target became much easier to achieve. Given the rate of population growth, the new goal was effectively reduced by 167 million. And that was just the beginning.
After the UN General Assembly adopted MDG-1, the goal was diluted two more times. First, they changed it from halving the proportion of impoverished people in the world to halving the proportion of impoverished people in developing countries, thus taking advantage of an even faster-growing demographic denominator. Second, they moved the baseline of analysis from 2000 back to 1990, thus retroactively including all poverty reduction accomplished by China throughout the 1990s, due in no part whatsoever to the Millennium Campaign.
This statistical sleight-of-hand narrowed the target by a further 324 million. So what started as a goal to reduce the poverty headcount by 836 million has magically become only 345 million – less than half the original number. Having dramatically redefined the goal, the Millennium Campaign can claim that poverty has been halved when in fact it has not. The triumphalist narrative hailing the death of poverty rests on an illusion of deceitful accounting.
Poor numbers
But there’s more. Not only have the goalposts been moved, the definition of poverty itself has been massaged in a way that serves the poverty reduction narrative. What is considered the threshold for poverty – the “poverty line” – is normally calculated by each nation for itself, and is supposed to reflect what an average human adult needs to subsist. In 1990, Martin Ravallion, an Australian economist at the World Bank, noticed that the poverty lines of a group of the world’s poorest countries clustered around $1 per day. On Ravallion’s recommendation, the World Bank adopted this as the first-ever International Poverty Line (IPL).
But the IPL proved to be somewhat troublesome. Using this threshold, the World Bank announced in its 2000 annual report that “the absolute number of those living on $1 per day or less continues to increase. The worldwide total rose from 1.2 billion in 1987 to 1.5 billion today and, if recent trends persist, will reach 1.9 billion by 2015.” This was alarming news, especially because it suggested that the free-market reforms imposed by the World Bank and the IMF on Global South countries during the 1980s and 1990s in the name of “development” were actually making things worse.
This amounted to a PR nightmare for the World Bank. Not long after the report was released, however, their story changed dramatically and they announced the exact opposite news: While poverty had been increasing steadily for some two centuries, they said, the introduction of free-market policies had actually reduced the number of impoverished people by 400 million between 1981 and 2001.
This new story was possible because the Bank shifted the IPL from the original $1.02 (at 1985 PPP) to $1.08 (at 1993 PPP), which, given inflation, was lower in real terms. With this tiny change – a flick of an economist’s wrist – the world was magically getting better, and the Bank’s PR problem was instantly averted. This new IPL is the one that the Millennium Campaign chose to adopt.
The IPL was changed a second time in 2008, to $1.25 (at 2005 PPP). And once again the story improved overnight. The $1.08 IPL made it seem as though the poverty headcount had been reduced by 316 million people between 1990 and 2005. But the new IPL – even lower than the last, in real terms – inflated the number to 437 million, creating the illusion that an additional 121 million souls had been “saved” from the jaws of debilitating poverty. Not surprisingly, the Millennium Campaign adopted the new IPL, which allowed it to claim yet further chimerical gains.
A more honest view of poverty
We need to seriously rethink these poverty metrics. The dollar-a-day IPL is based on the national poverty lines of the 15 poorest countries, but these lines provide a poor foundation given that many are set by bureaucrats with very little data. More importantly, they tell us nothing about what poverty is like in wealthier countries. A 1990 survey in Sri Lanka found that 35 percent of the population fell under the national poverty line. But the World Bank, using the IPL, reported only 4 percent in the same year. In other words, the IPL makes poverty seem much less serious than it actually is.
The present IPL theoretically reflects what $1.25 could buy in the United States in 2005. But people who live in the US know it is impossible to survive on this amount. The prospect is laughable. In fact, the US government itself calculated that in 2005 the average person needed at least $4.50 per day simply to meet minimum nutritional requirements. The same story can be told in many other countries, where a dollar a day is inadequate for human existence. In India, for example, children living just above the IPL still have a 60 percent chance of being malnourished.
According to Peter Edwards of Newcastle University, if people are to achieve normal life expectancy, they need roughly double the current IPL, or a minimum of $2.50 per day. But adopting this higher standard would seriously undermine the poverty reduction narrative. An IPL of $2.50 shows a poverty headcount of around 3.1 billion, almost triple what the World Bank and the Millennium Campaign would have us believe. It also shows that poverty is getting worse, not better, with nearly 353 million more people impoverished today than in 1981. With China taken out of the equation, that number shoots up to 852 million.
Some economists go further and advocate for an IPL of $5 or even $10 – the upper boundary suggested by the World Bank. At this standard, we see that some 5.1 billion people – nearly 80 percent of the world’s population – are living in poverty today. And the number is rising.
These more accurate parameters suggest that the story of global poverty is much worse than the spin doctored versions we are accustomed to hearing. The $1.25 threshold is absurdly low, but it remains in favour because it is the only baseline that shows any progress in the fight against poverty, and therefore justifies the present economic order. Every other line tells the opposite story. In fact, even the $1.25 line shows that, without factoring China, the poverty headcount is worsening, with 108 million people added to the ranks of the poor since 1981. All of this calls the triumphalist narrative into question.
A call for change
This is a pressing concern; the UN is currently negotiating the new Sustainable Development Goals that will replace the Millennium Campaign in 2015, and they are set to use the same dishonest poverty metrics as before. They will leverage the “poverty reduction” story to argue for business as usual: stick with the status quo and things will keep getting better. We need to demand more. If the Sustainable Development Goals are to have any real value, they need to begin with a more honest poverty line – at least $2.50 per day – and instate rules to preclude the kind of deceit that the World Bank and the Millennium Campaign have practised to date.
Eradicating poverty in this more meaningful sense will require more than just using aid to tinker around the edges of the problem. It will require changing the rules of the global economy to make it fairer for the world’s majority. Rich country governments will resist such changes with all their might. But epic problems require courageous solutions, and, with 2015 fast approaching, the moment to act is now. Read more @original source http://www.aljazeera.com/indepth/opinion/2014/08/exposing-great-poverty-reductio-201481211590729809.html
*Dr Jason Hickel lectures at the London School of Economics and serves as an adviser to /The Rules.
The term capital flight has been given many interpretations in the economic literature and in the press, leading to confusion and misinterpretations. In the popular press, capital flight is presented as illegal or illicit financial flows. It is housed in the same domain as money laundering, tax evasion, transfer pricing, underground trafficking. Yet, while these activities are illicit, not all of them amount to capital flight. At the same time, while most capital flight may be deemed illicit. Capital flight may be illicit in one of three ways: when it consists of money acquired illegally and transferred abroad; when funds are transferred abroad illicitly by violating capital account regulations; when capital is hidden abroad and therefore not being subject to taxation and other government regulations. It is not possible to make this determination a priori from the data that is used to calculate capital flight, which involves a reconciliation of recorded capital inflows (mainly external borrowing and foreign direct investment) and the use of these resources (to cover the current account deficit and accumulation of reserves). The term capital flight means capital flows from a country that are not recorded in the country’s Balance of Payments (BoP). If all the ransactions were correctly and systematically recorded, inflows would balance out with outflows, except for small and random statistical errors as recorded in the ‘net errors and omissions’ line of the BoP. Where large discrepancies are observed, in other words, where there is substantial ‘missing money’ in the BoP, this is taken as an indication of the presence of capital flight.
Ethiopia’s capital flight is estimated at US$24.9 billion or 83.8% of the GDP
(Source: Political Economy Research Institute, the University of Massachusetts).
August 17, 2014 (PERI Research) — Ethiopia’s capital flight is estimated at about US$24.9 billion which is 83.8% of the country’s Gross Domestic Product (GDP). Ethiopia is ranked 8th in the group of 33 countries for which data are available but it stands first when compared to non-oil and/or mineral exporting countries. Even the latter was considered to be substantially lower than the actual flows give that large stock of immigrants. The true figure could be as high as one billion dollars. If so, Ethiopian capital flight would be commensurately larger than the estimated.
Capital losses through trade misinvoicing and unrecorded remittance
Substantial export underinvoicning (net outflows) couple with import underinvoicing (net inflows), with the balance resulting in a net outflow, as in the case of Sudan or a net inflow, as in the cases of Ethiopia and Ghana.
Unrecoreded remittances also contribute substantially to estimated capital flight in some countries. In Ethiopia, the volume of remittances reported by the World Bank in 2010 was about half the amount reported by the Central Bank ($661 million).
The following figures are in millions
(Source: Political Economy Research Institute, the University of Massachusetts).
Africa’s poverty persists in the midst of a wealth of natural resources, estimated by the United Nations Economic Commission on Africa as including 12 percent of the world’s oil reserves, 42 percent of its gold, 80 to 90 percent of chromium and platinum group metals, and 60 percent of arable land in addition to vast timber resources.
If these were idle, unexploited resources, it would be one thing.
However, the reality is that they are increasingly being exploited: investment and trade in Africa’s resources sector is on the rise, largely accounting for the sustained GDP growth rates witnessed over the last decade. The Economist magazine has reported increased foreign direct investment into Africa, rising from U.S. $15 billion in 2002, to $37 billion in 2006 to $46 billion in 2012.
While trade with China alone went up from $11 billion in 2003, to $166 billion in 2012, very little can be pointed to in commensurate changes in human development and fundamental economic transformation. It is multi-national corporations and a few local elites which are benefiting disproportionately from the reported growth – exacerbating inequality and further reinforcing the characteristic “enclave economy” structural defect of most African economies.
The disparity between sustained GDP growth rates and Africa’s seemingly obstinate and perverse state of underdevelopment, extreme poverty and deepening inequality brings to the fore issues of inclusivity and responsible governance of domestic resources. The question that is being asked by many – especially Africa’s young people who have assumed the agenda for economic transformation as a generational mandate – is this: Why are we so poor? Yet we are so rich?
Working Group Must Address Trade Misinvoicing and Role of U.S. Business and Government in Facilitating Illicit Finance to Be Truly Effective, Warns GFI
Illicit Financial Flows Drain US$55.6bn Annually from African Continent, Sapping GDP, Undermining Development, and Fueling Crime, Corruption, and Tax Evasion
August 7, 2014, WASHINGTON, DC (GFI) – Global Financial Integrity (GFI) welcomed the announcement from the White House and African leaders today regarding the establishment of a bilateral U.S.-Africa Partnership to Combat Illicit Finance, but the Washington-DC based research and advocacy organization cautioned that any effective partnership must be sure to address deficiencies in both the U.S. and in Africa that facilitate the hemorrhage of illicit capital from Africa.
“We welcome the move by President Obama and certain African leaders to form this partnership on curbing illicit financial flows from African economies,” said GFI President Raymond Baker, who also serves on the UN High Level Panel on Illicit Financial Flows from Africa. “Illicit financial flows are by far the most damaging economic problem facing Africa. By announcing the creation of the U.S.-Africa Partnership to Combat Illicit Finance, President Obama and African leaders have taken the first step towards tackling the most pernicious global development challenge of our time.”
GFI research estimates that illicit financial outflows cost African (both North and Sub-Saharan African) economies US$55.6 billion per year from 2002-2011 (the most recent decade for which comprehensive data is available), fueling crime, corruption, and tax evasion. Indeed, GFI’s latest global analysis found that these illicit outflows sapped 5.7 percent of GDP from Sub-Saharan Africa over the last decade, more than any other region in the developing world. Perhaps most alarmingly, outflows from Sub-Saharan Africa were found to be growing at an average inflation-adjusted rate of more than 20 percent per year, underscoring the urgency with which policymakers should address illicit financial flows.
The problem with illicit outflows from Africa is so severe that a May 2013 joint report from GFI and the African Development Bank found that, after adjusting all recorded flows of money to and from the continent (e.g. debt, investment, exports, imports, foreign aid, remittances, etc.) for illicit financial outflows, between 1980 and 2009, Africa was a net creditor to the rest of the world by up to US$1.4 trillion.
Trade Misinvoicing at the Heart of Illicit Outflows
According to GFI’s research, most of the illicit outflows from Africa—US$35.4 billion of the US$55.6 billion leaving the continent each year—occur through the fraudulent over- and under-invoicing of trade transactions, a trade-based money laundering technique known as “trade misinvoicing.” As GFI noted in a May 2014 study, trade misinvoicing is undermining billions of dollars of investment and domestic resource mobilization in at least a number of African countries. The organization emphasized the importance of ensuring that the new U.S.-Africa partnership prioritizes the curtailment of trade misinvoicing.
“The misinvoicing of ordinary trade transactions is the most widely used method for transferring dirty money across international borders, and it accounts for the vast majority of illicit financial flows from Africa,” said Heather Lowe, GFI’s legal counsel and director of government affairs. “While it is easy to place the blame for this on corrupt officials or transnational crime networks, the truth of the matter is that the bulk of these fraudulent trade transactions are conducted by normal companies, many of them major U.S. and European companies.”
Ms. Lowe continued: “Just yesterday, President Obama announced the Doing Business in Africa Campaign, a U.S. government initiative focused on boosting trade between U.S. and African companies, without a signal mention of the elephant in the room: trade misinvoicing. Increasing trade is important to boosting economic growth across Africa, but only if the trade is done honestly and at fair market values. The single most important step that wealthy nations like the U.S. can take to help African economies curtail illicit flows is to trade legitimately and honestly with Africa. While this topic was not addressed at the U.S.-Africa Business Forum yesterday, it must be on the table as the U.S.-Africa Partnership to Combat Illicit Finance commences its work.”
U.S. Must Clean Up Its Own Backyard
GFI further emphasized the need to address the role of the U.S. financial system as a major facilitator of such outflows.
“For every country losing money illicitly, there is another country absorbing it. Illicit financial outflows are facilitated by financial opacity in tax havens and in major economies like the United States,” said GFI Policy Counsel Joshua Simmons. “Indeed, the United States is the second easiest country in the world—after Kenya—for a criminal, kleptocrat, or terrorist to incorporate an anonymous company to launder their ill-gotten-gains with impunity.
“While governance remains an issue for many African countries, structural deficiencies in the U.S. financial system are just as responsible for driving the outflow of illicit capital. This initiative cannot place the onus entirely on the shoulders of African governments. The burden for curtailing these illicit flows must be shared equally by policymakers in the U.S. and in Africa for this partnership to be effective,” added Mr. Simmons.
(Washington Post, 26th June 2014), There’s a lot of recent scholarship suggesting that non-democratic regimes grow faster than democratic regimes. This has led some people not only to admire the Chinese model of growth focused authoritarianism, but to suggest that it may be a better economic model for developing countries than democracy. However, this research tends to assume that both democracies and non-democracies are telling the truth about their growth rates, when they report them to multilateral organizations such as the World Bank. Is this assumption safe? The answer is no, according to aforthcoming article (temporarily ungated) by Christopher S. P. Magee and John A. Doces in International Studies Quarterly.
The problem that Magee and Doces tackle is that it’s hard to figure out when regimes are being honest or dishonest about their rates of economic growth, since it’s the regimes themselves that are compiling the statistics. It’s hard to measure how honest or dishonest they are, if all you have to go on are their own numbers. This means that researchers need to find some kind of independent indicator of economic growth, which governments will either be less inclined or unable to manipulate. Magee and Doces argue that one such indicator is satellite images of nighttime lights. As the economy grows, you may expect to see more lights at night (e.g. as cities expand etc). And indeed, research suggests that there’s a very strong correlation between economic growth and nighttime lights, meaning that the latter is a good indicator of the former. Furthermore, it’s an indicator that is unlikely to be manipulated by governments.
Magee and Doces look at the relationship between reported growth and nights at light and find a very clear pattern. The graph below shows this relationship for different countries – autocracies are the big red dots. Most of the dots are above the regression line, which means that most autocracies report higher growth levels to the World Bank than you’d expect given the intensity of lights at night. This suggests that they’re exaggerating their growth numbers.
The two countries with the biggest difference between their reported growth and their actual growth (as best as you can tell from the intensity of nighttime lights) are China (although the discrepancy was considerably larger in the mid-1990s than now) and Myanmar. More broadly:
If democracies report their GDP growth rates truthfully, then dictatorships overstate their yearly growth rate by about 1.5 percentage points on average. If democracies also overstate their true growth rates, then dictatorships exaggerate their yearly growth statistics by about 1.5 percentage points more than do democracies.
The authors conclude:
the existing literature on economic growth overestimates the impact of dictatorships because it relies on statistics that are reported to international organizations, and as we show, dictatorships tend to exaggerate their growth. Accounting for the fact that authoritarian regimes overstate growth slightly diminishes the effect of these regimes on long-run economic growth. In light of this point, much of the evidence showing growth benefits associated with authoritarian regimes is less compelling and the case for democracy looks better than before. See more @ http://www.washingtonpost.com/blogs/monkey-cage/wp/2014/06/26/dictators-lie-about-economic-growth?Post+generic=%3Ftid%3Dsm_twitter_washingtonpost
Related Article:
What if everything we know about poor countries’ economies is totally wrong?
(OPride) – Over the last decade, Ethiopia has been hailed as the fastest growing non-oil economies in Africa, maintaining a double-digit annual economic growth rate. The Ethiopian government says the country will join the middle-income bracketby 2025.
Despite this, however, as indicated by a recent Oxford University report, some 90 percent of Ethiopians still live in poverty, second only after Niger from 104 countries measured by the Oxford Multidimensional Poverty Index. The most recent data shows an estimated 71.1 percent of Ethiopia’s population lives in severe poverty.
This is baffling: how can such conflicting claims be made about the same country? The main source of this inconsistent story is the existence of crony businesses and the government’s inflated growth figures. While several multinational corporations are now eyeing Ethiopia’s cheap labor market, two main crony conglomerates dominate the country’s economy.
Meet EFFORT, TPLF’s business empire
The seeds of Ethiopia’s economic mismanagement were sown at the very outset. We are familiar with rich people organizing themselves, entering politics and protecting their group interests. But something that defies our knowledge of interactions between politics and business happened in 1991 when the current regime took power.
Ethiopia’s ruling party, the EPRDF, came to power by ousting the communist regime in a dramatic coup. A handful of extremely poor people organized themselves exceptionally well that they quickly took control of the country’s entire political and military machinery.
In a way, this is analogous to a gang of thieves becoming brutally efficient at organizing themselves to the extent of forming a government. Once in power, the ruling Tigrean elites expropriated properties from other businesses, looted national assets and began creating wealth exclusively for themselves.
This plan first manifested itself in the form of party affiliated business conglomerate known as the Endowment Fund for Rehabilitation of Tigray (EFFORT). EFFORT has its origin in the relief and rehabilitation arm of the Tigrean People Liberation Front (TPLF) and the country’s infamous 1984 famine.
As reported by BBC’s Martin Plaut and others, the TPLF financed its guerilla warfare against the Dergue in part by converting aid money into weapons and cash. That was not all. On their way to Addis Ababa from their bases in Tigray, the TPLF confiscated any liquid or easily moveable assetsthey could lay their hands on. For instance, a substantial amount of cash was amassed by breaking into safe deposits of banks all over Ethiopia. Those funds were kept in EFFORT’s bank accounts. TPLF leaders vowed to use the loot to rehabilitate and reconstruct Tigray, which they insisted was disproportionately affected by the struggle to “free Ethiopia.”
Intoxicated by its military victory, the TPLF then turned to building a business empire. EFFORT epitomizes that unholy marriage between business and politics in a way not seen before in Ethiopian history. According to a research by Sarah Vaughan and Mesfin Gebremichael, EFFORT, which is led by senior TPLF officials, currently owns 16 companies across various sectors of the economy.
This figure grossly understates the number of EPRDF affiliated companies. For example, the above list does not include the real money-spinners that EFFORT owns: Wegagen Bank, Africa Insurance, Mega Publishing, Walta Information Center and the Fana Broadcasting Corporate. The number of companies under EFFORT is estimated to be more than 66 business entities. Suffice to say, EFFORT controls the commanding heights of the Ethiopian economy.
While it is no secret that EFFORT is owned by and run exclusively to benefit ethnic Tigrean elites, it is a misnomer to still retain the phrase “rehabilitation of Tigray.” Perhaps it should instead be renamed as the Endowment Fund for Rendering Tigrean Supremacy (EFFORTS).
MIDROC Ethiopia, EPRDF’s joker card
In Ethiopia’s weak domestic private environment, EFFORT is an exception to the rule. Similarly, while Ethiopia suffers from lack of foreign direct investment, MIDROC Ethiopia enjoys unparalleled access to Ethiopia’s key economic sectors. Owned by Ethiopian-born Saudi business tycoon, Sheik Mohammed Al Amoudi, MIDROC has been used by the EPRDF as a joker card in a mutually advantageous ways. The Sheik was given a privilege no less than the status of a domestic private investor but the EPRDF can also count it as a foreign investor. For instance, the United Nations Conference on Trade and Development reported that about 60 per cent of the overall FDI approved in Ethiopia was related to MIDROC.
MIDROC stands for Mohammed International DevelopmentResearch and Organization Companies. Despite reference to development and research in its name, however, there is no real relationship between what the crony business says and what it actually does. Ironically, as with EFFORT, MIDROC Ethiopia also owns 16 companies. But this too is a gross underestimation given the vast sphere of influence and wealth MIDROC commands in that country.
Like EFFORT, Al-Amoudi’s future was also sealed long before the TPLF took power. He literally entered Addis Ababa with the EPRDF army, fixing his eyes firmly on Oromia’s natural resources. Shortly after the TPLF took the capital, Al-Amoudi allegedly donated a huge sum of money to the Oromo People’s Democratic Organization.
Why the rush?
The calculative Sheik sensed an eminent threat to his business interests from the Oromo Liberation Front (OLF), a groups that was also a partner in the transitional government at the time. In return for its “donation,” MIDROC acquired massive lands in Oromia – gold mines, extensive state farms and other agricultural lands. In a recent article entitled, “The man who stole the Nile,” journalist Frederick Kaufman aptly described Al Amoudi’s role in the ongoing land grab in Ethiopia as follows:
In this precarious world-historic moment, food has become the most valuable asset of them all — and a billionaire from Ethiopia named Mohammed Hussein Al Amoudi is getting his hands on as much of it as possible, flying it over the heads of his starving countrymen, and selling the treasure to Saudi Arabia. Last year, Al Amoudi, whom most Ethiopians call the Sheikh, exported a million tons of rice, about seventy pounds for every Saudi citizen. The scene of the great grain robbery was Gambella, a bog the size of Belgium in Ethiopia’s southwest whose rivers feed the Nile.
It is little wonder then that Al-Amoudi said, “I lost my right hand,” when Ethiopia’s strongman of two decades Meles Zenawi died in 2012. If EFFORT is a curse to the Ethiopian economy, MIRDOC is EPRDF’s poisoned drink given to the Ethiopian people.
Mutual Distrust
The marriage between politics and business has had damaging effects on the country’s economy. One of its most far-reaching consequences is the total breakdown of trust between the EPRDF and the Ethiopian people. In economic policy, trust between private investors and the government is paramount. The deficit of trust is one of the hallmarks of Ethiopia’s much-touted development.
After all youth unemployment hovers around 50 percent. Every year, hundreds of young Ethiopians risk their lives trying to reach Europe or the Middle East, often walking across the Sahara desert or paying smugglers to cross the Red Sea or Indian Ocean aboard crowded boats. The desperation is a result of the lack of confidence in the government’s ability to provide them with the kind of future they were promised.
Ironically, aside from their crony businesses, the EPRDF does not have any confidence in Ethiopian entrepreneurs either. It is this mutual distrust that culminated in the prevalence of an extremely hostile environment for domestic private investment.
This is not a speculative claim but a well-documented fact. The World Bank’s annual survey, which measures the ease with which private investors can do business, ranks Ethiopia near the bottom. In the 2014 survey, Ethiopia came in 166th out of 189 countries in terms of difficulties in starting new business or trading across borders. Moreover, year on year comparison shows that the investment climate in Ethiopia is actually getting worse, sliding down the ranking both in the ease of doing business and trading across borders.
Farms but no firms
The TPLF cronies do not engage in competitive business according to market rules but act as predators bent on killing existing and emerging businesses owned by non-Tigrean nationals. However, the ruling party, which largely maintains its grip on power using bilateral and multilateral aid, is required to report its economic progress to donors (the regime does not care about accountability to the people). In this regard, the lack of foreign direct investment (FDI) has been a thorn in the throat of the EPRDF. Donors have repeatedly questioned and pressured the EPRDF to attract more FDI. The inflow of FDI is often seen as a good indicator of the confidence in countries stability and sound governance. Despite widespread belief in the West, the EPRDF regime cannot deliver on these two fronts.
To cover up these blind spots, the regime has persuaded a handful of foreigners to invest in Ethiopia, but until recently few investors considered any serious manufacturing venture in the country. Besides, considered “cash cows” for the government, banks, the Ethiopian Airlines, telecommunication and energy sectors remain under exclusive monopoly of the state. They provide almost free service to the crony businesses. Any firm looking to invest in manufacturing and financial sectors have to overcome insurmountable bureaucratic red tape and other barriers.
One sector that stands as exception to this rule is agriculture. Since the 2008 financial crisis and the rise in the global price of food, the regime opened the door widely for foreigners who wanted to acquire large-scale farms. These farms do not hurt their crony businesses but they do harm poor subsistence farmers. Vast tracts of lands have been sold to foreigners at ridiculously cheap prices, often displacing locals and their way of life.
Contrary to the government rhetoric, the motivation for opening up the agricultural sector has nothing to do with economic growth but everything to do with politics – to silence critics, particularly in the donor community who persistently question EPRDF’s credibility in attracting FDI. In essence, hundreds of thousands of poor farmers were evicted to make way for flower growers and shore up the government’s image abroad. This tactic seems to be working so far. Earlier this year, Ethiopia received its first credit rating from Moody’s Investors Service. In the last few years, in part due to rising labor costs in China and East Asia, several manufacturers have relocated to Ethiopia.
Addis’ construction boom as a smokescreen
Crony businesses and flower growers may have created some heat but certainly no light in Ethiopian economy. EFFORT and MIDROC were in action for much of the 1990s and early 2000s but GDP growth was not satisfactory during that time. In fact, since other private businesses were in dismal conditions (and hence domestic market size is very limited), even the crony businesses encountered challenges in getting new business deals.
The setbacks in political front during the 2005 election shifted EPRDF’s strategies to economic front to urgently register some noticeable growth. This partly explains the motives behind the ongoing construction rush in and around Addis Ababa. In several rounds of interviews on ESAT TV, former Minister d’etat of Communications Affairs, Ermias Legesse, provided interesting accounts of cronyism surrounding Addis’ explosive growth and its tragic consequences for Oromo farmers.
It is important to understand the types of construction that is taking place around or near Addis. First, private property developments by crony estate agents mushroomed overnight. A lion’s share of land expropriated from Oromo farmers were allocated to these regime affiliates through dishonest bids. Luxury houses are built on such sites and sold at prices no average Ethiopian could afford, except maybe those in the diaspora. The latter group is being targeted lately due to shortages of hard currencies.
Second, EPRDF politicians and high ranking military officers own multi-storey office buildings, particularly aimed at renting to NGOs and residential villas for foreign diplomats who can afford to pay a few thousand dollars per month. It is a known fact that the monthly salary cap for Ethiopian civil servants is around 6000 birr (about $300). As such, that these individuals could invest in such expensive properties underscores the extent of the daylight robbery that is taking place in Ethiopia.
Third, the government was engaged in massive public housing construction but under extremely chaotic circumstances. The condominium rush in Addis is akin to the Dergue regime’s villagization schemes in rural Ethiopia. Families are uprooted from their homes without any due consideration for their social and economic well-being.
Most households that once occupied the demolished homes in Addis Ababa’s shantytowns made a living through informal home businesses such as brewing local drinks and preparing and selling food at prices affordable to the poor. It was clear that the condominiums were not suitable for them to continue doing such businesses. The construction of the public houses was financed by soft loans from various donor agencies to be sold to target households at affordable prices. However, the government often priced them at the going market rates for condos.
As a result, the poor households simply rented out the properties to those who could afford, while struggling to find affordable houses for themselves. Solving the public housing crisis was never the government’s intention in the first place, as they were only interested in creating business opportunities for their crony construction companies.
Fourth, roads and railway networks are by far the most important large-scale public sector construction projects taking place in Addis. There is no doubt that Addis Ababa’s crowded roads, equally shared by humans, animals and cars, need revamping. But, what is happening in the name of building roads and railways simply defies belief. First, the sheer scale and magnitude as well as the obsession with construction makes the whole undertaking look suspicious. Every time I travelled to Addis, I witness the same roads being constructed and then dug up to be reconstructed over and over again.
The ulterior motive behind these projects is nothing more than expanding TPLF’s business empire and benefit crony allies. Having exhausted opportunities within the existing perimeter of Addis, the so-called master plan had to be crafted to enlarge the size of “the construction site” by a factor of 20 to ensure that the cronies will stay in business in the foreseeable future. In effect, the large-scale construction projects are being used to siphon off public funds. And there seems to be no priority or accountability in the whole process from the project inception, planning to implementation.
Lies and damn lies
The construction boom in Addis serves as a two edged sward. On the one hand, the funds generated from selling Oromo lands to private property developers adds to the ever-expanding business empire of Tigrean political and military elites. On the other hand, the appearances of several high-rise buildings and complex road networks give the impression that Ethiopia is witnessing an economic boom. The target audience for the latter scenario is foreign journalists and the diplomatic community in Addis Ababa, some of whom are so gullible that they fall in love with ERDF’s economic “miracle” from the first aerial view even before landing at the Bole airport.
The fact remains however: no such economic miracle is actually happening in Ethiopia. A pile of concrete slabs cannot transform the economy in any meaningful way. After all, buildings and roads are only intermediaries for doing other businesses. For instance, it is not enough to build highways and rural roads – a proportionate effort is required to enhance production of goods and services to move them on the newly built roads in such a way that the roads will get utilized and investments made on them get recovered. Otherwise, the roads and buildings can deteriorate without giving any service, and hence more public money would soon be required to maintain them. This is exactly what is happening in Ethiopia.
Meanwhile, the EPRDF has been engaged in a frantic effort to generate lies and damn lies to fill the gap between the rhetoric and the reality of Ethiopia’s economy. The government-controlled media has been used for extensive propaganda campaign to create a “positive image” in the eyes of ordinary citizens. They literally compel viewers or listeners to see or feel things that do not exist on the ground. The Ethiopian television zooms onto any spot of land with a colony of green grass or lush crop fields to “prove” the kinds of wonders the government is engineering.
Barring rain failures, much of Ethiopia’s lush-green countryside has a decent climate for agriculture. But the EPRDF regime tries to convince the public that anything positive that occurs in the Ethiopia is because of its economic policies. But, as evidenced in ongoing multifaceted grievances around the country, the government is fooling no one else but itself (and perhaps a few gullible individuals in the diplomatic community).
Its lies also come in the form of dubious economic statistics, which are generated in such a way that EPRDF could report double-digit economic growth year after year. The story of the double digit economic growth rate in Ethiopia has been such that a lie told hundreds of times, no matter how shambolic the numbers are, is becoming part of the western vernacular. Donors often point to the abundance of high-rise buildings and impressive road networks in Addis Ababa in regime’s defense.
In a brief conversation, it is not possible to take such casual observers through details of the kind I have attempted to narrate in the preceding paragraphs. And, unfortunately for millions of Ethiopia’s poor, in the short run the government’s lies and crony capitalism may continue to ravage the country’s economy until it begins to combust from within.
*The writer, J. Bonsa, is a researcher-based in Asia.
The Africa Rising illusion: continent needs more than just growth – By K.Y. Amoako @ The African Arguments
We hear a lot these days about “Africa Rising” – and with good reason. … Enabled by reforms in macroeconomic management, by high commodity prices, and by increasing exports of extractives, this growth has created a spirit of optimism, encouraged foreign investment, and provided an incentive for young Africans to return home after being educated abroad. Increasing earnings among some sectors of society have supported the emergence of an African middle class, with promising purchasing power. But beneath the surface it’s not that simple. The rate of African growth may have increased, but the structure of most Sub-Saharan economies has not changed much over the past 40 years. African economies are still narrowly based on the production and export of unprocessed agricultural products, minerals, and crude oil. There is little manufacturing— indeed, in many countries the share of manufacturing in GDP is lower now than in the 1970s. Competitiveness on global markets – apart from crude extractive products – is low due to poor productivity and underdeveloped technology. And in most countries, more than 80% of the labor force is employed in low-yield agriculture or informal activities in towns and cities. Thus the headline statistics disguise both residual problems and inherent vulnerabilities. Recent economic growth has not eliminated inequalities between or within countries, and has done little to reduce hunger. While the proportion of Africa’s population living in extreme poverty is falling, the total number of extremely poor people rose by more than 20 million between 2002 and 2012. Youth unemployment threatens instability, and while access to education has improved significantly, standards are still low. This is not the first time that the continent has experienced growth of an unequal or unstable nature. Indeed, in the years after independence, the region’s economy was booming. But growth faltered in the mid-1970s following the first oil price shock, and the 1980s and the first half of the 1990s saw incomes fall and poverty increase. How can we prevent this pattern repeating itself? – Read more @http://africanarguments.org/2014/05/29/the-africa-rising-illusion-continent-needs-more-than-just-growth-by-k-y-amoako/
The silent recolonisation of Africa is happening on a mass scale.
Tragically, a silent recolonisation on a mass scale is happening through further dispossession in areas where the original colonisation had not been complete. The new colonisation is dressed in the language of economic development and fighting poverty but its interest is the satisfaction of the needs of multinational companies for markets and land to grow food for export – to satisfy the food needs of their primary market while depriving Africans the satisfaction of their needs.- Read more @
‘Debt and Corruption are an awful mix: The appetite for debt by African governments is particularly concerning given that there does not appear to be any serious action to end the gross mismanagement of public funds. Getting into debt only makes sense if you plan to use the money properly. But if substantial sums of money end up in the pockets of faceless politicians, then Africa is ransoming future earnings with no future benefits. This is self-sabotage at its best. There is no need to belabour the point. Don’t take on billions of dollars of debt if corruption is still an untamed beast…the consequences for Africa’s economy and people will be dire….. ‘Many of the Chinese contracts in Africa lay down that repayments be made in natural resources, with complex institutional contracts that make repayments unpredictable in financial terms’. [2] How can we be comfortable with our governments getting into deals into the billions of dollars and yet these are shrouded in mystery? With no information at hand, we do not really know how deep of a hole we’re digging for ourselves.’
Step away from the debt plate Africa, you need to watch what you’re eating
Africa is bingeing on debt and risks overeating at the buffet of financial offers from China, India, Brazil and many others. Kenya just recently signed a series of financial agreements worth billions with China during Prime Minister Lee Keqiang’s visit to the country this last weekend making it clear that we live in a multipolar world. In this new world order Africa is spoilt for choice with regard to who to partner with to fund development. But we (Africa) seem to have an insatiable appetite for this new money and do not seem to be fully aware of the implications of accepting all these tasty offers of cash. We also don’t seem to be thinking about whether we can, or how we can absorb these volumes of cash. Don’t get me wrong, Africa’s excitement at promises of billions apparently with ‘no conditions’ is understandable. Having spent the past decades grovelling at the doors of donors and investors from Europe and North America, many Africans felt we were giving away our pride for monies tied to what many felt were onerous conditions. So now, we are whistling our way to the bank with our new financials ‘partners’.
But is this truly smart? The reality is that all borrowing has conditions. So allow me to digress briefly and go slightly further with this point. China enjoys talking about about how it provides money with ‘no conditions’, but closer analysis reveals that this is not strictly true. The Chinese government, like any other government, will protect its investments; investments made almost exclusively with African governments…which seems to suggest that if China has to back up (even unpopular or despotic) African governments to protect its investments, it will. Look at the incriminating allegations that China funded Mugabe’s election ‘victory’ last year. Documents from Zimbabwe’s Central Intelligence Organization suggest that the success of Mugabe and his ZANU-PF party, ‘reflected direct intervention by the Chinese Communist Party’. (See more here and here). Perhaps for Zimbabwe the conditions that make China feel most secure in its investments is if Mugabe is in power. So maybe there are some conditions tied to money from China. The point I’m making is that it is important Africans analyse reality and not get spellbound by the rhetoric. But that is an aside; let’s get to the real problems behind Africa’s debt binge
1. We don’t really know the scale of the debt we’re getting into
By ‘we’ I mean Africans not on the inside corridors of power, but on whose behalf these deals are being made. It is absolute madness that in the case of countries such as China, we actually don’t know how much debt we’re getting into. Over the weekend Kenya and China signed several agreements but, ‘The two leaders did not disclose the actual financial value of most of the agreements and protocols signed but their aides said the deals run into billions of Kenya shillings.’[1] Why the secrecy? How much of this money from China is grants vs debt? What are the interest rates (there are references to ‘concessional loans’ but that’s about it), what are the terms of repayment, what are the penalties for defaulting? Also bear in mind that in the past, ‘Many of the Chinese contracts in Africa lay down that repayments be made in natural resources, with complex institutional contracts that make repayments unpredictable in financial terms’. [2] How can we be comfortable with our governments getting into deals into the billions of dollars and yet these are shrouded in mystery? With no information at hand, we do not really know how deep of a hole we’re digging for ourselves.
2. Do we have the absorptive capacity to handle all this money?
We are getting into debt to fund numerous development projects that range from infrastructure to agriculture, to security and wildlife but, pray tell, do we have the absorptive capacity to soak up these billions? Because whether we can absorb the money or not, we will be paying it back. Absorptive capacity here relates to the macro and micro constraints that recipient countries face in using resources, in this case money, effectively.[3] Does Africa have the physical, intellectual and systems-related infrastructure, expertise and culture to competently implement all these projects? For example, do county governments have the technical savoir faire to implement agriculture projects worth millions? One of the issues of serious concern is that investment in educational infrastructure rarely features prominently in these deals. There are very limited (if any) provisions for building the educational capacity of African countries especially at tertiary and vocational levels. So great, we’re getting money to build railways, but how many Africans can be effectively put to task on this, especially at managerial positions? Bear in mind that already, with regards to China, Africa has fallen into a trap where, 1) China is allowed to bring in Chinese nationals to provide labour and, 2) When African labour is used, it is cheap, unskilled labour.[4] This situation is untenable. Africa should be using every single government- funded project to hire Africans and build the capacity of Africans to do the job competently in the future. Africa cannot continue to so fundamentally rely on outsiders to do the basics for us such as building roads. But sadly, African countries seem to be happy with outsourcing all the large-scale projects, sometimes back to companies from the country that gave us the loans in the first place. This leads to the next point.
3. With limited absorptive capacity, Africa will continue to outsource big contracts
Africa is not being very bright. We get loans then outsource the implementation of the projects back to companies from the donor country. In short, we’re paying China to pay itself. Why? Generally however, using outsourcing as the default strategy for large-scale project implementation is problematic in at least two ways: 1) It hides and exacerbates Africa’s skills deficit and, 2) It pumps money out of the country. The first point is obvious, if we continue to rely on others to build our roads, we will continue to lack the skillsets and capacity to competently build and maintain our roads ourselves. But since the roads are being built, we never feel the weight of our incompetence in this area and therefore have no sense urgency to rectify this problem. Secondly, companies implementing projects in Africa make a profit then expatriate the profit. So we’re getting into debt and then haemorrhaging some of that expensive money out of the continent through outsourcing. This makes no long-term sense. Ideally we should use local contractors to implement projects however, as elucidated in point 2, we do not seem to have sufficient volumes of companies capable of absorbing this workload. But rather than fix that, African governments go to the default setting labelled ‘outsource’. We’re getting into a vicious cycle as follows: We don’t have the capacity to implement large-scale projects → we outsource but fail to ensure skills transfer → exacerbates the skills deficit → we don’t have the capacity to implement large-scale projects. African governments should essentially use the development projects led by non-Africans as structured training opportunities for newly qualified professionals as well as building more seasoned professionals into the management structure of projects.
4. Debt and Corruption are an awful mix
The appetite for debt by African governments is particularly concerning given that there does not appear to be any serious action to end the gross mismanagement of public funds. Getting into debt only makes sense if you plan to use the money properly. But if substantial sums of money end up in the pockets of faceless politicians, then Africa is ransoming future earnings with no future benefits. This is self-sabotage at its best. There is no need to belabour the point. Don’t take on billions of dollars of debt if corruption is still an untamed beast…the consequences for Africa’s economy and people will be dire.
5. Overleveraged?
This issue relates to point number 1. There is limited information on the scale of the debt Africa is getting into with certain parties so at what point will we in Africa know when we’re overleveraged? It seems like the answer to that is ‘not any time soon’. The scary part is that some African governments seem to think debt will fix all our problems with Heads of States expecting hearty praise when they secure even more debt for the continent. It is true that structures such as the Debt Sustainability Framework (DSF) exist which seek to stop lenders from lending more money to countries that have exceeded their debt ceilings. But, ‘to work well, the DSF needs close co-ordination between all creditors. This is hard enough to do between public and private lenders from the traditional partners, but is even more difficult with the new lenders [such as China].[5],[6]Sadly, African countries do not seem to be keen on tabulating public debt figures at either national or pan African levels, and sharing them.
October 21, 2014 (Open Democracy) — Illicit flows are difficult to measure due to lack of reliable data. Global Financial Integrity in 2008 reported that Africa has lost between $854 billion and $1.8 trillion in the last four decades.
Working Group Must Address Trade Misinvoicing and Role of U.S. Business and Government in Facilitating Illicit Finance to Be Truly Effective, Warns GFI
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