Africa as a Living Laboratory

Science is said to have two aims: theory and experiment. Theories try to say how the world is. Experiment and subsequent technology change the world. We represent and we intervene. We represent in order to intervene, and we intervene in light of our representations….

This book explores the points at which “representations” turned into “interventions,” as theory and research were applied in practice. Defined this way, interventions, including development projects, are part of an ongoing process of knowledge formation and reproduction.

That is Helen Tilley in an excellent book on imperial/colonial Africa as a Living Laboratory. The book focuses on scientific research (both in the natural and social sciences) in Africa between 1870-1950 and is a must read for practitioners and academics interested in International Development.

Slide from Easterly's Book Tour Talk

Slide from Easterly’s book tour talk

Chapter 2 is on Africa as “A Development Laboratory” (and the origins of the Africa Survey – see image), and will leave you feeling like there is, at least for the most part, nothing new under the sun in International Development. William Easterly makes this point as well in the Tyranny of Experts.

Oh, and Tilley’s book has some good data on the intensity of colonial administration and public goods provision in areas such as medicine, agriculture and infrastructure development.

The Anatomy of Tax Evasion in Africa

Africa Confidential has a great piece analyzing leaked documents from PwC, the professional services firm, showing the various arrangements that enable multinational companies to evade taxes in Africa. You can read the whole piece here (gated).

  • One of the measures PwC advised multinationals to take was to create a wholly-owned Luxembourg-based subsidiary which would hold the rights to intellectual property used by the rest of the group. The rest of the group would then pay licensing fees to the Luxembourg-based subsidiary which, by agreement with the authorities, would be granted tax relief of up to 80%……
  • A second tax avoidance mechanism simply involved the companies becoming incorporated in Luxembourg. In 2010, Luxembourg concluded an agreement with several companies of the Socfin (Société financière) agribusiness group, which was founded during the reign of Belgian King Leopold II by the late Belgian businessman Adrien Hallet. The companies chose Luxembourg as their base and made an agreement under which their dividends were subject to a modest 15% withholding tax, a lower figure than those in force where their farms are located (20% in Congo-K and Indonesia, 18% in Côte d’Ivoire).
transfer-pricing

The art of hiding profits

Altogether, Socfin subsidiaries in Africa [in Sierra Leone, Nigeria, Liberia, Cote d’Ivoire, and Cameroon] and Indonesia produced 123,660t. of rubber and 380,770t. of palm oil in 2012. The combined turnover of its main African subsidiaries reached €271 mn. in 2013. The list also includes the 100%-owned Plantations Socfinaf Ghana Ltd. (PSG) and Socfin-Brabanta (Congo-Kinshasa). Socfin also holds 88% of Agripalma in São Tomé e Príncipe and 5% of Red Lands Roses (Kenya).

  • A third mechanism involves cross-border lending within a group of companies. Companies registered in Luxembourg are exempt from tax on income from interest.

According to the Thabo Mbeki High Level Panel report between 1980 and 2009 between 1.2tr and 1.4tr left Africa in illicit flows. These figures are most likely an understatement. Multinationals, like the ones highlighted by Africa Confidential, accounted for 60% of these flows.

Alex Cobhan, of the Tax Justice Network, has a neat summary of the various components of illicit financial flows (IFFs) and how to measure them. He also proposes measures that could help limit IFFs, including: (i) eliminating anonymous ownership of companies, trusts, and foundations; (ii) ensuring that all bilateral trade and investment flows occur between jurisdictions which exchange tax information on an automatic basis; and (iii) making all multinational corporations publish data about their economic activity and taxation on a country-by-country basis.

Alex Cobham blogs here.

The Choices in the Nigerian Election

Alex Thurston over at Sahel Blog has an excellent take on the credentials of the two leading candidates in the Nigerian election – the incumbent President Goodluck Jonathan and challenger Muhammadu Buhari. Thurston, in particular, cautions against simplistic narratives about either candidate that only serve to distract from the universe of issues at stake in this election:

In much international coverage of the race, whether by non-Nigerian journalistsor Nigerians speaking to international audiences, the two candidates have been presented in crude and one-dimensional ways. The narrative at work in such commentaries says that Jonathan is a bumbler – a nice guy perhaps, but ultimately an “accidental president” who is in over his head, too incompetent to deal with problems like corruption or the violence caused by Boko Haram in the northeastern part of the country. Meanwhile, the same narrative tells us that Buhari is a thug – an essentially military man whose record is fatally tarnished by his regime’s actions in the 1980s, and whose prospects for winning the presidency have grown only because of Nigerians’ anxieties about Boko Haram. The narrative goes on to say that Nigerians face two very bad choices for president – perhaps implying that “the devil they know” is the better choice.

The rest of the blog post is here (highly recommended).

In related news Nigeria’s INEC on Tuesday announced that it had hit a 75% PVC issuance rate (or around 52 million people) to the almost 67 million registered voters. This included an average issuance rate of 76% in the three states worst hit by the Boko Haram insurgency (Yobe, Adamawa, and Borno).

Herds in Pressurized Steel Tubes? Social Effects in the In-Flight Marketplace

This paper investigates the in-flight marketplace. It uses detailed data of inflight purchases to understand social effects in purchase behavior, and determine their potential for designing marketing promotions. We find that on average a passenger is approximately 30% more likely to buy after being exposed to a lateral purchase. Analyses on the underlying mechanisms reveal that the classical social influence theories do not suffice to explain all the patterns in the data. Omission neglect, product contagion, and goal balancing are proposed as complementary theories. Finally, we find that consumers’ willingness-to-buy is positively correlated with responsiveness to social influence. Because of this homophily and social feedback effects, classically seen as nuisances, can provide targeting value for the firm. Taking them into account in behavioral-based targeting can up to double the social spillovers of marketing actions.

That is Stanford GSB professor Pedro Gardete in a forthcoming paper in the Journal of Marketing Research. Gardete examined the purchase data of up to 2,000 flights from a major US airline during January and February 2012 – totaling 257,000 passengers with a combined 65,525 purchases. Since these transactions were made via credit card, he got information on “buyers’ flight numbers, seat numbers, what they bought, and what time they bought it.”

I wouldn’t be surprised if airlines were already in the habit of maximizing revenue via strategic seating of prolific shoppers to ensure an even distribution on any given flight.

More on the future of air travel here.

Remembering The Wagalla Massacre

This happened. Only 31 years ago. Lest we forget.

[O]n February [10th] 1984, soldiers of the Kenya Army mounted a security operation around Wajir in Kenya’s North Eastern Province. Having rounded-up all Somali men of the Degodia clan, as many as 5000 were taken to the Wagalla airstrip for interrogation. This was part of the policy of ‘collective punishment’ – a conscious act of state violence against its own citizens. After four days of interrogations at Wagalla, several hundred Degodia lay dead: whether 500 died, or 1000, or more is unknown, but the incident stands as the worst atrocity in Kenya’s modern history. This article recounts what is known about the massacre from witness and survivor testimony, putting this together with documentary evidence recently revealed through the Truth, Justice and Reconciliation Commission (TJRC) and setting the analysis in the wider context of Kenya’s treatment of the peoples of its ‘forgotten north’. The conclusion summarises the findings of Kenya’s TJRC on Wagalla, and comments on the recent construction of a monument to commemorate the massacre, opened at Wajir on 14 February 2014.

The following individuals held a top level meeting in the Wajir DC offices on February 8th, two days before the massacre: Joseph Kaguthi (Asst. Secretary, Internal Security), James Mathenge (PS, OP in charge of Internal Security), Gen. J. R. Kibwana (former CGS), John Gituma (PS, Information and Broadcasting), Benson Kaaria (PC, North Eastern), Bethuel Kiplagat (PS Foreign Affairs), and David Mwiraria (PS, Home Affairs). Mwiraria has in the past argued that he and others at the meeting had not idea about what was about to happen.

Because of the failure to effectively deal with instances of gross state overreach like the Wagalla Massacre, impunity within the security services continues. Government reactions to insecurity in the northwest, at the coast, in the northeast, in dealing with Mungiki, out west in Mt. Elgon, and even in Eastleigh, are continuations of an old habit that goes back to the Mau Mau concentration camps under the emergency.

Throughout the “Shifta” war and well into the 1980s..

collective punishment continued to be used to ‘discipline’ the north, amid a growing sense of official impunity, as was evident in the collective punishment of a Somali community in Garissa

More on this here.

Here is the Citizen TV documentary from 2012.

Making Sense of the Decision to Postpone Nigeria’s February 14 Elections

Last Saturday Nigeria’s electoral management body (INEC) postponed the February 14th national elections to March 28th. State elections were also moved from February 28th to April 11th. The official account is that INEC reached the decision after it became clear that the military would not guarantee security on election day (and therefore needed six weeks to pacify the northeast before reasonably peaceful elections could take place).

The head of INEC, Attahiru Jega, was categorical that “for matters under its control, INEC is substantially ready for the general elections as scheduled, despite discernible challenges being encountered with some of its processes like the collection of Permanent Voter Cards (PVCs) by registered members of the public.”

Naturally, the postponement raised a lot of questions.

Boko Haram has been terrorizing Nigerians for the better part of six years. It is therefore a little odd that the military suddenly found the magic formula to quell the insurgency in exactly six weeks. Why now?

Reactions from several commentators questioned the intentions of the Nigerian military, and by extension, of the Goodluck Jonathan Administration.

  • At the New Yorker Alexis Okeowo wonders why after six years the government has suddenly found the will and power to neutralize Boko Haram in six weeks. She argues that negative sectional politics prevented Jonathan, a southerner, from extinguishing the Boko Haram before the insurgency (mainly concentrated in the northeast) got out of hand. Okeowo also pours cold water on any hopes that a Buhari presidency would be any better for either Nigerian democracy or nation-building.
  • Tolu Ogunlesi at FT invokes the events of 1993 – that saw Moshood Abiola robbed of the presidency after an election – in arguing that the postponement might, among other things, be a sign of both a resurgence of the Nigerian military and an attempt by the same to prevent Buhari (who is perceived to harbor intentions of reforming the military) from becoming president.
  • Both Karen Attiah (Washington Post) and Todd Moss (CGD) see in the postponement a risky gamble by Jonathan and the military that might pay off (and result in a reasonably acceptable conduct of elections in six weeks) or completely backfire and mark the beginnings of a period of political instability in Nigeria.
  • Alex Thurston over at Sahel Blog notes that while the Jonathan campaign has praised INEC’s decision, the Buhari camp has expressed “disappointment and frustration [with] this decision.” But at the same time Buhari urged all Nigerians not to take any actions that might further endanger the democratic process in the country. Whether the opposition will heed Buhari’s call will crucially depend on the outcome of the March 28th contest.
  • Chimamanda Adichie, writing in the Atlantic, terms the postponement “a staggeringly self-serving act of contempt for Nigerians” that unnecessarily introduces even greater uncertainty into Nigeria’s political climate [ incidentally, following the postponement Nigeria’s overnight lending rate soared to 100 pct and the Naira hit 200 against the US dollar on Tuesday].

At face value, INEC’s decision seems reasonable. The security situation in the northeast makes it impossible to conduct a credible election. Plus, given Nigeria’s election law, it’s probably in the interest of the opposition candidate, Muhammadu Buhari, for elections to be conducted in the northeast (the winner needs a plurality of votes, and at least 25% in two thirds of the states and Abuja). The decision is also squarely constitutional. Like most Commonwealth states, election dates in Nigeria are not constitutionally fixed, and can be moved by the EMB. The only constraint on INEC is that elections must be head by April 29th, a month ahead of the constitutionally-mandated handover date of May 29th. Lastly, postponement buys INEC more time to issue permanent voter cards (PVCs). As of February 4th, only 44 out of 68.8 million potential voters had been issued with a PVC, a requirement to be able to vote (Lagos, a Buhari stronghold, had an issuance rate below 40%). These reasons might explain Buhari’s reluctant acceptance of the INEC decision.

That said, the timing of the postponement and the manner in which it was done are suspect. The Nigerian security establishment understood the challenge that Boko Haram posed with regard to the conduct of peaceful elections years in advance. So why act a week before the election? In addition, it was quite clear that the directive did not come from the generals per se, but from Aso Rock via the national security adviser Mr. Sambo Dasuki. The result is that the military has come off as an interested player in the election. At the same time, Mr. Dasuki’s involvement has dented (even if just slightly) INEC’s credibility as an independent arbiter in the process. As is shown below, Nigerians’ trust of the electoral process is already very low.

Confidence in the integrity of Nigerian elections

Confidence in the integrity of Nigerian elections

For the incumbent Goodluck Jonathan, the postponement presumably buys more time to try and dampen Buhari’s momentum. Some have argued that it also allows him to device ways of ensuring a victory, whether through clean means or not. My take on this is that this strategy will probably backfire. First, it signals to voters weakness and unfair play – things that might anger fence-sitters and make them break for Buhari come March 28th. Second, the election monitoring literature tells us that smart incumbents rig elections well in advance. This is for the simple reason that election day rigging (or rigging too close to the election) is often a recipe for disaster (see Kenya circa 2007).

These elections will be the closest in Nigeria’s history. The polls are essentially tied. The current postponement will no doubt raise the stakes even higher ahead of March 28th. Furthermore, the shenanigans of the past week will increase pressure on INEC to conduct clean elections, especially in the eyes of Buhari supporters.

Ultimately the folly of the postponement may be that it has raised the bar too high for INEC. Nigeria might find itself in a bad place if Buhari loses an election marred by chaos and irregularities.

Graph of the week

Over the last two decades there has been a remarkable shift in the composition of domestic government debt in Kenya, with long-term debt instruments (bonds) increasingly preferred to short-term debt (T-Bills).

The financial market in Nairobi is telling us a thing or two about creditors’ perceived time horizon of the Kenyan government; and Treasury’s capacity for credible commitment.

Screen Shot 2015-02-05 at 8.46.08 AM

Source: The World Bank

For curious readers, I would argue that the explanation for this structural change (especially after 2003) is more Stasavage than North and Weingast.

More on debt, macroeconomic stability, and natural resources in Africa (Uganda Edition)

See earlier posts on this subject here and here. Below is a quote from FP on Uganda’s growing petroleum sector (see also the Global Witness report on Uganda’s secret oil contracts here):

Source: Global Witness

Uganda’s Projected Oil Production Curve. Source: Global Witness

The bulk of Ugandan government borrowing against future oil revenues has focused on grand infrastructure schemes built and funded by the Chinese. In 2014 alone, the government signed deals with China to build two hydropower dams worth $2.2 billion, a standard gauge railway that could cost up to $8 billion, and a $600 million fertilizer plant. Additional projects include a $2 billion oil field being developed by the state-owned China National Offshore Oil Corporation and a $350 million roadbetween Uganda’s capital, Kampala, and Entebbe International Airport. The possibility has even been raised that a Chinese bank may bail out Ugandan parliamentarians in danger of going to jail for failure to honor their debts.

And how efficiently is Uganda spending the [expensive] borrowed money?

Costs for the Ugandan section of the East African Standard Gauge Railway are especially out of control. The project had an initial price tag of $4.5 billion for the Ugandan side of the railway, compared to $3.8 billion for the Kenyan side. Estimated costs in Uganda subsequently shot up, first to $8 billion and then to a staggering $11 billion

So what will happen when China decides to deal with its public debt situation and the effects propagate to its many public companies involved in mega-projects in Africa?

To reiterate, let’s not declare mission accomplished in the war against the resource in Africa just yet.

Netflix is making thousands of Americans flunk geography

You can’t make this stuff up:

Screen Shot 2015-02-03 at 8.01.17 PM

The show began to air in 2010. This is its description as of February 3rd, 2015.

That said, if you have to visit Africa, the place to go is KENYA!

Because of this:

HT Hayes Brown

Education and Human Capital Externalities (in Benin)

Wantchekon, Klasnja and Novta have a really cool paper (forthcoming in QJE) investigating the relationship between human capital and development:

Using a unique dataset on students from the first regional schools in colonial Benin, we investigate the effect of education on living standards, occupation and political participation. Since both school locations and student cohorts were selected with very little information, treatment and control groups are balanced on observables. We can therefore estimate the effect of education by comparing the treated to the untreated living in the same village, as well as those living in villages where no schools were set up. We find a significant positive treatment effect of education for the first generation of students, as well as their descendants: they have higher living standards, are less likely to be farmers, and are more likely to be politically active. We find large village-level externalities – descendants of the uneducated in villages with schools do better than those in control villages. We also find extended family externalities – nephews and nieces directly benefit from their uncle’s education – and we show that this represents a “family-tax,” as educated uncles transfer resources to the extended family.

The amazing finding is that having just one educated person in an extended family makes a significant difference, not only for the educated person’s offspring, but also for their nieces and nephews:

These descendants have better education at all levels than descendants (either children on nieces and nephews) in families where no progenitor was educated. These effects are statistically significant and substantial  – such descendants are 20% more likely to have primary school education, 19% more likely to have secondary school education and 11% more likely to go to university..

The main takeaway of the paper is that investment in human capital has a positive effect on long-term development that is independent of (colonial) institutions.