Here’s a paragraph to ponder:
Ethnographic nuance is neither a luxury nor the result of a kind of methodological altruism to be extended by the soft-hearted. It is, in purely positivist terms, the epistemological due diligence work required before one can talk meaningfully about other people’s intentions, motivations, or desires. The risk in foregoing it is not simply that one might miss some of the local color of individual ‘cases.’ It is one of misrecognition. Analysis based on such misrecognition may mistake symptoms for causes, or two formally similar situations as being comparable despite their different etiologies. To extend the medical metaphor one step further, misdiagnosis is unfortunate, but a flawed prescription based on such a misrecognition can be deadly. Policy interventions are already risky in the best circumstances. (p. 353)
Also, if you haven’t read McGovern’s Making War in Cote d’Ivoire you should. And for those interested in an ethnographic take on Sekou Toure’s attempts to
modernize remake Guinea check out Unmasking the State. It starts off dense (I only read about half the book last summer while on a short trip to Conakry), but gives a good peek into the logics of rule under Toure and the reactions these elicited from Guineans.
H/T Rachel Strohm.
Elise Huillery writes in the Journal of Economic History:
What share of French expenditure was allocated to West Africa? What share of West Africa’s revenue was provided by France? These two questions are crucial since scholars and politicians who claim colonization had a “positive role” make essentially the two arguments that the colonies benefited from imperial public investments and that mainland taxpayers sacrificed local investments for investments in the colonies.
I find that the costs of AOF’s colonization for the metropolis were low. From 1844 to 1957 France devoted on average 0.29 percent of its public expenditures to AOF’s colonization. Colonization of French West Africa was profitable for France to the extent that the impact on cumulative domestic production exceeded 3.2 billion 1914 francs. The military cost of conquest and pacification accounts for the vast majority (80 percent) of the average annual cost. The cost of central administration in Paris accounts for another 4 percent. So subsidies to AOF account for only 16 percent of the average annual cost, meaning that less than 0.05 percent of annual total metropolis public expenditures were devoted to AOF’s development.
For French West African taxpayers, French contribution was not as beneficial as has been argued. From 1907 to 19578 the metropolis provided about 2 percent of French West Africa’s public revenue. Local taxes thus accounted for nearly all of French West Africa’s revenue. These resources supported the cost of French civil servants whose salaries were disproportionally high compared to the limited financial capacity of the local population. Administrators, teachers, doctors, engineers, lawyers, and so on, were paid French salaries and got an additional allowance for being abroad. Thus, in the colonial public finance system, most revenues were collected on an African basis while being spent on a French basis. To illustrate this point, I show that colonial executives (eight governors and their cabinets) and district administrators (about 120 French civil servants) together accounted for more than 13 percent of local public expenditures.
The rest of this very fascinating paper is here.
Besides the headline finding, also interesting in the paper are: (i) the extent to which Paris subsidized private firms involved in the colonial enterprise; and (ii) the structure of the public finance system that allowed the AOF administration to borrow directly from French banks with the full backing of Paris (which allowed for lower rates). This might explain the persistence of the monetary relationship between former AOF territories and Paris in the form of the CFA and a common central bank (BCEAO).
As I keep saying, Economic History is hot again. And sooner rather than later it’s going to become more apparent to more people that African political and economic history did not begin in 1960, or for that matter in 1884-5. And neither was it just about the unimaginably catastrophic Atlantic experience.
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).
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.
I know it is increasingly becoming not kosher to put a damper on the Africa Rising narrative (these guys missed the memo, H/T Vanessa) but here is a much needed caution from Joe Stiglitz and Hamid Rashid, over at Project Syndicate, on SSA’s emerging appetite for private market debt (Africa needs US $90b for infrastructure; it can only raise $60 through taxes, FDI and concessional loans):
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?
…….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 [which is not Uganda…] 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.
The risks are real, especially when you consider the exposure to global commodity prices among the ten African countries that have floated bonds so far – Ghana, Gabon, the Democratic Republic of the Congo, Côte d’Ivoire, Senegal, Angola, Nigeria, Namibia, Zambia, and Tanzania.
In order to justify the exposure to the relatively higher risk and lending rates on the bond market (average debt period 11.2 years at 6.2% compared to 28.7 years at 1.6% for concessional loans) African governments must ensure prudent investment in sectors that will yield the biggest bang for the buck. And that also means having elaborate plans for specific projects with adequate consideration of the risks involved.
Here in Zambia (which is heavily dependent on Copper prices), the Finance Minister recently had to come out to defend how the country is using the $750 million it raised last year on the bond market (2013-14 budget here). Apparently there was no comprehensive plan for the cash so some of the money is still in the bank awaiting allocation to projects (It better be earning net positive real interest).
“They are fighting each other. By the time they have projects to finance, they will have earned quite a lot of interest from the Eurobond money they deposited. So, all the money is being used properly,” he [Finance Minister] said.
Following the initial success the country’s public sector plans to absorb another $4.5b in debt that will raise debt/GDP ratio from current ~25% to 30%. One hopes that there will be better (prior) planning this time round.
Indeed, last month FT had a story on growing fears over an Emerging (and Frontier) Markets bond bubble which had the following opening paragraph:
As far as financial follies go, tulip mania takes some beating. But future economic historians may look back at the time when investors financed a convention centre in Rwanda as the moment that the rush into emerging market bonds became frothy.
The piece also highlights the fact that the new rush to lend to African governments is not entirely driven by fundamentals – It is also a result of excess liquidity occasioned by ongoing quantitative easing in the wake of the Great Recession.
I remain optimistic about the incentive system that private borrowing will create for African governments (profit motive of creditors demands for sound macro management) and the potential for this to result in a nice virtuous cycle (if there is one thing I learned in Prof. Shiller’s class, it is the power of positive feedback in the markets).
But I also hope that when the big three “global” central banks start mopping up the cash they have been throwing around we won’t have a repeat of the 1980s, or worse, a cross between the 1980s (largely sovereign defaults) and the 1990s (largely private sector defaults) if the African private sector manages to get in on the action.
African governments, please proceed with caution.
The application deadline is January 15, 2014. Spread the word.
Starting in fall 2014, the Master of Science in Foreign Service (MSFS) at Georgetown University is offering a full- tuition scholarship for a talented graduate student from sub-Saharan Africa.
MSFS is a two-year, full-time graduate degree program in international affairs. Students will take courses in international relations, international trade, international finance, statistics and analytical tools and history. In addition, students choose an area of concentration such as International Relations and Security, International Development or International Business.
This is a guest post in response to a previous blog post by friend of the blog Matthew Kustenbauder.
Your post highlights the contradictions between today’s human rights regime (which is based on universal concepts of humanity and has its origins in European anti-slavery campaigns and traditions of humanitarianism, and before that debates in Christian theology) and the post-imperial international order (based on the nation state as the fundamental political unit).
Since the rise of nationalism after WWII, new states that were historically part of empires (and thereby incorporated under their systems of law, governance, and trade) have had to make their own way. For most of these states, and especially for the people living within them, the new era of national self-determination has been no more kind than was the Age of Empire. The withdrawal of imperial powers left a vacuum that today’s international system struggles to address with any effect. There are many reasons for this, not the least of which is that it is a fragmented and cumbersome system that gives the impression all states are “equal” — clearly they are not. It also tends to be a forum in which smaller and poorer states invoke language of victimhood in an effort, ironically, to get larger or more wealthy states to step in and do the work that states are meant to do for themselves — namely, govern those residing within their boundaries.
What do I mean by this last point? An illustration by way of anecdote may help clarify. I was recently frustrated watching a BBC World Report special (an outlet for the Bleeding Hearts Industrial Complex that you mentioned in your post) about multinationals and poor working conditions in the developing world. Cotton and chocolate were featured. The reporter investigated big cotton operations in India and cocoa plantations in Cote D’Ivoire. What registered as surprise to the BBC reporter was no surprise to me — He found lots of young women and children working there. But instead of asking why the local government didn’t regulate the industry or why they didn’t enforce the regulations already on the books, he ran off to Switzerland and the UK and America to ask why Nestle and Tommy Hilfiger, etc. don’t monitor their supply chains. I was baffled. This is a classic example of how an international system based on the sovereignty of individual nation states is at odds with universal notions of human rights. In many ways, it is the modern-day replacement for the old global-local tensions that existed between the imperial metropole and its colonies. We might ask, however, whether the current framework in which human rights activism operates is really any better suited to address the ongoing problems that plague developing nations. To my mind’s eye, the focus is on the wrong place … or is at least too focused on the role of businesses and advanced economies and not focused enough on working with multinationals in order to help citizens in poor countries put pressure on their governments to be accountable, competent, and truly sovereign.
The emphasis on human rights by Western governments and development work by NGOs in African countries have, more often than not, undermined the sovereignty of national governments since decolonization. More recently, however, China has emerged as the largest trading partner with many African countries. This is a game changer, not only because the Dragon does not hold human rights sacrosanct, but also because, unlike its Western counterparts, China considers economic growth and trade essential to establishing national sovereignty and the nation-state (not the international community) as the principal guarantor of the well-being of its citizens. The degree to which China can be ‘socialised’ in the ways of the international system, which was after all created by the Great Powers to replace the disintegrating world that western empires had made, remains to be seen. In any event, the long-standing tensions between universal principals of human rights, on the one hand, and the limits placed on intervention into the affairs of one state by another in the name of national sovereignty, on the other, will endure.
Matthew Kustenbauder is a PhD candidate in history at Harvard University.
The African Union (AU) has had a rough few months. The diplomatic failures in Zimbabwe, Cote d’Ivoire, and Madagascar exposed the organization’s incompetence. The misguided anti-ICC crusade continues to cement the image of the organization as nothing more than a club of out-of-date and tone deaf autocrats. To many observers, calls for “African Solutions to African Problems” amid all this failure has been seen as a cover of impunity and mediocre leadership on the African continent.
It says a lot that the current chairman of AU is President Theodore Obiang’ of Equatorial Guinea; a man who leads an oil-rich country of under 0.7 million people, with a per capita income of more than 30,000; but with more than 70% of its population living on less than $2 a day.
The epitome of the organization’s woes was the total snub it got from NATO before the military campaign against Libya’s Gaddafi, one of the AU’s main patrons. The AU was created by the Sirte Declaration, in Libya. Mr. Gaddafi’s influence ranged from his “African Kings” caucus (in which he was the King of Kings) to investments from Libya’s Sovereign wealth fund. I bet Gaddafi had a hand in the organization’s green flag.
So what ails the African Union?
The AU’s problems are legion. In my view, the following are some of the key ones.
What would reforming the AU entail?
I am not a fan of the idea of the United States of Africa. That said, I believe that a regional organization like the AU can be a force for good. But in order for it to fulfill its purpose, it has to change. The change must reflect the regional power balance; it must increase the competence quotient in the AU and it must increase the voice of the average African within the organization.
club of African autocrats African Union has its biannual summit in Malabo, Equatorial Guinea this week (This guy is the current AU Chairman, no joke).
The struggling AU has a lot on its plate at the moment (subject of an upcoming blog post). It is in the middle of trying to put out new fires in Sudan and Libya, while ignoring/recovering from the humiliation of its failures in Somalia, Cote d’Ivoire, and Zimbabwe – not to mention the region’s other problems.
All this while insisting on “African Solutions to African Problems,” despite the organization’s infamous reputation for incompetence.
Top on the agenda at the summit has been the ongoing hostilities (Obama might disagree) in Libya. According to the Oman Daily Observer, the AU has come up with a plan that
“envisages a ceasefire, humanitarian aid, a transition period, reforms towards democracy and elections, but the position on the future of Gaddafi has not been made clear.”
In other words the heads of state in Malabo, led by their Chairman Obiang, are hoping to do a Zimbabwe: Have Gaddafi in charge of the same reform process that is supposed to phase out his 42-year rule. I need not elaborate how this story ends.
The ICC Pre-Trial Chamber Judge Ekaterina Trendafilova on Wednesday decided that the trial of suspects of the 2007-08 election violence in Kenya will not be held in the country.
I am of the view that holding the hearings in Kenya would have created an unnecessary distraction from the important task of implementing Kenya’s new constitution. Already, the bigwigs accused of masterminding the violence that killed 1300 and displaced over 300,000 Kenyans have ethnicized their predicament. Holding the hearings in Kenya would have handed them an opportunity for a circus of ethnicity-charged rallies and demonstrations in Nairobi.
The ICC continues to be a source of debate in Kenya and across Africa. Many have faulted the court’s apparent bias against African leaders. Some have even called it a form of neocolonialism. While admitting that the court could use a little bit more tact [principally by acknowledging that it cannot be apolitical BECAUSE it is an international court SANS a world government] I still think that it is the best hope of ending impunity on the African continent – at least until African leaders internalize the fact that it is not cool to kill your own people.
Among the cases that should have been handled with a sensitivity to political realities include Sudan and Libya [and may be the LRA in Uganda]. Kenya’s Ocampo Six, the DRC’s Jean-Pierre Bemba and Cote d’Ivoire’s Laurent Gbagbo, on the other hand, should not raise questions of national sovereignty. Murderous dictators and their henchmen do not have internal affairs. In any case sovereignty for many an African country means nothing more than sovereignty for the president and his cronies.