Working With the Grain in Development

I finally got to reading Brian Levy’s Working With the Grain. It is easily the most underestimated development book of 2014, and should be read alongside William Easterly’s Tyranny of Experts (which it both complements and pushes back against). Like Easterly, Levy worked at the Bank and has insightful case studies and anecdotes from South Korea, to Ethiopia, to Bangladesh, among other countries. The book’s main thrust is that approaches to interventionist development policy ought to internalize the fact that:

… Successful reforms need to be aligned with a country’s political and institutional realities. For any specific reform, an incentive compatible approach begins by asking, who might be the critical mass of actors who both have standing and a stake in the proposed arrangements – and so are in a position to support and protect them in the face of opposition? [p. 142-3]

From a policy perspective, Levy tackles the relationship between governance, regime types, and development head on. How do you deal with the Biyas, Kagames or Zenawis of this world if you deeply care about [both] the material aspects of human welfare – roads, hospitals, schools, electricity, etc., [and] political freedoms and inclusive institutions?

Screen Shot 2014-12-17 at 12.32.06 PM

Levy’s answer is that development experts should work with the grain, focusing on incrementally solidifying past gains in specific agencies and issue areas, instead of engaging in epic battles against ill-defined and equally poorly understood “bad institutions” and evils like “corruption.” He aptly points out that you do not need the full set of the “good governance” bundle in order to continue chugging along on the path to economic prosperity.

In other words, we don’t have to put everything else on pause until we get the institutions right (or topple the bad guys). It is not an all or nothing game. His argument is persuasive (“good governance” has failed as a prescriptive remedy for underdevelopment), albeit at the cost of casting the immense toll of living under autocratic regimes as somewhat ineluctable on the road to economic prosperity. But at least he dares to challenge conventional approaches to governance reform that have at best failed, and at worst distracted governing elites from initiatives that could have worked to improve human welfare in developing countries.

As I read the book I wondered what Levy might think of the current state of development research. We are lucky to live in an age of increasing appreciation for evidence-based policy development, implementation, and evaluation. However, the resulting aura of “objectivity” in development research often leaves little room for politics, and its inefficiencies and contextual nuances. Sometimes the quest for generalizability makes us get too much into the weeds and forget that what is good for journal reviewers seldom passes the politicians’ (or other influential actors’) incentive compatibility test, rendering our findings useless from their perspective.

It is obvious, but worth reiterating, that the outcomes we can quantify, and therefore study, do not always overlap with the most pressing issues in development or policies that are politically feasible.

Perhaps this is a call for greater investment in public policy schools (not two-day capacity building workshops) in the developing world that will train experts to bridge the gap between academic development research and actual policy formulation and implementation (talking to policymakers makes your realize that this gap is wider than you think). Linking research findings to actual policy may sound easy, but you only need to see a “policy recommendations” section of a report written by those of us in the academy to know that it is not.

Africa’s top economies

Yesterday Nigeria unveiled new GDP figures following the rebasing that catapulted the country of 170 million to become Africa’s biggest economy (GDP US$509b). Below is the ranking of the top sixteen economies in SSA. Mineral economies (10/16) still predominate (Source: The Economist).

Image

Happy Independence Day Ghana!

Ghana is 57 today, having gained independence from the UK on the 6th of March, 1957.

ghana

 

 

 

 

 

 

 

 

 

Back then the independence of Ghana (named after the historic empire that existed in parts of present day Mali and Mauritania) had a lot of symbolic value given that it was the first majority black African country to gain independence.

And now onwards with life after fieldwork…

With findings and humility.

And now onwards with life after fieldwork...

Why are Kenyan politicians politicizing the military?

Botswana, Gabon, Kenya, Malawi, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe are the only continental sub-Saharan African states to have never experienced military rule. Each country has managed to do so via well orchestrated coup-proofing strategies of ethnic balancing and material payoffs to the men and women with the guns and tanks. 

Kenya, in particular, has perfected this art. Because of its fractious ethnic politics, ethnic balancing within the officer corps has been key to Kenya’s coup-proofing. Kenyatta (who spoke Kikuyu) had a bit of a hard time in the beginning with a Kamba and Kalenjin speakers dominated military but eventually succeeded in having his co-ethnics in key positions. But before he did so he ensured Kikuyu dominance over the paramilitary force, the General Service Unit (GSU) to balance the military. Through the 60s and 70s, Kenyatta ensured that the GSU and police could handle their own against the military in case stuff hit the fan. Moi continued along this path, so much so that for a while in the media the typical accent of a security officer – whether police or military – became an accent from the North Rift. Under Moi the Kenyan army became “Kalenjin at the bottom, Kalenjin at the middle, and Kalenjin at the top.”

Beyond the ethnic balancing, Kenya has also coup-proofed by keeping the generals wealthy and OUT OF POLITICS – at least not overtly. The generals in Kenya are probably some of the wealthiest on the Continent. I went to high school with the son of an Air Force Major General whose family was always taking foreign trips to exotic places and always made a big splash on visiting days. The only estimates I could find are from the 1960s when nearly “two thirds of the military budget went to pay and allowances, most of it to officers.” A lot of them also got free land for cash crop farming and lucrative business deals (some illegal) from the Kenyatta and Moi governments. Keenly aware of West Africa’s junior officer problem following 1981 Moi extended land grants to junior officers as well. 

But despite their importance as leaders of a key national institution, most Kenyans, yours truly included, do not know much about the top generals in the army. The one chief of staff that I remember hearing a lot about in my childhood days was Gen. Mahmood Mohamed, the man who played a big role in quelling the 1982 coup attempt. For the most part I only saw these guys in the media on national holidays when they rode on the president’s Land Rover. 

In other words, I think it is fair to say that, contrary to arguments made by N’Diaye, for the most part the Kenyan military has historically been fairly professionalized and depoliticized relative to other countries in the neighborhood. There is no evidence to suggest that ethnic balancing has severely interfered with the process of professionalization. Kenyan presidents’ preferred agents for dirty political work have always been the intelligence service, the police and paramilitary units, but never (to the best of my knowledge) the military. Indeed the US and British militaries have had very close technical cooperation with the Kenyan military through training, material assistance and more recently joint operations, resulting in a relatively highly trained force that has for the most part stayed clear of politics.  

But this consensus appears to be slowly eroding. Before the 2013 General Elections the former Prime Minister Raila Odinga accused the military and the intelligence service of colluding with his opponent, Uhuru Kenyatta, to rig the presidential election. And now the heads of the military and intelligence service are reportedly contemplating suing a former aide to Mr. Odinga for defamation. Increasingly, the military is being dragged down to the level of the marionette-esque GSU and Police, perennial hatchet men for whoever occupies State House.

This cannot end well. 

Coup proofing is hard. And the thing with coups is that once the genie is out of the box you can’t take it back. Coups just breed more coups.

This is why the generals must be left fat and happy and in the barracks, or busy keeping the peace (and hopefully not facilitating charcoal exports) in Somalia’s Jubaland State. Do your ethnic balancing and all, but by all means KEEP THEM OUT OF POLITICS (I am glad the current Defense Minister has no political constituency).

The last thing Kenya needs is a Zimbabwe situation in which there is open bad blood between the military and the opposition. 

Plus Kenya, based on its per capita income, ethnic politics, and minimal experience with genuine democratic government, is still not beyond the coup trap to be able to safely play politics with the military. If you doubt me, go find out the last time Brazil, Thailand and Turkey had generals in charge. 

Africa’s newfound love with creditors: Bond bubble in the making?

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.

Why are some African governments so bad at managing their countries’ resources?

UPDATE: According to Reuters,  Israeli billionaire businessman Dan Gertler sold one of his Congo-based oil companies to the government last year for $150 million – 300 times the amount paid for the oil rights – in a deal criticised by transparency campaigners.

*************************************************************

Just to reiterate what I have said before regarding the need to boost the capacity of African governments to manage their resources well, here is a long quote on Vale’s mining operations in Mozambique (H/T Anna).

The point here is that resource mismanagement in Africa is not just a story of rampant corruption and the complete lack of political will for reform. It is also a story of governments that remain completely out-staffed by multinations with far superior technical capacities. Improving resource management on the continent will therefore have to be as much about government technical capacity development as it will be about political reform.

Vale, for example, employs nearly 200,000 people around the world and has annual profits equivalent to nearly four times Mozambique’s state budget. It can recruit, train, and compensate employees to represent its interests on a scale far beyond what the government can do. Without Vale’s capacity for number crunching, Mozambique’s regulators lean on the companies they oversee for all manner of important data.

In 2011, the Mozambican government published an independent study of the country’s mining, oil, and gas industries. Conducted by a Ghanaian consulting company, Boas and Associates, the report was part of Mozambique’s application to the Extractive Industries Transparency Initiative, a World Bank-funded program designed to encourage an honest accounting of mining revenue and payments by participating countries and corporations alike. Mozambique’s candidacy was ultimately denied on the basis of its failure to publish what it earned from the companies involved, [but the report also noted a lack of qualified personnel in the agencies governing almost every aspect of the extraction of Mozambique’s natural resources]: licenses, prospecting, mining and drilling, sales, export.

According to the report, the [Mozambican government has no way of verifying the quality and quantity of minerals in the concessions it leases to private companies, and it depends on those companies for data on what is ultimately mined and exported]. Worse, the government has no system for monitoring global commodity prices or of tracking companies’ investment costs, which means it cannot independently verify a company’s profits.

Lesson? It’s not all corruption. It is also about the incentive structure that has resulted from government’s reliance on the word of profit-maximizing mining companies.

Improving government capacity to regulate resource sector operations is a key pillar of accountability and transparency that is currently missing from the discussion on how to manage Africa’s resources. It is easier to blame it all on thieving politicians and mining executives.

Not all governments might find it useful to improve their technical capacity (it is easier for them to steal if the valuation of state assets remain uncertain) but I bet many African states, especially those with moderately democratic regimes, can be persuaded to boost their technical capacity, if not for anything then just to improve their bargaining position vis-a-vis mining companies. At a minimum, this would mean more money for their pockets, and perhaps also more money for roads, schools and hospitals.

Some thoughts on Kenyan MPs and their salaries

Update: Sarah Serem and the SRC appear to be backtracking and are now “open to dialogue” with MPs over their pay.

******************************************

“False standards are set with salary scales for MPs, Ministers and top civil servants that the country cannot possibly afford in a time when examples not of extravagance but of austerity and sacrifice should be set. In 1963 MPs earned K£ 620 a year [in present terms about Ksh 89,704.34 a month].

This was increased to K£ 840 then to K£ 1200 a year [about Ksh 173,619.53 a month in present terms], making three increases and a doubling of salary in less than three years (And the K£ 100 a month is augmented by a daily sitting allowance, plus mileage and other allowances). Junior Ministers earn K£ 2260 a year. The President’s salary has been fixed at K£ 15,000 a year tax free and including other emoluments……. In six months an MP receives more money than the average peasant earns in half a life-time.”

That is Oginga Odinga writing in his autobiography Not Yet Uhuru.

As Kenyan MPs prepare to adopt a report this afternoon that will allegedly give the Parliamentary Service Commission legal cover to grant them a 59% pay rise, we should remember that this is not a new phenomenon. Top public officers in Kenya, and in particular MPs, have always been remunerated well relative to the country’s per capita income.

Activists block the entrance to the National Assembly in protest at MPigs' greed

Activists block the entrance Parliament in Nairobi with a sow and piglets in protest at the greed of “MPigs”

I must admit that as a researcher on legislatures in Africa, and Kenya and Zambia in particular, the issue of how to look at MPs’ salaries is not a straightforward one. On the one hand it is absolutely obscene that in a poor country like Kenya MPs make more than their counterparts in far much wealthier countries in Western Europe. But on the other hand I also realize the importance of shielding the House from the influence of money bags from State House. Poorer paid parliamentarians across the Continent (including in “shining star” Ghana) live and work at the mercy of the executive. It is no coincidence that Barkan and colleagues concluded in Legislative Power in Emerging African Democracies that Kenya has the strongest legislature in the region.

The ratio of the president’s pay to MPs’ is instructive. Back in the sixties, the president made 12.5 times what the MPs made. That ratio has since shrunk to less than 2.5.

As Oloo Aringo passionately argued in the late 1990s and early 2000s, the high pay of Kenyan MPs is partly responsible for the rise in legislative power in Kenya (Part of my work in the dissertation, among other things, will be to convince you that this is true – that relative pay of MPs matters. Stay tuned). In the present Kenyan case there is an argument to be made for the Salaries and Remuneration Commission (SRC) to review the salaries of all State Officers; and to bump MPs higher up the totem pole (by cutting the pay of other state officers) than where they are right now as far as their pay is concerned. Ms Serem’s first stop should be the numerous seminars,workshops & capacity building obsessed talking shops independent constitutional commissions that continue to drain the exchequer with nothing to show for their work (OK, I’ll admit that some of the commissions are useful).

Kenyan MPs should definitely not get a pay hike. But the fight against greed in the august House should not be overdone, lest we end up with a weak parliament at the mercy of State House. This is the balancing act that I hope will inform the SRC commissioners’ actions as they try to tame our MPigs’ Honorable Members’ appetite.

The 2013 Resource Governance Index

The 2013 Resource Governance Index (published by the Revenue Watch Institute) is out. The top performing African countries include Ghana, Liberia?, Zambia and South Africa, with partial fulfillment. The bottom performing countries are Equatorial Guinea, Zimbabwe, South Sudan, the Democratic Republic of Congo and Mozambique.

The 58 nations included in the report “produce 85 percent of the world’s petroleum, 90 percent of diamonds and 80 percent of copper.” Ghana, where we are doing some evaluation  work on extractive sector transparency initiatives, is the best performing African country on the list. Image

More here. 

And in related news, The Africa Progress Report was released last week. The report details the massive loss of revenue by African governments through mismanagement – either by commission and/or omission – of extractive resources. For instance:

The report details five deals between 2010 and 2012, which cost the Democratic Republic of the Congo over US$1.3 billion in revenues through the undervaluation of assets and sale to foreign investors. This sum represents twice the annual health and education budgets of a country with one of the worst child mortality rates in the world and seven million pupils out of school.

The DRC alone is estimated to have 24 trillion dollars worth of untapped mineral resources.

The most bizarre case of resource management in Africa is Equatorial Guinea, a coutnry that is ranked 43rd on the global per capital GNI index but ranks 136th on the Human Development Index (2011).

Below is a map showing flows related to Africa’s vast resources:

RESOURCE-MAP

Georgetown MSFS Launches New Africa Scholarship

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.

Image

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.