Capital flight continues to plague poor nations

According to the Center for International Policy:

“Exactly 10 times the $100bn spent on aid and debt write-offs by rich countries is siphoned out of developing countries, with corporations responsible for 60 per cent of that figure through a web of trusts, nominee accounts and the flagrant mispricing of goods to escape tax………

Cracking down on tax havens and the evasion of taxes by some of the world’s biggest companies is seen as the ‘missing link’ in the poverty alleviation agenda.”

This got me thinking, perhaps naively, why it is that rulers (i.e. presidents and their entourage, most of whom fuel capital flight) in the Global South cannot secure their own property rights.

It makes sense that Mobutu and Co. (perhaps the worst pilferers ever) did not invest in Zaire (presently the moribund DRC) and so siphoned (or allowed allied firms to do so) billions abroad because the country lacked attractive investment options, mostly because of weak property rights. But it is also true that throughout his over three decades in power he and his buddies were perhaps the best placed Zaireans to secure their own property rights. Why didn’t they do it?

The quick answer might be that they had a very limited subjective time horizon and lived in constant fear of coups.

Most of the arguments out there stop here. Time horizon is king. Limited time horizons are bad for long-term investment. Yada yada yada.

But shouldn’t we also expect that after say 10 years in power a leader or elite group updates and realizes that may be they are there to stay, and start laying the foundation for local use of stolen wealth? Some certainly have – Kenya’s Moi and his henchmen come to mind.

The reasons for these leaders to invest locally are legion. The state of the roads, hospitals (think of say Ugandan elites who have to fly to Kenya or South Africa for medical care), insecurity (in Kenya MPs have been attacked by armed robbers), schools, etc etc in these places make it such that an average person in say Palo Alto enjoys a much higher standard of living than some of the wealthier people in the Global South.

What is the point of living in Kinshasa with billions in Europe, and with only one life to live? At what point does it make sense to use some of the money to improve the living standards (even in the most selfish way) in the place where one actually lives?

At the very least, don’t these guys mind the very dusty roads to their residences?

PS: The local use of wealth is, of course, relative. Even Chinese leaders, despite their massive domestic investments, still stash money abroad where property rights are more secure.

Is this the beginning of the Third Congo War?

Yesterday Goma fell to the M23, a rebel group in eastern DRC with alleged links to both Rwanda and Uganda. The fall of Goma increases the likelihood of an all out war in eastern Congo that might quickly degenerate into a regional war – just like the Second Congo War was (for more on why peace failed see this ICG report).

I am on record as lacking any sympathies for the Kinshasa regime under Joseph Kabila (see here, here, and here). The horrendous situation in eastern DRC is as much his fault as it is of the alleged meddlers from Kampala and Kigali. The fact that the international community has taken to viewing the conflict as primarily regional is a mistake as it masks Kabila’s own failings in improving governance in the eastern DRC . It also gives him a chance to continue free riding on MONUSCO’s presence in the region.

Sadly, the international community appears set to waste this latest crisis by issuing statements and imposing sanctions which will only tackle the symptoms rather than the real problems behind the conflict. As the ICG argues:

If international donors and African mediators persist in managing the crisis rather than solving it, it will be impossible to avoid such repetitive cycles of rebellions in the Kivus and the risk of large-scale violence will remain. Instead, to finally resolve this conflict, it is essential that Rwanda ends its involvement in Congolese affairs and that the reconstruction plan and the political agreements signed in the Kivus are properly implemented.
For these things to happen Western donors should maintain aid suspension against Rwanda until the release of the next report of the UN group of experts, in addition to issuing a clear warning to the Congolese authorities that they will not provide funding for stabilisation and institutional support until the government improves political dialogue and governance in both the administration and in the army in the east, as recommended by Crisis Group on several previous occasions.
Over at Congo Siasa, the DRC expert Jason Stearns offers some preliminary thoughts on M23’s endgame:
In the past, I have speculated that it will be difficult for the M23 to conquer and hold territory, mostly due to their lack of manpower, which started off at around 400-700 and is probably around 1,500-2,500 now. They have been able to rely on Rwandan (and, to a lesser degree, Ugandan) firepower for operations close to the border (in particular Bunagana and Rutshuru, allegedly also this recent offensive), the farther into the interior they get, they harder it will be to mask outside involvement.
Alliances with other groups­­––Sheka, Raia Mutomboki, FDC, etc.––have acted as force multipliers, but have been very fickle, as the surrender of Col Albert Kahasha last week proved. From this perspective, the M23 strategy could well be more to nettle the government, underscore its ineptitude, and hope that it will collapse from within.
However, the recent offensive on Goma has made me consider another, bolder alternative. If the rebels take Goma, thereby humiliating the UN and the Congolese army, they will present the international community with a fait accompli. Yes, it will shine a sharp light on Rwandan involvement, but Kigali has been undeterred by donor pressure thus far, and has been emboldened by its seat on the Security Council. Also, as the looting by the Congolese army and their distribution of weapons to youths in Goma has shown, the battle for Goma is as much of a PR disaster for Kinshasa as for Kigali.

The other dimension of the (origins of) Congolese Conflict

UPDATE: Stay updated on the run-up to the elections in the DRC here.

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In reaction to Dodd-Frank many in the blogosphere, including yours truly, have insisted that the problem in eastern Congo is not a law enforcement problem but a governance problem whose solution must come primarily from Kinshasa.

Often ignored is the regional dimension of the conflict.

The involvement of Rwanda and Uganda in eastern DRC (in the first and second Congo wars) have been excellently documented in Dancing in the Glory of Monsters (the author also blogs at Congo Siasa).

The invading forces may have left, but the geopolitical posturing remains and has consequences for the flow of arms and mushrooming of militias in the region.

Here’s a short documentary on the same.

This is not to simply vilify Uganda and Rwanda – one could argue that the presence of rebels from both countries in the Congo provided legitimate grounds for an invasion.

The point here is that the regional dimension of the conflict should not be ignored even as we insist that attention should shift to Kinshasa in an attempt to provide a lasting end to the conflict in eastern DRC.

sovereign hypocrisy and the icc: exposing african impunity

UPDATE:

Keating at FP reacts to the UN resolution against Gaddafi.

In 2000 Stephen Krasner, a renowned academic and member of my department, published a book that outed the “organized hypocrisy” that is state sovereignty. The book noted that leaders of states want to stay in power and have violated or allowed their own sovereignty to be violated numerous times as long it suited them. We should therefore be wary of any leaders that go nationalistic and invoke sovereignty. The Chinese and Russians have done it to protect domestic human rights abuses. The US has done it to protect its leadership and generals from prosecutions for crimes committed during foreign military campaigns. The genocidal president of Sudan, Omar al-Bashir, has done it. The mullahs of Iran keep crowing about it.

Presently, the Kenyan government is doing the same to protect members of the political class that are suspected of having organized the murder of over 1300 and displacement of hundreds of thousands in 2007-08. Six prominent Kenyans, including two of the president’s closest allies, are expected to stand trial for crimes against humanity at the ICC. The African Union, a bastion of kleptocracy, impunity and ineptitude, has come out in strong support of Kenya’s efforts to have the trial of the six deferred, or even dismissed by the UN Security Council.

A section of the African media, including prominent academics and people of repute, have also come out against the ICC. They contend that it has mainly concentrated on trying African strongmen. Some say it is a racist and neo-colonial institution. Many have demanded that the ICC stay out of Africa’s business.

I say this is all horse manure.

The ICC is not perfect. Some of the drudge that has been thrown at it sticks. But that said, it represents a voice for the hundreds of millions of voiceless Africans who for half a century have been virtual serfs to their political elite. Charles Taylor, Idris Deby, Daniel Moi, Mobutu Sese Seko, Emperor Bokassa, Robert Mugabe, Francois Bozize, among many others, have for far too long used “sovereignty” to loot, rape and pillage. They have used their own people as pawns in a dangerous game of sovereign rent extraction. They have over-taxed farmers through marketing boards. They have siphoned away foreign aid intended to build schools and hospitals into Swiss banks. Worst of all, whenever it suited them, they have started wars that killed millions.

Robert Mugabe is starving, jailing, exiling and killing Zimbabweans. Kenya’s Moi engineered “ethnic clashes” in 1992 and 1997 that killed thousands. Charles Taylor fanned the flames of a brutal war in Sierra Leone. Omar al-Bashir continues to kill Sudanese, in the north, in Darfur and in border areas with the south. Mobutu destabilized the east and south east of his country, leading to the 1997 Congo civil war, the deadliest conflict since WWII. Over 5 million died.

If this is what it means for African states to be sovereign, then count me out. To be frank, 50 years of African independence has left Africans with not much to be proud of. Disease, abject poverty, conflict, and all sorts of maladies continue to define the region. This while most of Latin America, Asia and the Middle East, other regions that have been comparably poor, have sped off toward economic development and political stability.

Before 1945 war made states. States fought to best each other in classical Darwinian fashion. The UN has since taken that off the table. In most parts of the world peaceful competition has replaced war. Brazil competes for jobs, markets and resources with other BRICs. But in Africa, competition is still lacking. What you have instead is collusion among inept dictators. The African Union exists to protect the likes of Robert Mugabe and Omar al-Bashir.

In my view, the ICC represents a much needed international threat to an inept and murderous African leadership.

I reiterate. The ICC is not perfect. But I am perfectly willing to hold my nose and support it in its attempts to end impunity on the African continent. Idris Deby, Theodore Obiang’, Paul Biya, and their ilk should know that it is no longer acceptable that they live like gods while deliberately confining millions of their own citizens to 16th century levels of poverty and incessant conflict.

remembering lumumba

Hochschild, author of King Leopold’s Ghost, has an editorial in the Times in honor of Patrice Lumumba, the firebrand Congolese independence leader who was assassinated 50 years ago. His death, amid the chaos of the Katanga secession, marked the beginning of the hellish catastrophe that was the land of Mobutu Sese Seko, and latterly the Kabilas.

Throughout Africa, Lumumba remains a celebrated hero. The many Lumumbas across Eastern Africa are a testament to this fact.

Whether the same would be true had he actually lived to run the vast Central African state is another question altogether. As noted by Adam Hochschild in his piece:

“Patrice Lumumba had only a few short months in office and we have no way of knowing what would have happened had he lived. Would he have stuck to his ideals or, like too many African independence leaders, abandoned them for the temptations of wealth and power? In any event, leading his nation to the full economic autonomy he dreamed of would have been an almost impossible task. The Western governments and corporations arrayed against him were too powerful, and the resources in his control too weak: at independence his new country had fewer than three dozen university graduates among a black population of more than 15 million, and only three of some 5,000 senior positions in the civil service were filled by Congolese.”

reality check

Recently I have been reminded over and over again of the fact that in the sixties South Korea, Ghana, Kenya, the Congo etc had roughly similar per capita GDP (I just started reading economic gangsters and have attended two very interesting lectures by Francis Fukuyama). Assertions of this nature are usually accompanied by accounts of what happened post-60s that made South Korea several times richer than its African counterparts in the present day. But an equally important question to ask is how different pre-60s Korea was from the African countries? (Korea’s long history with some form of organized polity, the nature of Japanese colonization, geographic location near the economic giants Japan and the US, relative importance in cold war politics, etc etc).

These are real issues with real consequences. Briefly stated, the differences between say the Congo and Singapore extend beyond those between Lee Kwan Yew and Mobutu Sese Seko. Pre-independence history and realities (including culture and forms of socio-economic organization) played a significant role in determining the respective trajectories of the  post-independence states of Asia and Africa.

While I am not a believer in historical institutional determinism, I find the reality of findings such as this hard to ignore. The short of it all is that everything is endogenously determined – institutions, quality of leaders, rates of capital accumulation, savings etc etc.