State of Capture: Corruption in Jacob Zuma’s South Africa

This is from Quartz Africa: 

The 355-page report detailing corruption in South Africa’s ruling party offers one rare uplifting moment. In the report, deputy finance minister Mcebisi Jonas reveals more details of how he turned down an offer by the powerful Gupta family of 600 million rand (about $44 million) to be the country’s finance minister.

Jonas, in an interview with Thuli Mandonsela, the country’s former anti-corruption chief who spearheaded the report released today, said he had agreed to meet with president Jacob Zuma’s son Duduzane Zuma on Oct. 23 last year, a few months before then finance minister Nhlanhla Nene was dismissed, kicking off a hailstorm of corruption allegations against the president.

Jonas met the younger Zuma at the Hyatt Regency hotel in the Johannesburg suburb of Rosebank where Zuma asked if they could move to a more private location for discussions “with a third party.”

Jonas was then taken to the Gupta compound in the suburb of Saxonwold where they were joined by Ajay Gupta, the eldest of the Gupta brothers, who briskly informed the deputy minister that “they had been gathering intelligence on him and those close to him.” Gupta informed Jonas that they were going to make him minister of finance, to which Jonas said that only the president could make that decision.

You can download the full State of Capture report here (pdf).

For more on the history of corruption in South Africa see here.

Variagated Africa: Trends in Economic Performance in Two Charts

This is from the IMF’s Monique Newiak:

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In summary:

Non-commodity exporters, around half of the countries in the region, continue to perform well with growth levels at 4 percent or more. Those countries benefit from lower oil import prices, improvements in their business environments, and strong infrastructure investment. Countries such as Côte d’Ivoire, Ethiopia, Senegal, and Tanzania are expected to continue to grow at more than 6 percent for the next couple of years.

Most commodity exporters, however, are under severe economic strain. This is particularly the case for oil exporters like Angola, Nigeria, and five of the six countries from the Central African Economic and Monetary Union, whose near-term prospects have worsened significantly in recent months despite the modest uptick in oil prices. In these countries, repercussions from the initial shock are now spreading beyond the oil-related sectors to the entire economy, and the slowdown risks becoming deeply entrenched.

It should be obvious, but it bears repeating that there is quite a bit of variation in economic performance across the 55 states on this vast continent.

My personal Africa growth index consists of Senegal, Cote d’Ivoire, Nigeria, Ghana, Gabon, Cameroon, Ethiopia, Kenya, Zambia, Angola, and South Africa. And despite ongoing turbulence in a number of the key economies in this basket, I am confident that the turbulence will not completely erase the gains of the last two decades.

 

The Place of Race and Racism in International Relations

In case you have not read Susan Pedersen’s review of Robert Vitalis’ White World Order, Black Power Politics: The Birth of American International Relations, you should.

Here is an excerpt:

The Journal of Race Development, established in 1910, was one of a spate of academic journals, associations and institutes founded as American social scientists came to grips with their country’s expanding global and imperial role. The journal’s title, jarring today, reflects perfectly the centrality of the category of ‘race’ to political science at the time. During the ‘Wilsonian moment’ of 1919, the journal was rechristened the Journal of International Relations without much disturbing its contributors or character. A few years after that, it was bought and renamed again by a New York-based association of internationalist businessmen, officials and academics, the Council on Foreign Relations. Yes, that’s right: it becameForeign Affairs, the pre-eminent journal of the foreign policy establishment.

This is just one of the startling and illuminating genealogies Vitalis pieced together during the ten years or more he spent researching this book. White World Order, Black Power Politics does two things. First, it provides a critical history of the institutional development of the field of international relations in the United States, from its founding at the turn of the century through to the Cold War. This history is radically unfamiliar: the ‘origin story’ taught on undergraduate courses, which traces the field’s core concepts (realism, liberal internationalism) back to Thucydides or Machiavelli or Wilson is, Vitalis insists, a post-1945 invention. Instead, at the moment of its American birth, ‘international relations meant race relations.’ Races, not states or nations, were considered humanity’s foundational political units; ‘race war’ – not class conflict or interstate conflict – was the spectre preying on scholars’ minds. The field of international relations was born to avert that disaster.

A blunter way to put this, and Vitalis is blunter, is that international relations was supposed to figure out how to preserve white supremacy in a multiracial and increasingly interdependent world. Segregation and Jim Crow had done the trick at home, where non-white populations were in the minority, but how could white America govern its newly annexed and overwhelmingly non-white territories without losing its republican soul? A few white scholars thought the task impossible. Indeed, one of the most famous – John Burgess, founder of Columbia’s School of Political Science and of the Political Science Quarterly – opposed President McKinley’s imperial adventuring precisely because it threatened the democratic institutions he thought suited to ‘Teutonic’ peoples alone. ‘American Indians, Asiatics and Africans cannot properly form any active, directive part of the political population which shall be able to produce modern political institutions,’ he warned. Unless it wanted to go the way of Rome, America should leave empire alone.

Something to think about for students of development and liberal international institutions, both big and small.

The book is available for purchase here. I can’t wait for my copy to arrive.

How to Eliminate Malaria

Sri Lanka is the latest country to be declared malaria free by the WHO.

How did they do it?

According to the New York Times:

In 2000, outside the rebel-controlled areas in the northeast, malaria cases began dropping as the government, with donor help, deployed a mix of indoor spraying, bed nets, rapid diagnostic kits and medicines that combined artemisinin, an effective treatment, with other drugs.

The government also screened blood samples drawn — for any reason — in public clinics and hospitals for malaria infection, and officials established a nationwide electronic case-reporting system.malariaeradication

In war-torn areas, the disease retreated more slowly, although the Tigers often cooperated with malaria-control teams because their villages and fighters also suffered.

Nonetheless, in a population of 20 million, it took years to get rid of the last few hundred annual cases. Most were soldiers and itinerant laborers, often from India, who worked in remote slash-and-burn farming areas and in logging and gem-mining camps.

Someone tell African policymakers that bed nets and behavior change are not enough.

Every other region of the world appears to be willing and able to combine vector (mosquito) control with other strategies of containing malaria with success (and enthusiastic donor support). But for some reason mosquito control is still lagging in Africa, even in otherwise strong and stable states. In some instances this has been due to environmental concerns while in others it has been due to the misplaced priorities of public health officials, donors, development agencies, and academic researchers.

The result:

About 3.2 billion people – nearly half of the world’s population – are at risk of malaria. In 2015, there were roughly 214 million malaria cases and an estimated 438 000 malaria deaths. Increased prevention and control measures have led to a 60% reduction in malaria mortality rates globally since 2000. Sub-Saharan Africa continues to carry a disproportionately high share of the global malaria burden. In 2015, the region was home to 89% of malaria cases and 91% of malaria deaths. 

214 million malaria cases amount to lots and lots of lost productivity. Also, losing one Miami every year in deaths is simply unacceptable.

More on this here. 

When Markets Discipline Politics

President Jacob Zuma continues to be in conflict with his own Finance Minister, Pravin Gordham, over fiscal policy (and propriety in the management of public finances). The markets trust the latter. The former has more power, including the coercive apparatus of South Africa’s administrative state. Having just presided over a disastrous outing for the ruling ANC in this month’s municipal elections, Zuma needs to create more policy wiggle room for his floundering administration. And Gordham’s commitment to fiscal discipline stands in the way. So far the markets’ reaction to Zuma’s machinations at the Finance Ministry have managed to discipline intra-ANC elite politics. But as Zuma gets closer to retirement (or being forced out) it is unclear how much he is willing to continue humoring the markets…

The revelation on Tuesday that Gordham may be forced out via (likely dubious) charges of improper conduct while he served as head of the South African Revenue Service sent the rand tumbling, again.

This is the third time the police unit, known as the Hawks, have questioned Gordhan. Earlier this year, just days before he was set to deliver a crucial budget speech, the Hawks demanded Gordhan answer written questions. Then in May, rumors of Gordhan’s imminent arrest sent the currency tumbling, just as ratings agencies were assessing South Africa. Gordhan was not arrested then, and went on lead South Africa’s recent economic recovery, assuring international investors of the country’s stability.

Screen Shot 2016-08-24 at 11.13.59 AMAnalysts believe Gordhan is the target of president Jacob Zuma and his political allies. The two are reported to be at loggerheads over the management of South Africa’s state-owned enterprises, especially the national carrier South African Airways. Gordhan’s office has delayed bailing out the embattled carrier until a new board is appointed (effectively removing those close to Zuma, according to reports). Gordhan’s office has also curbed spending on plans to build a new nuclear power plant.

Earlier this week, a cabinet briefing announced that Zuma himself would now directly oversee state-owned companies. Analysts say the move allows Zuma to maintain political power and protect his interests after historic losses in this month’s local government elections. Zuma’s office has denied that there is a rift between the president and the finance minister. According to reports, Gordhan is determined to resist pressure to resign

For more on this visit Quartz Africa:

Is Brexit good or bad for Africa?

Writing in Foreign Policy, Alex de Waal is certain that Brexit is terrible for African countries, and that “[e]verything from the economy to peacekeeping missions will suffer.”

The damage to British interests is significant, but the losses for [African countries] could be greater still. In campaigning to leave the European Union, Minister for Africa James Duddridge argued that Britain would be able to forge stronger ties with the continent if it were unencumbered by EU inefficiencies in aid and trade. Perhaps if Duddridge had a blank slate on which to construct a new Africa policy, he could do better than Britain’s existing one, which is part bilateral and part multilateral through the EU.farage But no policy is ever built on a blank slate, and surveying the post-Brexit political wreckage, he is now faced with a salvage job that will involve decoupling Britain from numerous EU-led peace and development initiatives and renegotiating dozens of trade deals. Even deftly managed by Duddridge or his successor, the Brexit will leave Britain with a fraction of the influence it currently wields in Africa.

And over at Africa is a Country Grive Chelwa notes that:

The one obvious channel through which Brexit could affect economies in Africa is if it triggers a recession in the UK. A recession might affect trade and investment between the two regions. The Bank of England thinks a recession might very well be on the cards. A study reviewing all studies that have estimated the likely economic impact of Brexit found: “GDP losses for the UK in the range of 10% or more [could not] be ruled out in the long run.”

How much trade takes place between the UK and Africa? Not much, it turns out. Combining data from the UK’s Office for National Statistics (ONS) and the United Nations Conference on Trade and Development (UNCTAD) for 2014, the latest year for which we have comparable data, we calculated that exports from Africa to the UK represent about 5% of Africa’s total exports. Africa is more worried about a slowdown in China, its biggest trading partner by far.

…. The UK doesn’t have the same influence on the continent that it did decades ago. And Brexit will be further proof of that. If the UK sneezes Africa will … well Africa will say “bless you” and move on.

On balance, I agree with Chelwa. It appears that with regard to the UK-Africa relationship, the Brits stand to lose more than Africa as a unit following Brexit. This is for the following reasons:

  1. Lacking the amplifying effects of the EU, UK influence in Africa will be diminished. This is bad for the UK, but not necessarily so for African states. Notice that the UK’s security objectives in Somalia or elsewhere on the Continent have not suddenly changed following the Brexit vote. We should disabuse ourselves of the notion that the UK involvement in these theatres of conflict is out of pure benevolence. It is largely to protect British interests (tourists, MNCs, aid workers, other tied aid, etc). Those interests have not suddenly changed with Brexit. Is a post-Brexit UK better off with a stable Somalia? I think so. Viewed this way, what Brexit has done is not to change British interests in Africa but to increase the UK’s transaction costs in catering to those interests. The Brits may invest less in specific peacekeeping operations, but their self-interest dictates that they will not suddenly close the taps on these investments.
  2. A diminished UK diminishes Europe, which may reduce Europe’s leverage vis-a-vis African countries. This outcome could cut both ways. On the one hand, it may exacerbate the moral hazard problem faced by African leaders by allowing them to play different European powers off each other (why invest in good governance if Europe is always at the ready to help if things go south?) But on the other hand, a weaker Europe may be less willing to bail out African leaders all the time. This might force these leaders to take their jobs seriously, thereby improving the welfare of their citizens. 
  3. It is not clear that decoupling UK aid from the rest of Europe will necessarily lead to the UK cutting its aid budget. In fact, the opposite might prove true. Going its own way may force the UK to put more aid pounds into projects in the region than it currently does under a joint EU aid budget. Again, increased transaction costs may mean the UK spending more money than it currently does in Africa, which is good for African economies. Plus the UK is likely to find itself needing to make up for the lost amplifying effects of the EU with more aid pounds.
  4. A recession in the UK may prove contagious. This would be bad for the world economy, and Africa would not be an exception. That said, I don’t think economic turbulence in Africa would necessarily lead to the conflicts of the early 1990s. With a few glaring exceptions, most African countries would be able to withstand a global recession without collapsing. We saw this during the Great Recession.
  5. The world is learning a lot about democracy by observing the challenges it currently faces in the West. Suddenly, corrosive ethnic politics is not exclusive to poor countries. “Leaders” like Donald J. Trump and Boris Johnson are not things that only happen in Zimbabwe or Nicaragua. These data points will serve to demystify democracy as a system of governance, and refocus global attention on what really makes democracy work — a stable intra-elite consensus coupled with reasonably sufficient responsiveness to the electorate (down with the fetishization of elections!!!) This will be a valuable lesson for Africa and other developing regions of the world. The ongoing sociopolitical troubles in the West are bound to liberate the worldview of leaders and other elites in the Global South, and will empower them to mold their own societies in their own image, instead of trying to turn them into Denmarks. The often-misrepresented “European mystique” has lost its shine. And this is a good thing for the world.

This is not to say that Africa’s economies will be able to weather Brexit without any non-trivial hiccups. South Africa, Nigeria, and Kenya are probably the most exposed (in that order). Other African economies will be exposed to the extent that economic troubles in the UK lead to a global recession (the gold exporters might even benefit…)

And Western security policies and support for missions in Somalia and across the Sahel may face short-term uncertainties. But these experiences will not necessarily be catastrophic (on the security front, America will most likely steady the ship).

In fact, I tend to think that the long-run impact of these experiences will be positive. English speaking African economies will have incentives to diversify their export destinations away from the UK. African countries will have more leverage vis-a-vis the UK and (a fractured) Europe (and the US). And the lessons from the political upheavals in the West will serve to liberate Global South elites to mold their own societies in their own image and in a manner that respects sociopolitical realities in their specific contexts.

What does it mean to be “tough on crime”?

This is from Alex Tabarrok over at MR:

Our focus on prisons over police may be crazy but it is consistent with what I called Gary Becker’s Greatest Mistake, the idea that an optimal punishment system combines a low probability of being punished with a harsh punishment if caught. That theory runs counter to what I have called the good parenting theory of punishment in which optimal punishments are quick, clear, and consistent and because of that, need not be harsh.

We need to change what it means to be “tough on crime.” Instead of longer sentences let’s make “tough on crime” mean increasing the probability of capture for those who commit crimes.

More on this here.

In my public policy class this semester we read the sad story of Thabo Mbeki’s capture by “dissident” scientists who sold him unconventional policy approaches to South Africa’s AIDS epidemic. The lesson was that we should always be wary of allowing experts too much leeway in deciding actual policy. This means more debate (both among experts and by the public) and routine rigorous evaluation to strengthen the quality of feedback after policy rollouts.

Social Science is awesome. And may the credibility revolution live on. But the world certainly needs more humble social scientists.

Several African public figures (and associates) mentioned in the Panama Papers

The Guardian has an excellent summary of what you need to know about the Panama Papers, the data leak of the century from the Panama-based law firm Mossack Fonseca.The firms specializes, among other things, in incorporating companies in offshore jurisdictions that guarantee secrecy of ownership.

Here is a map of the companies and clients mentioned in the leaked documents (source). Apparently, the entire haul (2.6 terabytes of data) has information on 214,000 shell companies spanning the period between 1970 to 2016.

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The leaked documents show links to 72 current or former heads of state and government. So far the highest-ranking public official most likely to resign as a result  of the leak is the Prime Minister of Iceland, Sigmundur Gunnlaugsson (see story here and here)

For a list of African public officials mentioned in the leaked documents see here. And I am sure we are going to hear a lot about all these rich people in developing countries.Screen Shot 2016-04-03 at 9.18.42 PM

Closer to home, the Daily Nation reports that Kenya’s Deputy Chief Justice, Kalpana Rawal, “has been linked to a string of shell companies registered in a notorious Caribbean tax haven popular with tax dodgers, dictators and drug dealers.” Justice Rawal has been dodging retirement for a while. May be after the latest revelations might find a reason to call it quits.

The ICIJ website has neat figures summarizing some of the findings from the massive data haul. Also, here is a Bloomberg story on the tax haven that is the United States. 

Who’s responsible for South Africa’s woes? Zuma or the ANC?

I raised this question in a post last year.

Friend of the blog and Harvard-trained historian Matthew Kustenbauder has this thoughtful response (posted with his permission. Emphases mine).

Hi Ken,

Interesting post on South Africa’s recent rollercoaster and explanations for the economic downturn under Zuma’s presidency.  A few quick comments:

I agree South Africa’s current woes may be attributed to ANC policies, not President Jacob Zuma alone.  Take the issue of land, for example, about which Mr. Mngxitama is as passionate as he is wrong.  As I pointed out previously on this blog, the politics of land redistribution in South Africa are tied to the ANC’s historic decision to support and strengthen traditional authority in the former bantustans.  In short, the ANC forged an alliance with traditional leaders to bolster its negotiating power with the apartheid government in the 1990s and, afterwards, to win elections.  Mozambique served as a cautionary tale: civil war broke out after the socialist liberation government FRELIMO abolished chiefs and traditional forms of authority outright.  The ANC’s entrenchment of traditional chiefs and kings has had a ripple effect across South Africa, creating a drag on the rural economy, locking up productive agricultural land and capital assets, not to mention denying rural people equal justice under the law.

I also appreciate the argument, and agree to a degree, that both Mr. Zuma and Mr. Mbeki are ANC cadres.  When the opposition Democratic Alliance argue that somehow the country was in good hands until Mr. Zuma came along, it is more a political manouver to appeal to the black middle classes, many of whom are embarrased by Mr. Zuma and favoured Mr. Mbeki, than it is a faithful rendering of the historical record.  Thabo Mbeki was, despite his polished veneer, a disaster on many fronts, including but not limited to: unrepentant AIDS denialism, cadre deployment as an ANC policy, racial politics, silencing of internal opposition within the ANC, and a narrative that counterrevolutionary forces lurked within the media. These ideas and practices either began or were ramped up to become de facto party policy under Mr. Mbeki’s presidency.

I disagree, however, that Zuma and Mbeki represent nothing more than two cadres of the same party.  For one thing, the challenges facing South Africa today are different than those during the Mbeki years.  At that time, South Africa still luxuriated in the glow of 1994’s transition to democracy and the Madiba magic of Nelson Mandela had not yet worn off.  Mbeki was a skilled orator with global leadership aspirations, the likes of which have not been seen in South Africa since Jan Smuts was Prime Minister during WWII.  But it is not simply Zuma’s halting English, or his multiple wives, countless offspring, traditionalism, patriarchy, and coziness with Russia, China, and Sudan that make South Africans uneasy.

What is so disturbing – and what Mbeki assiduously avoided – is Zuma’s overt corruption. The most public evidence includes: Nkandla, the Gupta family’s illegal landings at Waterkloof Airforce Base, a prolonged legal battle over spy tapes that implicate him in fraud dating all the way back to his time as Deputy President (for which Mbeki sacked him and Schabir Shaik was found guilty and went to jail), and the most recent dismissal of Nhlanhla Nene for standing in the way of sweetheart SAA and nuclear deals that would have yielded tenders for Zuma’s friends and family.  If Mbeki was a loyal cadre who represented the ANC’s failed policies, Zuma is a loyal cadre who represents the ANC’s descent into patronage, corruption, and jobs for pals hidden behind a façade of election-time slogans, “our glorious struggle history” and “A Better South Africa for All.”  

Andile Mngxitama, booted out of the EFF, and firebrands like him who drone on about the ANC’s errant support of neoliberal policies and the tragedy of Mandela’s compromise during the political settlement period have little appreciation for just how far South Africa has come since 1994. Nor do they grasp the direction in which South Africa must go – and must go soon – to avoid a[n] even more tragic tailspin.

To give just one example, a major problem in South Africa has not been, contra Mr. Mngxitama, that capitalism has been prioritised. Rather, grassroots capitalism has been far too constrained – not just by government overregulation but by monopoly capitalism sheltered by the state.  This is a historical dynamic inherited from the apartheid-era National Party, one that the ANC never addressed, mainly because such arrangements benefitted the ANC so long as they controlled the levers of the state.

The number of state owned enterprises in South Africa – over 700 by the last count – is staggering for a country so small.  Just one, South African Airways, has drained well over $2 billion in bail-outs from state coffers in two decades. The energy sector is even more dire: Eskom, another state owned enterprise, has a near complete monopoly over energy generation and a complete monopoly over its transmission.  Due to a lack of capitalist competition, the country’s electricity supply is not just overly expensive, it is also tightly constrained. Last year South Africans plunged into darkness, and for some time now manufacturers and other industrial electricity consumers have actually been paid by the state to reduce their operations.

The result is that South Africa’s manufacturing sector is less competitive globally and unable to expand to create the jobs so desperately needed at home, where there is a 30% unemployment rate.  There are countless similar examples, where state owned enterprises should have been privatised, or at the very least private companies should have been permitted to enter the market and compete.  What must be remembered, however, is that the country’s economic system, designed by the old National Party, is now controlled by and benefits the African National Congress.

Similarly, in the private sector, too many large companies have a monopoly, making the cost of entry for small companies far too expensive. Government labor regulations and aggressive trade union action ensures that only the largest companies with the deepest pockets can comply and survive. Large private companies – like the mining groups, agro-processing operations, banks, telecommunications companies, and industrial manufacturers – operate with few competitors. Relatively small players in sectors like the textile industry have closed their doors and relocated to countries where labour is more productive, regulations more lax, and costs are cheaper. Too few South African companies can compete globally.

There may be a kernel of truth in Mngxitama’s claims, but his diagnosis is overly simplistic, ideological, and ahistorical.

 

Why is Barclays exiting its Africa business?

The FT reports:

Firstly, he said it would create “a very simple, clear vision for Barclays” as a bank focused on its two core markets of the UK and US.

Secondly, he explained that Barclays was “structurally challenged” as the majority owner of the African operation. It has all the downsides of owning 100 per cent of the business, but benefits from less than two-thirds of its profits.

……. The African operation produced an attractive 17 per cent return on equity last year in local currency, but this fell to 8.7 per cent at group level, below its 10 per cent target.

In addition, the Wall Street Journal reports that the bank is selling its Asian wealth management fund in order to focus exclusively on the US and UK markets.

According to the Journal:

Cutting the African division “was a very difficult decision,” Mr. Staley said. A U.K. tax on bank balance sheets and the regulatory costs that come with holding the unit outweighed the benefits of keeping it, he added. It is unclear when Barclays will start to sell out of the business.

In short, this data point does not reveal any new information on the state of the African economies in which Barclays is a major player.