On external interventions to improve village-level governance and development: The DRC Edition

This is from an excellent JDE paper by Humphreys, de la Sierra and der Windt:

We study a randomized Community Driven Reconstruction (CDR) intervention that provided two years ofexposure to democratic practices in 1250 villages in eastern Congo. To assess its impact, we examine behavior in a village-level unconditional cash transfer project that distributed $1000 to 457 treatment and control villages. The unconditonal cash transfer provides opportunities to assess whether public funds get captured, what governance practices are employed by villagers and village elites and whether prior exposure to the CDR intervention alters these behaviors. We find no evidence for such effects. The results cast doubt on current attempts to export democratic practices to local communities.

Here’s a description of the program:

Our study takes advantage of a large UK funded CDR program, called “Tuungane,” implemented by the International Rescue Committee andCARE International in 1250 villages throughout eastern Congo. The program had as a central goal to “improve the understanding and practice of democratic governance ….”

… Over a four year period, the program spent $46 million of development aid, reaching approximately 1250 villages and a beneficiary population of approximately 1,780,000 people. A large share of this funding was used for facilitation and indirect costs, with only $16m, 35% of the total program costs, going directly towards infrastructure. These shares reflect the fact that the main focus of the intervention was institutional change, not the use of existing institutions to deploy development funds.

This very cool paper raises important questions about the role of elites in African development (read it to get a better understanding of the futility of these kinds of “democracy promotion”, too).

It might seem logical to assume that short-circuiting elite power, whether at the local or national level, may lead to accelerated development. However, because a lot of “development” is often elite-driven, an explicit agenda of effective elite disempowerment might actually yield suboptimal outcomes. All else equal, elites are often better organized, better-placed to take risks (on account of having more economic slack), better able to protect their property rights, and routinely deploy the state to further advance their economic interests. $46m in the hands of a powerful and secure elite class might yield jobs in firms that provide economic stability for whole districts. It is also true that less powerful or stable elites are likely to squander it on consumption, quick profit schemes, or stash it abroad.

These observations are not unique to African states.

Overall, when I look at most African states, what I see are a lot of very weak elites lacking social power, constantly unable to bend their societies to their will, and resigned to low-equilibrium forms of  political and economic organization (for example, by being mere middlemen in lucrative global commodity markets). In the case of the DRC, this is true whether one looks at Kabila/Tshisekedi or the leaders of armed groups in the east of the country. The same goes for so-called “traditional” leaders. Throughout the country and in the wider region, such elites lack infrastructural power in profound ways. Importantly for economic development, many often lack the ability to protect their own property rights. Our stylized idea of the nature of societal power relations on the Continent needs some updating. Consider this paragraph:

Eastern Congo is a well-suited environment to examine the adoption of democratic practice in local governance. The state has largely with-drawn from the rural areas of the east and enjoys low legitimacy. Local governance is often described as “captured” by traditional chiefs and vulnerable to corrupt practices by state officials. These features are not unique to the Congo. Multiple accounts suggest that in many Sub-Saharan states, colonial rule used pre-colonial institutions to create “decentralized despots” in ways that are detrimental to development.

topographies.jpgAre local elites in the modal African country this powerful? Is this the sense one gets traveling in rural Ghana or Zambia? Do these (mostly) guys look like they are in charge? As the paragraph notes, “traditional leaders” often lack the means to coerce their constituents (the state is largely absent). Despite Mamdani’s persuasive (Rwanda) story, these are not powerful and unchecked “despots” in the standard sense.

At times Africanist scholarship on state/elite society relations can seem schizophrenic: Africa is the land of “imperial” big men elites who can scarcely project their power on account of state weakness (see here, here, and here). Since the early 1990s, a lot of effort has been put into taming the allegedly imperial political elites in the region. Missing in our analyses and in donor programs have been attempts to understand the structural weakness of these same elites and the attendant consequences. The presence of an erratic and parasitic elite class might be the proximate cause of underdevelopment in the region. However, I would argue that a deeper cause is persistent elite weakness in the region. Catherine Boone’s book (see image) is the best I’ve ever read on African elites’ strategies of power projection in a context of state weakness (Boone is easily the most underrated Comparativist of her generation).

The tenures of Africa’s Amins, Mobutus, and Bongos took the form they did in no small part because these were structurally weak leaders (long leadership tenure is not synonymous with state capacity). Throughout their times in office they did all they could to destroy any and all alternative centers of power (including institutions such as legislatures). Their failures reinforced their respective counties’ two publics problems whose legacy is chronic elite weakness that is obvious for all to see. To this day, very few African countries have stable economic elite classes with easily identifiable immovable assets in-country. Most operate like little more than Olsonian roving bandits.

I am yet to see a clear theory that links greater vertical accountability to state/elite capacity. The historical record suggests that democracy works best in contexts with pre-existing state/elite capacity. In my own work, I’ve shown how strong autocratic legislatures beget strong democratic legislatures.

This is not a defense of autocracy. It is a reminder that the processes of state and political development, while related, often run on separate tracks and should therefore be decoupled in programs such as the one above and in our studies.

Is China Doomed to Fail in Africa?

This is from Wilson VornDick, a commander in the U.S. Navy Reserve, writing in the National Interest: 

It is unclear whether China could handle the financial repercussions of a larger, more systemic default or debt-forgiveness program across the African continent. Seeking relief, debtors to China would likely overwhelm existing mechanisms, like international arbitration, or China-backed forums such as the Export-Import Bank of China , China Development Bank , and Asian Infrastructure Investment Bank . More importantly, debt restructuring, recoupment, and, in the more extreme case, seizure may not be viable, reasonable, or sustainable for Chinese interests or presence continent-wide. Just such a dire economic scenario might push China to use its nascent military force to protect or even seize its interests. Looking back at the previous period of Great Power Competition more than a century ago, leveraging military might to force repayment was commonplace. The U.S. military made multiple incursions into Caribbean and South American nations as did the Western powers in Africa and Asia.

It is reasonable to assume that China would have little or no experience in any dire economic contagion across Africa. The one primary example, the take-over of Hambantota Port, was an isolated incident during calmer times, before the financial uncertainty stoked by a slowing global economy or the current U.S.-China trade war. Moreover, the port takeover has now become a watershed moment in Chinese behavior that has attracted significant international scrutiny and ire.

More broadly, VornDick articulates the potential merits (from a U.S. standpoint) of a “Let China Fail in Africa” strategy as part of Washington’s Great Power global competition with Beijing. The whole argument is worth a read.

A glaring omission in VornDick’s analysis, however, is the interests and roles of Africans in this whole game (note that this is a gap in the “China-in-Africa” genre more generally).

chinafricaA key weakness that I see in the “Let China Fail in Africa” strategy is that it vastly underestimates the extent to which Africans will be willing to work hand in hand with China to make the Sino-African relationship work.

China’s forays in Africa is creating complex tapestries of personal and institutional relationships that will become ever harder to undo. For example, in both electoral democracies and autocracies in the region, citizens have come to expect political elites to provide public goods — many of them financed and built by China. Demands for more of the same will likely only get stronger. The desire to secure funding for more public goods will likely push African elites even closer to Beijing. Furthermore, at a time when the U.S. is working hard to signal that Africans are not welcome on its shores, tens of thousands of African students are earning degrees in Chinese universities. Many of these students will probably go back to their respective countries and maintain ties with Chinese business and academic contacts. These kinds of investments in soft power will matter in the long run.

Global diplomacy is not just about crass material interests. It is also about values and shared commitments to respectful mutual cooperation. If African elites become convinced that they are better off bandwagoning with China, they will do so.

And most importantly, having made that choice, they will make specific investments (whether deliberately or not) to make their nations ever more closely allied with China. They will adopt specific technologies. Establish specific market relationships. Acquire specific weapons systems. And yes, more of their students will learn Chinese and go on to earn degrees in China. The closer the military, economic and “soft” ties, the more African elites will be willing to make costly investments in order to ensure that their respective states’ relationships with China work.

A good lesson in this regard is francafrique. The relationship between France and its former colonies in Africa is not winning any awards soon. But for almost six decades African elites have remained committed to the relationship and worked to give the French military free rein in the region and French firms access to vast natural resources. The French state, in turn, has worked to prop up the same elites despite massive economic and political failings.

The point is: China’s failure in Africa (if it comes to pass) is not what will determine the future of Sino-African relations. What happens before any such failure will likely matter more.

Public Debt in African States

This is from the IMF:

Screen Shot 2018-11-23 at 10.27.45 AMCountries in sub-Saharan Africa accumulated external debt at a faster pace than low- and middle- income countries in other regions in 2017: the combined external debt stock rose 15.5 percent from the previous year to $535 billion. Much of this increase was driven by a sharp rise in borrowing by two of the region’s largest economies, Nigeria and South Africa, where the external debt stock rose 29 percent and 21 percent respectively.

Export growth is not keeping up with rising levels of external debt:

….In 2017, the ratio was largely unchanged from the prior year, at an average of 138 percent. However, this ratio was close to double the average of 70 percent in 2010. Moreover, the average ratio masks wide disparity between countries. At the end of 2017 54 percent of countries in the region had an external debt-to-export ratio over 150 percent, as compared to 28 percent of countries in 2010 and the number of countries where the ratio surpassed 200 percent more than doubled, from 6 countries to 14 countries, over the same period. Most of these countries are ones that benefitted from HIPC and MDRI relief, including Burundi, Ethiopia, Niger, Senegal and Tanzania.

Bond issuance is dominated by a handful of countries:

Bond issuance by sovereign governments and pub- lic-sector entities in the region rose to $27 billion in 2017, a more than fourfold increase over 2016, driven to a large extent by a surge in issuance in South Africa to $19 billion from $4 billion in 2016, 70 percent of bond issuance in the region last year. An important factor was non-resident purchase of bonds issued in the South African domestic market. Bond issuance by other countries in the region totaled $8 billion, a tenfold increase from 2016, reflecting continued investors’ confidence and search for yield. Issuing countries in 2017 were Nigeria ($4.8 billion), Cote d’Ivoire ($2 billion), Senegal ($1.1 billion), and Gabon ($0.2 billion). Nigeria’s $3 billion Eurobond issuance marked the country’s largest such operation to date, and at end 2017, bond issuance accounted for one third of the country’s outstanding external debt.

Overall, while the data suggests that things may not be as bad as they were over the lost long decade (1980-1995), the trends are not encouraging. Total reserves as a share of external debt peaked around 2010 and have been in decline since. Screen Shot 2018-11-23 at 10.54.37 AM

It’s getting easier to do business in Africa

At least according to the World Bank Group:

Sub-Saharan Africa has been the region with the highest number of reforms each year since 2012. This year, Doing Business captured a record 107 reforms across 40 economies in Sub-Saharan Africa, and the region’s private sector is feeling the impact of these improvements. The aver- age time and cost to register a business, for example, has declined from 59 days and 192% of income per capita in 2006 to 23 days and 40% of income per capita today. Furthermore, the average paid-in minimum capital has fallen from 212% of income per capita to 11% of income per capita in the same period.

See the 2019 Doing Business Report here.

Here are some questions from last year on the integrity of the Doing Business Index.

The Case for Term Limits, Angola Edition

The erasure of Jose Eduardo dos Santos’ 38-year rule in Angola appears to be accelerating. Angola does not have executive term limits, but Eduardo dos Santos finally stepped down as president in late 2017.

On Wednesday his successor, Joao Lourenço, removed replaced his son (Jose Filomeno dos Santos) as head of Angola’s $5b sovereign wealth fund. This follows the sacking of Isabel dos Santos (Africa’s wealthiest woman) as head of the country’s state oil company last year. President Lourenço has also moved to replace key security chiefs in sub-Saharan Africa’s third largest economy and second biggest oil producer.

When Eduardo dos Santos said he’d retire I was skeptical. The anointment of his defense minister, Joao Lourenço, as his successor (while retaining position atop the ruling party) did little to change my mind. But like in Mozambique and Zambia before it, the mere change of guard in Angola appears to have initiated a process of elite churn that is accompanied by a dismantling of the old order (at the very least within the ruling party).

Now, there is no guarantee that this will lead to normatively desirable outcomes (such as better governance and service delivery in Angola). Change for its own sake is only good up to a point. But it is a testament to the political importance of term limits. Regular leadership turnover is a nice way of ensuring that no single interest group or ruling cabal completely dominates a country’s political economy.

Relatedly, I am not a close watcher of Angola but recent events have led me to update my view of the level of institutionalization of MPLA. For a long time I thought that it was just an electoral/patronage SPV for Eduardo dos Santos. But news events seem to suggest that its powers transferred almost intact to Joao Lourenço (I could be wrong of course).

 

How to avoid the resource curse, or how Norway spends its $882 billion global fund

This is from the Economist:

This week the “Pension Fund Global” was worth Nkr7.3 trillion ($882 billion), more than double national GDP. No sovereign-wealth fund is bigger (see chart). It owns over 2% of all listed shares in Europe and over 1% globally. Its largest holdings are in Alphabet, Apple, Microsoft and Nestlé, among 9,000-odd firms in 78 countries.

In designing the fund, Norway got a lot right. Its independence is not constitutionally guaranteed, but it is protected as a separate unit within the central bank, overseen by the finance ministry and monitored by parliament. It is run frugally and transparently; every investment it makes is detailed online.

Other funds might copy those structures, but would struggle to mimic the Nordic values that underpin them. Yngve Slyngstad, its boss, says growth came “faster than anyone had envisaged”, and that a culture of political trust made it uncontroversial to save as much as possible. A budgetary rule stops the government from drawing down more than the fund’s expected annual returns (set at 4% a year). The capital, in theory, is never touched. Martin Skancke, who used to oversee the fund’s operations from the finance ministry, attributes the trust the institution enjoys to relatively high levels of equality and cultural homogeneity. It also helps that many rural areas recall poverty just two generations ago.

Consider this your regular reminder that the “resource curse” is not a universal phenomenon. See also Botswana, the United States, Chile, Canada, and Australia.

More on this here.

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. 

The top 20 best countries to invest your money in Africa

This is according to the latest Ernst & Young’s Africa Attractiveness Report (2016). Kenya is ranked 4th. Ahead of Tunisia, Mauritius, and Botswana. You just need to spend a few hours in Nairobi, or the other 46 county headquarters, to understand why. While economic inequality remains to be a huge (political) challenge, it’s hard to argue against the structural transformations underway in the Kenyan economy.

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More on this year.

Mozambique may have squandered up to $2b of borrowed money

Public Finance is emerging to be one of the biggest development challenges of our age. Here’s Africa Confidential on Mozambique’s hidden loans, which may amount to more than $2b.

Screen Shot 2016-05-12 at 1.38.32 PMSources close to Rosário Fernandes, ex-head of the revenue authority, the Autoridade Tributária de Moçambique, have told us of systematic diversions of taxes straight into the pockets of the Frelimo elite, especially in the later years of President Guebuza’s term of office, when he exercised enormous patronage. Massively inflated contracts were commonplace. The latest to emerge is the extravagant, nearly complete, Bank of Mozambique building in Maputo, which boasts a helicopter landing pad on the roof. Originally estimated to cost $90 mn., the final cost is reckoned at at least $300 mn., with kickbacks and ‘commissions’ accounting for the cost inflation, say Frelimo sources.

Guebuza engaged in an ultimately doomed attempt to extend his term of office, which ended in October 2014, and this partly explains the extraordinary scale of his liberality towards loyalists, sources formerly close to him told us (AC Vol 53 No 18, The Putin option). The schemes became increasingly brazen, and the creation in 2013 and 2014 of three companies – Empresa Moçambicana de Atum (Ematum), Proindicus and Mozambique Asset Management (MAM) – was the culmination of this programme. The companies, which received the totality of the $2 bn. now owed by the state, were mainly in the field of maritime security, even though it was the intelligence and security services that provided the management. They bypassed parliament, illegally, and defence procurement, effectively privatising, as one commentator put it, national security while lining the pockets of the elite into the bargain. Yet the ill-equipped companies could not cope and quickly collapsed. Ematum, which originally claimed to be focused on tuna fishing, is no longer operating its few licensed vessels because it cannot pay salaries (AC Vol 56 No 24, Nyusi’s nightmare).

Kenya, Zambia, among others, have also borrowed enormous amounts of money that have not been properly accounted for. Several of these countries have recently gotten cover from the IMF that all is well. But the IMF has strong incentives to save face and maintain confidence that it does its job.

If Mozambique could do it, what stops more sophisticated treasuries elsewhere on the Continent?

I am increasingly convinced that Africa’s newfound love with international creditors is a bond bubble waiting to happen. The 1980s and early 1990s sucked. And we might be headed for a repeat if the African states floating eurobonds continue on the same path.

Interesting Fact of the Month

On life expectancy on the Continent:

Malawi has led the way, with life expectancy at birth rising 42 per cent from 44.1 years in 2000 to 62.7 in 2014, according to data from the World Bank.

Zambia and Zimbabwe have both seen rises of 38 per cent over the same period, with longevity in Rwanda, Botswana and Sierra Leone up more than 30 per cent.

Uganda, Ethiopia, the Republic of Congo, Niger and Kenya have all witnessed rises of more than 20 per cent. Overall, of the 37 countries to have seen life expectancy rise by more than 10 per cent since 2000, 30 are in sub-Saharan Africa, including the 15 with the biggest gains, as the table below shows.

Not one sub-Saharan country saw life expectancy fall between 2000 and 2014.

Public health for the win.

The full FT piece is here.

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. 

Powering Africa Into the Next Decade

The African Development Bank has made power generation its top priority (see list of power projects here). The US-led initiative, Power Africa, is focusing capital on some very big and interesting projects. I’m not sure if the AfDB was the instigator of the new trend (even before President Adesina), but several serious African governments have recently prioritized power generation (looking at you, Pretoria). Here’s a sample:

A 450MW gas-fired power plant near Nigeria’s Benin City. In 2014 Nigeria flared more than 290b standard cubic feet of gas.

Twenty international banks and equity funders have committed $900m to the Azura-Edo Independent Power Project, a 450MW gas-fired open-cycle power plant to be built in the country’s Edo State.

A joint venture of Siemens and Julius Berger Nigeria will start building the plant, which is expected to start generating in 2018.

Considered a model for future plants in terms of its private financing, the plant will also burn Nigeria’s natural gas, of which many billions of cubic feet are now routinely flared off as waste.

Zambia and Zimbabwe are in an advanced stage of making the 2400MW Batoka Gorge dam and power station a reality.

Construction of the Batoka Gorge hydroelectric power station to be located on the Zambezi River approximately 54km downstream of Victoria Falls is projected to commence early next year.

….That is why I am saying that we are closer to the fulfillment of the dream for the construction of the dam. Once construction starts it will take five years and we expect it to be completed by 2023.

Nambia set to build its biggest gas-fired power plant since independence.

The $450m plant to be located in Walvis Bay, is set to generate about 250 megawatts, 50 per cent of what the country currently generates internally (500 megawatts)

And lastly, Ethiopia’s mega dam and power plant will generate about 6,000MW:

When Ethiopia completes construction of the [Grand Renaissance] dam in 2017, it will stand 170 metres tall (550 feet) and 1.8km (1.1 miles) wide. Its reservoir will be able to hold more than the volume of the entire Blue Nile, the tributary on which it sits (see map). And it will produce 6,000 megawatts of electricity, more than double Ethiopia’s current measly output, which leaves three out of four people in the dark.

 

Some Africanist inside baseball

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Former HIPC countries are back in the red

The Journal reports:

Mozambique was one of the biggest benefactors of debt forgiveness, with its debt slashed from 86% of gross domestic product in 2005 to 9% the next year. The country has built it back up since then to 61% of GDP.

Ghana’s debt was 82% of GDP in 2005 just before the international community forgave about half of it. It’s now up to 73% of GDP and growing, according to the IMF.

The burgeoning debt burdens are putting more pressure on African budgets. The cost of servicing Ghana’s debt will consume nearly 40% of government revenue this year, according to an analysis by Fitch Ratings — twice what is considered sustainable under the rule of thumb used by the IMF and many analysts.

More on this here and here and here.

Africa’s looming debt crises

The 1980s are calling. According to Bloomberg:

Zambia’s kwacha fell the most on record after Moody’s Investors Service cut the credit rating of Africa’s second-biggest copper producer, a move the government rejected and told investors to ignore…..

Zambia’s economy faces “a perfect storm” of plunging prices for the copper it relies on for 70 percent of export earnings at the same time as its worst power shortage, Ronak Gopaldas, a credit risk analyst at Rand Merchant Bank in Johannesburg, said by phone. Growth will slow to 3.4 percent in 2015, missing the government’s revised target of 5 percent, Barclays Plc said in a note last week. That would be the most sluggish pace since 2001.

The looming debt crisis will hit Zambia and other commodity exporters hard. As I noted two years ago, the vast majority of the African countries that have floated dollar-denominated bonds are heavily dependent on commodity exports. Many of them are already experiencing fiscal blues on account of the global commodity slump (see for example Angola, Zambia and Ghana). This will probably get worse. And the double whammy of plummeting currencies and reduced commodity exports will increase the real cost of external debt (on top of fueling domestic inflation). I do not envy African central bankers.

Making sure that the looming debt crises do not result in a disastrous retrenchment of the state in Africa, like happened in the 1980s and 1990s, is perhaps the biggest development challenge of our time. Too bad all the attention within the development community is focused elsewhere.