DEAR GOD: Why are we so poor?

BY KWAME MARFO

In a recent conversation with friends about why Africa is poor, one colleague retorted rather cheekily “duh, asking why Africa is poor is like asking why the sky is blue? Poverty and Africa are conjoined at the hip.” This struck a bit of a nerve and prompted an inquiry – is that really the case?

Contrary to popular belief, Africa and impoverishment are not conjoined at the hip – in fact, it is a fairly recent phenomenon. According to the World Bank, as recent as 1970, Africa’s GNP per capita as a percentage of the world was roughly three times greater than that of East and South Asia.

So what happened? How did Africa become the poster child for global poverty? In an unscientific survey among friends where I posed the question, name the four major causes of poverty in Africa? Unsurprisingly, corruption, ethnic differences and bad leadership polled the highest.

However, in a 2002 seminal essay titled the African Crisis, John Hopkins scholar, Giovanni Arrighi provides a compelling argument on why Africa’s fortunes diverged from that of the rest of the world from 1970s onwards. He lays the blame on external factors – not the time-honed conspiracy theories of a stitch up between global super powers (or the top 1%) to keep the poor trapped or even arguments against good intentioned, but often ill-designed schemes, such as aid or unfettered economic liberalism, by global superpowers that are forced down on poorer countries. The external factors he refers to are structural changes in the global economy, which are often in response to domestic challenges within superpower countries and the geopolitical decisions they make. So how did this happen, precisely?

According to Arrighi, the relative decline in US power in the 1970s after the post-war boom was accentuated by the loss of the Vietnam war, the hostage of US embassy in Tehran, the Soviet Union’s invasion of Afghanistan, and a new crisis of confidence in the US dollar. In response, the US government enacted a number of economic policies—a drastic contraction in money supply, higher interest rates, lower taxes for the wealthy, etc — that made it even harder to pay off its debts. To finance this deficit, the US government, which was previously a major provider of capital, began to compete aggressively for capital worldwide and became the world’s biggest debtor nation.

This had a disproportionate impact on African countries who were heavy dependent on cheap loans from western banks, making them vulnerable to the losing proposition of competing with the US for capital. Secondly, increase in demand for finite sources of capital increased the cost of borrowing (as countries had to pay more in interest to borrow than before), making it virtually impossible for heavily-indebted African countries to service their debt. A good number of them had no choice but to seek support from international financial institutions. The tough conditions that were attached to these loans plundered many recipient countries into deeper recession, eroding support of often “illegitimate” regimes. They, in turn, responded by lavishing limited resources on their power base – often favored tribes – to maintain their grip on power, leading to never ending vicious cycles of mutually reinforcing economic and political crises. In worse cases, alienated ethnic groups engaged in armed resistance to right the perceived wrongs of these “illegitimate” ruling elites.

For historical and geographical reasons Asia, on the other hand, with its seemingly unlimited supply of labour, benefited from American companies, looking for cheap labour to meet expanding North American demand for cheap industrial products. Thus, they were spared the agony of having to compete directly with the US for capital. Better yet, Asian countries were also granted preferential access to the domestic US market to counter the rising threat of the Soviet Union.

One cannot dispute the fact that good governance, political stability and rule of law are intricately linked to a country’s ability to attract foreign direct investment (FDI)- the lack of which has hollowed out the African experience. However, they were by no mean the primary causes. Need evidence?  Look at the likes of countries such as Tanzania, Benin or Mali (until its recent coup). ‘Good’ governance, political stability, and other like ‘virtues’ have not scored them significant points in the global race to attract finite sources of capital. The luck of geography – strategic location or bounteous natural resources would have made them better friends as the examples of their more resource-rich peers indicates. For example, between 1995 and 2001, Nigeria, Angola and South Africa accounted for two-thirds of all FDI in Africa. Nigeria and Angola are not exactly one’s idea of ‘good’ governance and political stability.

What does this mean for Africa? The structural changes of the seventies that wrecked great havoc to the African experience have resurfaced.  As the West gets ready to pass on its superpower baton to the East, China has increasingly become a major contributor to the African “success” story of recent years, on the back of cheap loans and other forms of FDI.

According to Fitch Ratings, over the last decade, the EXIM Bank of China alone has extended $12.5b more in loans to sub-Saharan Africa than the World Bank. The only caveat here is China has pursued a largely investment-led growth policy which has relied on African copper, iron and oil. With plans to build an average of ten airports per year over the next five years, one would not have to look too far to conclude that even in an optimistic scenario, China’s current insatiable thirst for African resources will not be infinite.

With labour cost increasing – by 22% last year alone – one of China’s main pillars in its ability to attract FDI, often at Africa’s expense, seems to be running out of steam. Fortunately, its infrastructural advantages have kept manufacturing jobs intact. Others have borrowed a page from China’s playbook. One such entity is India’s state of Gujarat. With its paved roads, large ports, constant power supply and minimal red tape, it has powered its way into double digit economic growth rates by attracting diversified capital from the likes of Ford, Tata and GMC, spawning new cottage industries in other services such as cleaning, real estate, etc that mutually feedoff each other. This ensures that they are not entirely depended on any one country, company or sector.

Unfortunately, African leaders are all to content to lazily collect rent from their natural resources under the false comfort that these “okay” times will last forever!

So Dear God, my prayer is a simple one. Where there is the luck of geography, let our leaders learn the lessons of the past and understand that good times do not last forever. Investing in a nation’s most valuable asset – human capital- and infrastructure to wean oneself from natural resources is a better bet. In the absence of bountiful resources, empower my people to understand the need to strategically position themselves to follow the FDI trail. Surely, that is not too much to ask for.

It is me again, your humble but troublesome son.

Copyright 2012 (April) Neo-African Consensus

Explaining the Ghanaian Economic Miracle: It’s the radio, stupid!

BY KWAME MARFO

2011 was a turbulent year. The Arab spring brought formidable military despots down in the Middle East. Japan was devastated by a triple whamy of earthquake, tsunami and nuclear meltdown. The United States narrowly dodged a geopolitical own goal by a last minute deal to avoid defaulting on its debt. The eurozone area staggered from one crisis to the next. Even almighty China, the engine of growth of the global economy over the last few years spluttered whiles the likes of India, Brazil and Russia flattered to deceive. However, in the stormy waters of the Atlantic Gulf of Guinea, it was business as usual. As a matter of fact, Ghana posted a year-on-year GDP growth rate of 13.5 %, the highest in the world (bar Qatar) to power its way into becoming sub-Saharan Africa’s only fourth middle-income country.

That was not supposed to be the case. As recent as the early eighties, the nation was on the precipice of despair. The political space had been hijacked by jokers, petty thieves and armed bandits.  Ghana’s notoriously corrupt military dictator, I.G. Acheampong, for example, was known to hand out import licenses and scarce foreign exchange to cronies and girlfriends (the joke at that time was that the most “important qualification was a beautiful body and coiffured wig”). Finally, the day of reckoning had come. Years of plundering the state with impunity, falling prices of cocoa and increased cost of financing sovereign debt had left a gaping hole in the nation’s financing. Worse, a debilitating famine had left a trail of despair in its aftermath. The nation had run out of money to service its debts. To complicate matters, over a million Ghanaian economic migrants were chased out of Nigeria in their infamous “Ghana must go” bags. The nation was at the crossroads. To quote the words of the late John Hagan, who was put in charge of relief supplies, “God had forgotten us”.

So how did Ghana, which had championed military dictatorship and made a public spectacle of mocking the institution of presidency, manage to achieve political stability while its neighbors crashed and burned? (see fig. 1) Explanations have varied, ranging from the legacy of marginally better colonial-era institutions, natural endowments (gold) or perhaps the lack of it (huge deposits of hydro carbons), some element of luck or as some Ghanaians would have it, “by the grace of God”.

Advocates of “benevolent dictator” doctrine argue that in era where military dictators ruled the roost in Africa, Ghana was fortunate to have a less-than-malevolent dictator in the mold of Flt. Lte. JJ Rawlings who held the reins of the failed state from falling apart, while using a carrots and sticks approach to force painful, yet necessary economic reforms that set the stage for the progress that has been witnessed in the last few years.

However, American-based Ghanaian economist, Professor Ayittey would have none of it. In a November, 2010 speech to Star100, a network of Ghanaian professionals in London, while promoting his new book, Defeating Dictators, he argued that there is no such thing as a benevolent dictator. The only good dictator, he said “is a dead one”. Rawlings, he indicated was as brute a dictator as his peers and would never had relinquished power had he not been felled by his own devices. He attributes Ghana’s success to political stability the defeat of Rawlings engendered.

In Defeating Dictators, Dr. Ayittey indicates that dictators are all of the same ilk. They keep a tight grip on power by controlling six key state institutions – the media, judiciary, electoral commission, central bank, security forces and civil service. To defeat them, one would have to pry one or more of these institutions open.

In Ghana’s case, it was the media. Dr. Ayittey credits Alliance for Change, a non-partisan group of 10 technocratic, concerned citizens (of which he was party) for using nifty ways to hit the administration of Rawlings with his own constitution. Rawlings had grudgingly allowed for freedom of expression under pressure from international financial institutions, on whose largesse he had built his administration. The pivotal moment occurred on December 4^th, 1994 when police raided and shut down pirate radio station, Radio Eye, the brain child of Ghanaian business-man-cum politician, Dr. Wereko-Brobbey. Alliance for Change and other like minded organizations took the case to court and won. This led to a proliferation of independent radio stations which whose scrutiny thwarted every attempt Rawlings used to try to rig elections, leading to his party’s defeat in 2000, according to Dr. Ayittey.

So what can other African countries learn from Ghana’s experience? New York Times columnist, Thomas Friedman summed it up best at the time of Rawlings’ defeat. He pointed out that the four most democratic West African countries at that time – Benin, Ghana, Mali and Senegal – all had a vibrant and independent radio stations. He beckoned the international community to stop sending Africa lectures on democracy. “Lets instead make all aid…all loans…all debt relief conditional on African governments’ permitting free FM radio stations. African will do the rest,” he wrote.

The jury is out on whether the dividends from political stability will stand the test of time. That however should not prevent the long-suffering people of Ghana from reveling in this rare positive spotlight. So pardon the people if they so wish to uncork champagne bottles, grill some suya khebabs and dance to the tune of azonto music with reckless abandon. For this time, it may be different!

Copyright 2012 (January) Neo-African Consensus

I AM BRITISH…MAY BE YOU’RE NOT: The Queen Knows Her Children – ‘Popular’ OR ‘Successful’ NOT ‘Notorious’ OR ‘Struggling’ …

By AHMED SULE, CFA

“Introduction”
Once upon a time, over twenty-eight years ago, somewhere in Mogadishu, Somalia, a woman gave birth to a healthy baby boy.  The child was given the name Mohammed.  Three years earlier, in 1980, somewhere in Ghana, another woman gave birth to a healthy baby boy. The child was named Kweku. At the age of eight, Mohammed left Djibouti (where he was based after his birth) for England to join his father Mr. Farah who was based in the UK at the time. Likewise Kweku also came to England at the age of eleven in 1991.

“Life in England and Education:”
Mo (as he was later called) attended Feltham Community College in London where he struggled academically, but excelled athletically. Kweku on the other hand attended Ackworth School, a private boarding school where he excelled academically. He was appointed the Head Boy of the school in his final year. Kweku later attended the University of Nottingham, where he obtained a degree in e-commerce and digital business.

“Achievements:”
After their education, their careers took different paths. Mo became a long distance runner specialising in the 5,000 metre and 10,000 metre races. At the commencement of his career, Mo was an average runner achieving an average place of seventh in various races at the European and World Athletic Championships between 2005 and 2009. Three years after graduating from University, Kweku Adoboli secured a job at the blue chip Swiss investment bank UBS. Kweku was very hard-working and extremely intelligent. Within a couple of years of joining UBS in 2006, he rose through the ranks eventually attaining a position as a Director of ETF Trading , earning a seven digit pay packet. Kweku was well loved by his colleagues and was a star trader. What Kweku achieved in the trading room of UBS, Mo began to achieve on the racing tracks of Europe. Between 2009 and 2010, Mo Farah won three gold medals at the 3,000, 5,000 and 10,000 metres events of the European Athletics Championships.

“Worldwide Fame:”
The year 2011 was a watershed year for these two hard-working Britons of African descent as the year brought them worldwide attention. At the 2011 World
Athletics Championship, which took place in South Korea, Mo competed in the 5,000 and 10,000 metres events. Mo won a silver medal at the 10,000 metre event and his crowning moment came on the 4th of September 2011 when he won the 5,000 metre race beating America’s Bernard Lagat. By this feat, Mo Farah became the first British athlete to win a global gold medal at 5,000 metres and a medal over 10,000 metres.

Exactly eleven days later on 15 September 2011, Kweku Adoboli was catapulted onto the world stage as it was revealed that he was alleged to have lost his employer $2bn as a result of a rogue trade. The amount lost by Kweku was the biggest loss ever accrued by a single trader in British financial history. Kweku made headline news all over the world and his face was adorned on the front pages of the tabloids, the broadsheets and the financial newspapers. Kweku was eventually arrested and has been charged with fraud. As at the time of writing, he is yet to be convicted.

“Analysis:”
Mo and Kweku are both British citizens who have spent 70% and 64% of their lives respectively in England. They are also products of the British sports and financial institutions respectively in addition to the British educational system. Although they are of African descent, they are British by culture, citizenry and fame. “However, at the peak of their fame, one notices an asymmetric treatment of their recognition as Britons. While most people have recognized Mo as British, the reverse is the case for Kweku who has been widely described as African. To illustrate my point, I highlight below references in the press to both Kweku and Mo at the peak of their fame:

 ”04 September 2011 to 05 September 2011″

“Great Britain’s Mo Farah crosses the finish line to win the 5,000m title at the World Athletics Championships in Daegu” – AP

      “Few British athletes have sacrificed more to win, and he was elated with what he had achieved” – Guardian

“Mo Farah claims place among British all-time greats with World title triumph” – Daily Mirror

“Brendan Foster believes Mo Farah is Britain’s greatest ever long distance runner” – Daily Mail

“ ‘Patience, patience, patience’. Those were the last words of advice Mo Farah received from his American coach, Alberto Salazar, before he went to the start line for his 5,000 metres final. Britain must give thanks that the Londoner is a good listener” – Daily Telegraph  

“MO FARAH became the first Brit to win a global 5,000m title and then roared: ‘Bring on 2012′”- The Sun 

“And here are comments from a number of blogs:”

“well done for all in Britain”

“Mo got the tactics just right in the 5k. Up there with the best of British distance running and a great guy.”

“15 September 2011 to 16 September 2011”

“From Ghana to the City: the rise of a trader who had it all”- The Telegraph

“Adoboli, British-educated and of Ghanaian descent, did not enter pleas to the charges when they were set out at the magistrates court”.- Guardian

“The Ghanaian, who was privately educated in Britain and is the son of a retired UN worker, is accused of being responsible for the biggest loss ever accrued by a single trader based in London” – Daily Mail

“Adoboli appeared before City of London Magistrates’ Court this afternoon. During the fifteen minute hearing, the well-built Ghanaian was handed a tissue from the clerk as he wiped a tear away”.-The Sun

“Vickers, silver-haired and a knighted academic, is a far cry from the 31-year-old party-loving Adoboli of African origin. Still, they are in the spotlight this week and inextricably linked.”- Business Standard

“Educated at an exclusive school in a picturesque patch of English countryside, Ghana-born trader Kweku Adoboli was known to neighbours as a polite and well-dressed young man who mixed grueling hours in London’s financial district with a lavish social life in the capital’s nightspots.” – AP 

“And here are comments from a number of blogs:”

“Thought so when I heard his name, looks Nigerian, fraud and scams are endemic to these people, I always used to tell my clients never accept payment from Nigeria except in hard cash.”

“The bank that trusts a Nigerian employee (Kweku Adoboli) with money is a bank that’s about to go out of business rapidly.”

“Conclusion:”
As the saying goes, “success has many fathers, while failure is an orphan”. Could this explain why Mo Farah is referred to as British while the public forgets his Somalian roots and why Kweku Adoboli is referred to as Ghanaian, Nigerian or African and his British affiliation is easily forgotten? “Would Kweku have been referred to as Ghanaian and not British if he won the Nobel Prize for Economics? Would Kweku have been referred to as African and not British if he found the cure for cancer? Would Kweku have been referred to as Ghanaian born and not British if he won the Olympics 100 metres final? “OR “Would Mo have been referred to as British and not Somolian if he was found to be a terrorist? Would Mo have been referred to as British and not African if he failed a drug test? Would Mo have been referred to as British and not Somolian born if he was a serial killer?

It is time for Britons of African descent or Africans of British birth to be recognized as either Africans or Britons irrespective of success or failure, fame or notoriety, good or evil; after all, Brits of Jewish descent are recognized as Brits; Brits of Australian descent are recognized as Brits.

“Written by – “Ahmed Sule, CFA /suleaos@gmail.com  / September 2011

$20 IS GREATER THAN $2 TRILLION: What the Arab Spring Can Teach the West about Democracy

By KWAME MARFO

$20 is greater than $2 trillion. This may sound like I’m on the wrong side of the divide between ludicrous and insane. However, if you scratch beneath the surface and look at it in the context of the Arab spring, it may make more sense than meets the eye. I have not lost my marbles…not yet.

Perhaps the least publicized fact about the recent string of events that have scalped the heads of two (three, if you include Gaddafi) former formidable Arab dynastic autocracies and threaten to spark a sea of revolution across the wider Middle Eastern region, unprecedented in its history, is the role of Mohammed Bouazizi. Mohammed Bouazizi was the 25 year old Tunisian fruit vendor who set himself ablaze in protest against a tone-death dictatorial regime whose officials humiliated, harassed him and confiscated his wares for the untold time. This brazen act of self immolation resonated across the sub region where the potent mix of crony capitalism, elite capture and indifference on the part of unaccountable political class have rendered its youthful population underemployed, dissatisfied and angry.

So why did $20 (a back of the envelope estimate of the cost of materials used by Mohammed to set himself on fire) make more progress in bringing democracy to the Middle East  than the nearly $2 trillion, and counting (the inflation-adjusted cost of the Iraq and Afghanistan wars) War on Terror which the Bush administration, indicated will unleash democratic reforms across the region, after they failed in their quest to find WMDs.

The answer lies in home grown solutions. Democracy, like other socio-political developments are best attained organically and not by imposition. This is a trend that has manifested itself from its inception in ancient Greece, through the Americas, Europe and most recently in the Eastern Asia. In East Asia for example, rent-seeking practices of ‘political entrepreneurs’ (not very different to what we have in the Middle East today) created the first generation of capitalist – and an expanded middle class, on whose largesse the ruling elite became dependent on, as observed by heterodox economist, Mushtaq Khan. With newly found economic heft and political capital, this group(s) began to make demands on the political elites and forced the extension of democratic rights through popular movements.

It comes as no surprise that the countries where democratic pretentions have gained the most currency in the Arab spring are the ones that implemented the most reforms and began to show signs of decent growth. With this came an expanded middle class (the facebook and youtube crowd) who became the change agents and forced the hands of their dictators to relinquish their thrones. In its 2010 country report, the IMF makes the following observation about Tunisia, “over the past two decades, the North African nation has undertaken wide-ranging structural reforms aimed at enhancing its business environment and improving the competitiveness of its economy… accompanied by prudent macroeconomic management, have reduced the Tunisian economy’s vulnerability to shocks—including the global financial crisis—and provided more options for the authorities to respond to them.”

So why did Egypt and Tunisia, star pupils of IMF-style reforms crumble so spectacularly? The answer is that economic reforms, rather than placate a restive population, have the ironic effect of increasing expectations further.

Unfortunately, for African leaders and others of the developing world, the diplomatic equivalence of guns were held to their heads when they went to the international financial institutions, cap-in-hands, for Greek-style bail-out  funds, when their economies run into geopolitical headwinds in the seventies and eighties. The so-called Structural Adjustment Program (SAPs) offered them a false choice between democratizing in order to be eligible for bail-out funds or perishing. The end results were dreadful as have previous western interventions (see chart 1).

In worst cases, the mad rush to embrace western-style democratic institutions, unsuited to local environs often lead to populist, short term economic measures designed to win votes rather than address structural deficits. New regimes are often as incompetent as old ones while winning by any means necessary deepen fault lines along ethnicity and religion, usually escalating in conflicts.

In less benign cases, this leads to the “Museveni-paradox” where dictatorial governments often acquiesce to hold elections on condition that they would win, under the auspices of international “observes” who were often too quick to pass them as “free” and “fair”, to forestall any humanitarian crisis that, on more occasions than not, accompany such electoral sideshows.

Ill-advised and ill-timed kangaroo elections are promoted at the expense of more pressing demands such as bread and butter issues, often forgetting that democracy in the absence of enablers such as well-run bureaucracies, functioning civil society organizations, competent police force, broad tax base, etc (all products of economic growth) are doomed to have a hard time of succeeding.

In the mean time, there has been a less than laser-like focus on economic management (a la China-style) while election-time rhetorical flourishes do nothing to assuage the restive nerves of already scared-thin international investors.

The unpalatable truth is crony capitalism, benevolent dictators and their ilk, as reprehensible as they sound may be necessary evils in the onward progress towards modernity, insofar as they enhance the well-being of the masses.  Fact is economic reforms often leads to democratic movements and not the other way around. Europe, Asia and even the United States of America bear witness to this truism. Better yet, foreign imposition of democratic freedoms, however noble they may be, often create unintended consequences. The streets of Cairo and Tunis have once again proven the answers are often from within.

Those who do not learn the lessons of history are bound to repeat them.

Copyright 2011 (September) Neo-African Consensus

THE COMING APOCALYPSE: Not this one, the other one!

By KWAME MARFO

“But know this, that in the last days perilous times will come: For men will be lovers of themselves, lovers of money, boasters, proud, …without self-control…”

“…For nation will rise against nation, and kingdom against kingdom. And there will be famines, pestilences, and earthquakes in various places…then many false prophets will rise up and deceive many…”

The words of the good book, prophesized over a millennium ago, eerily capture the some of the enduring features of the times we live in. While there is the temptation to throw my hat into the midst of the legion of apocalyptic prophets, ride my luck and make a killing should a wild bet come to fruition, I’d leave that to Pastor Harold Camping and his cronies. It is not quite time to quit my day job…not yet.

On a more serious note, there is a headwind of geopolitical forces that pose an existential threat to our still fragile global economy and to Africa. Forget about Greece, the great recession, or even a too-big-to-fail bank unwinding and bringing the global financial ecosystem with it. The big elephant in the room is – Saudi Arabia, reputed to be sitting on almost a quarter of the world’s conventional oil resources. While Saudi’s unrivalled mineral wealth is generally accepted, dissenting voices inside and outside the kingdom indicate that we should not be so sanguine. Grey eminence of oil production, Salad al-Hussein, a retired top executive of Aramco, the Saudi national oil company, in an interview with New York Times contributor, Peter Maas, claims that Saudi Arabia’s production estimates are not based on sound logic and may be much smaller than we think. Saudi’s presumed excess capacity and its ability to meet demand shortfalls on short notice, such as it did during the ongoing crisis in Libya, is what keeps oil markets well lubricated and spares us the agony of speculators running amok with long bets on the oil markets.

In a more optimistic scenario, lets assume Saudi Arabia has as much oil as we think they do, our giddiness should be tampered with a measure of caution. Overworking ageing oilfields to squeeze out ever more oil could prove detrimental, as was the case with Oman. “Fields that are worked too hard can drop off quite sharply, in terms of output, leaving behind large amounts of oil…”trapped oil””, observes Peter Maas. Oil production has as much to do with well flow rates (the natural pressures that brings crude to the surface) as it does to the quantity buried underground.

In a less than optimistic scenario, it takes a great leap of faith to fathom how Saudi Arabia can escape the contagion effect of the Arab Spring especially against the backdrop of high unemployment, inflation and youth bulge. Secondly, as the cultural capital of the Middle East and regional power broker, democratic awakening in Egypt could ripple across the wider region and possibly unsettle Saudi Arabia, spooking oil markets in the process. Even if Saudi princes resort to their age old tricks of “bribing” its citizens to tow the line, such as its recent offer of $36 billion in extra benefits (and further promises of $400b in spending by 2014) in an attempt to quell the wave of uprisings, they will need persistently high oil prices to appease its citizens, especially its minority Shia population in its Eastern Province, where most of the oil lies.

Whichever way we slice and dice the Saudi equation, one fact is unmistakable: double-digit oil prices are a thing of the past.

So what does this mean for African countries?

With 90% of African of countries currently engaged in oil production of one form or the other, the continent is due for a major oil shakeout, unprecedented in its history as a result of new discoveries, increasing demand and dwindling global supplies (see figure 1). On the question of demand, according to Shell, oil demand is projected to double by 2050. This, in all likelihood, will be matched by ageing fields and decreasing sources of new finds. African countries have proven to be an exception to this trend.  In 2010, the West Africa coast of the Gulf of Guinea became the number one source of oil in the world outside the OPEC region on the back of recent discoveries.

The history of resources on the continent leaves much to be desired. On one hand it brings Africa once again into the cross hairs of global race to secure resources by superpowers. While China often bears the opprobrium (not completely unjustified) for “oil grab” in Africa to secure resources for its energy-hungry industries, its chief critic, the United States’ intentions are not wholly altruistic. Need evidence? Listen to H. J. Cohen, who served as Assistant Secretary of States for African Affairs under President G. H. W. Bush. In a contribution to a lobbying effort in 2003, he argued, “the bottom line of US policy in Africa was to deploy an expanded military presence so as to impose an ordered stability in a region of growing crude oil production in West Africa”. Fast forward to 2007, a separate US military command for Africa, AFRICOM was established with the “benign” mission “to bring peace and security to the people of Africa and promote our common goals of development, health, education, democracy, and economic growth in Africa”.

On the other hand, domestic mismanagement of resources threatens to erode the economic gains over the last few years. Take Nigeria for example. It was an African success story in its early years. Today, it seems stuck in time, if not retrogressed after succumbing to the inordinate temptations of its oil mistress. Even though it has generated $400b from oil revenue since the seventies, its income per capita fell from $250 to $212 between 1965 and 2004. Even Angola whose national oil champion Sonangol, is deemed to be the most well run state organization in sub-Saharan Africa (outside of South Africa), its population and economy have not been spared the brunt of the deleterious effects of oil. With a Human Development Index of 162 out of 173, its citizens will handily top any measure of misery index. The least said about the likes of Sudan, Equatorial New Guinea and Libya the better.

In conclusion while in theory, high oil prices are a boon to resource-rich countries, African nations have miraculously made strange bedfellows out of bounteous oil windfall and poverty. This problem shows no signs of abating. Neither are its concomitant wars, greed and corruption. Until we find ways to manage these oil resources (see link for one such proposal), the coming apocalypse will be closer than meets the eye – and will be, I’m afraid, an African phenomenon.

By the way, Pastor Camping has now pushed the date of the Apocalypse to October 21st. Be very afraid!

Copyright 2011 (June) Neo-African Consensus

SO WHAT CAUSED THE FINANCIAL CRISES? – Listen to what the gray-haired man in the tweed jacket at the bar had to say!

By KWAME MARFO

“Because smart guys had started working on Wall Street”. This was the cause, according to the well-preserved, gray-haired man of retirement age in a conversation with New York Times columnist, Calvin Trillin at a Manhattan bar (see article here). While his explanation may lack the nous, intellectual heft and sophistication expressed in other quarters, it is perhaps the most compelling explanation I have found thus far.

Precisely, how did smart people cause the crises? According to the gray-haired man, as recent as the 50s and 60s, those in the lower third of his class were the ones that went to Wall Street. The smarter ones went into disciplines such as the judiciary and academia. Then things began to change in the 70s when smart kids began to descend en masse into finance. There was a confluence of two factors – college education became increasingly expensive and Wall Street, more lucrative, hence the lure of working in this sector. Those who went in earlier in the 50s and 60s (the ones without the foggiest idea of what complex financial products such as credit default swap was) soon began to run these firms, managing products that were created by their younger and often smarter colleagues. Against this backdrop, it is not hard to see why the financial system unraveled under the weight of these complex securities.

Where the gray-haired man’s explanation leaves room for perhaps a deeper analysis is how financial services became so profitable. For this, we ought to look back at geo-political trends of the 1970s and the collapse of the gold standard currency regime. Under the old gold standard, economic agents (you and myself included) did not have to worry about foreign exchange risk (volatility in currency) since exchange rates were fixed. Central banks (and by default, governments) housed these risks. In cases, where governments run loose monetary policies (viz a viz their trading partners) and generated inflationary pressures, they were almost literally compelled to “ship” gold to the coffers of the central governments of their trading partners to bring their currency back to a state of equilibrium (it was obviously a little more complicated than that). Buying gold, as you would expect, costs money. Since a country with loose monetary policies had to cough up more money to buy an equivalent amount of gold on the market due to the diminished purchasing power of its currency, as a result of inflation, this system acted as a check on countries and incentivized them to bring their financial houses in order. So when US president, Richard Nixon unilaterally opted out of the discipline of the gold standard, it had global ramifications due to the US dollar’s role as the world’s reserve currency. Managing exchange rate risk which was a responsibility of the central government was effectively privatized; outsourced to the private sector.

Policy makers acted prudently to remove barriers from financial markets to allow the private sector, championed by banks – to diversify some of these risks.  As you would expect, too much of every good thing often can turn hazardous. Egged on by a combination of fierce lobbying by now incredibly profitable banks, genuinely blind but misplaced faith in self regulating markets and a cacophony of policy blunders, politicians across the Atlantic were, at this point, falling over themselves to see who could deregulate markets even further, creating ever increasing avenues for profit making in the financial sector. Access to more markets, ably aided by technological advancements led to an increase in cross-border financial transactions. Financial players (banks, insurance, etc) now had access as never before to previously closed foreign markets. This increased supply in money led to massive reduction in the cost of capital (law of supply and demand) (see chart i).

The consequences of these dynamics was an incredibly prosperous financial sector, whose actors generously rewarded themselves, attracting an ever increasing legion of the brightest business and law students and increasingly mathematicians, physicists and rocket scientists alike. (see chart ii).

This system will be tolerable if we had assurance that the smart guys had a firmer grip of their actions. Unfortunately, evidence points to the contrary. Look no further than Fabrice Toure (who affectionately called himself Fabulous Fab), the man at the center of the US Justice Department’s inquiry into Goldman Sachs, who stands accused of having knowingly sold to presumably sophisticated yet clueless clients, the financial equivalent of ‘lemons’ – the most toxic products, hand-picked and pooled from the least credit worthy customers and designed specifically to fail. In an email to his girlfriend that was subpoenaed by the US congress, he admitted “the whole building is about to collapse anytime now… Only potential survivor, the fabulous Fab… standing in the middle of all these complex, highly leveraged exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!”

That is why the debate about financial reform does not go far enough. While enhanced regulation and prudent reforms such as increasing liquidity and capital standards go a long way to making the financial system safer, it potentially misses the elephant in the room – excessive compensation schemes. One thing we know about the tools that are being put in place is they will, in a way, reduce bank profit. Banks will respond with one of two things; i) find ways to circumvent the rules (i.e. take even more risk) to make more profit and thus maintain high remuneration packages, with the knowledge that their downside risks are protected by implicit and explicit tax payer support ii) shift   activities into the shadow banking sector – the unregulated maze of interconnected web of state and non state financial actors – which by most estimates is now bigger than the more regulated formalized banking sector. Critics who argue against reining in compensation levels argue that it interferes with market fundamentals. This is disingenuous, to say the least, for the simple reason that big banks are effectively big government schemes whose profits are subsidized by taxpayers and are not governed by market forces – hence their “too big to fail” tag. Besides, curbing remuneration will go a long way to correcting the distortions in the labor market where our best and brightest math PhD students and engineers are drawn to Wall Street and the City of London to build yet again more financial models with suspect social value when they should be building bridges and solar powered aircrafts.

Copyright 2011 (April) Neo-African Consensus

DEAR GOD: Why can’t we all just get along?

By KWAME MARFO

Dear God,

The other day, my Anglo-Nigerian friend described herself as, “a Benin[ethnic group] woman first, an African second and Nigerian, third”. As benign as those words may sound, they are emblematic of the malaise that continues to plague African countries – the problem of identity and division. To be clear, this is not a problem in the lower echelons of society as some would have us believe. My friend in question is of a sophisticated stock – solicitor by training, a rising star in a hedge fund in the City ofLondon, with an Ivy League MBA to boot.  In a year where 18 African countries are going to the polls, political strife along ethnic fault lines lurks uncomfortably close in the dark. To quote the immortal words of Rodney King, the Californian resident who sparked racial riots after the acquittal of white police officers who stood accused of assaulting him, “why can’t we all just get along?” After 50 years of independence, why does Africa continue to dawdle in the mire while the rest of the world leaves us behind?

Most African countries often default to the merciless partitioning of the continent which was designed for the exploitation and the administrative convenience of European powers, without any decent regard for natural boundaries. This argument held water several decades ago but after half a century of deflecting blame, it is beginning to wear thin. Why are our leaders often quick to point to the biblical speck of sawdust in the eyes of our former colonial masters while paying little attention to the plank in their own eyes – the plank of abject failure in our nation building exercises?

In the now famous, Afro-Barometer public opinion survey conducted among adult males in 12 African countries between 1999-2001, when asked the open ended question, “which specific group do you feel you belong to first and foremost,” only 3 percent of Tanzanians responded in terms of an ethnicity in contrast to Nigeria (48 percent), Namibia (46 percent), Mali (39 percent), Malawi (38 percent), and Zimbabwe (36 percent). Better yet, 76% of the people of Tanzania responded in terms of occupation. To understand this dynamic further, Berkeley Economist, Edward Miguel compared two districts, one in western Kenya (Busia) and one in western Tanzania (Meatu) which share similar ethnic compositions, geography, history, and colonial institutions. Where they differed were the ethnic policies they pursued after independence. These policies yielded different results. Miguel concluded that diverse communities were on average able to work together as well as homogenous communities in Tanzania whereas in Kenya, diverse communities had on average raised 25% less primary school funding per pupil. Post colonial nation building exercise in Tanzania has been constructive – “the promotion of Swahili as a national language, political and civic education in schools, the dismantling of tribal authorities, and the relatively equal regional distribution of resources—contributed to the growing strength of a coherent and popular national identity that binds Tanzanians together across ethnic lines”. Further to this point, there was an unwavering political will. Tanzania’s nation-building project was framed by its founding father, Julius Nyere, the unabashed Pan-African and socialist idealist whose political party had a founding principle of “fight tribalism and any other factors which would hinder the development of unity among Africans”. On the other hand, Kenya’s first two post independent presidents, Jomo Kenyatta and Arap Moi propagated identity politics and set a dangerous precedent for their nation (See chart 1).

Other notable great African leaders who put nation building at the expense of narrow tribal and other self serving interests include Kenneth Kaunda. “In the same way that one should not immediately assume that an American called Syzmanski speaks or understands Polish, neither should one necessarily expect a Zambian with the last name of Chimuka to speak or understandTonga. As with most Americans, Zambian names are increasingly becoming no more than one indicator of one’s ethnic heritage”, as observed by William Minter of AfricaFocus. (See chart 2)

Admittedly,Tanzania and Zambia do not present the most compelling success stories of socio-economic development. However, they are living proofs that ethnically diverse societies need not be “prone to corruption, political instability, poor institutional performance, and slow economic growth” as conventional research would have us believe, to borrow the words of Edward Miguel. After all,Tanzania, as a country, is more ethnically diverse thanKenya.

Democratic elections are supposed to be an affirmation of people’s hope for a better tomorrow. However, the lack of complex economic stratification lead to elections fought over group identity, borne out of insecurities, past grievances and a throw back to an idealized nostalgia of a selective past. Exploitative politicians, who ought to know better, toe this line, often falling over themselves to score cheap political points from the lowest hanging fruit of ethnic grandstanding and tribal demagoguery.

History dealt us a tricky set of cards with the most ethnically diverse continent on the planet. Our colonial masters complicated this situation by the chaotic manner in which they carved out the continent. However, it is high time we weaned ourselves off self pity, empty excuses and endless finger pointing. Good nation building exercise can correct some of the flaws of history, real or imagined.

So Dear God, as we approach this watershed election season, my prayer is a simple one. Rather than hope for eye-popping economic growth figures, grant us a new breed of Julius Nyereres and Kenneth Kaundas. Surely, that is not alot to ask for.

Its me again, your humble but troublesome son.

Copyright 2011 (April) Neo-African Consensus