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

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THE BASICS

By CHRISTABEL DADZIE

Ok… so I am usually a very very patriotic Ghanaian. I am usually the one championing our flag – from football to politics; from social issues to economics, but today, I find it important as a patriot to tell it like it is, or as my American friends say, “call out my people”!

We are in 2011, President Mills, I hope you or someone that has enough clout is reading… sorry, I repeat, we are in 2011:

Today:

1. Almost every part of Accra has no water flowing through the taps. Reason – the two major water suppliers cannot pump water because of the very frequent electricity outages. I asked a friend, what is different now than decades ago – we’ve always had power outages. The answer – the power outages are more frequent and the two organizations don’t talk! Statistics – for every minute of blackout, results in 6hrs of water shortage. Check the date…

2. And then you complain about a cholera outbreak? How won’t there be an outbreak if there is no water in most parts of the country? People are drinking dirty water duh!

3. In a University where we are training tomorrow’s leaders, someone steals phones and they are greatly molested??? Really??? Whatever happened to the law? Why take the law into your own hands, and they were so confident of their acts that they didn’t even care when they knew it was being filmed
– huh? where is your education?

4. Motor cyclists disobey the law in broad day light and policemen just watch them pass by and witness all these accidents?! Then at night, the policeman comes asking me for money? Really? Dude, I wouldn’t mind giving you some of my hard-earned cash if you did your job!

5. And what’s with all the traffic? Can’t someone just get it right – why does construction have to happen during rush hour? Why can’t they work at night? Why do we have all these man holes at construction sites? People, real people are dying! Jeez!!!

6. I could talk about Korlebu Teaching Hospital today… but I think I’ll leave that for now… It’s 2011!!! Oh yea, and Ghana is supposed to be middle income!  So am I giving my country a bad name, Yes! Do I love my country, More than anything! Why I am writing…

Media, please clear your headlines (except for the part talking about Cote D’Ivoire) and let’s call our politicians out! It’s time for some real action, Mr. President- are you really *dzi-ing wo fie asem* and whatever happened to your declared year of action??? I know these things are not solved easily, but it doesn’t take much genius to solve some of these problems…

This is not an NDC-NPP issue – it’s an I love Ghana issue! I really don’t care if the former First Lady is going to stand for NDC’s presidential ticket or CPP is annoyed at the media or NPP is rallying for all die be die! I need some governance, people… governance, not politics. Focus and get back to the basics – Electricity, Water, health and education (scroll up). That’s it – forget the rest, at least for now!

From a disgruntled, very patriotic citizen. (And yes, I know that for every one of these points, there are some very wonderful things happening in the country as I type, so before you criticize me for saying these, let’s not accept mediocrity any further. We’re doing great, yes, but that does not justify the negative issues).

Copyright 2011 Christabel Dadzie

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TO REPLICATE OR NOT TO REPLICATE HUKOU ?: That is the question

Disclaimer: the writer of this journal fully acknowledges the ethical and moral dilemma of the subject matter in question. This is an “exercise” to explore ways by which it can be replicated, in the event that policy makers consider the shortfalls of this social engineering tool as a lesser evil than the trap of poverty.

By KWAME MARFO

2007 marked the first time in human history that people living in cities and towns outnumbered those in rural areas (UN Habitat, 2007). Rural-urban migration has had a drastic impact on the already creaking infrastructure in urban centers in many developing countries, contributing to high incidences of crime, poor sanitation and other like vices and correspondingly, poverty. This is on an upward trajectory. Fukuyama’s (2007) assertion that history has come to an end and there is no alternative economic and political model other than democratic capitalism does not hold water when put to a critical test. The western approach to solving migration problem in the south has so far yielded dividends. While policy makers, academicians and lay people fret over ways to fix this broken system, the answer lies closer than meets the eye.

China’s migration control apparatus, hukou provides a flawed, albeit compelling template. Criticisms of the system have been manifold, some of the most vociferous of which includes the notion that what works in China may not work in India or Nigeria. This is disingenuous, to say the least. The plausibility of this system or variations of it has been under-explored. For example, from 1983 to 2004, there was one book from an official hukou representative describing how the system works and equally, few scholarly books discussing the system (Wang, 2005).

My objective in this essay is to lend a voice to the limited volume of literature that advocates for this proven system, confront its criticisms and suggest ways by which the current system can be improved and replicated in other developing countries.

UNDERSTANDING HUKOU

According to Georgia Institute of Technology’s International Affairs Professor, Fei-Ling Wang (2005), hukou zhidu or huji zhidu (household registration system) was formally formed in the People’s Republic of China (PRC) in the1950s. It is slightly different from earlier versions of institutional exclusive tools that have been used to organize Chinese peoples for social control and tax purposes for over several millennia. The reformed hukou is more comprehensive and rigidly enforced system that ‘divides and organizes people based on locational and family-based differentiation as recognized and determined by the state’ (Wang, 2005, 32).

There are several misconceptions about the system that is worth pointing out. At the heart of hukou is the intent to guide migration and not restrict it, even though in practice, that has not always been the case (Aziz et al, 2006). This is evidenced in the way it has been liberalized on case basis, to allow labor to move into sectors where they are needed. Also, hukou is not a birth right per se. There is room for social mobility such as passing the entrance examination for graduate school which gives any citizen national mobility (Wang, 2005).

ARGUMENT AGAINST HUKOU

The grievances against this system, the ‘unfair treatment and naked exploitation of the excluded population’ (Wang, 2005, 25) raise troubling moral, legal and ethical considerations. They are well-documented. Glossing over it uncritically would be morally indefensible and academically dishonest. On the other hand, harping excessively about it adds little value to finding solutions to the equally morally repugnant plight that bedevils many slums in the developing world.  Rather, I will focus on the under-explored merits to the system which I believe offers some solutions akin to the biblical ‘stone which the builders rejected, becoming the chief corner stone’ (Matthew 21:42).

ARGUMENT FOR HUKOU

Economic development

Nobel Prize Economist Sir Arthur Lewis (1983) argues that rapid capital accumulation is central to economic development. The exclusionary principles of the hukou leads to an easier and faster accumulation of capital in the urban sector and in the hands of the state through ‘massive extraction of value’ from rural population (Hu and Yang et al., 2000, 294-295, Shaoguang Wang, 2001). Unlimited movement of labor into cities will not only stifle the accumulation of capital but also drain it as scarce resources would have to be spent to accommodate the interests of the still unproductive migrant labor force (Wang, 2005).

Unless vast amounts of industrial jobs are created to absorb them in order to reduce supply and subsequently, increase wages above the subsistent level, a developing country will be trapped in perpetual poverty. Accumulated capital is needed to create these industrial jobs and hence the argument for hukou (Hu and Yang, 2000). The problem of low wages is also further exacerbated by influx of migrant labor from remote areas which effectively pulls down the wages of the urban areas (Lewis, 1966). Europe in its early development phase circumvented this painful phase by exporting a sizable number of its inhabitants to new found territories in the Americas, Australia and surrounding areas and thus, prevented wage levels from falling (World Bank, 2002). Hukou ‘allows needed talent and labor to move but stabilizes the nonproductive labor for as long as possible. It also creates sociopolitical order and a desirable urban environment to attract foreign investors. This way, modern industries can develop rapidly in the urban sector, quickly lifting the nation as a whole from poverty. The dual economy continues, but the less developed and the excluded sector will gradually shrink’ (Wang, 2005, 19). This issue is not lost on the Chinese leadership. Li Yining (2001) acknowledges this dilemma and argues that a developing country like China has two gaps to close: between itself and the developed world and within its regions. Unfortunately, it can only do one at a time. Thus, the need to focus on closing the gap between China and advanced economies. Once that is achieved, bridging the gap domestically could be achieved with considerably less effort.

Reversal of capital flight

Wang (2005) points out that a protected and prosperous elite, as unpalatable as its sounds, serves a useful purpose. If domestic sources of capital is insecure and unprofitable, foreign capital needed to create high paying industrial jobs tends to be speculative, scarce and runs the risk of being yanked out at the first sign of trouble. The artificially created havens of tranquility and profitability in Chinese cities by hukou attract long term foreign capital. The results have been staggering. China has become the second largest recipient of FDI after the US since the mid 1990s (Chris Giles, 2002). As of 2003, China has attracted more than half of all FDI in developing countries (Yasheng Huang, 2001)

The fiercest critics of the hukou ironically have come from the west. Wang (2005, 123) however, points out that hukou is no different from the Westphalia international political economy that has been in place since the end of the Middle Ages. This system created a ‘political division of sovereign nations, a citizenship-based division of humankind, and exclusion of foreigners’. It led to the development of the modern capitalist market economy that brought economic growth and technological sophistication to OECD countries. China’s prosperous cities on the eastern seaboard, compared with the rest of the country, for all practical purposes, can be viewed as the equivalent of OECD nations, relative to the rest of the world. With that said, the citizenship-based institutional divide between the OECD nations and the rest of the world is much more ‘rigidly defined and forceful, hence more effectively enforced than hukou’. Wang (2005) also highlights that the Chinese central government makes provisions for the reallocation of resources from core to periphery areas, making hukou ‘humane and more tolerable to the excluded than the Westphalia system’.

Despite the professed virtues of orthodoxies of the north’s best practices, most indices of human development indicate that China has bridged the development gap while the rest of the developing world has actually retrogressed (Wade, 2007). China has accomplished this mission without following the mandates  of the “enlightened west”.

POLICY PRESCRIPTIONS

Whichever side of the divide you sit, one fact is unmistakable; hukou works and thus, the need to examine whether more humane forms of it are replicable it. I will explore this in two fold: 1) strip out the negative components of the current system and, 2) examine what China is doing right and how to replicate it in the periphery states. Implications of these prescriptions will militate against the moral and ethical issues, make the system less unwelcoming and more acceptable and lastly, make it run more effectively.

On its negatives, there are elements of the system that do little to add to the integrity of the stated goal of economic development and subsequently trickle down effect of reducing poverty and addressing social issues. These include and are not limited to the following:

Perpetuation of elitism

In an otherwise robustly stratified system, college education for example provides an escape route to social mobility (Wang, 2005). Unfortunately, the Ministry of Education (2001) rules mandate that college applicants must take their entrance examinations and be admitted in their own local hukou zones. The numbers are heavily skewed in favor or urban areas. For example Beijing, with a permanent population of 10 million has an allocation of 25,000 spots whereas nearby Shandong province with almost 100 million only people gets roughly 80,000. While there is merit on economic and social grounds in granting urban dwellers temporary privileges as the argument for hukou goes, opportunities that grant access (such as education) to the urban hukou ought to be equitable. Granting urban citizens additional preferential treatment despite their enhanced socio-economic advantages at the expense of rural dwellers is unconscionable. If anything, high potential rural dwellers should be given preferential treatment in much the same way that disadvantaged minorities are treated via “ffirmative action” programs in the US to level the uneven playground.

Blatant human rights abuses

In its zealousness to make the system work, the Chinese government sometimes goes overboard by targeting individuals who express legitimate grievances about the unfairness of the system (Wang, 2005). Again migrant workers who lose their jobs are subject to punitive measures including detention. Such outcomes are not only brutal but also counterproductive as they can undermine the legitimacy of the system.

These are examples of bad practices that have been developed overtime, are deeply entrenched and would take considerable effort to do without. In advocating for a type of hukou system to be replicated in the south, we have the benefit of hindsight to learn from China’s mistakes so as not to repeat them. Laws should be rigorously tested frequently by an independent body including outsiders to ensure that they stay true to their stated goals.

On the positive side, I will elucidate features of population control that has enabled it to work in China in an efficient manner. These include but are not limited to the following;

Organization

Officially, the hukou system is defined as a population and social management tool (Jiang Xianjin et al. 1996). China has created huge bureaucracies to ensure adequate running of the system (see figure 2) helped by a nationalistic notion of building a new China (Aziz et al., 2006). Finally and perhaps most crucially, hukou field officers responsible for citizens are mandated to ‘know every resident in each household down to the details of their financial status, close friends and main relations, physical features, accent and slang use, and personal characteristics and preferences’ (Wang, 2005, 69).

Adoptability

Another component of the system that has aided its effectiveness is its design as a work-in-progress. Wang (2005) highlights that its framework is largely based on sketchy legal foundation and is not even mentioned in the PRC constitution. Secondly, provincial and municipal governments, with the authorization of the central government, have the power to make marginal changes in order to adjust to their local municipalities.

Good communication

Hukou is linked to the Xiaokang project, which aims to create a reasonably well-off society by 2050, quadruple GDP by 2020 from the 2000 level, attain a 7% GDP growth rate and target a 1% yearly shift of labor force from agricultural to non agricultural sector.’ (Aziz et al., 2006, 252-253). This project gains its legitimacy from two sources:i) the goals are realistic given that China has achieved it before in the 20 year period preceding the dawn of the new millennium and, ii) it has been effectively communicated to the Chinese people and hence has popular national support.

Finally, I am cognizant of the fact that political processes in most countries may perhaps hinder this process from taking place. An influential force such as legitimization from international institutions such as the World Bank will be needed to give some credence to it. Unfortunately, such institutions are often in bed with their donor countries whose professed ideological leanings hypocritically ran counter with any versions of migration control. Once again, the answer may lie with China. With the epicenter of the global political economy shifting eastwards, China has a once-in –a life-time opportunity to assert itself on the global stage and design the global social, political and economic landscape in the likeness of its troubled image, nevertheless a very successful one, in the same manner that America did over the last century.

CONCLUSION

Arguments against hukou are very valid on moral, legal and ethical grounds. Having spent a significant amount of my teenage and early adult years in the poverty infested borough of the Bronx, I am hugely aware of the tragic and vicious trap of malignant forms of discrimination borne out of bigotry, ignorance and irrationality. However, I do realize, and have seen the positive outcomes of benign forms of discrimination which is applied as a temporary measure to achieve goals such as correct past failures (e.g. “affirmative action” programs in the US which give preferential treatment in university admissions to disadvantage but promising underrepresented youth of color).

The reality on the ground is most developing countries are caught between a rock and a hard place- accepting moderate but temporary forms of  discriminatory practices to cure the curse of poverty (the Chinese model) or perpetual poverty, albeit with piecemeal attempts at poverty reduction (the model for the rest-of-the-developing-world (RDW) model). Let’s not kid ourselves here; the RDW model, as Aziz et al (2006, 251, 255) point out, does not guarantee free movement of labor even if the state leaves it to the market. Rather the demands of social structure (market imperfections such as ethnicity, religion, caste, culture, and linguistic identities) ‘dictate who would leave the countryside and how they would be welcomed or “settled” in the cities’. Despite China’s history with hukou, its Gini index is comfortably stuck in the middle as compared to its competitor countries (better than Brazil and South Africa but worse than India and Russia) (see figure 3).

In summary, ‘a model of economic development assisted by institutional exclusion (Chinese model) is by no means ideal or even fair but realistically, it may be the only way for a latecomer nation to accelerate its growth in the information age with a globally integrated financial market,’ to break the vicious cycle of poverty (Wang, 2005, 20). The challenge is to minimize inevitable negative externalities that may arise in terms of ‘sociopolitical stability and national cohesion’. Insofar as it is a means to an end and not an end in itself, it may, to borrow the words of Wang (2005, 22) perhaps be ‘a lesser but necessary evil’. On the other hand, if policy makers reject my advocacy of this temporary benign form of discrimination that has been adopted by China to attain its developmental goals, as a matter of principle, I cannot, with a clear conscience, take aim at them.

APPENDICES

Copyright 2011 (April) Neo-African Consensus

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WHERE NIGERIA WENT WRONG?

BY KWAME MARFO

BBC journalist and former Asia editor for the AFP news agency, Peter Cunliffe Jones draws some startling comparisons between Nigeria and Indonesia (here). They were on similar growth trajectories at the time of independence. They were both formed as one nation by Europeans around 1900 and governed by the colonial system of “indirect rule”. After independence, they lived through similar political experiences. For example, Peter observes that “their first coups were launched within months of each other – in September 1965 in Indonesia and in January 1966 in Nigeria – and their military regimes died within 12 months, in May 1998 and 1999. Both were palm oil producers and discovered oil. However, while Indonesia managed to diversify its economy away from oil, Nigeria’s economy has effectively developed into a one trick pony and a pretty unimaginative one. Oil contributes to 95% of foreign exchange earnings and 80% of budgetary revenue.

So what went wrong? “Struggle is the reason”, according to Indonesian journalist, Bambang Harymurti. Indonesia’s history of mass popular (often violent) revolt has been broad based with Islamist, communist and nationalist taking turns to put political elites to account. Even brutal dictator, Suharto who was estimated to have looted $35 billion from the nation’s coffers towed the line, putting economic reform at the heart of his reign of terror. His ability to hold the reins of power very much depended on his ability to deliver strong economic growth. Nigeria has had popular revolts of sorts but it has mostly been in arts – literally and performance through icons such as Fela Kuti and Wole Sonyinka. While this movement has been aesthetically pleasing, as a political weapon, it has been spectacularly blunt. Moral of the story – Nigeria needs a Jasmine revolution of its own. 50 years of persuasion has failed. Force must be applied. Channel your rage and log onto your social network accounts. Let the powers that be know that enough …you guess rightly, is enough. This revolution will be twittered.

Copyright 2011 (March) Neo-African Consensus

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FAIR OR UNFAIR ?

BY KWAME MARFO

In June 2007, Kosmos Energy discovered oil in its Jubilee Field, the largest oil find in the last decade in West Africa. It is estimated to contain north of 2 billion barrels of low-sulphur, light sweet crude (which are easy to refine and command a premium price on international markets). There has been a great deal of confusion on the Ghanaian government’s share of oil revenues from the Jubilee fields. According to Kosmos, Ghana will earn between 53.75% and 63.75% of revenue before other taxes such as VAT and NHIL. (See table I for break down).

In addition, the country will earn $800 million in gas generated from the fields. Is this a fair deal?

Kosmos argues it took a chance on Ghana when most of the oil majors had given up. Since Ghana is new to the oil industry, Kosmos indicates it had to “develop” the industry from scratch, bringing personnel, supplies, machinery and rigs from different parts of the world. They also note that “operating the rig, could cost up to $1m per day. Drilling a single well could cost up to $100m considering the fact that they are drilling in 1500m of water with wells extending up to 3km below the earth’s crust into reservoirs that are 90 million years old. At a depth that is too cold for divers to operate, a remote-controlled vessel is the eyes of the rig on the ocean floor.” Also they obliged to Ghana’s government’s request for early production in a “record-breaking” three years (as compared to the norm of up to seven years). Excessive royalties and taxes, it is argued will discourage further investment in the oil sector.

However, this argument rings hollow when you compare agreements between foreign companies and other African countries. Under current joint venture terms, Nigeria government earns 90% of oil revenue (Wood Mackenzie, 2009). Companies in Angola pay income taxes on their share of oil profit at 50% before an alphabet soup of other taxes (IMF, 2004). Botswana was able to negotiate a 50-50% deal with South African mining company, De Beers for its diamonds (vs. 13.75% by the Ghanaian government)(Hillbom 2008).

Admittedly, the government was able to extract a far better deal than it has in the past such as in gold where it collects a paltry 3% in royalty (recently increased to 5%) (Economist, 2010).This explains why Ghana, which is Africa’s second largest gold producer and has one of the oldest richest goldmines in the world (Bio et all, 2006) earned only $116m in revenue from $2.2 billion in gold exports in all of 2008 during a time of record gold prices.

So was this a fair deal? Your guess is as good as mine.

Table 1

Copyright 2011 (March) Neo-African Consensus

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TAXABLE CONDITIONAL CITIZENS’ DIVIDEND: Towards a resource-curse free Africa

BY KWAME MARFO

INTRODUCTION

In 2008 Ghanaian presidential elections, Nana Akuffo Addo, the flag bearer of the ruling party, the New Patriotic Party (NPP) campaigned on his party’s platform of having grown Ghana’s GDP four-fold since it took office (from $3.9 billion to $16.3 billion), a stunning development by any standard of measurement (NPP Manifesto, 2008). Unimpressed, the Ghanaian electorate voted them out of power, albeit it by the tiniest of margins. What was their complaint? The average Ghanaian livelihood had barely improved – if not worsened – during NPP’s term in office. The New Patriotic Party pointed to a myriad of indices from major international institutions about the strides the country had made in becoming competitive. However, in a country where a third of the population lives in “extreme poverty[1]”, what mattered most were the core bread and butter issues, which had not walked in lockstep with the macroeconomic numbers (World Bank, 2003). If there ever was a flaw with macroeconomic assessment of development and progress, look no further.

Ghana’s new found oil resources which went live in the fourth quarter of 2010, is estimated at $560 billion dollars (Boateng, 2007). This is quite significant for a $15 billion dollar economy. Runaway economic growth indices have been projected. With the benefit of hindsight, one hopes that the powers, that be, will learn from NPP’s experience and like the proverbial ostrich, not bury their head in the sand by extolling macroeconomic credentials while the rank and file of the population dawdle in the mire of absolute poverty and despair. Another lesson that can be learned is the so-called resource oil curse that has kept Ghana’s richer neighbors trapped in the vicious cycle of corruption, authoritarian rule and poor economic performance (Gary and Karl, 2003).

In this white paper, I propose a plan, “Taxable Conditional Citizens’ Dividend” (TCCD) to counteract the resource-curse that has bedeviled many an African country. TCCD will have the twin goal of alleviating the plight of the “extremely poor” Ghanaian population, commensurate with economic growth, whiles offering a judicious way to manage oil revenues.

What

What is a “Taxable Conditional Citizens’ Dividend”? It is a taxable hybrid scheme that borrows from Conditional Cash Transfer (CCT) and Citizens Dividends. It is a CCT program in the sense that it will offer money to poor families in a ‘social contract’ which ties beneficiaries to a set of conditions such as sending kids to school and regular medical check ups (Fiszbein and Schady, 2009). This cash transfer will incentivise parents to invest in the health and education of their children. This scheme is a type of Citizen’s Dividend by virtue of the fact that it gives a share of nations resources back to its citizens as is done in Alaska where the citizens of the state receive cash hand outs generated from the state’s oil exports. This scheme is a multi-pronged attempt to combat poverty and enhance development by developing human capital, promoting broad-based economic growth, strengthening ties between electorates and the elected, reducing corruption and lastly, enhancing the societal role of financial intermediaries.

Developing human capital

Due to the finite nature of natural resources, it is incumbent for developing countries to use the revenue generated to invest in its human capital in order to diversify away from natural resources. This is a more sustainable form of development (Friedman, 2007). This explains why resource-poor countries such as Singapore and Belgium outperform richer countries (resource-wise) such as Saudi Arabia, Angola and Nigeria on virtually every human development index. This maxim holds especially true in a country like Ghana where agriculture accounts for 35% of GDP and employs 55% of the workforce (CIA, 2010). A good number of poor citizens depend “on their children’s labor as an asset to maintain current consumption, rather than invest in their children’s future human capital by educating them…this risks future income-earning capacity, perpetuating poverty from one generation to the next” (Moser, 1998:31). Taxable Conditional Citizens’ Dividends will attempt to mitigate this vicious cycle with cash transfers that will help soften the impact of lost income from parents who offer to send their kids to school instead. Education also presents opportunities for inducing good behavior, by paying poor families to make good decisions. As Ariel Fiszbein, World Bank’s Chief Economist observes, monetary incentives help militate against poor choices that lead to inefficient outcomes such as sending only boys to school. He indicates that studies of programs that gave money to women resulted in higher “proportion of the family budget spent on children’s welfare”. On health, with the myriad of diseases – tropical, childhood killer disease, and etc- that plaque most resource-rich countries, it is not hard to see the role of health investment in boosting human capital.

Promoting broad-based economic growth

Neo-liberal market orthodoxies that have dominated development discourse over the last three decades argue that there is a trade-off between growth and equity. However, events on the ground suggest that this relationship is tepid at best. Over the last three decades, the East Asian region- which has registered the highest regional growth rates in the world- achieved these feats with relatively low levels of inequality. In contrast, many developing countries in Africa and South America – the regions with the highest levels of inequality – saw an up tick in poverty along with inequality (Dagdeviren et al, 2002; World Bank, 2000). Even in countries which managed to reduce poverty such as Ghana (from 50% to 40%), the statistics masks regional inequalities.  Rural poverty is three times higher than urban poverty and hence, the need to address it (World Bank, 2003). ‘Pro-poor’ growth policies that target a reduction in poverty leads to a more efficient outcome. Targeted programs to the poor, in the short run, may reduce growth of other groups due to ‘redirection of investment’. However, in the long run, it makes the poor a more productive group of society and thus, raise income levels for all (Chenery and Ahluwalia, 1974a:47 and 1974b).

Strengthening ties between electorates and the elected

Clearly, such a costly scheme (TCCD) will come at the expense of sorely needed funds to develop infrastructure, insulate national budgets and meet other pressing demands. This is where the most innovative part of this scheme comes in. A tax on transfers, perhaps as high as 70%, could be levied to recoup some of the money back. The focus is not so much on the money disbursed to recipients. There is ample evidence from micro finance initiatives with poor citizens who have gone on to build successful enterprises on very small amounts of money. The goal with taxation is to strengthen weak ties between unaccountable government elites and citizens which over the years have been usurped by roles of other players such as civil society and development agencies (Moyo, 2009). For example in Ghana, donor contributions make up 79% of education budget (Oxfam, 2004). This type of scenario relieves politicians of their constitutional responsibilities to their constituents, cascading into a ‘race to the bottom’ dysfunctional system where abscondment of constitutional duties on the part of politicians is fully matched by apathy on the part of its citizens. By introducing taxes into the equation, Taxable Conditional Citizens’ Dividends will attempt to address this situation by mainstreaming taxation, making citizens become comfortable with the idea of taxes and also recognizing its benefits. This generates multiplier effects such as bringing huge swathes of economic output from the informal economy into the sphere of influence of the government. According to the World Bank (2011), informal economy makes up 20-80% of non-agricultural employment in developing countries. Proponents for informal economy argue that provides opportunities for those without the skills needed to access the formal economy. Others argue that it enables employers and employees increase their take home income by evading taxes. However, having a dual economy which blurs the lines between legal and illicit activities creates harbors for criminal activity, undermines law and order and leads to loss in state’s revenue. At best, informal economies are short term solutions which are neither sustainable nor desirable. TCCD attempts to deal with legitimate reasons why well meaning citizens resort to informal economy on two fronts. First, it provides cash transfers that increases take home pay of less privileged citizens. Secondly it creates incentives for parents to invest in their children in order to put them in a better position to access the formal economy. More importantly, a government that is generous to its people will find citizens less inclined to avoid and evade taxes. Also, on the one hand an increased tax base reduces the tax burden on the registered workforce, often the engine of growth of the economy. On the other hand, it enhances the governments’ institutional capacity and is critical in helping it meet its obligations such as building infrastructure and meeting other public goods and services. This generates goodwill on the part of its citizens and creates a mutually re-enforcing virtuous cycle.

Enhancing the societal role of financial intermediaries

As stated earlier, TCCD borrows heavily from Conditional Cash Transfers (CCT). Some of the biggest criticisms of CCT programs have been the cost of administering them. For example when Oportunidades, Mexico’s CCT program began in 1997, administrative costs consumed 92% of the budget. Other CCT programs have found ways to manage these costs. Brazil’s Bolsa Familiar, for example, transfers payments directly from the national treasury into recipients’ accounts in order to eliminate costly administrative disbursal apparatuses (Weld, 2009). Adopting such a scheme in the TCCD program could be a welcome shot in the arm of the nation’s nascent financial sector. For one, it will enable the unbanked poor to access the financial sector as never before and increase their comfort level with this industry. This could encourage them to bring hordes of money, often stashed unproductively under pillow cases into the market, increasing money supply in the system and enhancing financial intermediaries’ ability to efficiently allocate capital from people who have a little extra to aspiring entrepreneurs and small and medium sized enterprises, the backbone of these economies. Increased pool of and access to capital benefits all by reducing the cost of borrowing due to increased supply of money and an increased number of participants (Law of supply and demand).

Reducing corruption

Taxable Conditional Citizens’ Dividends can also contribute, in no small measure to curbing patronage networks as there will be less money in the hands of politicians. Finally and among other things, increased participation of the poor in national revenue generating schemes would bring much needed transparency and serve as check on corrupt government officials and avoid situations where disaffected youth sabotage oil pipelines because they feel left out, such as what we have witnessed in the volatile Niger Delta region.

IN CONCLUSION

For better or for worse, the political economy of oil is here to stay. In 2010, the Gulf of Guinea, the West Africa coast became the number one source of oil in the world outside the OPEC region (Klare and Volman, 2006). Unremarkably, poverty shows no sign of abating. In a perverted way, bountiful resources and poverty have ended up becoming strange fellows. This white paper contributes to the debate on solutions that attempt to offer solutions to arrest these hideous developments by redirecting oil resources to halt the blood flow of intergenerational transmission of poverty; “inability of poor households to invest in the human capital of their children” (IDB, 2004;20). It combines innovative development tools; Conditional Cash Transfer, Citizens Dividends and Taxation under the banner of the Taxable Conditional Citizens’ Dividends program. This scheme blends tried and tested social engineering tools that have attained varying degrees of success in the developed (e.g. Alaska) and the developing worlds (e.g. Brazil).With oil prices expected to double by 2050 (Shell, 2009), doomsayers cringe at the damage it may cause the already battered continent. Oil-rich countries like Sudan and Libya provide ample evidence. On the other hand, I see increase in oil prices as an opportunity to scale this program up, institutionalize it and “progressively” invest in as many of the nations citizens as possible to diverse its resource base from natural into its human capital.

While TCCD provides a noble attempt to deal with a very real problem, lessons from history informs us that like its predecessor, it is not insulated from some formidable hurdles. The program could stifle local entrepreneurship by making recipients dependent on the largesse of the state (Stoesz, 2000). However, the conditional element gives policy makers flexibility to attach conditions as they deem right to yield intended outcomes. Another drawback is that it presupposes that “extremely poor” are a homogenous group that can equally convert resources into utility and thus, skirts the issue of structural inequalities that may handicap some poor individuals (Sen, 1992). That is to say TCCD does not deal with the issue of structural inequity. Again and certainly not the last nor the least, there are gaps between activities and anticipated outcomes such as Norbert Schady’s observation that increased attendance in school (good measure of whether parents are sending their kids to school) does not always lead to higher academic performance (Weddle, 2009).

Finally, I am aware that like most good-natured projects, such an initiative could yield unintended consequences such as elite capture and corruption, complicating the problem it was intended to solve. I also acknowledge that ideas, however brilliant they are conceived in theory, often fail the test when they come into contact with the reality on the ground due to wrong assumptions, unexpected twist of events, and a more importantly, a lack of political will. We cannot, however, let an elusive perfect solution become the enemy of a good one. With 90% of African countries currently engaged in oil production, concessions and exploration of some form, not having a plan in place to manage oil revenue when they are realized could be deleterious. In the words of former 19th century Prussian Field Marshal Helmuth Karl Benhard Graf von Moltke “no battle plan survives upon contact with the enemy”, but nevertheless, we ought to plan”. That is what Taxable Conditional Citizens’ Dividend is- a plan, however imperfect but nevertheless one worth exploring.


[1] Defined by the World Bank as living on less than $1.25 per day (World Bank, 2010)

Copyright 2011 (March) Neo-African Consensus

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CHINA’S FORAY INTO AFRICA: The ‘Other’ African Perspective

BY KWAME MARFO

In the third quarter of 2010, China’s $16 billion investment in Ghana elicited a wide variety of responses, some out rightly derisory. While such responses on blogs and public forums are not to be unexpected, unfortunately, some of the most distasteful rhetoric have been spewed by public officials who ought to have known better. It is amazing how soon we’ve forgotten. Thirty years ago, Ghana – and a host of other African countries – staggering on the verge of bankruptcy went cap in hand to international financial institutions to be bailed out. The punishing conditions that were attached to those loans drove many an African country into the economic quagmire for well over a decade. In the midst of the biggest economic slump in living memory, even more prosperous countries such as Iceland and Ireland have been brought to their knees. Heaven knows what these countries will do for a Chinese bail-out, so to speak. Ghana, on the other hand, receives soft loans without the painful conditions, that we have grown accustomed to, and we have the nerve to complain?

The truth of the matter is China is sitting on $2.5 trillion dollars of dry powder. Countries are falling over themselves for pieces of that pie. Larry Summers’ (former President of Obama’s National Economic Council) made trips to China to smoothen diplomatic tensions despite legitimate concerns over China’s ‘mercantilist’ currency policies, knowing too well that the US would need China to keep its role as the US’ sugar daddy. UK’s Prime Minister, David Cameron has not relented in his efforts to realign his country’s interest in the East, making a trip to India to drum up investment, weeks upon being elected into office.

To put China’s investment in Ghana into perspective, with an annual GDP of $15.5 billion, if we add the wages generated from all 25 million of Ghana’s population, petty trades in Makola market and beyond, tourist dollars, remittances from abroad, money spent by Ghanaians living abroad when they visit the country, exports from oil, gold, cocoa and bush meat, etc,..ALL GENERATED IN A YEAR, we still will be over $400 million short of what China is giving to us, with a stroke of a pen, albeit for some slice of our resources.

There can be but a few outcomes in our relationship with China. In both cases, I see a net win for the continent.

At one extreme, if the relationship turns exploitative, there may be a silver lining to it. We cannot expect China to bring money to the table and also negotiate on our behalf. That would be preposterous. As a matter of fact, it would be a great act of injustice if African leaders, as has been the case in the past, do not get penalized by being dealt a bad hand by the Chinese investors (in this case), if they do not negotiate smartly. What some call exploitation, I call learning curve. We as a people need to learn the hard way. I’m sure China learned its lessons the hard way when it opened up its economy in the seventies. Some may argue that China’s economic prowess puts them in a superior bargaining position. While this may be true in principle, there are several intervening factors that should even the play field somewhat. Firstly, it is no secret that China has a voracious appetite for resources. It currently accounts for roughly one-fifth of global seaborne trade in coal. It also consumes roughly half the world’s cement, a third of its steel and a quarter of its aluminium. This demand is only going to get bigger as China develops. Africa has resources in abundance. Any attempt by China to take undue advantage of its “generous” African hosts will only come back to haunt them in the near future, in the global race for resources, hence keeping them in check.

Secondly, it is no secret that China has money – perhaps too much of it.  It is over-exposed to the US dollar and is quite desperate to diversify from it. This should play into African hands in the same way that wealthier football clubs- Manchester City, Chelsea and Real Madrid – (to borrow an analogy from football) tend to overpay for football talent because other parties to the transaction know that these teams have money to spend and hence these other teams try to make most out of the situation.

The other point to note is with over 90% of sub-Saharan countries currently engaged in oil production, exploration, or concession of some form, the continent is due for a major oil shake-out. Klare and Volman (2006) point out that in 2010, West Africa shoreline (the Gulf of Guinea), by itself, is projected to become the number one source of oil in the world outside the OPEC region. Nothing should prevent African countries from leveraging this position to negotiate with China (in consortia, for example) to get the best buck for its resources.

On the flip side, if the relationship turns out to be anything but exploitative, we win as well. The center of gravity of the international political economy is shifting. China has had the biggest economy in 18 of the last 20 centuries. Their rise (or as some would call it, their return) to global dominance is inevitable. The earlier we embrace and nurture it for our own good, the better. Admittedly, China would need to improve on its poor record in environment, treatment of local employees, human rights and propping up despotic regimes. Whichever way, we have too much to gain and too little to lose. Let the game begin!

Copyright 2010 (October) Neo-African Consensus

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