Archive for March, 2012

Friday Question – Who will manage their new found natural resources most effectively?

Following my previous post on natural resources in Africa, where I claimed that recent discoveries in someways represent a natural experiment for the effect of natural resources on economic and political elections, I’m now encouraging commentators, political scientists and readers to engage in something they should never do when considering such questions: forecasting! Don’t worry, I promise not to use your predictions to haunt you in the future. Out of those countries that have recently discovered natural resources in East and Central Africa (Kenya, Tanzania, Mozambique and throw in Uganda as they’re still getting going), who will best manage their reserves to:

1) promote economic growth?

2) tackle poverty and/or inequality?

and 3) pursue production with the least corruption?

The questions are vague, but that’s their beauty. Does growth that promotes economic growth, increases inequality but tackles absolute poverty to an extent satisfy the first two criteria? You tell me. And while the history of countries such as Tanzania suggest that economic outcomes might be more equitable, is this only because of a dearth of natural wealth previously? Or will historical trends in how national wealth is managed/whether growth is achieved continue? Or will there be even be a “reversal of fortune?

Over to you. Please comment below…

Abandoning the 0.7% aid target – is it wise?

The House of Lords Economic Affairs Committee today recommended to the government that they should drop the 0.7% GNI target for aid, citing that how money is spent, rather than how much money is spent, is what should determine policy. Their point about aid effectiveness is well taken, and that they want value for money is quite hard to argue with. No-one can take particular issue with with it, in the way that no-one ever lost an election by saying that they were going to make cuts to “waste”, as if there were billions of pounds floating around going to literally no use at all (see issue 9, p3).

However, as the more perceptive readers among you will have already realised, there is nothing to suggest that you shouldn’t make these fantastic savings by giving aid where a cost/benefit analysis suggests is efficient, but still giving at 0.7%. They don’t really explain why this isn’t an option.

It may well be that an absence of good reasons for a 0.7% target is reason enough to abandon it. As they point out, no other donor country has honoured their promise, and the reaffirmed commitment to the figure is a relatively recent development. However, if you take the premisses of a) giving aid by results and b) stopping aid when you get results, then over time, you’ll end up spending less and less on aid, even when it is still needed.

Let me explain. I wrote a paper this year motivated by the following quote.

Countries that are not corrupt do not require foreign aid, and foreign aid to corrupt countries entrenches corruption by increasing the gains to corruption.

 The first clause roughly corresponds to premiss b), and the second to premiss a). I say roughly, which is important, because I don’t attribute the views of Posner and Becker to the Economic Affairs Committee or DFID. Posner says he does not believe in giving foreign aid, which you’re unlikely to find Andrew Mitchell saying any time soon. But you can see how the committee’s wariness at giving to corrupt regimes (i.e. not basing giving on results) echoes Posner, and how, in the long run, non-corrupt countries will cease to have a need for aid as DFID fabulously well targeted programmes have the intended development outcomes. So while Posner is wrong to say that non-corrupt countries don’t need aid (levels of corruption and levels of development are different things), the British government may fundamentally agree in this analysis as a long term view of things, insofar as the non-corrupt and successfully developed countries will be the same thing when (if?) the aid programmes work their magic.

In my paper, I argued against the Posner view of aid. So what’s wrong with this view? There is a group of people who remain in a dire condition when the aid dries up. The poorest in the most corrupt countries get cut adrift. Financial transfers to their political leaders isn’t an attractive option, but it’s an absurd straw man to imply that this is the only form of aid available to donors. The House of Lords report also had disappointingly little mention of Technical Assistance. In the Section on “The Impact of Aid”, it is mentioned once:

Some forms of aid are less fungible than others. Technical assistance tends to be the least fungible, simply because it is tied to specific projects that might otherwise not take place. Budget support is the most fungible.

This is true, but they don’t build on this. It isn’t mentioned in the section on corruption, instead:

“… [aid] and corruption always go hand-in-hand, because aid is essentially seen by those entrusted with it as “free money”…”

Michaela Wrong’s insight is valid, but surely at this point the compilers of the report should have joined the dots and realised that aid isn’t seen as free money if it’s given in a non-money, non-fungible form. And perhaps people who read the whole report will join those dots, but when it’s not mentioned in the summary, or the snazzy accompanying video, then one imagines that Technical Assistance will be overlooked by policy makers and DFID too.

How is this related to the 0.7% target? There’s nothing about the figure 0.7% that is intrinsically significant, but I think abandoning a commitment to spend a fixed percentage of GNI on aid risks Britain cutting adrift those very populations that are most in need before time. There are four mooted reasons why reaching the 0.7% is said to be a bad idea: that the government will…

  • Wrongly prioritise the amount spent rather than results achieved
  • Make the achievement of the target more important than the overall effectiveness of the programme
  • Risk reducing the quality, value for money, and accountability of the programme
  • Increase the risk of a corrosive effect on political systems in recipient countries

Of these reasons, the first three don’t necessarily hold (you can still give plenty of money and be mindful of where it goes; they aren’t mutually exclusive), and the last one is avoided by using Technical Assistance rather than money transfers. Because, here’s the kicker: we could just spend that extra money on Technical Assistance. Suppose that giving more money than was optimum after a CBA was carried out really did reduce quality, as the 0.7% caused DFID to lose all discretion in their money transfers to dictators etc etc: even then, we could still spend at a 0.7% level, with the excess going to funding Technical Assistance. This could help governance even in corrupt countries while the optimum level of aid is being spent in non-corrupt countries.

Clearly this is a simplification. Corruption isn’t binary, most importantly. But the central point remains. An economic adviser, or an accountant, is harder for corrupt leaders to misuse, and thus a worthwhile constituent of the aid budget. And if we don’t have a level at which we’re ready to commit to spend, and only aid non-corrupt countries where there is a guaranteed return, then we’re just writing off millions of the world’s people with the greatest need.

Energy in Africa; a godsend, a curse or something else?

The past few months have been nothing short of remarkable, in terms of the discovery of natural resources in East Africa. Kenya has found oil, Tanzania and Mozambique have found huge natural gas reserves (which imply there may be oil around as well), all against the backdrop of Uganda’s development of refineries and capacity to begin exporting its own oil reserves.

The nature of resource management in Africa has led to the idea of a “resource curse”. This postulates that the discovery of vast energy reserves in a country will have extremely detrimental effects in the long term, as oil wealth is used by the ruling élite to insulate themselves from the pressures that a tax-base might place on a government, and corruption sees the natural wealth of the country accrue to MNCs and the leaders, rather than trickle down to benefit the country’s population. Moreover, democracy isn’t enough to guarantee economic performance and transparency. Paul Collier has observed that democracy is good for growth in general, but actually underperforms in comparison to autocracy when a country possesses natural resource wealth.

This is the theory, but these new discoveries should be seen as opportunities rather than an albatross destined to drag these countries down. The theory is based on experience, and experience can help inform policy going into the future. Collier also provides a tale of the experience of East Timor, who casted around for a Portuguese-speaking oil-rich country who were managing their resources well, and so rocked up in Luanda, only to run very quickly in the other direction when they learned how the Angolans managed their oil. The point is that Mozambique now can learn from the experience of East Timor, and experiences such as that of Angola can become the exception, and not the norm.

However, an overly optimistic approach might not be warranted either. We may live in a post-Bottom Billion world, and may know more about managing oil and gas reserves in the developing world than we ever did before, but East Timor is still one of the poorest countries in the world. Whatever their leaders’ good intentions, there isn’t a lot to show for it. Moreover, political economy might dictate that the reason natural resources are mismanaged is not necessarily because of precedent or lack thereof but factors on the ground. The precedent of well-managed diamond export in Botswana didn’t translate into a model that was applicable in Sierra Leone, Angola or the DRC. Precedents of good oil management in, for example, Norway, haven’t helped the developing world either, because the Norwegian context is so very different from any faced by an East African country.

I think the events of the last few months have provided a series natural experiments, into which fruitful research will be able to shed further light on how natural wealth affects growth, poverty, and other variables of interest. On the one hand, we will be able to examine how different institutions in say, Tanzania and Mozambique, produce different outcomes given analogous natural reserves. On the other hand, we will be able to see how different types of natural resources (oil as compared to gas) or different stages timings of discovery (Uganda as compared to Kenya) will affect countries, given roughly stable international conditions. And finally, we’ll be able to see how resource wealth affects the region. By way of an example, how is Uganda affected by Kenya’s discovery of oil? Jeff Mbanga has an interesting angle on this question, identifying the problems that this discovery might cause Uganda’s plan to refine its own oil, when Kenyan and Ugandan oil could both be refined in Kenya, while Kenyan oil is unlikely to head away to the coast to Uganda before being exported.

There are interesting differences between these countries, but there are constants which will make comparison a helpful exercise. Moreover, that these countries are undergoing what will be a transformative period at the same time might aid scrutiny. Nick Ericsson, from Focus on Africa, recently tweeted that Wade’s concession of defeat in Senegal was linked to the coup in Mali; he was worried about going against the democratic process. And international pressure on Mali has been intensified by the fact that Senegal has exhibited functioning democratic politics in recent days. As similar dynamic could play out in East Africa regarding oil; perhaps good management in Tanzania will intensify scrutiny on Mozambique, or vice versa. Or perhaps competition will have a detrimental effect; companies looking to invest might want illicit sweeteners, and be better placed to demand them if a neighboring country is an alternative location for energy investment, and willing to provide them to get an edge over their rivals.

It is still early days for the natural resources industry in East Africa, and too early to tell whether the resource curse has been lifted or will persist. One thing we do know however; these countries will only get one shot at managing these resources in a way that sets them up well for the future. Let’s hope they get it right.

Reading list, for companies and figures

General: http://www.bbc.co.uk/news/business-10710488

Uganda: http://www.nytimes.com/2011/11/26/world/africa/uganda-welcomes-oil-but-fears-graft-it-attracts.html

Tanzania: http://www.ft.com/cms/s/0/285a1e0c-6164-11e1-94fa-00144feabdc0.html?ftcamp=published_links%2Frss%2Fcompanies_europe%2Ffeed%2F%2Fproduct#axzz1p1IWwJGf

Mozambique: http://www.guardian.co.uk/world/2012/mar/27/mozambique-africa-energy-resources-bonanza

Kony 2012: the Ugandan Prime Minister’s response

I was fascinated to watch Ugandan PM Amama Mbabazi’s response to the Kony 2012 campaign last night, and how he seems to share the critiques of many Ugandan observers, such as Mamdani, and non-Ugandans. This is not necessarily obvious, given that the Ugandan government stands to gain from the achievement of Kony 2012’s goals. If you remember my first blog that talked about the LRA,  it was addressing an article by John Pilger in the New Statesman who dismissed the American national interest (which justified the intervention) as “usually mean[ing] buying a corrupt and thuggish regime that has something Washington wants”. And my first piece on Kony 2012, the Think Africa Press piece by James Schneider and Zoe Flood have all noted the self-interest that is served by Ugandan forces being given a remit to pursue Kony.

Which raises the question: why doesn’t the Ugandan Prime Minister welcome Kony 2012’s simplifying message with open arms, if it seems clearly in his government’s interests to do so?

A few points here. The reality on the ground cannot be ignored; be it Zoe Flood’s taxi driver or a Professor at Makerere University, Uganda’s civil society seems to have responded unanimously, taking exception to the video. And rightly so. It could be that the Ugandan government’s response has been derived from this backlash, and deviation from the public discourse within the country (for example, if the government welcomed the video wholeheartedly) might be seen as so politically motivated as to be absurd.

Secondly, the actions of the UPDF are not necessarily the direct fault of the central government. By this I mean, when Flood’s taxi driver says that “they haven’t arrested him because he makes them too much money”, it’s unclear who he means by “they”, and many of the UPDF’s abuses appear to be more the result of moral hazard rather than centralised policy. I wrote in my earlier post about Kisangani, and Gerard Prunier pointed out (in Africa’s World War) that mineral exploitation in Kisangani was not centrally controlled through the government, as it was by Rwanda. Moreover, when Schneider refers to “military commercialism,” he talks of Uganda’s senior officials in the army, not of the government per se. This isn’t a defence of the government, as clearly they should be responsible for their troops if they’re out of control as much as if they were just following orders. But it provides a dualism through which the government can keep a distance from the actions of the army, and again, might be jeopardised if the government supported the film too much.

Thirdly, throughout the film it is clear that Mbabazi is playing down the role of the military for a reason. He wants to encourage tourism and investment, and stress that Uganda is a safe country which has been at peace for five years. These things are all true, but this only makes sense if the gains to peace are higher than the gains to aid given to support the capture of Kony. This suggests that Flood’s taxi driver only takes us so far: while there may be marginal benefits to pursuing a war out of a Collier style “greed” scenario, the growth produced by investment and peace seem to outweigh this. It may be that both can be pursued, with the army being given a carte blanche to galavant around Central Africa to find Kony, while publically the government emphasises gains to peace inside Uganda.

Finally, it might just be that the Pilger story isn’t plausible. Why wouldn’t the Ugandan PM like a film which supported US aid for his “corrupt” government that is otherwise powerless to stop a warlord? Well, why would he? Perhaps it’s not all a big conspiracy theory, but rather the honest reaction of a man in government who is just as much bemused by the simplification of his country’s problems and history as his compatriots are. At this point, here’s a helpful reminder of some of my previous thoughts on African conspiracy theories.

I think the extreme version of the last point might be a bit naïve, but, as ever, comments are welcomed.

US Budget: Forecasting skulduggery and lessons from FY1996

Skulduggery is arguably quite easy to forecast when it comes to the US budget, but you know what I mean.

Here’s the gist. According to the Congressional Budget Office, Obama’s budget, in which he wishes to preserve middle class tax cuts of the Bush era, will greatly increase the deficit, assuming that the tax cuts expire. Got that? No? Oh yeah, and by the seventh paragraph, there’s the admission that Obama’s budget will cut the deficit by $4.3 trillion by 2022, despite saying in the second paragraph that it’d increase it by $3.5 trillion. I don’t know whether to blame the Hill for sensationalism, or the CBO for providing misleading headline stats. When Congress and the Presidency are at odds, the CBO can become somewhat biased towards Congress’ goals, just as the Office of Management and Budget (the OMB) often gives favourable forecasts for the President to justify his policies. This is all pretty much par for the course. But this sort of misinformation isn’t helpful. TPM take a clearer approach to what the CBO figures mean, and Krugman isn’t happy. And I quite agree that people who claim there is a spending “binge” when there isn’t one aren’t helping inform the electorate about the realities of fiscal policy, and if Obama gets chastised for his profligacy regardless of how profligate he is then the idea of fair accountability in a democracy kind of goes out the window.

However, the CBO ratings can be a helpful bargaining tool for the President. For Fiscal Year 1996, the year of multiple government shutdowns, Clinton was insistent that his budget was scored by the OMB, not the CBO. Gingrich, Kasich, Armery, DeLay, etc, etc. were all unhappy with this. So it became a major battleground. When he agreed to a CBO scored budget, the House Republicans thought they had secured a major victory. But having driven such a hard bargain, Clinton wanting something in return. So part of the Daschle plan which resolved the shutout was that the budget saved less on Medicare, meaning fewer entitlement programs were cut, than the White House had previously been willing to sacrifice.

For House Republicans, getting a CBO scored budget was a hollow victory. Firstly, the capital they spent on it meant that they gave up more cuts. Secondly, the pessimism of the CBO forecast was not well founded, and so the budget was balanced well before the seven year plan that they had proposed. For real deficit hawks like Kasich, this might be normatively desirable, but politically it’s not great. It’s one thing to give the President a bad outlook to make his plan look economically disastrous. It’s another when that plan retains much of its spending on Medicare and works better than expected, making his plan look economically genius.

So as much as those who are sympathetic to the Democrats might despair about CBO ratings, Obama should keep the experience of FY1996 in mind. He might find it reassuring

Friday Question: What are the dangers of changing the definition of marriage?

In a bid to make my blog more interactive (and working on the principle “blog more often, blog fewer words”…) I’m introducing a Friday question, the great advantage of which is that I don’t need to figure out for myself what I think before I post about it.

This week’s is a genuine puzzler to me. During the gay marriage debate, I’ve heard a lot about the “dangers” of messing with an institution on which this country was built. But I’ve heard very little about what these dangers actually are. Newsnight last night was a good case in point. With the new “lots of people in a small room” set-up, it got a bit heated, incomprehensible and awkward. However, while the person who suggested that arguments about gay marriage can be an excuse for thinly veiled homophobia was pretty roundly shouted down, I can’t see a “danger” in changing the idea of marriage following on from any other premiss than homophobia.

Some of the bishops alluded to marriage’s importance in producing and raising children, which is obviously at one level biologically unfeasible in gay marriage but on another level already legal in civil partnerships. The link between marriage and raising children has been dead for a while now in heterosexual relationships too. I mean, it’s not a fact that the church is necessarily a fan of, but it’s true (in the interest of brevity I’m not going to discuss this point further, but pick me up on it in the comments if you really want me to spell it out further).

Milo Yiannopolous, a gay Catholic who seemed to think that his own unique position of being gay AND a Catholic lent him some sort of profound insight into the issue which no-one could disagree with, did at least come up with a theoretically quantifiable “danger” of gay marriage: given that the Catholic (and Anglican) churches weren’t going to allow gay marriages, even if they were legalised, there would then be test cases which set individuals and the church against each other in conflict, which he personally didn’t want. I can think of two good arguments against this. First, transplant the location to Little Rock Arkansas, the issue to school segregation and play through his reasoning… and it’s not very pretty. That an institution is resistant to change which might threaten its own prejudices is regrettable but not an argument against change. Secondly, I can understand that in his own position he might think it not worth the hassle, might prefer to put his faith above his sexuality (or might convince himself that his partner is a “profoundly good friend” or whatever). But what of the Christian gay couple who were on the show, who want to get married, and whose vicar wants to marry them? The fact that sympathetic vicars can’t marry gay people reveals the more likely effect of the legalisation of gay marriage. I can completely understand that as a group who has been discriminated against, one might not want to rock the boat against a powerful adversary and face a backlash. It would be understandable, even if it didn’t make inaction right. But so many Christians are sympathetic to gay marriage, that I think the more likely outcome isn’t a big conflict between gay people who really really want a traditional Catholic marriage, but another schism where new churches, probably Anglican but also maybe Catholic, split from the mainstream and allow gay marriage. And you can see why people in high places in these Churches might not want this, but again, it’s not really a societally “dangerous” consequence of gay marriage.

So I could only surmise two actual “dangers” of gay marriage from Newsnight last night: The threat to children and the threat of test cases and conflict, and neither seem to a) appear valid or b) override normative imperatives even if they were valid (that is, even if Little Rock were to play out, that wouldn’t be an argument against the rightness of the decision).* So given these two reasons don’t stand up, this is where you come in. Can you think of any other dangers in changing the definition of marriage?

 

* I realise what is “right” does not mean what is safe, and so when someone talks of the “dangers” of something, it doesn’t mean they don’t think it’s right, in the general case. In this case though, it seems that they do. So I’m taking “dangerous” in the sense that the Bishops seem to use it, in the sense it might foundationally threaten the fabric of our society (which would be wrong). When they use it, they don’t say “we’re begging to do the right thing and be able to marry gay people, we just fear that our barbaric congregation will tear them limb from limb”. Either members of the clergy cite this sort of moral-spiritual “danger”, and argue against gay marriage as being “wrong”, or they argue for it as something that is “right”, regardless of other dangers.

Kony 2012: Invisible Children’s invisible agenda

In my first post on Kony 2012, I focussed on, shall we say, the demand side equation for intervention in Central Africa to catch Kony, and how Invisible Children’s campaign may be ineffective and misguided, whatever their enthusiasm and good intentions. I deliberately didn’t get embroiled in the supply side motives of Invisible Children themselves, and how dubious they might be. However, if you are interested in that side of things, then Charlie Brooker is a great place to start.