Economics and similar, for the sleep-deprived

A subtle change has been made to the comments links, so they no longer pop up. Does this in any way help with the problem about comments not appearing on permalinked posts, readers?

Update: seemingly not

Update: Oh yeah!

Tuesday, June 17, 2008

Natural Born Resource Curses

Two from Felix Salmon, on the subject of this article about the Zambia/Donegal case, which frankly isn't actually one-sided at all - it might have not talked about other things that some other vulture funds might hypothetically have done in other cases, and it correctly doesn't give airtime to quite a lot of ludicrous apologetics ("we never wanted to go to court yer honour! we tried to negotiate! first we asked to be given a textile factory, then we asked to be given a bank, but nothing would satisfy those awful Zambians! eventually and reluctantly, we were forced to carry out our threats!") but as a factual description of what actually happened, it's excellent.

Brad Setser makes the clear general case against vulture funds (summary - they are the patent trolls of international debt, contributing nothing except aggro and making it much more difficult for larger and more responsible players to negotiate sensible debt workouts, by taking advantage of the lack of an international equivalent of the provisions in the corporate bankruptcy code which allow one to tell abusive creditors in a corporate insolvency to fuck off) in Felix' comments, so I won't reproduce that here. I just want to expand on one of my own comments on the general theme of - what kind of effect does the sort of behaviour described here have on African politics over the long term?

As the Joshua Hammer article correctly summarises, what we have here is the case of a financier who apparently first arrived in Africa full of good intentions.

Sheehan spent a significant part of his career running a nonprofit organization that helped poor countries find creative ways to reduce their debt. In the 1990s, his group arranged debt-for-equity swaps, through which a country could convert its liabilities into partnerships for forestry projects, orphanages, programs to treat such diseases as river blindness, and HIV-AIDS education. Sheehan estimates that he raised about $40 million in Africa, Asia, and Latin America between 1992 and 1996.

ahhh the market in action, so much more practical and hard-nosed than those weaselly aid workers. Microfinance, Hernando de Soto, World Bank, harnessing the power of the market for good ... you can practically hear Gordon Brown spouting this stuff by the yard, can ye no?

Then, in 1999, Sheehan parlayed his expertise into an opportunity to make big money.


He found out about an obscure 20-year-old loan that Romania had made to Zambia, which used the money to purchase $15 million worth of Romanian-made tractors, trucks, and police vehicles. (“It was a bad deal for us,” says David Ndopu, a top official in the Zambian Ministry of Finance. “The police vehicles broke down after six months and just sat around in parking lots.”) Zambia had been trying to negotiate with Romania for a partial forgiveness, but talks broke off in early 1999. That’s when Donegal (an investment vehicle of that name, not the Irish county -dd) stepped in. Its representatives persuaded Romania to sell them the debt at a deep discount—$3.3 million.

With predictable consequences:

At that point, Donegal was holding what was basically worthless paper. Zambia had agreed in its original deal with Romania to ensure sovereign immunity, which it hoped would guarantee that the country couldn’t be sued or have its assets seized if it defaulted on the debt. But surprisingly - and fortunately for Donegal - Zambian officials waived that immunity in 2003, leaving the country open to litigation.

In other words, the Zambians got played. There was a whole load of litigation and he-said-she-saids about whether there had been improper inducements paid, but the bottom line is that the Zambians got played. I doubt that there was even necessarily any actual corruption involved - UK local authorities are always getting played like this, agreeing to ridiculously unfavourable PFI contracts and the like. A good negotiating lawyer has a dozen ways of confusing, baffling, threatening, convincing people they're legally required to do something, etc and on. End result is that the less well-advised public sector player is roughly as likely to get screwed as Paris Hilton's prom date, and significantly less likely to enjoy it. Everything after this was downhill.

Now, two questions. First, do not think for one minute that people working for the Zambian government didn't see this and immediately think "yep, that's the way to get rich in Africa". I mean really, I have blogged at length on this one before, but if you were Levy Mwanawasa and you saw somebody walk off with $15m of Zambia's money like that, what on earth incentive would you have to stint yourself on the Learjets and Ritz-Carltons? The big reason why people agree to debt relief is that an overhanging debt burden massively reduces the incentives to good governance, because all the rewards go into the pockets of overseas creditors. To see something like this happen must be hugely, wildly demoralising for any honest players in the Zambian political system.

And second, what happens the next time we try to help the Zambians through debt-for-environment swaps, etc? The next time a fresh-faced Harvard MBA shows up with a big donation for a local education trust and the slogan "Hi, I'm from the global capital markets and we're here to help?!" I would imagine that the Zambians reason:

"The last time one of these types came here, he spent a few years buffing up his political connections, then he shafted us but good"

and proceed from thence to "No, fuck off". Now this might or might not be a fair way of characterising what the fund in question actually hoped to achieve or whose fault this mess all was, but you know for sure that the Zambians are going to see it that way. As I note in comments at Felix's place, we are all tebbly tebbly concerned about third world countries "maintaining their credibility in the capital markets" but there is also the important matter of said capital markets maintaining their credibility in the third world.

And the two of these points are tied together by a third, which is also relevant to natural resource curse. What the continent of Africa is full of, is chancers and get-rich-quick merchants. The natural resources industry is of course famous for such characters, and the trait that they share with vulture financiers is that they vastly prefer to substitute risk tolerance, sharp elbows and an eye for the main chance for graft and creativity. People like this are useful and even necessary in small doses, but (as any history of your favourite frontier and colonisation narrative will tell you), in large numbers they're pestilential; a walking, talking infestation of the same kind of behaviour that's the staple of the resource curse literature.

There's a post forthcoming (once I've got the Kapelwa Musonda book in hand) on psychological obstacles to development but I think this is the big one; not the lack of a work ethic, but the perversion of the work ethic in a large proportion of the domestic and expatriate business class, who think that success isn't something you build; it's something you find, buried in the ground or buried in a file of Romanian tractor invoices.
12 comments this item posted by the management 6/17/2008 01:36:00 PM

Friday, June 13, 2008

What became of the Likely Lads?

By the way, you can listen to "Kachasu" by the Five Revolutions here and it's a pretty good song. As the reviewer notes:
There is a lot of warning in the lyrics, as on the lead track "Kachasu" by The Five Revolutions. During this same period, AIDS was quietly ravaging the population, and it was often remarked that people in denial attributed deaths to other causes. This song turns the tables, claiming that the popular local liquor called kachasu kills many, and that the deaths are often attributed to AIDS. Sorting that one out is analogous to untangling the frenzied guitar and bass lines that weave through this cranker. But again, a sweet vocal line makes it all go down easily, perhaps like a shot of kachasu. (D^2D has no official editorial line on whether a shot of kachasu would actually go down all that easily -dd)

Which of course reminds one of how the Bhundu Boys fell out with Robert Mugabe; they started talking about HIV at a point when HIV/AIDS denialism was the political fashion (Thabo Mbeki, infamously, hung on to this one far too long and for all I know Jacob Zuma still believes it). And thence to this article, via the Bhundu Boys wikipedia page, which was probably a big part of what led me on to the "Project Africa" idea in the first place; there was a time in the late 1980s when that band was really very important to me, although the only album I actually owned was "True Jit", widely regarded by genuine fans as a stinker. Of course, tough stories like this are pretty commonplace in the music industry; viz, Tansads[1]. But the entanglement with Zimbabwe somehow makes the whole thing much more poignant.

[1] And really at the end of the day, as with all such stories in the music industry, the petty financial venality and who-did-what-to-who, are secondary to the larger fact that the band didn't sell records. And looking back objectively in so far as I'm able to, this is really because they were actually a quite limited band - it's entirely possible for a band which has a fresh and attractive sound to really turn people's heads for a short while despite having not much material, look at the Ramones. I have the Bhundu Boys "Shed Sessions" and I like it, but that's because there's an awful lot of memories there - I don't really listen to it very much and I can't remember any of the songs in detail. On the other hand, I listen to my Orchestra Baobab CD a lot, and Orchestra Baobab are apparently doing all right financially.
4 comments this item posted by the management 6/13/2008 09:11:00 AM

Thursday, June 12, 2008

Moonshine and Rainbows

"Project Africa" has, I've decided, become "Project Zambia", ex the big news stories in Zimbabwe, Sudan and Uganda. Radical downscaling was needed, because I'm three months into the project and still have basically nothing on the Sahara, North Africa, the Francophonie or even Nigeria, and no real plan for getting any interesting sources of information. It turns out, Africa is a big place. Whereas if I take the project down to the single country of Zambia then a) I have a bit of background knowledge via a whole load of stuff I took from my dad’s files, b) there is is the Zambian Economist blog to lift things from c) Zambia basically never appears in mainstream British or American news sources so it's more likely to be interesting to the blog readers. Here we go.

The economics of Zambian poteen, once more via Zambian Economist (I keep linking to it because it's such a great blog).

I am not sure I agree with the neoliberal case for deregulation here. I can see where Cho's coming from in that there's a sort of Hernando De Soto case for legalising and formalising an industry that's largely based on household production by the poor. But I can't help thinking of Gin Lane (plus the Appalachian experience with moonshine and rural Ireland) and concluding that widespread, unregulated and largely untaxed availability of distilled spirits is almost certainly bad news for economic development. I also tend rather more sceptical about the academic studies which have apparently proved that Zambia has the world's only moonshine production process that doesn't ever cause substantial health problems (particularly as the typical strength of kachasu is apparently 20-30% ABV, which is exactly the range associated with inefficient distilling processes chock full of methyl/fusel heads & tails). There are some substances which it's just empirically bad news to have around; even a lot of drugs legalisation campaigners will balk at trying to claim that the bad effects of methamphetamine production and consumption are just a result of criminalisation and that things would be OK if people could just get "pure" meth from their local pharmacist and pay tax on it.

Beer brewing is rather different; it was one of the first industrial products and there's decent history of the development of brewing from home production to industrialisation. But looking at the Times of Zambia article referenced here, it is pretty difficult to see anything that's going to turn into a development strategy in the Gin Lanes of George Township, Lusaka.

Meanwhile, poking around the Zambian media websites - wow, I mean wow. I am not really a fan of cheap laughs at the expense of LDC media organisations[1], but this is the first time I've ever seen a whimsical editorial quoting Cliff Richard lyrics while discussing the subject of armed police firing on student protestors. Although it has to be said that the Zambian police's excuse - that they used live ammo "because we had run out of tear gas" is a peach. Also Pirate universities? The ToZ is pretty baffled by this one too.

[1] And just to show good faith on this point, I have a copy of "The Kapelwa Musonda Files" on order from Amazon, and when I get it you'll see how stylish and subtle the very best of Zambian satirical journalism can be.
7 comments this item posted by the management 6/12/2008 01:34:00 AM

Monday, June 09, 2008

For values of "Africa" including "Russia"

On the principle of "what know they of England, who only England know?", this is not really relevant to Africa, except that it is, really, because it's yet another example of the main problem of that continent, the complete fucking inability of Great Powers to keep their Westphalian fucking noses out of the business of neighbouring states. And of the Strategic Victimhood Thesis of Alan Kuperman, which suggests that a major tactic of modern national independence movements is to try to provoke humanitarian atrocities or to do something similar in order to persuade a Great Power to intervene on their side. It's instructive to see one of these situations happening with the good guys and bad guys switched around a bit to keep your intuitions sharp about the general principle.

And thus, Abkhazia (and South Ossetia too). I think Yglesias and the LGM chaps have erred a little on the side of giving Putin[1] the benefit of the doubt. It's potentially true that the Abkhazians want to secede from Georgia, and have a legitimate ethnic and historical ground for doing so. They may be a ludicrous and clearly unstable bunch of Mafiosi, but it is not entirely illegitimate for them to point to the Kosovo precedent which shows that this should not be considered an insurmountable barrier to statehood (and of course, anyone who sees the justice in the Palestinian cause is also going to have to raise their standards for gangster tolerance). I think they've got a decent claim.

But, the means by which they're pursuing this claim are not legitimate; they're inviting Russia to start messing about in another state's sovereign territory. This is something which really really ought not to be encouraged, because it regularly and predictably leads to bad results - like aggressive war, it's one of those things that's not allowed because it's got a really bad track record. This isn't OK when the SLA/M does it in Darfur, isn't OK when the Kurds do it, wasn't OK when the Contras did it, wasn't OK when the Kosovans did it, wasn't OK when the Bosnian Serbs did it, etc etc etc. It's bad to involve foreign powers in your domestic politics[2].

And if you're lucky enough to be a great power, it's bad to take the political bait. Bad when France did it with Operation Turquoise, bad when the USA did it in Iraq, bad when Russia is doing it now. This is the sort of thing that ought to result in international sanctions; not war of course, that would be stupid, but definitely the sort of thing that makes it a lot more difficult to get what you want in other international negotiations. Of course, we have pretty few sanctions against the Russians at present, what with them having hydrocarbons and us needing them, but the principal's clear; at the very least, the tendency of Mother Russia to keep flaking bits off neighbouring countries has to be the sort of thing that is relevant to, say, discussions over Ukraine joining NATO. I'm quite a fan of Cold Wars if carried out sensibly; it's the shooting sort I don't like.

[1] By which of course I mean Medvedev … or do I?

[2] As opposed to involving foreign powers in your human rights struggle, which is much more OK precisely because these are universal rights, rather than particular and local disagreements over land.
19 comments this item posted by the management 6/09/2008 10:07:00 AM

Tuesday, June 03, 2008

This week in broken promises - "no more US elections coverage"!

The three candidates in the US elections have put together a joint statement on Darfur. It is pretty depressing. They could have jointly endorsed Zoellick as a peace negotiator, announced support for the Darfur-Darfur dialogue, pledged to fund UNAMIS or done a dozen other things. Instead, we get a whole load of soggy breakfast cereal, basically all of it targeted at the domestic Christian lobby (as I've mentioned before, the key driving force pushing Darfur to the top of the US political agenda comes from churches who hate Bashir because they had missionaries murdered in the South. This is a good reason to hate someone, and their cause is intrinsically just, but it's worth being aware of the politics here). I parse, below, the substantive bit.

After more than five years of genocide, the Sudanese government and its proxies continue to commit atrocities against civilians in Darfur.

The word "genocide" here is pure political verbiage, just as it was when Colin Powell said it at the UN. The SDC want to hear it because they believe that it has some magic power to conjure up a UN intervention force. The Sudanese government is still committing atrocities, though the Janjawiid less so these days.

This is unacceptable to the American people and to the world community.

My advice is to save words like "unacceptable", "vital" and so on for situations where you actually do intend to do something if the desired set of circumstances don't come about. Using them as generic synonyms for "really bad" tends to gnaw away at your credibility.

We deplore all violence against the people of Darfur.

No reason to doubt this is genuine, but as I' keep noting below, they don't actually seem to do much deploring of any violence that isn't carried out by the government. The rebel groups in Darfur chop hands, fire on aid vehicles and use child soldiers; they're very nasty people.

There can be no doubt that the Sudanese government is chiefly responsible for the violence and is able to end it.

Simply not true. The question of "chiefly responsible" is murky enough, but it's very obvious that by this point, Khartoum isn't able to end the violence. Even if Bashir were to suddenly acquiesce and give Darfur independence, there would still be conflicts between the rebel factions to deal with.

We condemn the Sudanese government’s consistent efforts to undermine peace and security, including its repeated attacks against its own people and the multiple barriers it has put up to the swift and effective deployment of the United Nations-African Union peacekeeping force.

All correct to condemn. Really very strange that there isn't a single word here about the rebel groups, though, who have been behaving nearly as awfully and who have been very bad at allowing UNAMIS to deploy.

We further condemn the Sudanese government’s refusal to adhere to the terms of the Comprehensive Peace Agreement (CPA) that ended the conflict in southern Sudan.

This obviously has nothing to do with Darfur; they're talking about the fighting around the key oil town of Abyei. It's pretty confused who started this; Wikpedia's best guess is that the current round of hostilities were kicked off by an ethnic militia blocking roads and challenging the SPLA to take them back, which just stinks of Bashir's modus operandi. And it's certainly true that the NCP government have been acting in transparently bad faith over setting the boundaries of Abyei province. But this all has nothing to do with Darfur - it's just emphasising once more that this is all really about South Sudan, which is politically much more important in US politics because it's Christian.

Today, we wish to make clear to the Sudanese government that on this moral issue of tremendous importance, there is no divide between us. We stand united and demand that the genocide and violence in Darfur be brought to an end and that the CPA be fully implemented.

The "magical performative". A form of sentence construction which tries to imply that difficult things can be done by saying so. "Be brought to an end" how?

Even as we campaign for the presidency, we will use our standing as Senators to press for the steps needed to ensure that the United States honors, in practice and in deed, its commitment to the cause of peace and protection of Darfur’s innocent citizenry.

The USA has, of course, made no such commitment, nor could it.

We will continue to keep a close watch on events in Sudan and speak out for its marginalized peoples. It would be a huge mistake for the Khartoum regime to think that it will benefit by running out the clock on the Bush Administration.

This is crazy. Bashir would love to keep Bush in power forever if he could. While he's there, there is zero prospect of any coherent sanctions on him through the UN and the UNAMIS force is almost guaranteed to be underfunded (it still doesn't have those helicopters everyone was promising). Bashir loves Bush, his good friend in the war on Islamic extremism.

If peace and security for the people of Sudan are not in place when one of us is inaugurated as President on January 20, 2009, we pledge that the next Administration will pursue these goals with unstinting resolve.

The USA has in general been a pretty constructive force with respect to Darfur - much less so in the South of Sudan, but in Darfur they have helped the peace process go along. But this sort of "resolve" talk and meaningless sabre rattling achieves next to nothing, while not saying a word about the JEM or SLA further encourages them to believe that they can do what they like, peace treaty or not, with the approval of the USA. If the three candidates were serious about Darfur, or about putting pressure on Bashir, then they'd announce that the USA would sign up to the treaty establishing the International Criminal Court. But of course that's not going to happen ...
1 comments this item posted by the management 6/03/2008 07:12:00 AM

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