WHY DEVELOPMENT TARRIES FOR AFRICA

 

Africa has had many actors (national governments, World Bank Group, IMF and combinations of the aforementioned and others) who have tried to solve Africa’s challenges. Since the 1950s independence movement, there has been no success stories resulting from these multitudes of prescriptions. This has led some to call the continent hopeless as the Economist magazine did on May 13, 2000 in the print edition.

But the continent is not hopeless. Inability to properly diagnose a problem will usually lead to poor prognosis, prescriptions and policies meant to remedy/solve the problem. There are many prescriptions that have not taken into account the full gamut of symptoms and challenges.  This led to and continues to lead to mis-diagnosis of the differing situations faced by Africa’s over 50 something countries. Some of these prescriptions include the infamous Structural Adjustment Programs (SAPs) as well as the Economic Recovery Programs (ERPs)—none of which has had any positive impact on any of Africa’s countries in the long term.

I was asked today why Africa has not been able to industrialize or develop all these years—even though the continent possesses vast lands, labor (youthful workforce) and capital. I will attempt to answer this summarily but first indulge me by reading the following quotes.

The following excerpt is taken from a new multi-NGO report, dubbed “Honest Accounts 2017 – How the world profits from Africa’s wealth.”

Africa is rich – in potential mineral wealth, skilled workers, booming new businesses and biodiversity. Its people should thrive, its economies prosper. Yet many people living in Africa’s … countries remain trapped in poverty, while much of the continent’s wealth is being extracted by those outside it.

Africa is generating large amounts of wealth and, in some ways, is booming. For example, the largest 500 African companies recorded a combined turnover of $698 billion in 2014.

In 2015, countries in Africa exported $232 billion worth of minerals and oil to the rest of the world. The value of mineral reserves in the ground is of course even larger – South Africa’s potential mineral wealth is estimated to be around $2.5 trillion while the untapped mineral reserves of the Democratic Republic of Congo are estimated to be worth an astronomical $24 trillion.

So Why Is Africa Under-Developed?

In academic as well as policy circles, it is not uncommon to hear that Africa’s challenges are because of a corruption problem as well as poor leadership. Both of these factors are relevant but they are only a part of the problem. The problem of this beautiful continent with its over 50 countries is chimeric.

Kwame Nkrumah and other founding fathers of the continent accurately pointed out in their writings and speeches Africa’s post-colonial’s challenges. The issues they enumerated as enemies of development are in many cases even more relevant today.

Africa’s inability to develop or industrialize should be studied or examined within 3 broad contexts which a simple article like this cannot adequately exhaust.

The three dimensions are:

  1. Intra – national
  2. Inter – national
  3. Supra – national

Intra is a prefix and it means “on the inside or within”. The prefix, “inter” means “between, among or together”. Supra is a prefix meaning “above, over” or “beyond the limits of, outside of”.

Intranational challenges refer to challenges within the country or continent. The international dimension has to do with the dynamics that exist between African states and other nations in the international system. Supranational dimension concerns dynamics beyond or above nations.

I will not be able within this short blog to adequately explain all of these dimensions but will attempt to touch on each summarily with examples.

INTRA-NATIONAL

Traditionally, quite a number of the discourse around why sub-Saharan African states can’t seem to develop is focused within this dimension. This is where we site the issues attendant to weak leadership, weak institutions, corruption, lack of a national vision etc. These are all valid points that need addressing. On the bright side the continent is seeing countries who are doing well in all these areas such as Rwanda and Tanzania. There is room for improvement for the trailblazers and room for emulation for the other countries within this region.

INTER-NATIONAL

Some of the debate around Africa’s inability to develop is also centered within this sphere. Most popular is the issue of whether overseas development aid (ODA) is good for the continent or not. Many countries in sub-Saharan Africa are so used to development assistance that it seems practically impossible to get them to see other ways of financing development.

The current international system or global order was architect-ed and set in place by non-Africans, to be specific, the victors of the World Wars (which is better described as wars between European powers). It was set up to look out for the national interests of the hegemon and its allies. It’s also pretty realist in its set up. Everthing boils down to power (capability), self-interests as manifested through rationality and where feasible maybe some level of cooperation. Those without power usually cannot get their interest on the agenda much less get it implemented. Power can be soft (diplomacy, persuasion) or hard (militaristic in nature). The latter could include capability in the areas of biological, financial or cyber warfare amongst others. The USA is the hegemon because it has power. Africa is low ranking within this system because it lacks power. For an African country to even purchase a defense satellite, it needs permission from the hegemon and its allies. This is the system set in place. To try to circumvent it might come with its own repercussions.

Colonial Baggage

African countries also have to deal with the baggage from colonial rule. The scramble for Africa carved up Africa between the great powers in such a way that, it impacts on its development. There is an excellent study from Yale University on the Long Run Effects Of The Scramble For Africa. It is by Stelios Michalopoulos and Elias Papaioannou. They revealed among other things “that civil war intensity is much higher in the historical homeland of ethnic groups that have been partitioned by national borders”. Also “regional development is significantly lower in areas of ethnic groups that have been affected by the artificial border design”.

Africa is balkanized. It is divided along francophone, Anglophone and Lusophone lines—with many countries pledging allegiance to former colonial masters than to their fellow African states. This makes it sometimes difficult to unite on basic issues.

Air Transport

The following was taken from the BBC Africa Debate:

“Often the quickest route from one African country to another is via Europe. More than 80% of airlines operating in the continent are foreign.”

Africa does not control its Air traffic. Nations like Ghana do not even own their own telecommunications company. How then does one develop if they cannot even control their Air transport or communications?

Remittances

The entire global remittances system is set up in such a way as to rob the poor (especially in Africa) to pay the rich.

In 2013, international migrants sent $413 billion home to families and friends — three times more than the total of global foreign aid (about $135 billion). This money, known as remittances, makes a significant difference in the lives of those receiving it and plays a major role in the economies of many countries. Economist Dilip Ratha describes the promise of these “dollars wrapped with love” and analyzes how they are stifled by international regulatory obstacles.

Dilip Ratha wrote a fascinating and enlightening blog with Dame Tessa Jowell titled, ‘It’s time to repeal the remittances “Super Tax” on Africa‘. It’s a must read. Here are some excerpts:

Remittances are the shining light of development policy. While debate rages in austerity-hit Western capitals about spending on aid, remittances cost tax-payers nothing. Remittances to developing countries are worth nearly half a trillion dollars – that’s three times the level of aid – and they’re rising fast, quadrupling since the turn of the century. And remittances work. It’s hard to imagine a more efficient targeting system than people sending money home to their own families and the facts bear that out; remittances are linked to improved economic, health and education outcomes. And as if those benefits weren’t enough, remittances are a huge driver of financial inclusion, acting as a gateway to banking for the people sending and receiving them.

But people sending money home to many parts of the world, particularly sub-Saharan Africa, are paying far too much. They face what is, in effect, a remittances ‘super tax’. A worker sending $200 from London to Lagos can pay fees of over 13%, more than fifty percent above the global average. And within Africa it’s even worse, sending money from South Africa to Malawi could cost upwards of 20%. Of course we all expect some fees for financial transactions but there is strong evidence that these costs are excessive and are restricting the poverty-zapping remittances that reach poorer countries. Reducing fees for sub-Saharan Africa to the global average for instance would mean an extra $1.3 billion reaching families in the region.

…Indeed, if the cost of sending remittances could be reduced by just 5 percentage points relative to the value sent, remittance receipts in developing countries would receive over $20 billion dollars more each year than they do now. That amount of money could educate 18 million children and buy enough vaccines to prevent 8 million children dying from diseases like malaria.

Revisionist Narratives

Another challenge is African’s by and large are not the authors of their history or destiny. Africa does not at present dictate its narrative and part of the reason for that is because they do not control the money, global media and its narrators.

The continent does not even control how it is represented on the world maps. There is a good article by Sophie Morlin-Yron on CNN dubbed “What’s the real size of Africa? How Western states used maps to downplay size of continent”. It reads:

Our world map is wildly misleading. It’s all down to the European cartographer Geert de Kremer, better known as Mercator, and his 16th century map projection — a common template for world maps today — which distorts the size of countries.

“Somehow this map projection came to be used on most world maps, especially those produced for classrooms since the beginning of the 1900s,” says Menno-Jan Kraak, president of the International Cartographic Association and professor of cartography at the University of Twente, Netherlands. “Most of us have grown up with this world image.”

On the Mercator map, Africa — sitting on the equator, reasonably undistorted — is left looking much smaller than it really is. But Canada, Russia, the United States and Europe are greatly enlarged.

“The world maps that prevail today have been embedded in Western imaginations since the British empire. They continue (to prevail) despite many challenges to their fairness and accuracy because they underpin the ongoing Anglo-Euro-American presumption that the world belongs to them, and pivots around these geo-cultural axes,” Franklin says.

SUPRA-NATIONAL

In addition to all the above, we have supranational entities who operate in counties and are yet not subject to any country or jurisdiction. They have made their own laws separate from international law such as the Lex mercatoria. I am speaking specifically about Trans-National Corporations (TNCs) and Multinational Corporations (MNCs). In one research done for the Africa Progress Panel, I realized that some of these TNCs average annual revenue was many more times that of the average sub-Saharan African country. This gives them clout which some do not use well in their dealings with Africa—hence the problem of Illicit Financial Lows (IFFs).

Illicit Financial Flows (IFFs)

Africa is not poor. Whilst many people in African countries live in poverty, the continent has considerable wealth. A key problem is that the rest of the world, particularly Western countries, are extracting far more than they send back. Meanwhile, they are pushing economic models that fuel poverty and inequality, often in alliance with African elites.

—Honest Accounts 2017

The Global financial Integrity disclosed that, “As a percent of GDP, Sub-Saharan Africa suffers more from illicit financial outflows than any other region in the world“. The gravity of this statement is better appreciated when one considers that this part of the globe constitutes a huge percentage of the world’s youthful populations—many of which are poor, live on less than a dollar a day and suffer from low human development with poor access to healthcare, education and security. In effect, the region that needs help the most suffers the most from Illicit Financial Flows (IFF) which if rightfully curbed could aid development.

In the past I have written about Illicit Financial Flows in my article entitled “Africa: Tackling Illicit Outflows” but I have not really taken the time to define what they are. So what are they?

Illicit flows are all unrecorded private financial outflows involving capital that is illegally earned, transferred, or utilized, generally used by residents to accumulate foreign assets in contravention of applicable capital controls and regulatory frameworks. Thus, even if the funds earned are legitimate, such as the profits of a legitimate business, their transfer abroad in violation of exchange control regulations or corporate tax laws would render the capital illicit.

This definition was taken from the Global Financial Integrity Report dubbed, “Illicit Financial Flows from Developing Countries: 2002-2011”.

Further deepening our understanding, below is an excerpt from another report which defines some more terms for the uninitiated titled, “Illicit Financial Flows From Africa: Hidden Resource For Development”:

Illicit money is money that is illegally earned, transferred, or utilized. If it breaks laws in its origin, movement, or use it merits the label.

Flight capital takes two forms. The legal component stays on the books of the entity or individual making the outward transfer. The illegal component is intended to disappear from records in the country from which it comes.

By far the greatest part of unrecorded flows are indeed illicit, violating the national criminal and civil codes, tax laws, customs regulations, VAT assessments, exchange control requirements, or banking regulations of the countries out of which the unrecorded/illicit flows occur.

According to “Honest Accounts 2017“:

Research for this report calculates the movement of financial resources into and out of Africa and some key costs imposed on Africa by the rest of the world. We find that the countries of Africa are collectively net creditors to the rest of the world, to the tune of $41.3 billion in 2015. Thus much more wealth is leaving the world’s most impoverished continent than is entering it.

African countries received $161.6 billion in 2015 – mainly in loans, personal remittances and aid in the form of grants. Yet $203 billion was taken from Africa, either directly – mainly through corporations repatriating profits and by illegally moving money out of the continent – or by costs imposed by the rest of the world through climate change.

African countries receive around $19 billion in aid in the form of grants but over three times that much ($68 billion) is taken out in capital flight, mainly by multinational companies deliberately misreporting the value of their imports or exports to reduce tax.

While Africans receive $31 billion in personal remittances from overseas, multinational companies operating on the continent repatriate a similar amount ($32 billion) in profits to their home countries each year.

African governments received $32.8 billion in loans in 2015 but paid $18 billion in debt interest and principal payments, with the overall level of debt rising rapidly.

An estimated $29 billion a year is being stolen from Africa in illegal logging, fishing and the trade in wildlife/plants.

There are other ways in which the rest of the world extracts resources from Africa, but for which figures are not available; for example, trade policies mean that unprocessed agricultural goods are often exported from African countries and refined elsewhere, causing the vast majority of their value to be earned abroad.

The figures show that the rest of the world is profiting from the continent’s wealth – more so than most African citizens. Yet rich country governments simply tell their publics that their aid programmers are helping Africa. This is a distraction, and misleading

In simple terms, when more money leaves than enters the continent, it is evident that it will not have enough to work with. For further reading on IFFs, see the Guardian’s article titled, “World is plundering Africa’s wealth of ‘billions of dollars a year'”.

Tax Havens

What happens to the monies stolen from Africa? They are parked in tax havens like Switzerland, Luxembourg, Netherlands, and Singapore. Other tax havens are found in the UK and US.

As per another article from the guardian, “The Panama Papers exposed how thousands of offshore companies have been used to help hide the proceeds of fraud, political corruption and tax evasion.”

Bermuda is a dependency of Great Britain and Britain tried to get the government of Bermuda to end offshore financial secrecy. Bermuda’s response was that the UK itself is a “tax haven” citing non-dom laws that allow foreign nationals to live in Britain without paying tax on overseas income.

Bermuda’s deputy premier and finance minister, Bob Richards said, “There was no obligation for Bermuda to lift the veil of secrecy when the US states of Delaware, Wyoming and Nevada continued to keep ownership information from the public”. These too are tax havens.

CONCLUSION

These are some of the hurdles that have kept development out of reach for man in the African continent. The odds seem stacked against the continent in the current world. But I believe it can wrest its destiny back into its own hands. All that it will take is the political will and unity of vision and purpose.

In spite of all the above, there are some bright spots on the continent—shining in spite of the odds stacked against them. Examples are Rwanda and Tanzania. They are not perfect but doing the best with what they have.

Though the intra, inter and supra challenges are interlinked, it is my belief that if the continent gets the intra right—sub-Saharan African countries getting their houses in order—it will affect positively the inter and supra.

So are Africa’s countries doomed to remain under-developed forever? Absolutely not! There is much than can be done from the intra dimension outside the current system that can help aid development. This will be the subject of an upcoming post using Ghana as a case.

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