WHY INTRA-AFRICAN TRADE IS LOWEST

Source: AfDB

When you study this map, you realise that the continents with the lowest trade between their countries are the poorest. Those with a lot of trade are rich[er]. Why then are the poorer continents not emulating the richer ones and creating conditions for their countries to trade with each other?

The level of intra-African regional trade is the lowest globally. Regional integration is a development priority for Africa says the Africa Development Bank! Why is it that the 50 something countries within the second largest continent do not trade with each other? Academics will point to regional integration and the academic reasons that prevent it? That is only part of the answer. Dr. Kwame Nkrumah as far back as the early 60s pushed for intra-African trade—specifically an economic and political unity of African states but his ideas were aborted when he was ousted in a CIA-assisted coup d’ état in 1966.

Some of the major reasons for lack of significant intra-continental trade within Africa between its countries is rooted in FEAR and PRIDE. A subset of FEAR is INSECURITY which breeds MISTRUST. This mistrust permeates through all spheres of the African society and reality at present. Let’s examine how fear and then later pride hinders Africa from reaching her potential.

FEAR AND TRUST

African countries have TRUST issues. They’d sooner trust foreigners than fellow Africans—and it is this that has manifested in the lowest level of intra-continental trade. States are made up of people. One people group does not trust another people group. When you interrogate the reasons why, the answers proffered are usually flimsy and superficial. Some have not even critically examined why they hold negative views about their neighbours. If given the chance to travel outside the continent or within the continent, most Africans would probably select the former.

There are many reasons for the FEAR and PRIDE that hamstrings development within Africa. Some are rooted in the further balkanizing of already balkanized Africa in the 1800s by European powers known as the “Scramble for Africa”. Colonization either through the policy of association or assimilation did not help but further divided Africa and its people. Divide and rule tactics by imperialists was, and in some cases still is, the order of the day. Divided we fell but together we could have stood. Then came the importation of democracy into the continent in the 1950s. The strain that was prevalent in Africa and still is, is the divisive, winner-takes-all politicasting that causes one group in society to demonize the other side without recourse to actual national development issues. Propaganda has become normal in Africa’s political landscape.

Politic in the 1828 Webster’s dictionary is defined as: “Wise; prudent and sagacious in devising and pursuing measures adapted to promote the public welfare; applied to persons; as a politic prince”.

A politicaster is defined by the same dictionary as “A petty politician; a pretender to politics.”

Many today fall into the latter category in Africa’s political landscape. When people take what is not theirs to take from the state at the expense of the public good, it is usually because they are afraid that without that political office, they cannot secure that which they took on their own. Its FEAR. Corruption is rooted in fear, insecurity and pride.

Returning to intra-continental trade, crafting policies to improve intra-regional trade that do not take into account this sordid past and remedying its consequences is akin to placing a plaster on a deep wound without treating it. Such a solution will not last. There should be a way of building TRUST between African tribes, ethnic groups, political parties, countries etc. Religious entities would have been in the best position to do this in a very religious Africa, however, even in this sphere of influence MISTRUST is the order of the day.

PRIDE

If mistrust is a subset of FEAR, what then is the role of PRIDE in this matter? Pride is manifested in Africa’s various types of racism. Racism? Oh yes, racism? It goes by many names within Africa but they are all forms of racism. Examples include Xenophobia [South Africa comes to mind], Ethnic Cleansing [Rwanda comes to mind], Religion motivated slaughters [North and South Nigeria / Boko Haram come to mind], Tribalism [Ghana comes to mind] etc. etc. There even exists racism between dark skinned and light skinned Africans. The list goes on and on.

All the above are a manifestation of pride—the idea that one group believes they are superior to another, the idea that one group is more entitled to a right to life than others. For some Africans, it is easier to trust colonial masters they look up to than to trust Africans they deem less than themselves. What a sad state of affairs. After the US successful coup defat in Libya that has left the once prosperous country lawless, we now have a situation where dark skinned Africans are abducted and sold in slave markets in Libya by light skinned African Arabs. Is this not racism at its worst?

CONCLUSION

The lowest level of intra-continental trade is simply symptomatic of a broader problem rooted in fear and pride.

While considering all the academic reasons for this, leaders should also think outside the box and see if there are ways to minimise or mitigate the FEAR and PRIDE factors. The Gacaca courts of Rwanda and other such systems may help us find elements that work when it comes to properly burying the hatchet, healing past wounds and moving forward. This document does not hold the answers but tries to show that maybe we have not been looking at all the symptoms holistically. 

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RENEGOTIATE OR ANNUL UNCONSCIONABLE MINING AGREEMENTS

Africa as a continent is home to quite a sizable portion of the world’s minerals and natural resources. In development circles, it is not uncommon to hear the question, “why is Africa so rich in resources and yet their citizens are poor and their continent underdeveloped?” The answer usually given is that African leaders are corrupt. While this may be true in some cases, in others it is not. But even when it is true, other supra factors compound the intra factors such as corruption. What do I mean?

Africa’s challenges must be understood from an intra-continental context, inter-continental and supra-continental context if an accurate solution is to be prescribed. Today, we’ll consider the supra context. This is the realm or space within which transnational corporations (TNCs) relate with nations—especially within the so-called developing world. This space is mostly un-regulated and in many cases not characterized by equity during contract negotiations.

When one takes a cursory view at most of the mining contracts in sub-Saharan Africa, the host nations gets almost nothing, in most cases, less than 10% of what their resources are worth, while the TNCs take 90% or more. There needs to be a massive “as-one” review, renegotiation or annulment of unfair and unjust contracts and agreements with TNC and multinational corporations (MNCs).

THE TANZANIAN CASE

This article is about the country Tanzania and its dealings with a TNC called Acacia Mining plc in Tanzania. It is an FTSE 250 company and is 64pc owned by Barrick Gold of Canada. It was rebranded as Acacia Mining Plc in 2013. As per the company’s website, it is registered as a UK public company headquartered in London and listed on the London Stock Exchange and the Dar es Salaam Stock Exchange in Tanzania. It operates 3 mines, “all located in north-west Tanzania, together with several exploration projects at various stages of development, including exploration land holdings in the highly prospective greenstone belts in Western Kenya, Western Burkina Faso and Western Mali” according to the company’s website.

In a recent article in The Guardian titled, A brutal lesson for multinationals: golden tax deals can come back and bite you, the author remarks that:

“[Acacia] is the largest gold producer in the country [Tanzania], and has long faced criticism for the amount of tax it pays there. Acacia’s “payments to government” report released last week shows that the company, which operates three mines in Tanzania, exported $1bn (£770m) of gold, copper and silver last year [2016], and ONLY PAID 8% of this in taxes and royalties to the government.

What’s more, between 2010 and 2015, it paid out $444m in dividends to shareholders WHILE NOT PAYING ANY CORPORATE INCOME TAX in the country”.

The conduct of this TNC can aptly be captioned “daylight robbery in Tanzania”. The CEO Brad Gordon has admitted that the original mining agreement was not EQUITABLE. He added, “The industry can be its own worst enemy when it sits down and agrees these terms, it’s gonna come back and bite us. And in this case it has”.

In 2016 after much pressure from the Tanzanian government and public, Acacia has agreed to bring forward corporate tax payments it has not paid.

In addition to the above, the President of Tanzania John Magufuli has accused “the company not only of striking an unbalanced deal but of massively under-reporting its gold exports to evade tax” as reported in The Guardian article. It turns out he was right. Working on an informed hunch earlier this year, the government “decreed a ban on exports of unrefined metals, preventing Acacia from selling partially processed “concentrate”. The following ensued:

In April, as containers piled up at the Acacia gold mines and the port of Dar es Salaam, Magufuli appointed two committees of academics to investigate their contents. In May, the committees declared that the president’s suspicions were correct and the concentrate contained eight times more gold than the company had reported, as well as several other rare minerals such as iridium and ytterbium“.

If the committees’ findings are accurate, the extent of the undervaluation is enormous, amounting to almost $4bn annually (one tenth of Tanzania’s GDP). Magufuli has responded forcefully, saying, “We should summon [Acacia] and demand that they pay us back our money. If they accept that they stole from us and seek forgiveness in front of God and the angels and all Tanzanians and enter into negotiations, we are ready to do business.”

This is not unbelievable. This is one of the ways TNCs plunder Africa via illicit financial flows. If Africa is ever to develop, such leaks should be plugged. In any case, why would these academics falsify findings? African governments have always known these leaks exist but few have been willing to even broach the subject because TNCs control in many cases more resources than small African nation. In a world where the media is favorable to the highest bidder, TNCs have an edge over these nations. It is thus admirable to see governments such as the incumbent in Tanzania attempt to tame this chimera that has ravaged much of the so-called “developing world”.

MAIN ISSUE—DEVELOPMENT

Summary of allegations against Acacia Mining plc include:

  • Unethical deal/contract between Acacia and Tanzania
  • Massive under-reporting of gold exports to evade tax
  • Tax malfeasance: Acacia’s exported $1bn (£770m) worth of gold, copper and silver last year, they only ONLY PAID 8% of this in taxes and royalties to Tanzania—the host nation and owner of the resource
  • Not paying any corporate tax for 5 years straight: Between 2010 and 2015, Acacia paid out $444m in dividends to shareholders while NOT PAYING ANY CORPORATE INCOME TAX in the country

What is the main issue being discussed here?

It is not solely the corrupt behavior of Barrick Gold and Acacia or other blameworthy TNCs but rather how this behavior deprives African nations of resources needed for development.

BULLYING WON’T CUT IT ANYMORE

Africa as is known today began with the Nkrumah’s of Ghana who for trying to develop their continent got ousted by the CIA and some local actors.

During Obama’s Presidency when Western leaders asked African nations to legalize same sex marriage and they refused, much needed funds allocated for key sectors of the economy were diverted to NGOs that were anti-government. This happened with Uganda and others.

In a recent decision of the Eastern African Community to phase in a ban on used clothing from the West which is detrimental to both the cotton and textile industry, the U.S. threatened to review Agoa benefits to these countries.

And now, as Tanzania attempts to right some wrongs by forcing Barrick Gold to do the right thing, threats like “this will make Tanzania unfavorable for business” are being spoken of in the media.

Being open for business should not be synonymous with “African nations will let you get away with thievery and corruption”. Africa is open for fair and honest business. But it will not encourage Illicit Financial Flows out of the continent.

As of now, Barrick Gold is negotiating a way forward with Tanzania. Had the Tanzanian government not taken a stance to correct the wrongs—damning any retribution that may arise—Barrick Gold would not be seeking to make amends now.

WAY FORWARD

TNCs largely operate in unregulated space not subject to host governments or their parliaments and laws. For this reason, many TNCs are not incentivized to conduct themselves in a manner that respects the laws of nations they operate in. Tanzania is changing that—at least in their corner of Sub-Saharan Africa.

TNCs and MNCs do not only operate outside national laws but also settle disputes in foreign private courts of settlement. These courts are setup in such a way as to disadvantage host nations—especially those in developing countries. Tanzania through its Parliament has set a precedent by making TNCs subject to national laws. And why not? The resources belong to the public of that nation. They should have a say in bringing TNCs to book if they behave unconscionably. Why should this privilege be given only to foreign courts to the exclusion of the owners of the resource?

Tanzania’s parliament has passed two laws which allow the government to dissolve existing contracts if the terms are deemed “unconscionable”. The new laws ban companies from turning to foreign courts or tribunals to resolve disputes, and compel companies to process minerals within the country rather than exporting them as raw materials as reported by The Guardian.

So what are some recommendations for other sub-Saharan African countries?

  1. Uphold National Interest in all contracts: African governments should review existing contracts and make sure they are equitable—accruing to the mutual benefit of the host populace and TNCs
  2. Where not equitable, annul old contracts legally or force TNCs to come back to drawing board to renegotiate. If this means using Parliament, so be it.
  3. Strict monitoring and evaluation: Make sure there is no underreporting to evade tax (You can use Tanzania’s style by checking containers or some other monitoring and evaluation scheme) and make sure TNCs are following their part of the bargain
  4. Make TNCs subject to national laws
  5. Give nations the power to annul contracts that do not promote fairness and development
  6. The African Union should champion some of these initiatives at the regional level to harmonize resource contracts and provide a forum for governments to learn from each other.

African governments must learn to work together and they should learn from each other—especially from the likes of Tanzania and Rwanda who are leaving positive marks on the sands of history. There is no need to reinvent the wheel when others have already done it and can show us the way so we can build upon their success.

There is strength in unity. Sometimes TNCs get their way in Africa because they play the divide and rule tactic. They tell country A, sweeten the deal by waiving X, Y, AND Z or else I will go to this other African county e.g. country B. For instance “allow us not to be subject to your national laws or else we will go elsewhere in Africa”. In such a case, if all sub-Saharan Africa countries had the same policy harmonized in the area of mining negotiations, the TNCs will be forced to deal on Africa’s terms. The resource holder should never feel like they do not have options. They do. TNCs get away will spills and other such poor conduct in Africa that they would never get away with in the West. This is because Western governments would hold them accountable. It is time Africa’s leaders hold them accountable.

As one, there is nothing that they cannot do—including reforming government, governance and leadership on the continent such that it looks out always for the best interest of its varied populations in all contracts and dealings.

God bless Tanzania and God bless Africa.


UNDERSTANDING THE USED CLOTHES BAN IN THE EAC

An Appeal to President Trump.

The East African Community (EAC) in a bid to improve the economic livelihood of the citizens and the region decided to phase out imports of used clothing while boosting the local cotton and textile industry. The countries in this region like many other African nations import used clothing and shoes from mostly Western countries. In effect, African countries serve as the dumping ground of no-longer-needed clothing from the West as well as electronics and other hazardous waste.

Why Ban Used Clothing?

This relationship (importation of used clothing from the West by African countries) saves the West from having to properly dispose of these items at a cost. It also harms the local cotton and textile industry. But is that the only reason why importation is bad. No, there is more:

  1. Imports = foreign exchange leaving a country’s shores and going to exporting country
  2. Exports = foreign exchange coming into exporting country from importing country
  3. When African states import used clothing from the West, they serve as a disposal ground for used clothing from the West
  4. The West receives money from African states when they dump their used clothing in Africa

It’s a win-win situation for Western exporting countries and lose-lose from the African importing countries. There needs to be a leveling of the playing field.

The Response From The U.S.

The response from the US government to the decision of the ECA is as follows:

USTR Announces AGOA Out-of-Cycle Review for Rwanda, Tanzania, and Uganda

Washington, DC – The Office of the U.S. Trade Representative today announced the initiation of an out-of-cycle review of the eligibility of Rwanda, Tanzania, and Uganda to receive benefits under the African Growth and Opportunity Act (AGOA).

The launch of the review is in response to a petition filed by the Secondary Materials and Recycled Textiles Association (SMART), which asserts that a March 2016 decision by the East African Community, which includes Rwanda, Tanzania, and Uganda, to phase in a ban on imports of used clothing and footwear is imposing significant economic hardship on the U.S. used clothing industry.

Through the out-of-cycle review, USTR and trade-related agencies will assess the allegations contained within the SMART petition and review whether Rwanda, Tanzania, and Uganda are adhering to AGOA’s eligibility requirements.

A public hearing will take place July 13, 2017 in Washington, DC. A Federal Register notice containing information related to this review is available at http://www.regulations.gov under docket number USTR-2017-0008.

This is known as soft power—meant to alter the behavior of African countries in favor of the U.S.’s economic interest which on other issues may be okay but in this case in particular is devoid of fairness, morality and reciprocity.

How does phasing in a ban on imports of used clothing and footwear, impose significant economic hardship on the U.S. used clothing industry? Have you considered the impact of this so-called industry on African industry? Have you considered how one-sided this relationship has been in favor of the U.S. all these decades—to the detriment of most sub-Saharan African nations?

In non-politically correct language, this is plain bullying. Paraphrased, what the U.S. government is saying, by giving this questionable petition a hearing and review is, “if you will not allow us to dump our old clothes in your countries, then we do not want to trade with you or offer you access to our markets”. This is incredibly childish of those who sent the petition. Africa is neither a colony of the West nor a dumping ground for used clothing. It is a group of independent states who are equal to any other and have the same rights to have the dreams and aspirations of their peoples actualized without fear. African governments should stand together and refuse the carrot and stick strategy—if they ever want to taste prosperity for their masses.

According to Mukhisa Kitui, the Secretary General of the United Nations Conference on Trade and Development (UNCTAD), adherence to the ban will create domestic demand for textiles and increase the share of manufactured exports.

“My home country Kenya, for example, imports Boeing planes from the US at a very high cost, so the reciprocity on trade should not be at the level of used clothes.

Therefore, East Africa should stand with one voice and resist importation of used clothes into the region,” he said, during the second Manufacturing and Business Summit at the Kigali Serena Hotel recently.

The forgoing was taken from here.

The following are the comments of an ex-president of Africa’s largest economy:

Speaking on the sidelines of the ongoing Afreximbank Annual General Meeting in Kigali, Obasanjo said, as long as the move was in the country’s best interest, Rwanda should not be cowed.

“The country should do what is in their best interest and be unafraid to stand by it. The continent should always ask itself what is in our best interest. We should not be afraid to cut some ties if it is in our best interest,” he said.

EAC member countries have moved to phase out importation of used clothes and shoes as part of an industrialisation policy to give rise to the growth of the local textile industry.

As part of the move, Rwanda last year increased taxes on used clothes from $0.2 to $2.5 per kilogramme, while taxes on used shoes will increase from $0.2 to $3 per kilogramme.

In the 2017/18 Budget, the Government eased taxes on inputs to the Made-in-Rwanda campaign, which is expected to facilitate the growth of the local textile industry

Responses from EAC

In the face of threats, Rwanda continues to stand firm by the decision of the EAC with respect to the proposed ban but Kenya has retreated. The reason for this stance by Kenya is probably because of the volume of trade between the U.S. and Kenya. It remains to be seen how other members of the EAC will act in the face of U.S. threats.

Africa needs more Kagame’s who will say what they mean and mean what they say—sticking to their word—no matter the threat.

President Donald J. Trump

In the remarks of President Donald J. Trump in his inaugural address, to the America public and to “the people of the world”, he stated unequivocally that, “We will seek friendship and goodwill with the nations of the world – but we do so with the understanding that it is the right of all nations to put their own interests first“.

Mr. President, the response of the US government to the decision of the EAC in exercising the right to put their own interests first by phasing in a ban on the importation of used clothing is distasteful. It does not show that your administration seeks the good will of the EAC and the greater AU. The second hands goods from your country has hurting local industry across generations. It is a key barrier to the cotton planting in the area. It takes away much needed foreign exchange and in exchange provides citizens in this area with sub-standard clothing and shoes. There should be a way to push for America’s interests without harming that of other nations as some of your predecessors did.

I for one am happy that you won the election because I believe it means good things for our globe. But this step is a wrong step because it shows that you’d like to continue the perpetuation of the impoverishing of the world’s poorer populations. Please do not let this continue.

Do not allow the debris from the deep state to influence your policies towards Africa. Already there are news headlines such as, “Was Agoa always a poisoned chalice from the US?”. This is not how you want your administration to be remembered in academia and by the people of the world—specifically Africa. Harming African economies and initiatives will not promote growth thus making Agoa an oxymoron. Allow righteousness and justice to prevail. On the 13th of July when the review is being done, influence it for good. God bless America and the nations of Africa and the World.

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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.

Africa Must Industrialize Now

This piece was originally published by Solomon Appiah on the Fair observer Platform on January 12, 2014.

In order to make its current growth sustainable, Africa must rethink its economic focus.

In 2013, a major policy discourse within and between the supranational bodies that influence policymakers in sub-Saharan Africa was the industrialization of the continent. These bodies include, but are not limited to, the African Union (AU), the United Nations Economic Commission for Africa (UNECA), and the United Nations Industrial Development Organization (UNIDO).

Industrialization is defined as: “The process in which a nation or continent transforms itself from a primarily agricultural society into one based on the manufacturing of goods and services.” During the trans-Atlantic slave trade and later the colonial era, Africa supplied raw materials and labor for the industrial development of Europe and North America. This practice continues until today. Much of sub-Saharan Africa still has a high dependence on primary products, exporting much of its raw materials without adding value to them while importing manufactured goods.

The crux of the continent’s development narrative is how to leverage the current economic growth in the region, in addition to other favorable conditions, as a bridge to help facilitate industrial development.

Economic Growth and Value Addition

Gross Domestic Product (GDP), the economic indicator, is defined by the World Bank as: “[The] sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products.” Economic growth is linked to creating value by adding value to a nation’s raw or intermediate materials.

Unfortunately, however, adding value to sub-Saharan Africa’s own natural resources has not been a strength of the continent. In spite of this, the World Bank Africa’s Pulse and the IMF World Economic Outlook (WEO) state that the economies of sub-Saharan Africa have, since the late 1990s to 2013, been experiencing consistent economic expansion. Six of the world’s fastest growing economies are currently within this region. Whereas economic growth slumped for most of the world in recent years, sub-Saharan Africa’s growth has stayed resilient right through the global recession.

The IMF’s World Economic Outlook for October 2013 estimates that 16 countries in sub-Saharan Africa will experience GDP growth greater than or equal to 6%. It forecasts 15 more countries to experience economic growth of 4-6% — meaning 31 out of the total 45 countries analyzed in sub-Saharan Africa are expected to experience economic growth greater than or equal to 4%. This is significant when one considers that the growth of advanced economies in the same period is forecasted to be 1.2%.

The reasons suggested for the economic growth are many. According to Bretton Woods Institutions, much of the growth is a result of increased world commodity prices. The 2013 Africa progress report concurs and enumerates other reasons for the growth such as improved macroeconomic policies, increased investment in infrastructure, institutional development, the deepening of financial systems, and rising productivity.

Africa Must Industrialize

As the current economic growth did not result from value addition and increased manufacturing, but instead from increases in world commodity prices, it makes the region susceptible to commodity price volatility. If commodity prices fall, Africa’s impressive economic growth might grind to a halt — thus, the dire need for diversification through industrialization. Even if commodity prices stay high, natural resources are not infinite and they must be managed with sagacity.

As recommended by the 2013 Africa Progress report, it is advantageous for African governments to fully implement the Accelerated Industrial Development for Africa (AIDA) plan, signed in 2008 in Addis-Ababa. The AIDA is a comprehensive framework for achieving the industrialization of the continent. If Africa can successfully steward its natural resource wealth, investing it wisely and using some to industrialize, then whether the resources run out or not or whether commodity prices fall, Africa would be on a good economic footing.

Moreover, not only will industrialization create the environment for adding value to Africa’s natural resources, but it will also provide much needed employment at various stages of the value adding chain for Africa’s 1.1 billion people — leading to wealth creation.

Industrialization will address many development gaps in sub-Saharan Africa. Some of these gaps, as noted in a UNECA Southern Africa Office Expert Group Meeting Report, include:

  1. Africa’s high dependence on primary products
  2. Low value addition to commodities before exports
  3. High infrastructure deficit
  4. High exposure to commodity price volatility
  5. Limited linkage of the commodities sector to the local economy
  6. Poorly developed private sector, which is highly undercapitalized
  7. Limited commitment to implement industrial policies
  8. Limited investment in R&D, science, innovation and technology
  9. Low intra-Africa trade
  10. Slow progress towards strengthening regional integration
  11. The Time is Now

Is Africa Ready?

The answer is an emphatic yes. The phenomenal growth is one reason why Africa is ready, but growth on its own is not enough. Other conditions need to be considered: Does the continent have access to enough raw materials for production? What is the proximity of these natural resources to the continent? Is there adequate land, labor, and capital? These are the traditional factors of production or inputs to the production process.

Yes, Africa has access to the raw materials necessary for production. Unlike already industrialized nations who have to import raw materials from Africa and elsewhere over long distances, Africa enjoys close proximity to these resources.

With regards to the factors of production, Africa is the world’s second largest continent and therefore is home to plenty of land — most of which is arable.

Africa is also the world’s second most populous continent. The average age of an African in Africa is under 19 years. This means Africa has enough manpower or labor to industrialize.

Capital refers to man-made products used in the production process such as buildings, machinery and tools. Africa does have a measure of this, but instead needs to do more in this area — hence the need for greater infrastructural and skills development. In fact, African policymakers as well as their counterparts in the developed world should realize that it is high time for a shift in the nature of aid to the continent — from primarily monetary aid to the type of capital aid needed for industrialization.

Finally, when Africa successfully undergoes industrial development, its huge populace will serve as a market for the outputs of its production processes; any excess supply can be exported and swapped for foreign exchange. Africa is ready and the time for it to industrialize is now.

Economic Growth and Development

Africa will celebrate 52 years of regionalism on 25 May 2015. The Organization of African Unity (OAU) was set up to “safeguard and consolidate the hard-won Independence as well as the sovereignty and territorial integrity of our states, and to fight against neo-colonialism in all its forms” as stated in the preamble of the OAU Charter.

The African Union (AU) on the other hand appears to be a different strain of Pan-Africanism—one which no doubt has roots in the OAU but not in a fight against colonialism but rather with a goal to develop African states politically and socio-economically.

We see this in the preamble of the African Union Constitutive Act which states that the AU is:

…the scourge of conflicts in Africa constitutes a major impediment to the socio-economic development of the continent and of the need to promote peace, security and stability as a prerequisite for the implementation of our development and integration agenda

Common Denominator—Development

Regardless of differences between objectives of the OAU and AU, both have one common motivation and devotion—Improved development of the continent. For the OAU, development could not materialize while still under the clutches of imperialism and colonialism.

The Human Development Index (HDI) is a summary measure published by the United Nations Development Programme (UNDP) of key dimensions of development namely:

  • long and healthy life
  • access to knowledge and
  • decent standard of living

It’s one way to measure how well a people are doing. The dimensions are as follows:

hd_diagram

The 2013 Africa Progress Report gives a sobering summary of human development on the continent thus far. This is aptly captured in a number of the infographics contained in the report. The one I wish to consider is the one captured in the header.

The Problem

This graphic focused on 20 sub-Saharan Africa (SSA) countries identified by the IMF as resource intensive. Together they account for about 56 per cent of the region’s population and around 79.6 per cent its GDP. This region according to the World Bank’s Africa’s Pulse Volume 7, sub-Saharan African countries have been growing at a steady pace for years—driven in part by the extractives sector.

As one report put it, “On one estimate, extractive industries have accounted for around one-third of regional GDP growth over the past decade – more than transport, telecommunications and manufacturing combined.”

The challenge is there exists a wide gap between economic growth in sub-Saharan Africa and human development. The wealth rank of an overwhelming majority of this resource rich SSA countries are way higher than their HDI rank meaning the wealth or growth is not translating into better human development for citizens.

The economic growth phenomenon in sub-Saharan Africa will not last forever. For that reason, while it lasts, it should be taken advantage of for the good of Africa.

Government is established amongst other things to devise fiscal policies that help redistribute income/wealth. Failure to do this will invariably lead to ever widening inequality—which has potential to increase violence and promote instability.

Sub-Saharan Africa, Remittances & Action needed – Dilip Ratha

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Today I would like to share two things—an amazing World Bank blog and a TEDGlobal 2014 talk filmed Oct 2014 on the subject of remittances. The blogger/speaker is Economist Dilip Ratha. According to his bio page on TED, he “was the first to point out the global and national significance of remittances and their social and economic impact. He is the manager of the Migration and Remittances team at the World Bank and the head of the Global knowledge partnership on migration and development (KNOMAD). He also co-coordinates the G8/G20 Global Remittances Working Group, and is involved in a number of other organizations focusing on remittances”.

The New York Times wrote of him, “No one has done more than Dilip Ratha to make migration and its potential rewards a top-of-the-agenda concern in the world’s development ministries.”

FACTS & FIGURES

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 practical and regulatory obstacles.

Dilip Ratha has also written 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 dollarsthat’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.

To fix this situation, we need action on three fronts.

To read more on the action needed, read the enlightening blog here or use this shortened link: http://ow.ly/K6zUv

Below is the TEDGlobal 2014 video.

The International Decade for People of African Descent

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Appiah – This decade 2015-2014 has been declared the International Decade for People of African Descent. It’s laudable initiative but not a strong enough denunciation and rejection of the atrocities perpetrated against people of African descent. When one reads the full background of this proclamation,  we cannot help but feel this resolution was birthed in part as a result of recent police brutalities against people of colour in the United States of America with the Justice Department seemingly looking the other way. If this was the case, it should have been stated as such. If these atrocities happened anywhere else, chances are the resolution would have been more straight to the point calling out names and demanding justice. But the nation committing these atrocities is not just any other nation. Its the United States of America- the lone standing hegemon in the international system.

Not only is the United States of America the sole hegemon in the international system, it also picks up a sizable portion of the bills at the United Nations and its agencies. Since the United Nations depends to an extent on United States of America’s financial support, it seems it is ‘wary’ of directly reprimanding or rebuking the United States of America forthright. Instead it has chosen a round about approach, making use of blanket statements that point no fingers at the United States of America.

The above notwithstanding, the following background information is quite informative.


United Nations – There are around 200 million people identifying themselves as being of African descent live in the Americas. Many millions more live in other parts of the world, outside of the African continent.

Whether as descendants of the victims of the transatlantic slave trade or as more recent migrants, they constitute some of the poorest and most marginalized groups. Studies and findings by international and national bodies demonstrate that people of African descent still have limited access to quality education, health services, housing and social security.

In many cases, their situation remains largely invisible, and insufficient recognition and respect has been given to the efforts of people of African descent to seek redress for their present condition. They all too often experience discrimination in their access to justice, and face alarmingly high rates of police violence, together with racial profiling.

Furthermore, their degree of political participation is often low, both in voting and in occupying political positions.

In addition, people of African descent can suffer from multiple, aggravated or intersecting forms of discrimination based on other related grounds, such as age, sex, language, religion, political or other opinion, social origin, property, disability, birth, or other status.

The promotion and protection of human rights of people of African descent has been a priority concern for the United Nations. The Durban Declaration and Programme of Action acknowledged that people of African descent were victims of slavery, the slave trade and colonialism, and continue to be victims of their consequences.

The Durban process raised the visibility of people of African descent and contributed to a substantive advancement in the promotion and protection of their rights as a result of concrete actions taken by States, the United Nations, other international and regional bodies and civil society.

Still, despite these advances, racism and racial discrimination, both direct and indirect, de facto and de jure, continue to manifest themselves in inequality and disadvantage.

The International Decade for People of African Descent, proclaimed by General Assembly resolution 68/237 and to be observed from 2015 to 2024, provides a solid framework for the United Nations, Member States, civil society and all other relevant actors to join together with people of African descent and take effective measures for the implementation of the programme of activities in the spirit of recognition, justice and development.

It is also a unique opportunity to build on the International Year for People of African Descent, which was observed by the international community in 2011, and to further underline the important contribution made by people of African descent to our societies and to propose concrete measures to promote their full inclusion and to combat racism, racial discrimination, xenophobia and related intolerance.

Source: UN Web Services Section, Department of Public Information

INVITATION: 2014 State of the Nation Summit

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Click to enlarge image

You are cordially invited to participate in the 2014 STATE OF THE NATION SUMMIT, being held October 25, 2014, at the Sam Jonah Hall at the African University College of Communication, Accra, Ghana. The theme under consideration is: National Transformation: Role of the Youth.

The organizers would be delighted to have you join in the State of the Nation Summit. Personal invitations are not necessary to attend. This is an open event, and we welcome everyone who is interested in increasing their knowledge about the current state of the nation and what they can personally do to contribute to a positive transformational process.

The organizers are Team One CaaT GH—transforming one community at a time.