Think International: Fall 2008

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The Roosevelt Institution 2100 M St NW Suite 610 Washington, DC 20037

Think International

Volume 1 Issue 1 Fall 2008 Copyright 2008



Executive Director Nate Lowentheil

Policy Director Caitlin Howarth

Chair of the Editorial Board Kirti Datla Managing Editors Ellen Davis Nina Couhtino Nicole Emma Meistrich National Editorial Board David Carlson Gracye Cheng Jonathan Gould Lauren Henry Ata Hindi Frank Lin Elise Liu Fay Pappas

The opinions expressed within Think International are exclusively those of the individual authors and do not represent the views of the editorial board, the Roosevelt Institution, or any of the organization’s chapters, centers, advisors or affiliates.

therooseveltinstitution

Volume 1

Issue 1

October 2008

Contents Democratization and Reform in Tunisia

Kevin Hudnell - University of North Carolina

A Well Oiled Machine

8



16

The Implications of Sino-African Oil Trade

29

The Competition for Africa

44

Dutch Disease in Africa: A Case Study of Nigeria and Chad

50

SAPs and Stability in Sub-Saharan Africa

60

Corruption in Africa

71













Sam Ayres - Yale University

ChoonBoon Tan, Jacob Ng - University of Michigan

John Dixon - University of Georgia

Jason Gould and Katen N. Kapadia - University of Michigan

Valerie Bieberich - University of Michigan

Rhea Acuña, Sae Wha Hong, and Deepti Iyer - University of Michigan

Microfinance and Women’s Empowerment in Africa

Realities of the African Stock Exchanges

84

Kelly Goodman, Uday Vadula - University of Michigan

92

Madison Iannone - American University

South Africa and Regional Peacekeeping Efforts

96

Africom: An Introduction

107





Amy K. Frame - American University

Erin Stubbs - University of North Carolina

Book Review: Stepping Out of the Silence

Kendal Nystedt - University of Arizona

112

Think International October 2008 Think International is the Roosevelt Institution’s first publication dedicated solely to international policy and politics, and our first national foray into international research. Each article examines a challenge facing the African continent from a uniquely student perspective. The articles each contain original student research and represent an exciting starting point for growth in international affairs. *

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Founded in 2004, the Roosevelt Institution is a national network of campus-based, nonpartisan student think tanks whose mission is to build a more progressive society. We seek to develop active, progressive citizens and leaders on college campuses through the research and writing of public policy and commentary, disseminating the products of that work to policymakers and elected officials on the local, state, and national level. Through nearly 8,000 members at over 75 campus chapters across the Untied States, Roosevelt strives to connect students to the policymaking process through print and online publications, direct student-to-lawmaker connections, and annual conferences. We believe that students learn best through action and can contribute meaningfully to society while still part of an academic environment. As our members enter their professional careers, they bring with them the progressive values they’re developed, the skills they’ve learned, and the relationships they’ve build with one another. In 2008, the Roosevelt Institution merged with the Franklin and Eleanor Roosevelt Institute. The Institute is dedicated to preserving and promoting the legacy of its namesakes, and through the merger, gained access to a new generation of scholars and activists. Together, the new Roosevelt Institute will work to bring the values of Franklin and Eleanor to bear on future policies and leaders alike.

Letter from the Editor Welcome to the premiere issue of Think International. This is Roosevelt’s official entrance into international relations, coming at a very dramatic time in the world. Given that so much of what is going on in the world will greatly affect current students, it isn’t surprising that students want to put their ideas out there. And honestly, the world could use some of their voices right now. Today’s current students have unique perspective on the world and international relations, having grown up during the very developments that so greatly altered the international system. Times are changing quickly, and we are the generation who has come of age in the midst of these changes. The unique perspective of our generation very much struck me when I observed a conversation between a friend and his mother. His mother had read an article detailing how graduating college students should expect to have more than 9 careers in their lifetime. She wasn’t sure the statistic was believable, but found it very disturbing if it was. Upon hearing the story, my friend simply shrugged—“Yes?” The idea of globalization and the changes it brings are simply the framework this generation lives in, along with the current sole superpower status of the United States, the presence of terrorism, and the ability to connect with anyone anywhere at anytime, and it is this perspective that seems to get lost amongst the debates of how to shape international relations. This is also the perspective brought by the articles in this journal on a variety of topics, from China to democracy to oil to stock markets. Students interested in international relations in many ways have the best of both worlds. We can imbibe the wisdom of the previous generations, without being limited by the preconceptions that governed them to create a voice of our. Think International offers a sample of that voice. Ellen Davis Policy Strategist, Defense and Diplomacy

Acknowledgements The Roosevelt Institution recognizes and thanks the following people for their outstanding dedication to the success of the organization: Chris Breiseth David Woolner Richard E. French Jr. Anna Eleanor Roosevelt Ambassador William vanden Huevel Joe Louis Barrow, Jr. Alison Overseth Dr. Robert Curvin Dan Appleman Neil Proto David Merchant Sarah Brown Marian Breeze Mattie Hutton Ted Fertik Mark Newberg

National Advisory Board Senator Richard Lugar Representative Rosa DeLauro Representative Zoe Lofgren Representative Tim Allen Robert Borosage Richard Celeste Jon Cowan Jim Dean Stephen Elliott Al From Katrina vanden Huevel Dee Dee Myers Amy Overton John Podesta Robert Reich Special thanks to Stephen Loewentheil for his early and continued support of the Roosevelt Institution, and to Michael Stegman and the MacArthur Foundation for making this series possible.

Thank you.

Democratization and Reform in Tunisia Kevin Hudnell - University of North Carolina

Washington’s support for the oppressive government of Tunisia should come as no surprise – the U.S. has a long and sordid history of ill-considered support for dictators in the Middle East. U.S. backing of the Shah in Iran resulted in a revolutionary movement diametrically opposed to the West, particularly the United States. Considerable military aid to another U.S. ally, Saddam Hussein, prevented a similar revolution in Iraq, but Saddam’s Iraq could hardly be considered a strong geostrategic asset. While the mistakes of U.S. policy in the Middle East have been reiterated for decades, and are therefore, if not particularly intelligent, at least quite familiar, this is hardly comforting. Though it might be hoped that U.S. experience at getting things wrong might have transformed into some knowledge of how to get things right, current policies unreservedly backing the Tunisian government would appear to be yet more of the same failure. In some cases, looking the other way while key geostrategic allies of the U.S. repress dissidents and avoid democratization like the plague may be a necessary, if regrettable, aspect of survival in the international arena. In Saudi Arabia, the mildly Islamist but pro-U.S. Saudi royal family is presumably preferable to the rabidly Islamist and anti-U.S. Wahhabi opposition, and American energy dependency exacerbates the need for a conciliatory policy towards the royal family. While the exchange rate between petrodollars and human rights has always been uncertain, it is apparently strong enough to justify rubber stamping the excesses the Islamist regime Tunisia has no vital geostrategic or economic valenacts on its ue to the U.S., and Washington’s close relationship people. Other countries, like with Tunis is founded upon the fear of a terrorist Egypt, may be threat that has little or no basis in reality. so strategically placed that any source of stability is welcome, even if that stability is dictatorial in nature. Yet while such special cases exist, it is more often the case that there is no geostrategic demand so weighty that it outweighs the damage done by U.S. support for dictatorial regimes. Often, U.S. fears about democracy abroad and our conviction that only dictatorships can be reliable allies is more of a knee-jerk reaction to public opinion polls than a well-reasoned consideration of the states in question. Recent democratizing reform in Pakistan, while inarguably problematic, has not resulted in an immediate descent into chaos and Islamist extremism, as many feared. In time Pakistan may prove to be a stable U.S. ally that can cooperate in the War on Terror without having to simultane-

ously deal with widespread domestic unrest. In contrast to Saudi Arabia, Egypt, and even Pakistan, Tunisia has no vital geostrategic or economic value to the U.S., and Washington’s close relationship with Tunis is founded upon the fear of a terrorist threat that has little or no basis in reality. A Very Brief History of Tunisian Polity The current president of Tunisia, Zine el-Abidine Bin Ali, came to power in 1987 after deposing the former president Habib Bourguiba in a bloodless coup. Popular unrest over Bourguiba’s autocratic tendencies and political repression made Bin Ali a welcome change, particularly after he called for multi-party politics, a free press, and the development of a liberal society. The leadership of the Islamic Tendency Movement (ITM), imprisoned under Bourguiba, was released and the party was allowed some participation in politics. Bin Ali’s new constitution did not allow political parties based on religion, however, and the ITM renamed itself Hizb an-Nahda (NP), or Renaissance Party, a theoretically secular body. The democratizing process rapidly fell apart. Polling results in 1989 suggested that the NP would win 25-35% of the vote in many districts. In reaction to the perceived threat the party could one day pose to his own Democratic Constitutional Rally (RCD) party, Bin Ali declared the NP and political Islam in general illegal and moved to consolidate his power before the first general election. In 1989 the RCD won every seat of parliament, and Bin Ali was reelected with 99% of the vote. Later elections, though featuring multiple candidates, have restricted media access to Bin Ali, and the results have been much the same – Bin Ali received 94.49% of the vote in 2004 and 99.4% of the vote in 1999. Bin Ali’s government has maintained a veneer of democracy over what is in reality an autocratic, single-party government. While the Tunisian constitution guarantees a broad spectrum of basic rights, these rights are routinely ignored or violated. Rights may be constitutionally limited in the interest of “the protection of others, the respect for public order, national defense, the development of the economy, and social progress,” which gives the government ample room to behave freely yet nominally in agreement with the constitution. Arbitrary arrests and confessions elicited through torture are common, and an antiterrorism law enacted in 2003 has been used to criminalize and disperse or arrest peaceable political opposition. Tunisia’s press freedoms are among the most restricted in the Arab world, and the government uses domestic security forces to intimidate journalists into practicing extensive self-censorship. Nongovernmental organizations are routinely shut down, their property seized, and their members prosecuted for membership in an illegal organization. Loyal opposition parties are co-opted into the RCD and provide only token resistance to Bin Ali’s policies. In 2002 a number of revisions were made to the constitution by Bin Ali. Though Bin Ali came into power criticizing the president-for-life Bourguiba’s unlimited terms in office, the amendments abolished the term limits on the presidency, raised the age limit for presidential candidates from 70 to 75, and granted immunity to the president for acts committed

while in office, effectively making Bin Ali Tunisia’s second president-forlife. Another amendment requires all citizens to defend Tunisia’s independence, national sovereignty and integrity, which many activists fear will be used against citizens who criticize the regime and its policies. Throughout the 1990s the leaders of the NP were imprisoned, tortured, or killed, and thousands of the party’s members have been stripped of their citizenship and property. The surviving apparatus of the party leadership has relocated to London, where it has attempted to continue as the main opposition to the RCD. However, between the persecution of Islamists in Tunisia and the party’s separation from the Tunisian population, its influence and standing have diminished significantly. Rashid Ghannoushi, the NP’s leader-in-exile, has nevertheless crafted a complex and unique blend of political Islam and Western democratic values, espousing equal rights, democratic political pluralism, and liberal civil society as key reforms that the party seeks to bring to Tunisia. The NP has been outspoken in its rejection of Islamic terrorism. While Bin Ali has made allegations, directly and through various media organs, of NP ties to terrorist acts since the 1980s, all evidence suggests that the party is truly pacifist. The NP has advocated women’s rights far more than any other Islamist party, asserting their right to political, economic, and social equality and barring to them only the position of the presidency. The party is on good terms with other Tunisian opposition parties both in Tunisia and in exile, including secular parties, and stresses that it seeks power through the democratic system. As such, Ghannoushi says, an Islamist government brought in through democratic means could be voted out again just as easily if that was the will of the populace. In the late 1990s the U.S. made some effort to institute democratic reforms in the Maghreb, and recognized the key role peaceful Islamist parties could play in the democratic process. In 1997, then-Assistant Secretary of State for Near Eastern affairs Robert Pelletreau said: The U.S. government has long believed and has repeatedly stressed to Algerian leaders at the highest level that there is an urgent need for real political dialogue… to chart a new and democratic course for Algeria. We agree with the major parties, which insist that this process must involve a broadening of political participation to encompass all political forces in the country, including Islamist leaders who reject terrorism. Pelletreau was optimistic about this process in Tunisia. Unfortunately, the slow process of reforming a country the U.S. populace was indifferent to was interrupted by al-Qa’ida’s terrorist attacks on September 11th. Tunisia and the War on Terror September 11th appeared to vindicate every act of oppression Ben Ali had ever committed in keeping the Islamists in check. The U.S., searching for any regional allies it could find, dropped its admittedly lackluster efforts to democratize Tunisia and call it to account for its human rights record, and embraced Bin Ali as a key U.S. ally in the War on Terror. After a 2003 meeting between Secretary of State Colin Powell and Tunisian Foreign Minister Habib Bin Yahia, the State Department described Bin Ali’s govern-

ment as “a strong supporter of our campaign against terrorism.” Secretary of Defense Donald Rumsfeld later remarked after meeting with the Tunisian military leadership that “they [Tunisian leaders] have demonstrated, if one looks at this successful country, the ability to create an environment that’s hospitable to investment, enterprise, and to opportunity for their people.” Nothing was said about democracy or human rights. Tunisia received extensive military aid, and the U.S. has generally accepted Bin Ali’s autocratic regime, but it is difficult to determine exactly what Washington has gained from the U.S.-Tunisian alliance. Tunisia’s voting record in the UN does not suggest that it is a particularly staunch U.S. ally – in 2006 Tunisia’s voting record corresponded with the U.S. record on 6.2% of the votes, which is about the same level of agreement as the U.S. had with North Korea and actually slightly less than U.S. agreement with Iran. On what the State Department describes as ‘Important Votes,’ most dealing with major sanctions or human rights motions, the U.S. and Tunisia never agreed. While Tunisia may not have been the closest ally ideologically, Bin Ali did play a major role in the U.S. Global War on Terror (GWOT), keeping the Islamist political party Hizb an-Nahda firmly out of power and working to prevent the spread of alSeptember 11th did nothing to make Qa’ida or other jihadi terror Tunis’ political repression nobler; it organizations into Tunisia only provided enthusiastic U.S. enand the greater Maghreb. However, the relationship dorsement for that repression. between Bin Ali’s work suppressing Islamists and the advancement of GWOT is tenuous at best. Given the NP’s pacifist ideology and unequivocal rejection of the 9/11 attacks, al-Qa’ida, and suicide terror in general, it is difficult to see how their exclusion from the political sphere aided GWOT at all. Furthermore, since Bin Ali’s crackdown on the NP began in the late 1980s, it is difficult to see how it was motivated in any way by an interest in assisting the U.S. war. Bin Ali’s repression of the Tunisian Islamist movement had always been a measure to ensure the regime’s security against rival domestic centers of power. September 11th did nothing to make Tunis’ political repression nobler; it only provided enthusiastic U.S. endorsement for that repression. The idea that Tunisia has ever been in dire peril of falling to alQa’ida is also difficult to sustain. Since 9/11 there has been a single suicide terror attack in Tunisia that may have been linked to a jihadi organization with links to al-Qa’ida. As of 27 April, 2005, only seven Tunisians had been captured in Iraq and Afghanistan who were suspected of having links to al-Qa’ida or other jihadi organizations. While possibly significant compared to the three Chinese captured in the same period, these seven hardly indicate a mass movement, let alone justify Washington’s tacit endorsement of Bin Ali’s government. Future Threats to the Status Quo Balanced against these benefits of the U.S.-Tunisian alliance are the many

potential disasters in the country’s future if the status quo continues and Bin Ali remains in power. One of the most immediately worrisome is the strong possibility of a destabilizing power struggle following Bin Ali’s death. Bin Ali is now in his 70s and purportedly has prostate cancer. He has been careful not to groom any successor, fearing (perhaps rightly) that a powerful lieutenant would harness popular discontent to remove him from power in the same way he ousted Bourguiba. To prevent the emergence of any rival centers of power, Bin Ali has brought in cabinet members who lack the political background or connections needed to make them viable competition for the presidency, and he frequently shuffles cabinet ministers to keep them from developing loyal constituencies. As such, a power struggle within the party would probably not end with a competent ruler in charge even if it stayed peaceful. Following Bin Ali’s death, according to the Tunisian constitution, power will temporarily pass to Mohamed Ghannoushi, who has served as the prime minister for the last nine years. Ghannoushi, while probably the closest Tunisian polity can come to an able successor to Bin Ali, is constitutionally barred from being any more than an interim president who arranges new elections, and may not participate in them himself. While Ghannoushi could certainly still take control of the Tunisian government after Bin Ali’s death, the transfer of power would of necessity take the form of a coup, which could be as easily bloody as bloodless. Leila Bin Ali, the President’s wife, is also a potential successor. While there is absolutely no constitutional basis for her to become President herself, she has arguably the most experience in running the state besides Bin Ali himself, having been very involved in some aspects of his government. Unfortunately, U.S. support for either figure would cement the public perception of a commitment to expediency over democracy and undermine our democratizing efforts worldwide. , If no competent ruler emerges after Bin Ali’s death, the US could not afford any ensuing violent power struggle. Foreign interference in the Tunisian power struggle from either Algeria or Libya, its two immediate neighbors, could be disastrous. Militarily Tunisia is significantly inferior to both of its neighbors. Its total active military in 2005 was estimated to be 35,000, compared to Algeria’s 127,500 and Libya’s 76,000. Given the comparative extremism of both the Algerian and Libyan regimes, a weak or nonexistent Tunisian government could suffer from the rise of the jihadi-brand extremism Washington is so worried about. Against this, one can assume that the U.S. would act to protect the current regime of what it sees as the bastion of democracy and secularism in North Africa if faced with the rise of its more radical neighbors. Whether or not the U.S. military is currently capable of engaging in a third peacekeeping and counterinsurgency effort in the Middle East is another question altogether. Maintaining the status quo of U.S. policy is dangerous even while Bin Ali is still alive. The prominent political scientist Robert Dahl once noted “opposition that would be loyal if it was tolerated becomes disloyal because it is not tolerated,” and such may soon be the case with the Tunisian Islamists. The NP’s influence in Tunisia has inevitably declined

over the course of its exile in Europe. While the party maintains that it continues to have a strong following in Tunisia, particularly on university campuses, the same student body that it claims to court appears to be growing increasingly radical. From 1975 to 1990, as Islamist parties were given increasing opportunities for formal political engagement under Bourguiba and, at first, under Bin Ali, their stances on democracy and rights for women and minorities moderated dramatically. Subsequent repression and political ostracism, however, saw the movement revert to its most radical positions on many issues. Hizb an-Nahda remains the most well known outlet for political Islam, and given a voice it could still be the Islamist rallying point for Tunisians. But if the party continues to be repressed with the apparent blessings of the U.S., Tunisian Islamists may well turn to another Islamist movement that is less conciliatory and more focused on war with the West. Taking Some Steps in a New Direction Current U.S. policy towards Tunisia is headed down the same path as our support for the Shah in Iran and Hussein in Iraq. Unwavering support for Bin Ali’s repression of all political dissent can only end badly. If domestic opposition to Bin Ali reaches such This is an opportunity to engage a fever pitch that it succeeds in political Islam in the ‘war of overthrowing him, then the new regime is likely to not be at all ideas’ that the War on Terror is friendly towards the U.S., and our supposed to be about. As slow a putative ally will have become an learner as the U.S. government enemy overnight. If Bin Ali, who is, it has begun to realize that shares no ideological values with such a war cannot be won solely Washington, except a desire to on the strength of military venhold on to power, decides that tures – the underlying ideology he no longer needs U.S. support must be confronted and proved to for his policies, then, again, our be undesirable. putative ally will have become an enemy. Only by finding a new political balance, one that satisfies the widespread discontent of the Tunisian populace, can a sustainable and stable ally be found in Tunisia. Washington needs to pressure Bin Ali and the Tunisian government to regulate the status of the thousands of Tunisians who have been exiled for their affiliation with the NP. Claiming to represent the majority of the population – which Bin Ali most assuredly does not – loses its persuasiveness when one’s opponents have all been thrown out of the country. A serious assessment needs to be made of the value of the U.S.-Tunisian alliance from both the U.S. and Tunisian sides. If that alliance is valuable to the U.S., how long will it remain so? What will the repercussions be? If that alliance is valuable to Tunisia, what are they willing to do to keep it? Rashid Ghannoushi and Hizb an-Nahda have extended the biggest olive branch yet seen from the Muslim world to the West, blending the core tenets of political Islam with the core tenets of democracy and liberal society. Allowing this olive branch to wither would be a colossal public

diplomacy failure, and will lose, possibly forever, the unique opportunity presented in the NP. This is an opportunity to engage political Islam in the ‘war of ideas’ that the War on Terror is supposed to be about. As slow a learner as the U.S. government is, it has begun to realize that such a war cannot be won solely on the strength of military ventures – the underlying ideology must be confronted and proved to be undesirable and disadvantageous. Current policy makes the choice appear to be between secularism and destruction, when presumably the U.S. wants Islamist movements to choose legitimate political activity instead of violent terrorism. Allowing, or even encouraging, the growth and development of peaceful and modernizing Islamist political parties would make this clear. On the other hand, helping to suppress a demonstrably peaceable Islamist movement makes it difficult to sustain the argument that the U.S. is waging war on terrorism, not the religion of Islam. Pushing for democratization in Tunisia sends two important messages: first, that the U.S. does not approve of dictatorship as a general rule, and second, that Islam and peaceful democracy don’t have to be mutually exclusive ideas. The NP presents an idea of political Islam in stark contrast to that of al-Qa’ida and the broader jihadi movement. The party, and the revolutionary ideas it represents, are the best chance the West has of forging a sustainable peace with political Islam, and allowing that chance to disappear because of an ill-considered and unnecessary alliance with a dictatorial regime is foolish to say the least. As the U.S. strives to reinvent itself following eight years of the Bush administration, all that is needed to rejuvenate Tunisian polity and create, not a bastion of secularism, but a bastion of peaceful Islamism that offers an alternative to the jihadi movement’s ideology of hatred, is the audacity of hope. Sources Alexander, Christopher “Back from the Democratic Brink: Authoritarianism and Civil Society in Tunisia,” Middle East Report, No. 205, (Oct. - Dec., 1997), pp. 37. Available from links. jstor.org/sici?sici=0899-2851%28199710%2F12%290%3A205%3C34%3ABFTDBA%3E2.0. CO%3B2-S. Anderson, Lisa “Fulfilling Prophecies: State Policy and Islamist Radicalization,” p. 26-27. From Political Islam: Revolution, Radicalism, or Reform?, John Esposito, ed. London: Lynne Reinner Publishers, 1997. Azarva, Jeffrey “Reneging on Reform: Egypt and Tunisia.” AEI Online, March 30, 2007. Available from www.aei.org/publications/pubID.25873/pub_detail.asp. Banusiewicz, John D. “Rumsfeld Meets with Leaders in Tunisia,” American Forces Press Service, February 11, 2006. Carnegie Endowment for International Peace, “Arab Political Systems: Baseline Information and Reforms – Tunisia,” p. 15. Available from www.carnegieendowment.org/files/Tunisia_ APS.doc. Cordesman, Anthony The Middle East Military Balance: Definition, Regional Developments and Trends, p. 12. Center for Strategic and International Studies, 2005. Available from www. csis.org/media/csis/pubs/050323_memilbaldefine%5B1%5D.pdf Hedges, Chris “A Nation Challenged: Tunisia,” New York Times, 24 April 2002. Available from query.nytimes.com/gst/fullpage.html?res=9904E6D6163EF937A15757C0A9649C8B63. Human Rights Watch, “World Report 2003, Tunisia.” Available from www.hrw.org/wr2k3/mideast8.html. Larbi Sadiki, “Tunisia,” Islamist Opposition Parties and the Potential for EU Engagement, pp. 97-101. The Finnish Institute of International Affairs, 2007. Available from www.upi-fiia.fi/

document.php?DOC_ID=217. “Statement of the Assistant Secretary of State for Near East Affairs Robert H Pelletreau before the House Foreign Affairs Committee Subcommittee on North Africa,” September 28, 1994, pp. 8-9. U.S. Department of State, “Second Periodic Report of the United States of America to the Committee Against Torture.” Available from http://www.state.gov/g/drl/rls/45738.htm. U.S. Department of State, “Voting Practices in the United Nations.” Available from www.state. gov/p/io/conrpt/vtgprac.

A Well Oiled Machine: The Disastrous Effect of Oil on Democracy in Africa and What to Do About It Sam Ayres - Yale University

“WATER, WATER, EVERYWHERE, NOR ANY DROP TO DRINK.” – Rime of the Ancient Mariner, Samuel Taylor Coleridge

The Curse “The problem is that the good Lord didn’t see fit to put oil and gas reserves where there are democratic governments,” said Vice President Dick Cheney in 2000. Maybe. But could there be another reason for the link between oil and undemocratic regimes, aside from divine intervention (or lack thereof)? Does oil hurt democratization in developing countries— especially in Africa? Yes. Indeed, oil is “among the fiercest anticapitalist, antidemocratic forces in Africa.” It has been shown to create governments hostile to democratic change and the citizens who want it; corrupt, repressive regimes’ antidemocratic and authoritarian mechanisms are greased and powered by oil exports. Simply put, “oil wealth makes states less democratic.” Can proponents of democracy change this? Can we, in a sense, replace the undemocratic elements of governments and create democratic machines (as opposed to unresponsive and repressive authoritarian ones) that run smoothly for the benefit of the citizenry? To answer these questions, this paper seeks to first examine why oil has a chronic and severe antidemocratic effect in developing countries; second, critique past remedies that have attempted to promote democracy; and, third, detail some new approaches which might work toward creating stable, well-functioning democratic machines that can withstand the flow of oil between their gears and levers. The paper will argue that one of the most important lessons those interested in promoting democracy can take away is the urgency of the situation. Africans and citizens of the global north alike who wish to see democracy in Africa must focus, and focus quickly, on those African countries which will soon be hearing the creak of pumpjacks. This paper will contribute to the discourse on oil and democracy for a few reasons. A lot of attention has been paid to the disastrous effects of oil on economic development, known as the ‘resource curse’, wherein “many of the poorest and most troubled states in the developing world have, paradoxically, high levels of natural resource wealth” (and, unsurprisingly, are more likely to be caught in cycles of internal conflict). However, less attention has been paid to oil’s effect on democracies in developing countries. Fewer studies still have focused exclusively, as this paper will, on African countries. Much of the academic research into the negative effect of oil on democratic regimes has focused on the Middle East; part of this

paper’s project is to argue that these theories can and should be applied to Africa, which provides a good arena within which to evaluate democracy promotion mechanisms because Africa lacks some of the variables that complicate studies of democratization in the Middle East. Focusing on Africa is furthermore extremely important—and pressing—because oil will soon start flowing in a number of African countries where democratic promotion might have a substantial and positive effect. Those in Africa and the West interested in seeing democracy function in Africa are confronted by both a big challenge but also a unique opportunity. Oil in Africa Africa plays a surprisingly large role in the global oil market, one “which is more important to the West than most people know.” People often hear of repressive regimes in the Middle East, and even South America, propped up by oil revenue, but the West would do well to focus its attentions toward Africa: the United States in 2005 imported more oil from Africa than from the Middle East.11 More specifically, the Gulf of Guinea—the area on the coast of West African from Nigeria down to Gabon and the Republic of Congo— sold more barrels of oil to the United States than did Saudi Arabia and Kuwait combined. Currently, Africa provides “one of every nine gallons of fuel being pumped into any given car, anywhere in the world, on any given day.” Moreover, roughly a dozen African countries are poised to “experience little oil booms of their own,” further enlarging Africa’s role in petro-politics. Certainly, the U.S. government and American companies are looking toward this area for future investment, so that by 2015, it is estimated that one of every four gallons of gas put into American cars will be from sub-Saharan Africa. The oil industry sees Africa as a promising place for investment. Most of the supermajors are steadily increasing their investments in African countries. By 2010, another $50 billion will be invested in exploring and producing African oil. Chevron alone will spend $20 billion over five years. What Africa lacks in sheer quantity it makes up for in accessibility and quality. The oil in much of Africa is considered to be ‘light’ and ‘sweet,’ meaning it is “easier and cheaper to refine than … Middle Eastern crude” and less troublesome when it comes to environmental restrictions upon refinement. In addition, much of the oil is more accessible and thus the shipping costs are lower because Africa is “almost entirely surrounded by water, which significantly cuts transport-related costs and risk.” Moreover, the continent’s business environment is incredibly favorable: most of the contracts between foreign or international oil companies and the African states where they drill are what are known as productionsharing-agreements, or PSAs, wherein the oil company is reimbursed for all costs incurred pre-flow of oil. This is highly advantageous for the companies, but not always so beneficial for the developing countries that sign onto these deals. Finally, oil companies like when the oil is offshore—and thus far away from any violence, instability, or political repression in the country who owns the area being drilled. This allows companies to get in

and get out without concerning themselves with what is occurring on land. What might not concern oil companies, however, should and does concern those who would see democracy and a respect for human rights promoted in Africa. There is often a nasty underbelly to the exportation of oil. The crude can be more than merely antidemocratic; it can and does fund some of the worst dictatorships in the world, and those funds can often be traced back to America. Take, for example, Equatorial Guinea, known to many as “Africa’s concentration camp.” Nearly all of the major oil firms doing business with this country are American. In 2005, American companies ExxonMobil and Amerada Hess, as well as the Washingtonbased Riggs Bank where Equatorial Guinea’s President Obiang deposited over $700 million into his personal account, were brought under Senate investigation for their allegedly illicit dealings with Equatorial Guinea. At the hearings, Senator Carl Levin (D-Mich.) asked the head of Riggs Bank, after dealing with Obiang, whom Levin compared to Saddam Hussein, “How do you basically live with yourself?” Levin (and we) might ask the same of Condoleeza Rice who is The U.S. has a strategic interest in promotfollowing Hess’s lead ing democracy in Africa if we do not want to in cozying up to “one see the continent follow the Middle East and of the most brutal, become a nidus of anti-Americanism while most corrupt and unAmerican funds enrich despotic rulers. reconstructed dictators in the world”: not long after this Senate hearing, an obsequious Rice personally welcomed and met with Obiang in Washington, calling him a “good friend.” In 1999, the same U.S. State Department Rice now heads detailed in a report how Obiang’s security forces tortured and killed prisoners by “urinat[ing] on [them], kick[ing] them in the ribs, slic[ing] their ears with knives and smear[ing] oil over their naked bodies to attract stinging ants.” In addition to the ethical imperative for the U. S. to diplomatically shun dictators of the Obiang sort and to ensure that the countries with which the US does business provide for and protect their citizens, the U.S. has a strategic interest in promoting democracy in Africa if we do not want to see the continent follow the Middle East and become a nidus of anti-Americanism while American funds enrich despotic rulers. How Oil Impedes Democratization A thorough understanding of exactly how oil exportation undermines or impedes democratic development is necessary to then examine ways to combat oil’s corrosive effects and help build stable and secure democracies in oil-rich African nations. Aside from anecdotal and journalistic insights, there have recently been a number of empirical and theoretical insights into the effect of oil on democracy. The most important causal links between oil and democracy are the rentier effect (the taxation effect and the spending effect) and the repression effect, both of which are present in African countries.

Rentier State Economists refer to states that rely upon natural resources for the bulk of their exports and revenue as ‘rentier states,’ and it has been shown in such cases that oil wealth “inhibits democratization.” Specifically, rentier states are “countries that receive on a regular basis substantial amounts of economic rent.” In other words, a rentier state’s “whole society can live as rentiers, that is, on unearned income from wealth.” Imagine these oilrich countries as landlords: extractive industries like oil and diamonds, as opposed to industries like agriculture, earn such high amounts of revenue relative to the labor input and overhead required that it is as if they are earning ‘rent’ on the land they happen to own without having to put much work in. This is the root cause behind the economic resource curse. And yet, “[a]s devastating as the effects of the rentier state are on the economy of a resource-rich nation”—indeed, roughly 1/3 of the people in the bottom billion economically live in resource-rich nations— “they pale in comparison with the political effects.” “The heart of the resource curse is that resource rents make democracy malfunction” because they so drastically “divorce the government and its management of the economy from the day-to-day needs and the economic activity of the population.” Taxation Effect One of the ways governments in oil-rich countries become divorced from the populace is through the ‘taxation effect.’ The taxation effect might be stated as follows (inverting the well-known cri de ceour of the American Revolution): “no representation without taxation.” The taxation effect in an oil-rich country “suggests that when governments derive sufficient revenues from the sale of oil, they are likely to tax their populations less heavily or not at all, and the public in turn will be less likely to demand accountability from—and representation in—their government.” This lack of need to tax negatively affects the actions and ideology of both the politicians and, importantly, the citizenry: “When leaders no longer feel the need to tax their citizens to raise revenue, they become far less interested in what those citizens think about them, and unresponsive to complaints about their job performance. Meanwhile, citizens who pay little or nothing in taxes become far less interested in politics, and begin to see the cash-rich state as simply a source of lucrative contracts and easy favors.”

Thus, oil revenue limits or acts against what Carothers calls both the “supply” of democracy—the state or government institutions are less receptive to democratic input because they don’t need to be—and the “demand” of democracy—citizens lack a democratic mentality, and are thus less likely to demand democratic processes.

Case Study: Nigeria The preeminent example of the devastating taxation effect in Africa is Nigeria, a country universally recognized to be “a case study in the sort of chaos and destruction that an oil boom can wreak on an otherwise promising nation.” In Nigeria, the lack of taxation, which shifted the government’s attention away from the people, has now shifted the people’s attention away from politics, and specifically away from democracy and the process it is meant to bring about: the provision of public goods. Many people have given up on ‘demanding’ democracy because the government never supplied it, and now their only means for procuring a livelihood is to ‘cheat’ as well. As one observer noted, “After years of watching their patrimony squandered in this way, a large percentage of the … population feels abandoned by both national and local politicians, and has settled on illegal bunkering as the most direct way to ensure that they benefit from their own oil wealth.” The failure of democracy and subsequent lack of democratic demand has had dangerous consequences: it disenfranchised and thus estranged factions within the country—who have now armed themselves. Thus, Nigeria provides a good illustration of Collier’s conclusion. In addition, Nigeria leads to the next problem, the spending effect, where what gets undermined when there is no taxation is “not electoral competition but the political restraints on how power is used.” Spending Effect A rentier state’s movement toward democratization is also severely crippled by the spending effect, wherein the vast amount of oil wealth available to politicians allows them to spend in ways (namely, through patronage) that “dampen latent pressures for democratization.”50 This is arguably the single biggest problem afflicting democratization in oil-rich developing nations, especially in Africa. The vast amount of oil-wealth in developing democracies hinders democratization in two ways: by completely undermining free, fair, and competitive elections and through subsequently deflating the demand for greater, more structural advancements toward democratization. A vast amount of oil-wealth (resource rents) in the pocketbooks of politicians undermines the way in which elections can be competitive and fair. “An abundance of resource rents alters how electoral competition is conducted,” Collier notes, so that it becomes the “survival of the fattest.” The vast amount of cash on-hand allows for politicians to essentially buy votes and, thus, power. In non-corrupt elections, politicians must try to win votes in the “most cost-effective manner,” which normally takes the form of providing public services and public goods to the citizenry (so that a large group of people benefit from the money spent). This is the record upon which the politician will then be judged by the populous. As such, politicians see the provision of public goods—i.e., responding to the needs of the public—as the path to winning an election: the candidate seeks to “deliver public services such as infrastructure and security more effectively than rivals can.” It is, theoretically, a competition between who can best provide for and respond to the citizenry.

The exact opposite happens in resource-rich developing democracies. These countries, when in the infancy of democracy, are more susceptible to patronage systems because buying votes becomes cost-effective for two reasons. First, oil-rich countries in Africa are especially (but not exclusively) susceptible to patronage electioneering because of their ethnic loyalties and diversity. Essentially, “[p]atronage starts to look costeffective for a political party if votes can be bought wholesale by bribing a few opinion leaders,” and this happens when and where ethnic allegiances are strong. Collier found that in developing democracies, politicians can manipulate the group-voting practices because “voter loyalty to ethnic communities is strong and … the objective information available to the typical voter is weak.” This propensity to vote along ethnic lines (and thus at the urging of one or a few ethnic or community leaders) combines with a second cause to entrench a disastrous system of patronage election: a lot of cash, and no one to stop politicians from stealing it. When checks-andbalances are in place, patronage is too expensive and difficult. However, in immature democracies (or non-democracies, for that matter), the government does not find it hard to funnel the public money into “slush funds” because there are no strong and “effective” checks and balances. Thus, we see how oil wealth in immature democracies creates a nasty and destructive cycle. Few or weak internal checks and balances ensure that elections are non¬competitive, so the leaders who benefit from the undemocratic process maintain the status quo and thus further undercut democratization. In Collier’s terminology, it follows that without “limit[s] [on] how power is used,” power can be “achieved” in an unfair and patently undemocratic manner. Thus, the system rewards those politicians who can strategically cheat by distributing large sums of money to buy votes: it creates “the survival of the fattest.” Case Study: Gabon Gabon illustrates the spending effect in practice, since oil has held the country in a Gabon’s chances for true democratization have stage of democratic stagnabeen brought to a screeching halt, along with its tion (without an rusty $4 billion ‘choo-choo train’, not through force or violent repression, but through the sheer overly oppresoverabundance of oil wealth and the chronic non- sive or violent regime) for existence of checks and balances. decades. Omar Bongo has now been president of Gabon for 40 years, even after single-handedly showing off the truly sui generis levels of corruption and waste capable in African countries. Bongo insisted on building the Trans-Gabonais railroad, which was forecasted to be an irresponsible and “crippl[ing]” project that would obviate any chances Gabon had for healthy development. Fourteen years and $4 billion later, President Bongo’s “spectacular mismanagement of his country’s oil boom … left him with ‘little more than a handful of rust-

ing factories, a choo-choo train, and a massive government debt.’” In a functioning democracy, President Bongo would have been voted out—he failed, and failed miserably, to provide a public good. But despite his (criminal) financial malfeasance, Bongo is still president for precisely the reason outlined above: patronage undercuts electoral competition. He has shown “an impressive ability to buy the loyalty of potential opposition figures at home.” In the words one Gabonese sociologist: “Every time ordinary people try to create a political party, the powers that be find out who their leader is, call him in, and hand him a fat envelope. He quickly shuts his mouth and you never hear from him again.”

As a result, there is no electoral competition and “no credible alternative to rally behind” politically. This is a case where, it should be noted, Gabon’s chances for true democratization have been brought to a screeching halt, along with its rusty $4 billion ‘choo-choo train’, not through force or violent repression, but through the sheer overabundance of oil wealth and the chronic nonexistence of checks and balances. Repression Effect Not all oil-rich dictators retain power through loads of cash like Bongo; some opt for less benign tools. Thus, when the repression effect takes hold in resource-rich countries, the citizens in those countries find themselves confronted not with the suasion of Bongo’s money, but with tanks and guns and batons. In other words, citizens in oil-rich countries “may want democracy as much as citizens elsewhere, but resource wealth … allow[s] their government to spend more on internal security and so block the population’s democratic aspirations.” There are two reasons why the repression effect comes about, and oil is at the root of both. First, the government can afford to arm itself. Second, the presence of oil brings about the need, in the government’s eyes at least, for a larger military presence. Because resources are often located in “concentrated” areas of the country, extraction often fosters or exacerbates conflict between the government and local peoples at those sites. For example, the Niger Delta has seen a huge increase in armed groups, who are both upset with the government’s extraction policies and able to buy arms caches because of their illegal bunkering. Ross shows through regression analysis that “racial, national, or language divisions do not explain why oil-rich states spend so heavily on repression”— rather, the data indicate that oil-rich states’ military spending is in response to domestic pressures, often for democratic change. In other words, the backlash from mismanagement, graft, corruption, and generally undemocratic governance often forces the government to resort to military buildup to secure itself against mounting domestic pressures. As an indication of this need, OPEC members’ military budgets from 1984 to 1994 were ten times those of other non-OPEC developing countries, and three times those of developed non-OPEC countries. It is not hard to see how a large, intimidating military presence impedes the processes necessary for democratization: the ability to con-

gregate, to speak and publish freely, and to participate in free, fair elections can be put to a very real by the mere presences of baton-wielding or rifle-strapped soldiers. Case Example: Congo In the 1990s and early 2000s, the Republic of Congo was plagued by a bloody civil conflict, in which 10,000 Congolese died. The conflict is widely accepted to have been over oil, which started to flow in the 1990s. Indeed, the large military build-up by the government intimidated critics into quietude and suppressed movements toward democratization (as predicted by the repression effect). The year 2002 marked one of the fist times that criticism of the government was openly voiced (by the Archbishop of Brazzaville). In the words of a Congolese human-rights activist, the oil management by the government was a “taboo” issue. As Ghazvinian succinctly sums up: “oil has fueled a bloody civil war that has left the population traumatized and afraid to speak out against the country’s high-level corruption.” Evidently, the state’s oil-financed repression was effective. What To Do? All of these problems boil down to one phenomenon: the leaders have vast amounts of oil revenue to use at whim. As I have outlined, this oil revenue allows leaders to circumvent necessary taxation, gut competitive elections, and build up militaries to maintain power by suppressing or intimidating popular movements for democracy. So, what can be done to combat the devastating effect of crude? Some ideas on what and what not to do—and when—can be drawn from the knowledge that was applied to a real-world example: Chad. This case study provides an opportunity to survey why the Chad project failed and points to some of the most promising potential remedies for countries that will soon start see the thick, black liquid spurt. Chad In 1998, between 800 million and 1 billion barrels of crude oil were discovered by ExxonMobil’s seismic explorations in the chronically underdeveloped country of Chad. A number of factors at play set Chad up to be a prototype for success: the international community, especially the World Bank, having seen oil’s ravaging effects, saw Chad as a place where oil revenue might, for once, not impede an African country’s development and democratization. ExxonMobil had seen the same corrosive effect of oil in the countries where they drilled—and were aware of the growing outside concern over this corrosion—so the supermajor was worried about a PR disaster (to boot, the oil would have to run through 600 miles of pipeline cutting through the Cameroonian rain forest in order to eventually empty into the Gulf of Guinea, as Chad is landlocked). This gave the World Bank a position of “leverage”: ExxonMobil needed a good PR face, while Chad needed the infrastructure help and was “totally dependent on international aid.” As such, “never before had [the World Bank] had such a chance to lay out chapter and verse how a government could and could not spend its money.” So, the World Bank, Chad, and ExxonMobil teamed up to ‘do this one right’, by demanding

that all of the oil royalties go directly from ExxonMobil to an escrow account at the Citibank in London. The delineation of how Chad could spend its oil revenue was as follows: 10% went to permanent savings for when the oil was no longer flowing; 80% had to go to priority sectors (education, health, development, infrastructure, and a stipulated 5% for the oil-producing region); the remaining 10% could be used at the Chadian government’s discretion. By 2005, Chad was the most corrupt country in the world. (It is still one of the most corrupt—and disintegrating—countries.) In 2005, Chad began funneling money from the priority sectors to arms: the repression effect had taken its course. This was not exactly what the Bank had hoped for, and it earned Chad a stern call from Bank President Wolfowitz, who then froze the Citibank escrow funds and stopped all debt-relief payments to Chad. What went wrong? A critique of the implementation of the World Bank’s plan provides useful suggestions for how to prevent such a failure in the future. Time-Sensitivity ExxonMobil was ‘too fast’ for Chad. In other words, the World Bank had been “too optimistic about the speed of Chad’s capacity building” potential. This is the “two-speed” problem: ExxonMobil finished its construction and was pumping a full year ahead of when the Chadian government and the World Bank had planned on it. This left Chad with weak capacity and infrastructure and drastically unable to handle the flow of oil. This ensured that, among other things, the country, and especially the area of extraction, was damaged politically, environmentally, structurally, and socially. (Indeed, the damage on all facets is so extensive that the World Bank is currently calling on ExxonMobil to compensate families in the area of drilling.) This makes salient one of the most important lessons: timing is everything. More specifically, it is imperative to make sure that the host country has some of the most basic democratic mechanisms in place before any oil starts to flow. If it does not, a “moratorium” should be enacted for as long as possible (as was suggested in the case of Chad), and the oil companies need to comply. It is relatively widely agreed that the reason Norway was able to escape the resource curse and its devastating effects on internal politics was because it put in place restraints and checks and balances “before it got its oil.” Once the pumpheads start moving, politics is another game entirely. Sadly, many knew this before the Chad debacle. Civil society and non-governmental organizations warned the World Bank about moving too quickly without buttressing the capacity of the government of Chad, given its notorious corruption and “institutional weakness.” According to the Publish What You Pay Coalition, the “World Bank ignored civil society concerns … and gambled that its capacity building projects could rapidly increase the government’s ability to manage unprecedented revenues transparently.” The World Bank’s intentions and initial plan were promising, and hopefully they have learned their lesson (albeit the hard way), because the

Bank’s role in future democracy promotion will be invaluable—according to the chairman of Transparency International, the World Bank is “the most powerful force against corruption in the world nowadays.” Thus, future escrow accounts should be set up, under the Bank’s auspices, but further limits need to be built into these agreements to regulate a government’s ability to amend the rules mid-game, as Chad did. Level of Production More generally, the lessons learned from the non-parallel timing in Chad make clear how much the level of oil production determines a country’s ability to democratize. Given limited time and resources, democracy promotion efforts should be focused, specifically, on those countries where oil is not yet flowing (but will) or countries that are only pumping a relatively small amount. Uganda would be a prime country which to focus on. Uganda is coming off of 21 years of civil war, and despite a relatively strong Parliament, it has a police and army with authoritarian habits and a termlimit-allergic President. In addition to the threats to democracy posed by oil, it is vital to ensure that the oil revenue and drilling (which is taking place in the volatile region between the DRC and Uganda, and near to a number of war-zones) does not re-disturb any of the region’s conflicts. Moreover, there is time: oil production will begin at the end of 2008 or early in 2009. Industry reports, however, set the timeline for full production between 2013 and 2015. Ross’s statistical regression confirms my prescription: the negative effect of oil on democratization “is larger when oil exports are a small fraction of the economy, and it drops as the country grows more reliant on oil.” In other words, “barrel for barrel, oil harms democracy more in oil-poor countries than in oil-rich ones.” Thus, the countries in Africa that will be most susceptible to oil’s deleterious effects—and thus most receptive to democracy promotion efforts—are the low- or soon-to-be producing states: Uganda, Mozambique, Madagascar, Kenya, Ethiopia, The Gambia, Sao Tome and Principe, and Senegal. Transparency But what exactly should be done in these countries? First and foremost, there should be transparency in the government’s oil deals, which is especially difficult in the current climate of the extractive industry. It is important to know that by their nature, extractive industry contracts (often PSAs) are highly secretive due to industry competition. ExxonMobil does not want Country B to know the revenue-sharing deal it negotiated with Country A, as this would limit its bargaining potential. Two campaigns are underway to combat corruption within the extractive industry, one which focuses on government transparency and the other on corporate transparency. The first is the Extractive Industries Transparency Initiative (EITI), supported by the IMF. The EITI focuses its efforts on the governments themselves by using incentives to get countries to publish their budgets. The oil companies “love EITI” because it “takes the pressure off them and puts it onto African governments to disclose.” As of December 2007, the EITI currently had no compliant countries, and

only a few ‘candidate’ countries. Another campaign is the Publish What You Pay (PWYP) coalition. PWYP pressures the oil companies to, as their name suggests, publish what they pay state governments in oil revenue. This can sometimes backfire on the oil company. In 2001, British Petroleum (BP) took a giant step forward and declared its intention to publish what it paid to Angola. Angola was not pleased: it threatened to revoke all of BP’s drilling contracts with Angola and sent a copy of the letter to every other oil company to send a clear message that transparency of that sort was not Angola’s modus operandi. One solution to this dilemma is to force all IOCs to publish what they pay by law—either international or domestic—so that countries like Angola cannot use transparency as a pretense for nullifying contracts. Passing such a law within the oil-producing country might, of course, prove quite difficult if those in charge of passing such restrictive legislation are benefiting from the very embezzlement it targets. For this reason, laws requiring disclosure could and should be passed in the (non-African) countries where the IOCs are registered or deposit their revenue. Return On Investment As Shaxson notes, the downfall of both of these transparency campaigns is that they focus exclusively on oil revenues. Rather, transparency campaigns should focus on government spending, which is where a lot of the waste—through embezzlement—occurs (remember Bongo’s choo-choo train?). One answer is to have countries require that “all public investment projects…meet a minimum rate of return.” For example, Botswana has been able to “have a radically different balance between electoral competition and checks and balances” than has Nigeria because of the former’s laws regarding rate of Given limited time and resources, democreturn.

racy promotion efforts should be focused,

specifically, on those countries where oil is Free Press But transparency camnot yet flowing (but will) or countries that paigns imposed from are only pumping a relatively small amount. the outside only go so far. For this reason, one of the oldest tricks in the book might just be the best: a homegrown free and vibrant press. It is no coincidence that the President of Equatorial Guinea has a $700 million dollar bank account in Washington D.C. and that the country is ranked among the most censored in terms of press freedom. Even in cases that are not so extreme, the free press seems to be incredibly influential. Collier states unequivocally, “If any restraint is important, it is surely a free press.” After all, the patronage system is only possible when the voting public severely lacks objective information—when they are told how to vote by superiors within the community or ethnic group. A free press can help to wrest the grip of the patronage system that holds African oil-rich democracies hostage.

The Oil Spill More and more of the oil Americans put into their cars will come from Africa, because after “September 11, 2001, … the West began to understand better Africa’s value as a reliable alternative energy supplier.” However, this may not be all it’s cracked up to be if the US is not careful— Africa may begin to look less like an alternative to the Middle East and more like an imitation of it. While the oil companies may not pay much attention to the welfare of those on-shore or in the streets, the US should because its image is tied to the footprint of these companies. Many have begun to detect that the actions of American oil companies are beginning to engender serious anti-American sentiment; unsurprisingly, those who saw no benefits from the oil told Shaxson, “It is the Americans who are letting this happen … [t]he people are starting to hate Americans,” while another man reported to Ghazvinian, in reference to Chevron (an American company), “But you see, people are starting to hate them.” It is in the interest of Americans for the citizens of these African countries to be free and secure as democratic citizens. *** Oil exportation in African countries is severely and consistently an antidemocratic force when not approached in the proper way. Without transparency, checks and balances, a free press, and other democratic keystones, oil will either keep a country in a dismal state of democratic stagnation, or corrode whatever democratic gains it has made. It is thus imperative that steps be taken in those countries where the crude is either not yet pumping or is flowing at only a trickle if the African citizens there are to see a democratic government that respects their rights and livelihoods as much as it seeks the oil—and money—that flows around them. The ability to promote democracy in these developing African countries is severely and permanently limited once the oil starts to flow. For this reason, it is a race against the pump in places where oil has started to be drilled—Chad, for example—but also in those places where the dark, thick stuff has yet to flow. It is a race to get the gears and pistons and levers of democracy functioning before those of the pumpjacks so that the government can be a well-oiled democratic machine. Sources Books: Carothers, Thomas. Aiding Democracy Abroad: The Learning Curve. 1st. Washington: Carnegie Endowment for Peace, 1999. Collier, Bruce. The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It. 1st. New York: Oxford University Press, 2007. Ghazvinian, John. Untapped: The Scramble for Africa’s Oil. 1st. Orlando: Harcourt, 2007. Shaxson, Nicholas. Poisoned Wells: The Dirty Politics of African Oil. 1st. New York: Palgrave Macmillan, 2007. Journal Articles: Lambsdorf, Johann Graf. “Corruption Perceptions Index 2006.” Transparency International Global Corruption Report 2007. 2007. 324-330. .

Pegg, Scott. “Can Policy Intervention Beat the Resource Curse? Evidence from the Chad-Cameroon Pipeline Project.” African Affairs 105/418 (2005). 1-15. Ross, Michael L. “Does Oil Hinder Democracy?” World Politics 53 (April 2001): 325-361. Ross, Michael L. “Blood Barrels” Foreign Affairs May/June (2008). Sachs, Jeffrey D. and Andrew M. Warner. “The curse of natural resources.” European Economic Review 45 (2001). 827-838. Sachs, Jeffrey D. and Andrew M. Warner. “Natural Resource Abundance and Economic Growth.” Development Discussion Paper No. 517. Harvard Institute for International Development: Cambridge, MA, 1997. Shaxson, Nicholas. “New Approaches to volatility: dealing with the ‘resource curse’ in subSaharan Africa.” International Affairs 81, 2 (2005). 311-324. Karl, Terry L. and Ian Gary. “Oil and Development: The Global Record,” in Oil Change, Foreign Policy In Focus, 2004. Articles & Reports: “Chad and World Bank: PWYP urges all stakeholders to resume talks to end current stalemate over oil revenue management law dispute.” Publish What You Pay Coalition Statement. 3 Feb 2006. . David Ignatius, “Oil and Politics Mix Suspiciously Well in America.” Washington Post. 30 July 2000. A31. Kamen, Al. “Photo-Op Frames a Shot at Iran.” Washington Post. 17 Apr 2006: A11. Maass, Peter. “A Touch of Crude.” Mother Jones. January/February 2005. Maas, Peter. “Who’s Africa’s Worst Dictator?” Slate. June 24, 2008. Silverstein, Ken. “Six Questions for Nicholas Shaxson.” Harper’s Weekly. 20 Apr 2007. . Silversein, Ken. “Oil Boom Enriches African Ruler.” Los Angeles Times. 20 Jan 2003. Wroughton, Lesley. “World Bank tells Exxon to fix Chad compensation.” Reuters Online. 22 Mar 2007. “Uganda Becomes Oil Producer.” Afrol News. 9 Oct 2007. “Good Oil Found on Lake Albert in Uganda.” People’s Daily. 27 May 2006. “Hertiage Oil announces results of Annual General Meeting.” Heritage Oil Press Release. 20 June 2008. Bariyo, Nicholas. “Uganda To Reach Full-Scale Oil Production In 5 Yrs.” Dow Jones Newswires. 04 Apr 2008. “Uganda Drilling and Development Activities.” Tullow Oil Company PowerPoint Presentation. October 2007.

The Implications of Sino-African Oil Trade ChoonBoon Tan, Jacob Ng - University of Michigan

China’s annual GDP growth rate has averaged 9 % over the past four years, reflecting a rapid expansion in the Chinese economy . This economic growth has been accompanied by an exponential growth in energy consumption. From 1995 to 2005, China’s oil consumption more than doubled . China’s total consumption of crude oil reached 346 million tons in 2007 and 46.05% of that consumption had to be met by imports . China’s increased dependence on oil imports forced it to build trade relationships with countries outside its borders. This search for low-cost natural resources has included countries from across the Middle East to Africa. Graph 1: China’s Oil Consumption & Production, 1989 – 2005

Source: “BP Statistical Review of World Energy,” BP Global: Reports and Publication, British Petroleum. 2007

With 100 billion barrels of proven oil reserves, African nations have become a major source of oil for China. According to Chinese government statistics, China’s overall trade with Africa rose from $10.6 billion in 2000 to $40 billion in 2005, and the relationship is poised to increase even further in the coming years . Currently, Nigeria and Sudan are the largest oil producers in Sub-Saharan Africa . As of 2005, Nigeria produced roughly 2.4 million barrels per day (bdp) of oil while Sudan’s average production was 400,000 bpd . The oil trade with China brings both positive and negative implications for these two countries. This paper seeks to explore these implications and will highlight Nigeria and Sudan as case studies. In analyzing these two countries, economic and political progress is tracked using economic indicators such as Gross Domestic Product (GDP), Inflation, Income Equality and social indicators such as the Transparency Index.

In the first case study on Nigeria, there will be an illustration of its domestic problems before and after China’s foray, as well as the implications of the oil trade between China and Nigeria. This first case study will conclude with potential solutions for the country. The second case study will cover controversial Sudan, and its relationship with China in the oil industry. This includes the implications of oil trade brought about by the Chinese, as well as the human rights issue surrounding Sudan. Similarly, the second case study wraps up with recommended steps for the Sudanese government to ameliorate the current situation in its country. Lastly, the conclusion of this paper will highlight that trade between China and African nations is mutually beneficial as long as relevant steps are taken to prevent the ascendency of social, economic and political problems that were mentioned in the earlier part of the paper. CASE STUDY: NIGERIA The Nigerian Oil Industry and Economy Nigeria is the top oil producer in Africa, and the twelfth largest oil producer in the world, with a daily production of 2.443 million (bpd) . With proven oil reserves of 36.22 billion barrels , Nigeria relies heavily on its oil industry, which accounts for 95% of its total export revenue . Despite an increase in global demand for oil, Nigeria remains one of the poorest nations, with 60% of the population living below the poverty line . Additionally, the country is plagued with high unemployment rates, inflation, corruption, civil unrest, oil infrastructure vandalism, security issues, and environmental damage resulting from its oil sector. Niger River Delta and its Insecurity The Niger Delta is the epicenter of Nigeria’s oil industry, as well as the site of violent insurgencies among the different ethnic groups residing in the region. The root of the conflict is the wealth distribution policy of the government. While most of the country’s revenue generated from oil production originates from that area, the people of Niger Delta continue to live in extreme poverty and face widespread environmental degradation due to oil production operations. The various ethnic groups believe that revenue derived from oil production should be principally distributed back to the locals instead of the federal government – a government that ranked 147 out of 179 in Transparency International’s Corruption Perceptions Index 2006 . Due to a lack of transparency and a high level of corruption, a huge portion of the oil-money is siphoned off and does not trickle down to the citizens of the nation. The first significant militant attack in the Niger Delta took place in the 1990s, and since then, many others have followed. The ethnic groups’ guerrilla tactics include the damaging of oil infrastructure, kidnapping of international oil workers, sabotaging of oil pipelines and “bunkering” (oil theft). The international oil firms that have been affected by this guerrilla warfare include Shell, Chevron and Daewoo & Korea Gas Corporation. The social unrest has damaging effects on Nigeria’s exports and its economy.

Sino-Nigerian Oil Trade Historically, established Western oil firms have dominated Nigeria’s oil industry. China was never a dominant player in Africa’s largest oil producer until recently. But with China’s increased prominence on the world stage, and its provision of unconditional foreign aid, technological transfer, and help in infrastructural development to Africa, Nigeria found trading terms to be more favorable with the Chinese than the West, and began granting concessions to Chinese oil companies. Towards the end of 2004, Sinopec and the Nigerian National Petroleum Company (NNPC) signed agreements to develop Oil Mining Leases (OML) located in the Niger Delta . Subsequently, more contracts between the two countries have followed. PetroChina then signed an agreement with the Nigerian government to locate upstream oil and gas assets that could be integrated with its downstream projects shortly after. In July 2007, China National Offshore Oil Corporation (CNOOC) signed an $800 million contract that ensured a supply of 30,000 bpd to China over a five-year period. More significantly, the Nigerian government granted the Chinese four oil exploration licenses in exchange for $4 billion of infrastructure investment in April 2006 . Negative Implications of the Sino-Nigerian Oil Trade One pressing problem surrounding Sino-Nigerian oil trade is militant guerrilla warfare. Violence and unrest led by oppressed ethnic groups continue to plague the oil-rich Niger Delta. Terrorist attacks targeted at the Chinese include car bombings and multiple kidnappings of Chinese nationals . Many attribute the violence to Chinese oil production and see the insurgency as a last resort by locals to prevent the unfair exploitation of their natural resources. Ironically, but not surprisingly given the surrounding context, the influx of oil wealth has had a detrimental impact on the lives of ordinary Nigerians. With its large and increasing oil revenues, the Nigerian government has embarked on an acceleration of government spending in the water, roads, electricity, education, security and healthcare sectors . This has exerted inflationary pressures on consumer prices. As seen in Graph 2, consumer prices have been rising steadily in the past decade. The purchasing power of Nigeria’s largely poor population has commensurately decreased with increased prices of goods and services.

Graph 2: Rising Consumer Prices 1999-2008

Source: “World Economic Outlook Database,” International Monetary Fund. October 2007

The Sino-Nigerian oil trade has also caused unemployment in the Nigerian economy. The oil trade is accompanied by trade of other goods and services, which equates to a deluge of cheap Chinese products in the Nigerian market. These cheap products have a competitive edge over Nigerian products. As a result, many Nigerian firms have been forced to shut down, causing further unemployment. One notable example is Nigeria’s textile industry, where sixty-five Nigerian textile mills have ceased their operations and 150,000 textile workers were retrenched over the past decade . Additionally, when Chinese oil firms entered Nigeria, they brought in Chinese workers; they did not choose to employ local Nigerians because they were deemed “unskilled.” The increased oil and associated trade with China has not relieved Nigeria’s large unemployment numbers and in some cases has even precipitated it. Positive Implications of the Sino-Nigerian Oil Trade According to the International Monetary Fund (IMF), there was a sharp increase in Nigeria’s GDP in the years since the Chinese oil firms entered Nigeria. As shown in Graph 3, GDP rose from 4 trillion Naira (Nigeria’s domestic currency) in 1995 to 7.5 trillion Naira in 2007. As seen in Graph 4, Nigeria’s GDP growth rate has consistently exceeded 5% in the past 5 years. This indicates a rapidly growing economy, brought about in part because of increasing oil trade with China. If Nigeria were to capitalize on this tremendous opportunity for growth with prudent economic policies, it could potentially lift its citizens out of extreme poverty and its political and economic structures out of corruption, inefficiency and chaos.



Graph 3: Rising Gross Domestic Product at Constant Prices, 1995 - 2008

Source: “World Economic Outlook Database,” International Monetary Fund. October 2007

Graph 4: Increase in Annual Percentage Change of Gross Domestic Product at Constant Prices, 1999 - 2008

Source: “World Economic Outlook Database,” International Monetary Fund. October 2007

Sino-Nigerian oil trade has also led to infrastructure development in Nigeria; oil agreements and financial grants often come hand in hand when working with the Chinese government. The initiation of the redevelopment of Nigeria’s foundering railway system was one substantial advancement. In October 2006, the Nigerian government signed a $2.5 billion loan facility with China, a significant part of which was channeled to finance the refurbishment of Nigeria’s railway system . Such developments have a healthy multiplier effect on Nigeria’s economy, including economic growth and job creation. Infrastructure development allows for

improved accessibility to Nigeria’s provinces and thus the people of Nigeria’s various regions gain greater economic participation. Improved transportation systems also allow Nigerians greater access to public amenities like schools and hospitals and raises social welfare. Chinese involvement in Nigeria’s oil trade has brought about both positives and negatives for the country. However, many of the negative issues were already present before China’s entry into Nigeria’s oil sector: rebel attacks on oil installations were problems to Western firms before the advent of Chinese participation, and the same can be argued for inflation and unemployment. It is unfair to place the full blame for these problems on China’s foray into Nigeria for oil. Furthermore, there are solutions for the aforementioned problems. For example, if the government were to provide support to curb violence in the Niger Delta, redistribute funds more proportionately, implement monetary policies to curb inflation and equip its citizens with adequate training so that they can be readily employed, the government could successfully uplift the Nigerian’s economy. Overall, the Sino-Nigerian oil trade is more beneficial for both parties than hurtful. This trade has brought about wealth and infrastructural development for the Nigerian economy. These two developments would not even have existed without the oil trade. When leveraged upon prudently, they can potentially provide an engine for greater growth in a Nigerian economy that has remained stagnant for decades. However, the blame falls on Nigerian policy makers for not appropriately using the boom in revenues that they have gained from the oil trade. Case Study: Sudan Sudan’s Oil Industry and Economy Sudan is one of the largest producers of crude oil in Sub-Saharan Africa, possessing 5 billion barrels of proven crude oil reserves, an increase from 563 million barrels in 2006 . It produces an average of 414,000 bpd (2005 estimate), generating $1.9 billion in revenue and forming 70% of Sudan’s total exports . Conflict in Sudan Sudan has an extremely diverse population. Seventy percent of the population is Muslim and resides in the Northern two-thirds of the country, while Christians and Animists form the composition of the Southern territories . State command and wealth lies mainly with Muslims from the North. The political, economic and social disparities have been the primary reasons for conflict between the ruling Arabian Muslim elite and the marginalized population in Southern and Western Sudan. Whilst there was little conflict in the years from 1972 to 1983, that stability ended when the Central government abolished the Southern Autonomous region and imposed Islamic Law in 1983 . The Sudan People’s Liberation Army (SPLA) forms the core of the separatist movement. Sudan is currently engaged in a brutal civil war in which the incumbent government engages in armed conflict with separatist rebel movements. The

Sudanese government is accused of committing genocide against its own minority citizens in Southern Sudan and in Darfur through the state sponsored militia, the Janjaweed, in an attempt to weaken the rebel movement. Freedom House assigned Sudan a ‘7 rating’ on political rights and civil liberties, on the scale of ‘1’ being the most free and ‘7’ being the least free . Transparency International ranks Sudan 172 out 179 in its Corruption Perceptions Index for 2006. The low ratings assigned to the quality of governance in Sudan are reflections of an autocratic government that is easily corruptible. Poor governance impedes development in Sudan, especially when its oil wealth is siphoned off from national development funds by corruption. Sino-Sudanese Oil Trade China has the biggest stake in the Sudanese oil industry; it imports 60% of Sudan’s oil output . China National Petroleum Company (CNPC) owns a 40% share of the Greater Nile Petroleum Operating Company (GNPOC), the joint oil consortium operating the oldest producing oilfields in Southern Sudan . Furthermore Sudan is a vital link in China’s oil supply, forming a 10% share in total Chinese oil imports . It is projected that Sudan’s government could collect a possible total of $30 billion in oil revenue from China by 2012 . Negative Implications of the Sino-Sudanese Oil Trade There is substantial controversy surrounding the Sino-Sudanese oil trade. The commencement of their relationship in 1999 allowed for greater revenue collection by the Sudanese government and has also been coupled with a doubling of military expenditure. Most recent estimates indicate that the defense budget accounts for 40% of Gross National Product (GNP) (2004 estimate) . China supplies arms, ammunition, military trucks, helicopters and fighter planes to the Sudanese military . This weapons supply ultimately intensifies and perpetuates armed conflict in Sudan. Revenue from the Sino-Sudanese oil trade contributes to the coffers of an autocratic Sudanese government and has enabled the government to retain its grip on power. Table 1: Sudanese Government Oil Revenue and Military Expenditure, 1999 – 2002

Source: “Sudan, Oil and Human Rights,” Human Rights Watch. November 2003

Because of China’s significant involvement in Sudan, Sudan benefits from China’s self-motivated protection of Sudan from international action. For example, China has opposed possible United Nations (UN) economic sanctions against Sudan through its veto position in the UN Security Council . Much criticism surrounds this decision, but China argues that sanctions would do little to improve a situation that requires other focuses, like the establishment of a coordinated peacekeeping force. A UN contingent of Chinese peacekeepers was the first to be deployed when the UN was granted peacekeeping responsibilities in Western Sudan in January 2008. This contingent was readily approved by the Sudanese government even as it objected to non-African Union peacekeeping forces . Sudan also grants protection to Chinese oil installations that are under threat of attack from rebel groups. Chinese oil interests in Sudan are protected through Chinese support of Sudan’s controversial ruling government, and this politically and economically symbiotic relationship is taking place at the expense of peace, freedom and democracy, and has drawn international censure. Like many countries that rely heavily on natural resources for growth, Sudan has faced inflation issues over the past decade. Inflationary pressures in the past five years were moderately high, consistently exceeding 7%. This percentage reflects the monetary pressures on a rapidly expanding Sudanese economy as it adjusts to oil trade with China. However, this is still a significant improvement over the extreme inflationary rates of the early 1990s when macroeconomic stability was detrimentally affected by political instability. Graph 5: Inflation Rate Changes, 1992 - 2008

Source: “World Economic Outlook Database,” International Monetary Fund. October 2007

Another issue facing Sudan is that wealth generated from its oil trade is concentrated in Greater Khartoum (in the Arab Triangle between Dongola, El Obeid and Kasala) and has not trickled down to the other re-

gions of Sudan . This inequity is one of the factors contributing to the discontentment of rebel groups that reside in territories holding oil reserves. Even though profits are generated in those territories, the locals are not allocated a fair share of oil revenue. Positive Implications of the Sino-Sudanese Oil Trade According to the World Bank, Sudan is one of the poorest nations in the world, having a Gross National Income of $2,160 per capita and ranking 171 out of 209 countries in wealth in 2006 . Sudanese trade and economic statistics have improved since oil production commenced. GDP and GDP per capita have risen at an increasing rate since oil export started in 1999. Graph 6: Increasing GDP, 1992-2008

Source: “World Economic Outlook Database,” International Monetary Fund. October 2007

Graph 7: Increasing GDP per capita, 1992 - 2008

Source: “World Economic Outlook Database,” International Monetary Fund. October 2007

Despite its dire state of affairs, Sudan has one of the fastest growing economies in Africa and the world . This can be highly attributed to Chinese involvement in the Sudanese economy as China is Sudan’s largest trading partner. Trade between China and Sudan increased 124% in the first half of 2007 to $2.4 billion, most of it oil related . Chinese opposition against UN economic sanctions has also allowed the Sudanese

economy to participate freely in international trade and economic development. China is Sudan’s largest investor. According to the UN Conference on Trade and Development (UNCTAD), Sudan received $351.5 million in Foreign Direct Investment (FDI) from China in 2005. Sudan was China’s 9th largest recipient of FDI . Although Chinese investment is mainly tied to the oil industry, China is also a prominent developer of Sudan’s infrastructure. Sudan’s largest oil refinery was jointly built by CNPC and Sudan’s Energy Ministry. CNPC subsequently invested $300 million to expand and double production in this refinery . CNPC recently signed an agreement with the Sudanese government to develop Sudan’s newest offshore oil block in June 2007 . Additionally, Sudan’s primarily agricultural economy is entering its foray into manufacturing industries with Chinese assistance. This is expected to boost Sudan’s industrial income in the long run. To secure its oil transportation, China has seen a need to strengthen logistical links within Sudan. Sinopec is linking an oil pipeline from Sudan’s Melut Basin oilfields to Port Sudan on the Red Sea, where China Petroleum Engineering Construction Group is constructing an oil export shipping terminal . In February 2007, China and Sudan penned a $1.15 billion deal to construct a railway link between the capital Khartoum and Port Sudan . This infrastructural setup introduces geographical accessibility and paves the way for further economic development. Even though growth attributed to the Sino-Sudanese oil trade has brought about the associated macroeconomic challenges of inflation and inequity, these are issues that can be readily resolved through effective government policies. For example, with Sudan’s active pursuit of IMF-dictated financial reforms, we can expect a reduction in inflation rates. Peace results in less disruption to Sudan’s economy and growth. With greater growth, Sudan’s government has a greater incentive to sustain peace accords to protect its increased economic interests. Chinese involvement in Sudan’s oil trade has reaped benefits for both itself and Sudan. Sudan’s economy is flourishing at levels unseen prior to the expansion of Sino-Sudanese oil trade. There are positive economic and infrastructural developments that can be ascribed to Chinese involvement. Standards of living can be raised in Sudan when its rich endowment of natural and energy resources are appropriately utilized and leveraged upon. Conclusions and Recommendations The increase in Sino-African oil trade provides ample opportunities for growth and development. China’s insatiable thirst for energy is pacified by the vast oil resources of Africa. Africa, a region that has been veiled in economic underdevelopment for far too long, is finally making inroads in international economic integration with the rest of the world; and one part of that is its establishment of increased trade with China. China represents a huge market for African exports. With a population of 1.3 billion people, China can serve as a significant source of foreign income derived from Chinese consumption of African goods and

services. This foreign income can potentially boost GDP and growth of African nations to a large extent. Oil-related FDI from China represents a considerable cash injection with the potential for multiplying and creating greater growth in Africa. This investment also goes towards improving infrastructure of African countries and improves their capacity for transportation and logistics of goods and services. Nevertheless, there are also negative ramifications associated with the Sino-African oil trade. These form the basis of the call for the withdrawal of Chinese involvement in African oil markets. Nigeria and Sudan are two cases that bring out many of these negative ramifications. Economic issues pertaining to this relationship are that of inflation, inequality and over-dependence of domestic crude oil production. However, these problems could be addressed through an implementation of pertinent policies like far-sighted planning and good governance, which would serve to reduce the negative macroeconomic ramifications. One way that Nigeria could deal with inflation is by following in the footsteps of Angola. The Angolan government, another major African oil exporter, has successfully dealt with hyperinflation with the use of a currency stabilization policy to reduce money supply. This involved active foreign currency sales to reduce the supply of Kwanzas (the Angolan currency) in the world markets. To consolidate its position, Angola unified its official and informal foreign exchange markets. The minimum reserve requirements of banks were also raised to further curb the money supply. As an alternative, foreign financing of loans was encouraged instead. The Angolan government also controlled liquidity by using increased sales of very short-term instruments at higher nominal interest rates and bonds with higher maturities. As a result, inflation has declined from 300% to 100% between 1999 and April 2002. More recently, inflation rates have been as low as 31%. As demonstrated, the application of monetary policy can be effectively used to curb inflation. Fiscal policy can also be employed in controlling inflation rates; the fiscal deficits of government expenditure can be reduced to manage the rate of spending in an economy. Unnecessary subsidies, especially fuel subsidies in oil producing nations, should be curtailed. The appropriate subsidy level should be set at a rate that spurs development in manufacturing but does not encourage overconsumption. Unfortunately, fuel subsidies, once implemented, are politically hard to remove. A more challenging issue is that of economic inequality; African society will not benefit as a whole if wealth is concentrated in a hands of a few individuals. Because of the high level of corruption in these nations, and the Sudanese government’s considerable military expenditures, the benefits of the Sino-African oil trade are not equally channeled to all strata of society. Importantly, corruption steers away potential investment and, besides violating human rights, is not good economic policy. But it should be noted that corruption within the Sudanese and Nigerian governments cannot be solved with the reduction of Chinese involvement in African oil trade. Corruption and inequality will only be perpetuated if a country is devoid of opportunities for growth and cronyism

and nepotism are the only avenues for individual success. To rid corruption, there must be increased disciplinary measures reserved for perpetrators. China, which has long suffered from corruption itself, has introduced punitive punishments to deal with corruption within the government bureaucracy. The fear of punishment, at times as harsh as the death penalty, is a significant deterrent against corruption. After introduction, these laws must be enforced effectively. Controversies have always clouded Chinese involvement in Africa. China’s potent desire to pursue resources to sustain its growing economy and exploding population often leads to it turning a blind eye to human rights, economic and political issues, which is one of the many reasons why the Chinese are so alluring to the African governments. Peter Takirambudde, head of the African division for Human Rights Watch, sums up the sentiment generated towards the Chinese, “They see no evil. They hear no evil.” For example, the Chinese Administration is seemingly tolerant of the atrocities the Sudanese government is accused of. China maintains that it does not interfere with the sovereignty of nations that it trades with. Nevertheless, it cannot turn a blind eye to the atrocities under some of these regimes because it is in China’s long-term interest to improve political and social governance in African nations that it trades with. Free trade can only flourish with incorruptibility, rule of law and political stability. China must do more than sit on the fence, only because it has the necessary influence to change the status quo and introduce reforms. In conclusion, Sino-African oil trade represents a turn in fortune for African nations and presents a valuable opportunity for African development. The call for China to steer away from African trade because of associated economic and political challenges might hinder African development because it robs the continent of the opportunities it so desperately needs for progress. While Chinese involvement in African oil economies has negative implications, these implications essentially arise from a rapid growth that is not supported by the necessary economic policies. China should therefore take on a balanced approach to Sino-African oil trade and promote economic development together with social reforms. Sources Cohen, David “China’s GDP Growth Looks Set to Continue,” Business Week. October 2006 “BP Statistical Review of World Energy,” BP Global: Reports and Publication, British Petroleum. 2007 Kolas, Ashild “China in African Oil: Guilty as Charged?” Economists for Peace and Security. 2007 “BP Statistical Review of World Energy,” BP Global: Reports and Publication, British Petroleum. 2007 Goncalves, Isabela “Africa, China Forge Closer Economic Ties,” International Business Times. 2006 Kolas, Ashild “China in African Oil: Guilty as Charged?” Economists for Peace and Security.

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The Competition for Africa: China’s Increased Investment on the Continent and the Implications for the United States

John Dixon - University of Georgia

The underlying catalyst for the recent surge in China’s interest in Africa is China’s enormous demand for natural resources, primarily crude oil. During Chairman Mao Zedong’s rule, China showed significant interest in the African continent. At the time, however, the relationship was mainly based on ideology and political support between countries oppressed by Western powers. China’s investment in Africa resulted in a railroad system in Tanzania, hundreds of doctors working throughout the continent, and the provision of other technical expertise; the main feature of this investment was the construction of numerous elaborate sports stadiums. China’s interest diminished in the 1980’s but is now making a strong comeback. Currently, investment is much heavier, and its purported guiding principles are “sincerity, equality and mutual benefit, solidarity, and common development”. China needs ever-increasing stocks of petroleum to fuel its growing economy. Once an oil exporter, by 1993 China was a net oil importer. It is projected that by 2045 China will rely on oil for 45% of its total energy needs. Between 2000 and 2004, China was responsible for a full 40% of the worldwide increase in demand for oil. While the Middle East is presently China’s main source for oil, China is increasingly looking to Africa for additional supplies. Angola and Sudan alone account for a quarter of China’s oil imports and are by far China’s largest African trading partners. China’s rapid growth also demands other natural resources such as timber, copper, iron ore, platinum, and numerous other minerals. This increased demand has raised the prices of these resources, benefiting industries in Africa. However, many Chinese projects to extract these resources employ Chinese citizens instead of locals, so the economic impact can be limited. In Chinese-financed mining operations where Africans are employed, conditions are often dangerous. For example, 51 Zambian workers were killed in a mine blast in 2005. The subsequent outrage over this incident and others went largely ignored by Chinese firms that are not used to dealing with protests from labor groups back home. Overall, Sino-African trade has increased in value from $3 billion in 1995 to over $50 billion last year. Of the $15 billion invested in Africa in 2004, China invested $900 million, mostly in oil-related projects. China also sees in Africa a potential new market for its manufactured goods. This is an example of one of the potentially negative aspects of Sino-African relations. As African countries struggle to develop, mature Chinese firms have saturated the markets in many of these countries with cheap manufactured goods. As a result, indigenous African industries have difficulty competing. In Lesotho, ten clothing factories closed in 2005 and elimi-

nated 10,000 jobs because of the influx of cheap Chinese goods. Furthermore, cheaper Chinese exports to the United States are replacing similarly priced African imports. Apart from economic interests, China’s investment in Africa provides a political advantage as well. One of the fundamentals of friendship with China is the recognition of the One-China policy, meaning that Taiwan is not a sovereign government and is still a part of the People’s Republic of China. Forty-eight African states have so far signed on to support this policy, and in return China has been more than willing to spend money for investment in these countries. China’s image as a developing country also gives it special credibility as an equal partner with similar goals of economic development. In addition to garnering support for its One-China policy, China is amassing a broader reserve of political support on the African continent. African states see in China a partner willing to treat them equally. Chinese investment China’s rising influence in Africa may conflict does not carry the with American economic, humanitarian, and same stigma as aid political interests. The United States may and investment from find itself wondering how China has secured many Western counnumerous natural resources and how so many tries, often former colonial powers that African states are no longer fully dependent impose restrictions on the West’s conditional aid. on aid. According to Chinese Deputy Foreign Minister Zhou Wenzhong, “Business is business. We try to separate politics from business.” Such an attitude brings comfort to African leaders who lack international support, such as Robert Mugabe of Zimbabwe and Omar al-Bashir of Sudan. Buttressed by capital from China, such leaders are now better able to defy Western demands and sanctions. China also supports these countries militarily, even selling Sudan the Chinese helicopter gunships that it has employed to wage genocide in Darfur. China’s investment has already shown the potential for strong negative consequences. Undermining the World Bank and the International Monetary Fund’s attempts to improve transparency in Angola, China lent $2 billion to the country, virtually freeing it from Western financial assistance. This loan secured China’s access to oil in the country. On the other hand, this money will be crucial in helping Angola rebuild after years of civil war. China’s rising influence in Africa may conflict with American economic, humanitarian, and political interests. The United States may find itself wondering how China has secured numerous natural resources and how so many African states are no longer fully dependent on the West’s conditional aid. The United States must develop a policy to stay competitive in Africa, and can learn some lessons from China’s success. For example, much of China’s investment is in infrastructure (roads, bridges, railroads, agriculture, pipelines, and factories), whereas U.S. investment tends to focus on health or education. It appears that establishing a basic infrastructure through “bricks and mortar” investment may be able to

spark improvement in other areas and lead to greater economic development. The United States must not waste time in shaping the position it will take in conjunction with Africa’s new role in the 21st century. President Clinton took a first step by signing the African Growth and Opportunity Act (AGOA) into law in May 2000, providing preferential trade incentives to eligible Sub-Saharan African countries. Overall trade between AGOA countries and the United States has increased since 2000, but AGOA has endured heavy criticism for favoring U.S. interests. Indeed, the Act provides little room for Africa’s agricultural exports to grow, a necessary step to enable further economic growth on the agrarian continent. Petroleum still dominates the terms of U.S.-African trade and favors select oil-producing countries, namely Gabon and Nigeria. It is unclear whether AGOA is responsible for the overall increase in trade or if the rising demand for petroleum would have led to an increase anyway. Another potential problem is that it may prove difficult for American firms to compete with Chinese state-owned enterprises (SOEs), because these SOEs are often willing to bid low on contracts in order to secure long-term benefits – not only for the firms but for China as a whole. Private American firms may not be able to incur such initial costs with a focus on such long-term profit. Thus it will be crucial to focus on developing fair and transparent competition in Africa. To avoid losing its strategic foothold in Africa, America must adopt a policy of humble engagement focused on long-term goals. This includes strengthening AGOA, reforming unfair trade policies that disadvantage African economies, aggressively engaging African countries diplomatically, and pressuring China to promote human rights and good governance. A Long-Term Vision for Success China’s African policy presents several key challenges to United States interests. The nature of state-owned Chinese firms versus private Western firms provides a significant hindrance to competitive, balanced, and fair development in Africa. Many of China’s practices may undermine advances in good governance, human rights, and transparency by supporting corrupt or oppressive regimes. The United States can moderate these challenges if it enacts several key policies. The first step in aligning American economic interests with African interests should be to reevaluate and strengthen AGOA, which has now been extended through 2015. The United States should focus more on the agricultural sector in Africa by providing more direct aid to agricultural development, which would benefit more Africans than the development of oil fields or mineral mines. Indeed, focusing direct aid on long-term investment, including infrastructure, will greatly enhance the effectiveness of American aid dollars and publicizing these projects will improve goodwill towards the United States. Finally, the United States should eliminate the heavy subsidies on American agricultural products that are a frequent source of diplomatic friction with African countries. Opening the U.S. market to African agricultural products is one of the single most important actions it could take.

High tariffs on U.S. imports have discouraged African agriculture from gaining traction and developing. Removing these tariffs, as President Bush has indicated he is willing to do, will strongly influence the E.U., Brazil, and India to do the same. Improving the U.S. image along with diplomatic relations will greatly enhance U.S. economic prospects in Africa. The United States should aggressively engage in diplomacy with states all over Africa. This can be accomplished in several ways. The creation of a position for a full ambassador to the African Union in the fall of 2006 is an excellent way to ensure that U.S. interests are being promoted. This improves America’s image in African states, especially as the U.S. was the first non-African country to establish such high-level diplomatic representation at the A.U. Additionally, the U.S. military recently established the U.S. Africa Command, bringing the U.S. military in Africa under a single command instead of three separate ones as it was organized previously. These actions indicate the U.S. government recognizes Africa’s growing importance, but additional diplomatic efforts are necessary to successfully counter China’s influence. High-ranking U.S. officials should take a page from the Chinese playbook and make high-profile visits to support U.S. policies. American officials will see how such visits attract a great deal of local media attention. Chinese officials have visited the continent numerous times over the past few years, showing Africans their interest and willingness to work in partnership with African governments and firms. The China-Africa Cooperation Forum has been very effective in bringing governments and businesses together. The United States must now catch up. There is a provision in AGOA for a yearly forum between high-level U.S. and African officials. The U.S. must broaden the scope of this forum and bring in not only governmental representatives, but businesses from Africa and the United States to highlight alternative investors. Such a setting will provide a suitable environment for dialogue and dealmaking. The conference should address issues of trade policy, China’s new role in Africa, and the U.S. role as an investor concerned with developing better governments and a better environment for human rights. AGOA-eligible countries are the only ones involved in these talks, but the United States should use this forum as a launching pad for additional talks with other countries and organizations in the region to move towards free trade agreements, including trade blocks like the Economic Community of West African States, East African Community, and the Southern African Customs Union. In contrast with AGOA, the United States will not unilaterally determine the provisions for free trade agreements. Multilateral talks toward free trade will ensure a stronger African voice in the world’s economic future. These more serious steps will not only open Africa up to business alternatives to China, but will encourage U.S. businesses to make more long term investments, which China’s SOEs are already doing. Strengthening AGOA and negotiating permanent free trade agreements will provide more stability for firms to invest in Africa. The U.S. government should provide an additional incentive for firms willing to invest in African infra-

structure, including the agricultural, transportation, and communication sectors, in the form of tax breaks. This could help American businesses compete more fairly with China’s SOEs. China’s disinterest in human rights must not be overlooked. The U.S. should not let China’s rising power status come without responsibly for promoting human rights. It is commendable that China has been so willing to engage with so many parties, but it should hesitate before engaging and supporting regimes with horrific human rights records, such as Sudan and Zimbabwe. China has repeatedly threatened to use its veto power on the United Nations Security Council to block action against Sudan. The United States’ first actions should be made personally, one-onone with other African states and pan-African organizations. The United States can accomplish some of the most fundamental moves, such as increasing diplomacy or reforming trade practices, relatively independently and quickly. Later, the United States and other countries can participate in the further liberalization of trade through the WTO, including eliminating more agricultural tariffs. International organizations such as the International Monetary Fund or the World Bank should not be the first channel through which the United States attempts to improve its African relations. The IMF and World Bank have bred resentment in African countries for allegedly catering to Western countries and doing little to move Africans away from poverty. In a time when Africa finds Chinese investment attractive largely because of its refusal to meddle in internal affairs, the U.S. should do everything possible to avoid appearing as a neocolonial power disinterested in equal discourse. Therefore, the most fundamental progress towards balancing China’s power in the region must come directly and quickly from the United States. Conclusions These steps, taken as quickly as possible, will help maintain U.S. influence in Africa, which is crucial for promoting the development of governments, human rights, and strong economies. China’s entry into Africa will challenge American interests, but it will also provide an unusual catalyst for the world to recognize Africa’s undeniable importance. Chinese investment is a good development, as long as the United States realizes it must do its part to balance and shape the changing dynamics of Africa’s relations with the rest of the world. Sources Baldauf, Scott. “Chinese Leader’s Almost Triumphant Trip to Africa.” Christian Science Monitor. 9 Feb 2007 . “China’s African Policy.” 12 Jan 2006. Ministry of Foreign Affairs, People’s Republic of China. 4 Nov 2006 . “Chinese leader boosts Sudan ties.” BBC News. 2 Feb 2007. . Ford, Peter. “China Woos African Trade.” Christian Science Monitor. 3 Nov 2006 .

French, Howard W. “China in Africa: All Trade, With No Political Baggage.” New York Times. 8 Aug 2004. Fuzhan, Xie. “The National Economy Maintained a Steady and Fast Growth in 2007.” National Bureau of Statistics of China. 24 Jan 2008. Kahn, Joseph. “China Courts Africa, Angling for Strategic Gain.” New York Times. 3 Nov 2006 . Lyman, Princeton N. “China’s Rising Role in Africa.” US-China Commission. 21 July 2005. Lyman, Princeton N., and J. Stephen Morrison. More than Humanitarianism: A Strategic U.S. Approach Toward Africa. New York: Council on Foreign Relations, Inc., 2006. “Never too late to scramble.” The Economist. 28 October 2006. Vol. 381, 8501: 53-56 . Pan, Esther. “China, Africa, and Oil.” Council on Foreign Relations. 15 Nov 2006 .

Dutch Disease in Africa: A Case Study of Nigeria and Chad Jason Gould and Katen N. Kapadia - University of Michigan

Originally coined in 1977 by The Economist, the term Dutch disease refers to the decline in the manufacturing sector of the Netherlands due to the discovery and exploitation of natural gas deposits in the 1960s. Now it is often used to refer to the detrimental effects of the discovery of any valuable natural resource that causes declines in other sectors of a nation’s economy. Generally, Dutch disease affects the economy of a country in two ways: first by causing a resource movement effect from one sector of the economy to another, and second, by inducing a spending effect that appreciates the real exchange rate of the country’s currency. In Africa, there is a looming threat of Dutch disease due to the substantial natural resource wealth of many of its regions. Nigeria began extracting oil in the late 1950s and since then the oil industry has dominated the economy and given it much needed boosts. However, price shocks in oil and recessions have severely damaged its economy, leaving it at the mercy of the market. Now Chad has begun the extraction of oil as well, and needs to take careful measures to prevent against Dutch disease due to poor planning for the use of its oil revenues. Policies must be made in both Nigeria and Chad to successfully support the exploitation of their oil while simultaneously boosting other sectors of their economies as well. Throughout this paper we will analyze the factors that can lead to or have led to Dutch disease in Nigeria and Chad. This will be accomplished in three parts: the first part will explore and explain the theory behind Dutch disease; the second and third parts will look at the impact of economic policies regarding oil in Nigeria and Chad, respectively. An Introduction to Dutch Disease The resource movement effect is a shift of factors of production from non-booming sectors to booming sectors. This tends to include capital, as investments in the booming sector are immediately lucrative, as well as labor, which is better compensated in the booming sector as a result of higher demand. The transfer of capital and labor can have profound effects on the sectors that lost these resources, causing them to decline, and in many cases, fail outright. As the cost of production factors escalates due to the effect of resource movement, those sectors competing for affected resources, especially the manufacturing sector, tend to lose their competitive edge. The second and ultimately more potentially hazardous effect is the spending effect. The spending effect causes an increase in spending in non-tradable goods, usually construction. The increased demand then serves to increase the price. However, the price for these goods is often set internationally, preventing such an increase. This results in an increase

in the country’s real exchange rate, and renders the lagging, non-boom sectors even less competitive. Often in poorer countries, these non-boom sectors include agriculture. The combination of these two effects poses dire consequences for the countries faced with Dutch disease. When the source of the exploited natural resource depletes or the value declines internationally, the country is left without a booming sector and with its remaining economy weakened. Since most of the investments over the course of the booming sector’s duration have been in non-tradable goods, these investments become essentially worthless. In poorer countries, this can often mean a severe decline in agriculture, which may comprise the employment opportunities. The afflicted country has now become worse off than before the resource had been discovered. However, several countries have successfully combated Dutch disease. The most common approach to protecting against it has been to save the windfalls from resource exploitation to generate a steady source of revenue over time, and reinvest into things such as infrastructure, education, and the manufacturing sector, as well as in the rural sector for poorer countries. By investing in this way, countries are investing in their own future competitiveness. Countries such as Norway, with its Petroleum Fund, and Chile, with its stabilization policies, have demonstrated success in countering Dutch disease. It is important for all countries faced with the looming threat of Dutch disease to take similar steps in protecting against it. In addition to the threat of Dutch disease are the more common risks of corruption and policies that are overly protective of lagging sectors. These occurrences tend to fall under the broader spectrum of the resource curse. It is important for countries abundant in natural resources to be aware of these equally dangerous problems, as they can cripple already unstable economies. Hence, the need for groups who invest in these countries to ensure the intelligent use of government revenues through contracts and for independent watchdog groups to pay close attention to them. The Case of Nigeria: Economic Mismanagement from the 70s, an Overview As the economic situation in Nigeria is analyzed it is important to recognize the political and historical context. Until recently, Nigeria’s government consisted of several successive military juntas dating back to the 1970s. During that time, Nigeria was plagued with violence and civil wars. The turbulence of this era led to a mismanagement of oil revenues that can be characterized as a severe form of Dutch disease. Although many were optimistic about the discovery of oil, it ultimately fueled ethnic tensions that peaked in the mid to late 60’s, culminating in civil war. Upon the end of the war, military rule was solidified and oil became the most important factor in the country’s recovery. By the 1970’s, Nigeria was a world leader in oil production with a “centralized, state dominated economy.” Government control of the oil industry only became

stronger as the world experienced an oil shock that caused a steep rise in oil prices, starting in 1973. High oil revenues led the government to ignore traditionally strong sectors in favor of the oil industry. The end results was that Nigeria’s traditionally strong agricultural sector shrank from 62.9% of GDP in 1960 to a low of 20.6% in 1980, while the oil sector grew from .2% to 29.1% in the same years (see figure 1). The growth from the oil industry, however, was short-lived (see figure 2), as the oil boom subsided in the 1980s. Figure 1: Sectoral Share of Economy

Source: Fidel Ezeala-Harrison, 1993 Figure 2: Real GDP Growth Rates: Nigeria 1966-1986

Source: Penn World Tables, 2006

With a decline in oil prices and revenue, debt rose sharply throughout the 80s (see figure 3). Unable to deal with its fiscal and economic problems, the government, with the help of the International Monetary Fund, instituted a Structural Adjustment Program (SAP) in 1986. The SAP began liberalizing the economy through measures such as tariff reductions, de-regulation of agricultural prices, and the liquidation and sale of state-owned companies. As a result, fuel prices and exports began to rise. However, by 1992 all IMF agreements had ended, and Nigeria revert-

ed back to a downward spiral. Figure 3: Total External Debt (US$ Billions)

Source: World Development Indicators, The World Bank, 2007

During the political chaos of 1993, General Sani Abacha assumed control of Nigeria. Under his rule most democratic institutions were dismantled and the regime became increasingly brutal, relying on arrests, detentions, and executions to exert control. At the same time, corruption and mismanagement of the economy were rampant. Some scholars attribute Abacha and a “…narrow circle of cronies…” as the “…central source of economic deterioration…” The deterioration of industry coupled with the rise of an “illicit” economy marked the end of economic reforms. Dutch Disease in Recent Years In 1999, military rule in Nigeria formally ended, and a democratic, civilian rule of the country began. Since then, Nigeria has faced a number of challenges, including a heavy reliance upon the oil industry at the expense of other sectors, an aging infrastructure, and regional conflict. These factors threaten to undermine the potential growth of the Nigerian economy and could fuel a second outbreak of Dutch disease. As discussed earlier, the oil boom of the 70s led the country to neglect its other industries. The dominance of the oil industry still holds in more recent times with oil exports accounting for 90% of total exports and 70-80% of government revenue. While there has been a renewed focus on non-oil sectors since 1999, Nigeria still hopes to expand its oil reserves by an additional 40 billion barrels by 2010. If oil exports disproportionately continue to account for economic growth, it could cause the Naira, Nigeria’s currency, to appreciate which would lead to a higher demand for non-tradable goods and the reduced competitiveness of other domestic industries. On the other hand, Nigeria’s agricultural sector has strong potential. However, growth in this sector remains constrained as oil continues to dominant the economy and agricultural productivity continues to be low. Several programs have been implemented to attempt to improve Nigeria’s agricultural sector, and in 2006 agriculture accounted for about 40% of GDP. This renewed focus on agriculture is important to resisting a typical

destruction of non-oil sectors by Dutch disease. In order to boost the effectiveness of non-oil sectors and for that matter the oil sector, Nigeria’s infrastructure must be improved. According to a World Bank report, over two-thirds of Nigeria’s population reside in rural areas where infrastructural services such as water, energy, and telecom come at a relatively high cost compared to more urbanized locations. Over 100 million people do not have access to electricity and only 40% of the population has access to safe drinking water. Telecom services are more available in urban areas, but are virtually non-existent in poor and rural areas. Another significant infrastructure dilemma is the nation’s transportation system. The reduced federal oil revenues in the 80s led to a lack of maintenance and capacity building, which left roads and railroads in a state of disrepair. These infrastructural problems represent a significant barrier to investment, as they increase the cost of doing business, as well as slowing productivity. Nigeria’s infrastructure must be modernized to allow for growth in non-oil and oil sectors alike. As previously mentioned, regional and ethnic conflict have played a large role in stifling development in Nigeria’s economy. Violence still persists in the region and the government has had to use the military often “…to quell the unrest.” In fact, approximately 50,000 people have been killed in regional conflicts since the return to civilian rule. Regional conflicts and violence threaten to push prices, particularly oil prices, higher. The political chaos in the 90s during General Abacha’s autocratic regime was particularly damaging to the Nigerian economy. If the violence persists, Nigeria’s risks a similar era of corruption and economic turmoil. Since the return to civilian rule in 1999, Nigeria has been at a crossroads in terms of development. Currently, the government has pledged to make several improvements, including the development of energy infrastructure, improvement of agricultural performance, improvement of transportation infrastructure, and improvement of security throughout the country. If these goals are met, Nigeria faces new prospects for stable growth prospects. But if the government fails to implement these goals, Nigeria could enter the next decade with a turbulent economy reminiscent of the 80s and 90s. To protect against this possibility, independent international organizations should monitor and collaborate with Nigeria. By preventing further corruption, Nigeria can use its resource wealth to maintain positive economic gains for years to come. The Case of Chad: Potential for Dutch Disease Chad now finds itself in a situation resembling the beginnings of Dutch disease in Nigeria. Like Nigeria, Chad is a country that has been involved in ceaseless fighting and has only showed some political stability quite recently. It is a subsistent agricultural economy with little manufacturing, high poverty rates, and has been ravaged by fighting, not only internally, but also on its eastern border with Darfur. Yet now, having the opportunity to exploit its natural resource wealth, Chad is looking to sell its oil reserves for immense profits. It is a chance for Chad to gain more political stability, lessen poverty, and kick start a lagging industrial sector.

However, steps must be taken to prevent Chad from falling into the same trap that Nigeria fell into, like the Netherlands before them. Chad has long known about its natural resource wealth, but until recently has been unable to exploit it. Following three decades of civil warfare lasting until the 1990s, and constant political uprisings ever since, Chad is thus far poorly developed, ranking 170th out of 177 developed countries according to the Human Development Report. The infant mortality rate is at a staggering 12.4% and the real GDP per capita is under 1,500 U.S.-adjusted dollars. With crude oil reaching over $100 per barrel, there are great incentives to invest in the extraction of its reserves. The recently-established political stability under President Idriss Deby has provided Chad with an opportunity to begin exporting its massive reserves of oil, estimated at around 1.5 billion barrels. In late 2000, the World Bank began financing a vast and expensive oil project in the southwestern Doba region of Chad, which included the construction of a 640-mile, $3.7 billion pipeline through neighboring Cameroon. This extensive project is expected to produce over 1 billion barrels of oil over twentyfive years. With so much at stake, the potential for disaster is that much greater. The dangers facing Chad are numerous, and the World Bank is aware of this. When chartering an agreement to export the oil reserves from Chad, it took care to arrange a contract that would preserve the earned windfall revenues. Specifically, 70% of Chad’s annual revenues will go toward infrastructure, education, health, and rural development. This agreement reflects some of the more successful policies that countries like Norway and Chile have followed. By transferring revenue into non-oil industries and infrastructure, the government can help prevent the deindustrialization of manufacturing sectors in its economy. However, an appreciation in the value of currency could still become a detrimental factor for exports. Fortunately for Chad, most of their industries produce only goods sold internally, and are not actually exported to the international market. Hopefully any moderate decrease in firms’ competitiveness will not hurt their industries too much. Another potential concern is that of corruption in Chad. President Deby won what many consider to have been a questionably fair election. In 2005, Transparency International’s Corruptions Perceptions Index rated Chad as the most corrupt country of those surveyed, with a score of 1.7 out of 10 (lower being more corrupt). This begs the question of what measures are being put in place to prevent corrupt officials from taking advantage of Chad’s lucrative oil situation. Competing military forces in the region will most certainly want to claim 2008’s expected $1.5 billion in profits for themselves. President Deby has already had to break contracts with the World Bank to pull funds for defense spending. The World Bank was forced to freeze accounts held in London in order to prevent the complete draining of designated funds. At the moment, Deby and the World Bank have reached an interim agreement, but how long the World Bank will be able to prevent further access to the funds is subject to debate. Thus, it is important that

all agreements are strictly adhered to and observed by independent watchdog groups, particularly because Chad’s economy is already unstable and susceptible to corruption. Despite all these threats to Chad’s success, the oil project may be its best shot at escaping a systematically low grossing domestic product (GDP). As shown in figure 4, Chad’s GDP remained relatively low and stable at around $1 billion U.S. until 2000 when investment in the ChadCameroon oil pipeline began. Figure 4: Gross Domestic Product of Chad

Source: World Development Indicators, The World Bank, 2007

Over 80% of Chad’s population consistently remains below the poverty line. Although massive inflows of money can often lead to Dutch disease, many such as Rodenstein-Rodan or Murphy, Shleifer, and Vishny argue that countries in poverty need these large inflows of capital to escape the constant subsistence levels, similar to those seen in Chad. Though neither side’s argument is conclusive, Figure 2, which shows GDP growth over time versus foreign direct investment, suggests an influence by foreign direct investment on GDP growth. Figure 5: Dependence of GDP Growth on Foreign Direct Investment

Source: World Development Indicators, The World Bank, 2007

This would seem to make the argument for massive amounts of capital to escape poverty traps more credible, if the relation holds. In Chad’s situation, however, this would require more sustained investment

over a lengthier period of time. Hopefully, the 25-year oil extraction project will provide just such an opportunity. Chad has been presented with a golden opportunity. It has the potential to be boosted out of a state of continuous poverty through tactical investment of revenues received from selling its oil reserves. In order to combat the menace of instability, Chad must invest these revenues in infrastructure, education, health, and the other industrial sectors as well as agriculture. By forcing Chad to invest 70% of its revenues in these areas in order to reduce poverty, the World Bank has made it possible to prevent Dutch disease before it starts. Although some of its effects will be felt in other sectors due to a loss of competitiveness in world markets, the benefits gained from the intelligent use of oil revenues will surely outweigh its negative effects. However, it is of the utmost importance that the World Bank strictly continues to enforce these conditions on Chad, and that independent watchdog groups routinely check for corruption. If Chad reneges on its promises to the World Bank, the outcome could be similar to that of Nigeria—an economy that suffered severe losses when oil prices fell. Yet Chad stands to gain greatly if it follows the tried and true methods of Norway and Chile, two countries that saw massive gains from well-governed saving and investment policies. It is necessary for Chad to follow suit with its own policies. With careful control and guidance, Chad should have the tools and knowledge to prevent another case of Dutch disease. Conclusion Sub-Saharan Africa is generally considered the poorest and most corrupt region in the world. In order to improve the region’s socioeconomic conditions, economists must take a look at the policies that fueled success as well as those that have led to disaster. By comparing Nigeria and Chad, the former being afflicted with Dutch disease, and the latter a country that has recently begun exploiting oil; one can see some steps that must be taken to prevent further Dutch disease in Africa. By failing to invest properly, these countries tend to turn resource boons into curses. Often in the case of Africa, issues include security, poor infrastructure, sensitivity to the market, corruption, and deleterious effects on their agricultural sectors, and it is important that revenues gained from oil be reinvested into reversing these trends. First of all, global investors such as the World Bank and International Monetary Fund must force these countries to invest revenues in infrastructure, agriculture, health, and education. Secondly, steps must be taken to ensure that these contracts are strictly adhered to, including allowing independent watchdog groups that would help to weed out corruption. Finally, much of the windfall from oil sales must be saved in case of economic downturns or decreases in commodity prices. These conditions, if followed appropriately, could help prevent further Dutch disease in SubSaharan Africa. Sources

Blustein, Paul “Chad, World Bank Settle Disputes Over Oil Money,” Washington Post, July 15, 2006. Cauas, Jorge “Stabilization Policy—The Chilean Case,” The Journal of Political Economy, (1970) vol. 78, pp. 824-825. “The Dutch Disease,” Nov. 26, 1977, The Economist, pp. 82-83. “Country Profile 2008: Nigeria,” Economist Intelligence Unit 4-6 Energy Information Administration, Chad and Cameroon, U.S. Government, (2007), < http://www.eia.doe.gov/emeu/cabs/Chad_Cameroon/Oil.html> Ezeala-Harrison, Fidel “Structural Re-Adjustment in Nigeria: Diagnosis of a Severe Dutch Disease Syndrome,” American Journal of Economics and Sociology. Vol. 52, No. 2. (Apr., 1993) 193-208. The Food and Agriculture Organization, Chad, United Nations, (March 25, 2008) Garber, David S., “Oil, Dutch Disease, and Development: The Case of Chad,” (August, 2004) pp. 1, Genova, Ann and Toyin Falola, “Oil in Nigeria: A Bibliographical Reconnaissance,” History in Africa. Vol. 30 (2003) 135 Harper, Elizabeth “Nigeria’s Oil Industry: A Cursed Blessing?” PBS The Online News Hour. July 2003. < http://www.pbs.org/newshour/bb/africa/nigeria/oil.html> Human Development Reports, Human Development Index Rankings, United Nations (2007/2008), (March 28, 2008). Human Development Reports, The Human Development Index: Fact Sheet, United Nations, (2005), (March 28, 2008). Levy, Stephanie “Public Investment to Reverse Dutch Disease: The Case of Chad,” International Policy Food Research Institute, (June 2006), pp. 9 (http://www.jstor.org). Lewis, Peter “Nigeria’s Economy: Opportunity and Challenge,” Issue: A Journal of Opinion. Vol. 27, No. 1, Transition in Nigeria?. (1999) 50 Commodity Prices, MSN Money, (April 5, 2008). Martin, J. Paul “Chad Cameroon Oil Pipeline Project,” (March 28, 2008). Murphy K., Shleifer A., and Vishny R.W., “Industrialization and the Big Push,” Journal of Political Economy, (1989) vol. 97. Ronneberg, Kristoffer “Close to a Trillion,” Norway Official Site in the U.K., (2004), (March 28, 2008). Rosenstein-Rodan P., “Problems of Industrialization of Eastern and South-Eastern Europe,” Economic Journal, (1943) pp. 202-211. Shapley, Dan “Attack on Nigerian Oil May Be Imminent,” The Daily Green, January 15, 2008 “Corruption Perceptions Index,” Transparency International, (2005) “Nigeria: Expanding Access to Rural Infrastructure Issues and Options for Rural Electrification, Water Supply and Telecommunications,” The World Bank, 2005 1 The World Factbook: Chad, Central Intelligence Agency, (2008), (March 15, 2008).

Structural Adjustment Policies and Stability in Sub-Saharan Africa: Moving Forward Valerie Bieberich - University of Michigan Special thanks to the Tokyo team headed by Masuimi Kawade

Since their implementation in the 1980s and 1990s, Washington Consensus Policies employed by the International Monetary Fund (IMF) and the World Bank (WB) have been the subject of much debate. The majority of academies and policy makers seem to agree on one thing: that the strict implementation of structural adjustment programs (SAPs), such as trade liberalization, privatization, labor deregulation, and austerity policies, in Sub-Saharan Africa have not led to promised economic growth. Even prominent former World Bank employees Joseph Stiglitz and William Easterly, have taken a stand agaaainst the inflexibility and culturally insensitive implementation of SAPs. In Africa, SAPs have been particularly ineffective and, in some cases, have negatively impacted the region today. Sub-Saharan Africa remains one of the least developed regions of the world with a life expectancy of 47 years, the highest prevalence rates of HIV, and, in 2004, over 40 percent of the population living on less than $1 a day. However, the news is not all bad. The region does surpass other developing areas in some economic indicators, and in 2007, real GDP growth across Africa improved to about 6.5 percent, which is much better than in recent years. On average, inflation has also been held down, and “income volatility has fallen to near-30-year lows.” SAPs have not improved the state of most African nations and greater compliance will not yield better results. One potential solution is to invest in human capital, infrastructure, and a creation of business-friendly conditions to increase economic growth and hopefully, quality of life. The Instability of SAPs Not only have the overly rigid and expansive reforms urged by the IMF and WB failed to produce the expected growth and stability, in many areas, widespread anger over the economic downturn and resulting hardships necessarily associated with these policies in the short-term caused rioting and general unrest. In January of 2005, the IMF increased the value of added tax in Niger; which taxes the seller at each stage of production. In March of that year, many people impoverished by the tax organized a massive social mobilization. This forced the government to halt the tax increase on milk, flour, and water and electricity for the majority of the public. IMF urgings for the implementation of SAPs in Nigeria, provoked riots in 2000 against these policies and the then newly-elected president who continued them. Many people were hurt economically by privatization, subsequent price hikes and austerity policies. These actions diverted money from social services to the repayment of the country’s debt and often amassed from IMF and

WB loans. Prior to the start of reforms, Mali’s government owned 60 percent of the cotton industry, which was one of the country’s highest grossing exports and a provider of many public services. However, in 1999 and 2000, peasants, unhappy with questionable management and extremely low prices received for harvesting of the cotton, revolted. In 2001, under some pressure from the World Bank, privatization of cotton and other large industries took place faster than previously planned. The way in which this privatization was managed, especially in its speed, disregarded the important role that the cotton industry played in many people’s daily lives. This lead to considerable unrest and the disruption of transportation of aid, fertilizer, and water and electricity services. Compliance and Conflict A important relationship exists between compliance and stability. Noorbakhsh and Paloni have put together a grouping of African countries by their level of compliance: Figure 1: Country typology by the level of compliance

Note: For further explanation see appendix.

The number of countries with serious conflicts increases with lower levels of compliance , as it is obviously harder to comply with these regulations in a state of warfare or other disruptive violence. These conflicts often involve disturbance of governmental control, and turnover of administrations, which may or may not be friendly to the IMF or WB and their chosen policies. This paper will focus on Mali, Mozambique, and Sierra Leone as examples of good compliers, Cote d’Ivoire, Niger, and Senegal as examples of weak compliers, and Nigeria, Rwanda, and Soma-

lia as examples of poor compliers. With the exception of Somalia, these countries were chosen because all have had substantial conflicts that have been more or less resolved. Somalia is still embroiled in internal conflict, making it a slightly different case. Other countries in the chosen group had shorter struggles that may not have been considered full-blown wars, but are in the group because their conflicts were caused by economic instability or poverty. When a few key economic indicators for the different compliances are compared, there does not seem to be any sizeable benefit to following the SAPs for countries that have experienced recent upheaval: Figure 2: GDP per capita, current prices, US dollars, across compliance levels.

Source: "Facts and Figures from World Development Indicators 2007." World Development Indicators. 2007. Note: Much of the success of poor complier GDP is attributable to Somalia

Figure 3: Inflation rate (annual % change), average consumer prices, across compliance levels.

Source: "Facts and Figures from World Development Indicators 2007." World Development Indicators. 2007. Note: The poor compliers average does not include Somalia, for which sufficient information was not available.

These graphs illustrate the 15 years since SAP implementation in various countries. The data for each country was then averaged by level of compliance. Good compliers appear to have the lowest average GDP

per capita, with weak compliers faring the best and poor compliers in the middle. Weak compliers have the lowest and most stable inflation rates. Each of these countries was affected by considerable internal conflict. Even if these policies did have some positive effect on the countries that followed them, the question remains if the affected areas could withstand the slow-down or even reverse in economic growth that necessarily accompanies these policies. These already impoverished and unstable regions are those least able to recover from a setback, especially when in competition with more attractive and profitable markets. The structural adjustment programs have not brought any large measure The structural adjustment proof prosperity to the compliant grams have not brought any large countries with some measure of measure of prosperity to the conflict, as seen when compared compliant countries with some to similar countries of weak and measure of conflict. poor compliance. These reforms should not have been expected to achieve the remarkable results predicted by their supporters, including the WB and IMF, when the most basic elements of a stable economic foundation were missing: education, infrastructure, in terms of water and electricity, good business conditions, a strong legal system, a stabilized exchange rate, and the careful implementation of Export Processing Zones (EPZs), which will be explained later. Human Capital Education and basic health are two major components needed for a country to In order for people to work and add to a country’s GDP, they must be fed, hthy, and have a sufficient educational background to prepare them to make a living. These elements are so essential to any sort of growth that a government is obliged, in the interest of future prosperity, to ensure they are provided at a scale and quality sufficient to the people’s needs. Healthier workers have increased productivity and higher levels of education, because they are more able to regularly attend school, and invest more due to their own greater longevity and subsequent ability to reap the benefits of their long-term investments. All of these factors establish health as a necessity for stable economic growth, because it increases life expectancy, lowers mortality, and birth rates. This allows more resources to be shifted to economic growth. However, more than just a healthy population is necessary to build a thriving economy for the long term. The people of a nation must also be educated to the extent that they are competitive and valuable workers upon which to build a viable economy. When looking at the rates of gross enrollment in primary and secondary schools for the chosen countries that have experienced recent conflict, there are a few that stand out. As of 2005, Mozambique, Sierra Leone, and Rwanda have primary school enrollment rates over 100 percent; meaning that students older than the expected age group for these grades are going back to school. In each of these nations, the govern-

ment, aided by non-governmental organizations, has made a concerted effort to improve the educational situation. Mozambique has greatly expanded its educational facilities, both in their quantity and geographic dispersion. Although in many places more formally trained teachers are needed. Yet, there remains a large disparity in access to education, especially by gender, residence, and poverty. A large amount of children and their families cannot afford the many costs of school, such as uniforms and books. As a result of these inequalities and overcrowding, many children do not complete even their primary school education, and the gross enrollment rate in secondary school is only 13 percent. The education infrastructure of Sierra Leone was ravaged by the civil war, when 70 percent of schools were destroyed or occupied by the Revolutionary United Front (RUF). However, there has been a substantial rebuilding effort to allow children to get at least a free primary school education. After the conflict, many children handicapped during the widespread violence were sent to special schools. These schools are full of students of all ages and serve those who were unable to get an education during the war. However, this means that the class sizes are larger due to these returning students. Education must be made more inclusive, especially taking into account the disabled. The teachers also need to receive more training and are currently not paid enough to make a living. Rwanda has the most developed, if not the best, system of the three countries. The system’s end goal is to have nine free years of basic education, after which students may go on to a technical or higher education facility. There is a special effort to provide the resources necessary for future success, to combat illiteracy and ignorance, and to be more inclusive of all, regardless of gender, geographic location, disability, or place in society. To make progress on these and other education goals, the Rwandan system must reduce the cost of secondary schools, expand the number of facilities and trained teachers, and reduce the currently high rate of grade repetition. Other countries may learn from these examples by first making education a priority, and then expanding the raw number of facilities and supplying them with quality learning tools. Although they do show progress, each of these countries still has a long way to go. They should especially focus on the quality of education provided, which must be able to compete in a globalized economy, and provide the resources necessary to diversify and continue long-term growth. It is also important to remember that children must be able to attend school, which they cannot do in times of social or economic instability. Infrastructure Secure infrastructure for the provision of basic utilities, especially electricity, telecommunications, and water, is necessary for the welfare of business and well-being of the people. This needs to be done in a way that will ensure permanence, with a guarantee of continued service, universality of access, and a shifting of the costs away from the private sector,

where the expenses are often so high as to be prohibitive. In some African nations, the private sector has provided telephone and communication services because of ease of start up and cost effectiveness. Water and electricity providers, however, have not seen the same success. A recent United Nations Development Programme Policy Research Brief focusing on the policy of privatization of basic utilities in Sub-Saharan Africa concluded that the attempt was a failure. Water and electricity were not provided, because no reliable investors were found to fully and consistently finance the project. In order for the development of infrastructure to succeed with private sector involvement, there must be more regulation and a stronger public sector provision of utilities, as well as real competition between government and private business. If this cooperation between the public and private arena does not happen, the increased cost of operation will drive up prices. Consumers will then have to give up more of their income for these basic services, leaving them unable to spend or invest in other areas of the economy. The availability of electricity and water should not be subject to fluctuation and must become more dependable in order for the building of a sustainable economy. The government must prioritize infrastructure and, if necessary, help with its provision, especially aiding those business that play an intrinsic role in this sector. One possibility is that the government could offer a guarantee of last resort, to ensure the debt repayment of domestic companies in case of default, as a safety net. One example of this is the World Bank partial-risk guarantee, which helps to mitigate private risk by working like a loan that must only be repaid by the government if it cannot fulfill its contract. This program has been successfully used by the Cote d’Ivoire and Uganda to find outside financing for the privatization of their infrastructure. The government must put into place accounting measures to hold the private sector responsible for money given for these projects. The infrastructure of certain African nations needs to be enhanced, especially in countries affected by war, which have an extra set of obstacles to overcome. At the same time, it is true that too much political intrusion may have a negative outcome if the government is ineffectual, unstable, or unwisely interferes, helping the wrong people in the wrong way, and not paying attention to market conditions. The biggest problem, however, is that most of these governments do not have the money and are not making enough revenue from within their own country to steadily finance these projects. This is where outside investment must enter to fill in the financing difference. This paragraph is still awkward. Improved Business Conditions Business development and capital investment are the basis of economic growth. If firms cannot start and potential financers choose not to invest in a “unattractive” region, there will not be much economic development. This generally means that local institutions cannot expand. Making an area more “attractive” for doing business is essential for drawing in outside investors. Three important ways this can be done, in addition to improving human resources and infrastructure, are enforcing legal rights,

stabilizing the exchange rate, and the formation of export processing zones (EPZs). The idea of full or partial risk guarantees discussed in relation to infrastructure could, also potentially be applied to the concept of initial investments as another incentive to attract business. The ability to enforce contracts is critical for the formation of business in a country, because it indicates the willingness of the government to implement reform and create a climate more conducive to profitable economic performance. If an investor’s money or property may be taken at any time and the terms of an agreement violated without recompense, the investor is not likely to enter into this situation in the first place and certainly will not put his or her capital at risk a second time. A sound legal system is necessary for commerce exchange to occur, for its profits to reach the people, and for earnings to be re-invested into the area and promote growth. This connection between the ability to enforce contracts and a country’s foreign direct investment as a percentage of its gross domestic product is hard to prove in many Africa countries, because there are so many other factors that come into play. A more appropriate example of this connection would be Hong Kong, Singapore, Thailand, and Malaysia from the East Asian & Pacific area; Chile, Mexico, Panama, Peru, and Colombia from Latin America & the Caribbean, and Hungary and Estonia from Eastern Europe and Central Asia. The results are in Figure 4, below: Figure 4: The ability of enforcing contracts to draw in Foreign Direct Investment (FDI).

Sources: "Facts and Figures from World Development Indicators 2007." World Development Indicators. 2007., DoingBusiness.org Note: Rankings are within region

On this graph within the East Asia region, countries attract more foreign direct investment (FDI) as a percentage of GDP when they have a greater ability to enforce contracts, as measured by the Doingbusiness. org rankings. Estonia draws in a high amount of FDI for its middling ranking, but the country is ranked first in overall ease of doing business for its area, so these other factors that make it easier to do business may make up for its lackluster performance in contract enforcement. Without Estonia, there is a distinct trend following the direction one might expect; countries are more likely to receive foreign investment if they are more

able to enforce the legality of contracts. However, the relationship is not perfect and due to instability in the region Panama and Colombia are not the perfect example. Another factor likely to discourage business is a volatile exchange rate. This is because outside backers cannot be confident in the worth of their money, and subsequently, in the certainty of their gains or losses. These rate fluctuations may also reflect the greater economic instability that puts their investment, and potential profit, at risk. This situation is especially problematic for the sort of business that these countries want to attract. On the other hand, if a government has stabilized their country’s exchange rate, investors will have a greater faith in the worth of their earnings, especially for long-term investment. A flexible, but secure exchange rate shows a willingness on the part of the central authority to work with investors to mitigate their risk by protecting against arbitrary outside interference with the exchange rate, and instead leaving it more relative to real market conditions. This can make it more likely that investors receive a profit, which may then be passed on to It is necessary to address the specific the host country and its situation and economic, social, and inhabitants. political conditions of each country. Export processing There are no blanket solutions. zones (EPZs) create areas with lowered regulations on business, tax holidays, and other incentives to entice investors into the region. These have failed to work in many parts of Africa because they were not outward-looking, lacked the proper incentives and trade policy reforms, included an inefficient bureaucracy, and did not have sufficient infrastructure. Other problems with these zones include mixed effects on the state of welfare and the possibility of the creation of a “race to the bottom.” This happens when many adjacent regions create other EPZs and in the course of their competition, end up with an outcome worse for all involved, especially the workers. However, with the correct incentives and regulation, these zones may increase exports and bring new business to the area. Some necessary precursors for functioning and beneficial EPZs are overall stability and trade reforms, an “attractive” location, governmental support for the promotion of business, and appropriate investment incentives, such as tax-free importation of production inputs, the ability to reap profit, and the existence of supporting infrastructure. One successful example of an EPZ lies in Mauritius, where turning the whole island into an EPZ provided the catalyst necessary to spark economic reform and broad-based development. The Mauritian government offered investors many incentives, including low or no taxes, priority in capital allotment and shipping, and more ease in labor practices. This last should not, however, be advocated for general application. Relaxed labor laws are not a practice that can be safely and ethically applied everywhere. Other advantages in Mauritius were a stable political background, good sea and air connections, established infrastructure, a healthy, trained labor force, effective bureaucracy,

and institutional support. Mauritius undertook other economic reforms as well, such as diversification. All of these policies require some government intervention and regulation in order to correct market failures and maintain a true capitalist market, with fair and plentiful competition. They also require a base set by some central authority, which provides the precursors to the establishment of businesses. Only after these initial conditions are met may the private sector work to bring about economic prosperity. Conclusion The SAPs advocated by the World Bank and International Monetary Fund have not brought about any lasting stability or exceptional growth to countries with a history of conflict. However, private investment brought about by government-sponsored reforms leading to improved business conditions, as well as private and public investment in human capital and infrastructure, have the potential to lead to growth. Greater availability of basic utilities improves health and access to markets and increases human capital. It is necessary to address the specific situation and economic, social, and political conditions of each country. There are no blanket solutions. Voices must be heard from within the regions being affected, not only to learn more about the problems, but to lead to more effective solutions. Even more important than this is to build up the capacity of each region to help themselves, by giving them the information and tools necessary to make their own reforms and reduce their dependence on outside forces which are, after all, outside of their control. Strengthening and empowering local institutions is one of the ways to lead to long-term sustainability. Of course, none of these efforts will have much effect if there is not a basic stability at a nation- and region- wide level. During a civil war or other violent conflict, many basic rights and safeties disappear. Without these, children cannot regularly attend school, businesses cannot function, and much infrastructure is destroyed. But, if the people have gained the ability and the knowledge to act for themselves, they may begin to rebuild in a much shorter time, if only given the resources to do so. Appendix Explanation of the compliance levels: “The first group, Macroeconomic Stabilisation, included measures such as fiscal deficit reduction, control of public expenditure level, increase in fiscal revenues, and exchange rate adjustment. The second group, Public Sector Management, concerned measures such as civil service reforms, public expenditure reforms, public enterprise restructuring and privatisation. The third group, Private Sector Development, included measures such as financial sector reforms, trade policy reforms, pricing policies and incentive and improvements in regulatory environment. Countries were subsequently rated according to their level of compliance with each of these measures from 1 (the highest) to 4 (the lowest); the country’s overall

index for compliance was then the average of the scores for these three dimensions. The final result is the classification of countries into groups of good, weak and poor compliers according to their compliance score.” Sources Basu, Anupam and Srinivasan, Krishna, “Foreign Direct Investment in Africa-Some Case Studies” March 2002. IMF Working Paper No. 02/61 12 Mar. 2008 . Bayliss, Kate, and Terry McKinley. “Privatising Basic Utilities in Sub-Saharan Africa: The MDG Impact.” Policy Reseach Brief No. 3 from the International Poverty Centre. Jan. 2007. United Nations Development Programme. 12 Mar. 2008 . Bloom, David E., and David Canning. “The Health and Wealth of Nations.” Science 287.5456 (18 Feb. 2000): 1207-09. Google Scholar. University of Michigan. 12 Mar. 2008 . Education.” UNICEF Mozambique. UNICEF. 12 Mar. 2008 . “Facts and Figures from World Development Indicators 2007.” World Development Indicators. 2007. World Bank. 12 Mar. 2008 . Gupta, Pankaj, Ranjit Lamech, Farida Mazhar, and Joseph Wright. “Mitigating Regulatory Risk for Distribution Pricatization - The World Bank Partial Risk Guarantee.” Energy & Mining Sector Board Discussion Paper Series: Paper No. 5. Nov. 2002. The World Bank Group. 12 Mar. 2008 . Jerome, Afeikhena. “Infrastructure in Africa: The Record.” Economic Research Papers: No. 46. 1999. African Development Bank. 12 Mar. 2008 . Kinunda-Rutashobya, Lettice. “Exploring the potentialities of export processing free zones (EPZs) for economic development in Africa: lessons from Mauritius.” Emerald Insight: Management Decision 41.3 (2003): 226-32. 12 Mar. 2008 . McDonald, Calvin, and Paulo Drummond. “Africa Growing Rapidly, But Faces Risks.” International Monetary Fund. 28 Feb. 2008. 4 Apr. 2008 . Nellis, John. “Privatization in Africa: What has happened? What is to be done?.” Oct. 2005. Fondazione Eni Enrico Mattei. 12 Mar. 2008 . Noorbakhsh, Farhad, and Alberto Paloni. “Structural Adjustment and Growth in Sub-Saharan Africa: the Importance of Complying with Compatibility.” Economic Development and Cultural Change Apr. 2001: 479-509. Noorbakhsh, Farhad, and Shadan Noorbakhsh. “The Effects of Compliance with Structural Adjustment Programmes on Human Development in sub-Saharan Africa.” . 2006. 12 Mar. 2008 . “Rwanda: Basic Education Indicators.” UNESCO. 12 Mar. 2008 . Sheppard, Robert, Stephan von Klaudy, and Geeta Kumar. “Gridlines: No. 13Financing Infrastructure in Africa: How the region can attract more project finance.” Gridlines: Note No. 13. Sep. 2006. PPIAF, World Bank. 12 Mar. 2008 . “Sierra Leone.” 2008. Education Action International. 12 Mar. 2008 . Toussaint, Eric. “Structural Adjustment and the Washington Consensus: Are the things of the past?.” CADTM. 22 Nov. 2006. 12 Mar. 2008 . Woodroffe, Jessica, and Mark Ellis-Jones. “States of Unrest: Resistance to IMF Policies in Poor Countries.” Global Exchange. 28 Sep. 2000. 12 Mar. 2008
org/campaigns/wbimf/statesOfUnrest.html>. World Bank Education Group. [Data file]. EdStats Online. Retrieved March 2008.

Corruption in Africa Rhea Acuña, Sae Wha Hong, and Deepti Iyer University of Michigan

Corruption is an ongoing problem plaguing postindependence Africa, and the solution is not yet within reach. Wraith and Simpkins describe Africa as “a ‘jungle of nepotism and temptation’, a ‘dangerous and tragic situation’ in which the enthusiasm of the young African civil servant turns to cynicism and where there are ‘not the attitudes of progress and development’.” The problem of corruption in Africa was unavoidable, as modernization tends to result in corruption when traditional values clash with the imported norms accompanying development. After independence, some African countries chose not to follow the market-oriented economic system of their European colonizers because they felt that it would only impede development. However, many researchers argue that the economic systems established after independence have greatly contributed to the rise of corruption and underdevelopment. Corruption is difficult to define and various members of academia have formulated their own definitions. Corruption can be referred to as:

• The misuse of public resources. • The abuse of power due to the attractiveness of personal rewards at the expense of the total welfare of the citizens.

• A problem that includes the “outright theft, embezzlement of funds or •

other appropriation of state property, nepotism and the granting of favors to personal acquaintances, and the abuse of public authority and position to exact payments and privileges. A function that measures the ability and opportunity for public officials to create personal gains and the accountability that these public officials face for his or her decisions.

Corruption is a hindrance to development for many reasons. Primarily, corruption hurts innovative investments. Innovators that are creditconstrained find themselves limited, because they cannot participate in the bribery game. Mauro found that “a one standard deviation improvement in the corruption index (Business international indices on corruption) causes investment to rise by five percent of GDP and the annual rate growth of GDP per capita to rise by half a percentage point.” Corruption can also render aid ineffective by diverting aid flows away from intended projects. Easterly gives the example of Zambia, which has continuously received aid in order to promote economic development. If the aid were used for productive investments, incomes in Zambia should have been greater than $20,000 per head. However, the per capita income is still less than $500. It is presumable that the misuse of aid due to corruption is at least part of the reason that aid in Zambia did not effectively stimulate growth. This paper will examine corruption, defined as “the misuse of

public power for private benefit” by Transparency International, within the least corrupt countries of sub-Saharan Africa. The “misuse of public power for private benefit” can be characterized by “bribing officials, kickbacks in public procurement, or embezzlement of public funds.” Specifically, we will study the relationship between three aspects of good governance-political stability, rule of law, and voice and accountability - and corruption. As discussed above, corruption is an impediment to economic growth, and a viable solution is needed for Africa to successfully develop and escape poverty. To formulate a sound proposal, we decided to frame our observations within the countries that have experienced success in combating corruption, so the other countries can follow their lead in their own battle. We hypothesize that political stability, rule of law, and voice and accountability will have a positive relationship with corruption – as corruption decreases the strength of political stability, rule of law, and voice and accountability increases. Corruption in Africa Many African countries developed dictatorships or one-party systems after independence because they believed that it would be the best system to bring economic growth and improve welfare. African countries felt a multiparty system would exacerbate existing ethnic fragmentation. Furthermore, they felt the one party system would accumulate wealth for development in the shortest time frame. However, the one-party systems ended up being dominated by urban elites who were not knowlMany government systems in Africa edgeable about the issues have become a medium for the urplaguing rural society and ban elite to gain personal wealth and various ethnic groups. Theredistribute benefits for members of fore, the one-party systems their group; this has worsened ethnic appeared to have the oppodivision in Africa and widened social site of its intended effects inequality. because it fostered corruption and “allowed politicaldominant groups to amass enormous wealth.” Many government systems in Africa have become a medium for the urban elite to gain personal wealth and distribute benefits for members of their group; this has worsened ethnic division in Africa and widened social inequality. Specific examples of corruption in Africa include:

• The use of power by white minorities in South Africa to redistribute

wealth amongst their group while the black majority was repressed.

• The 1963 petrol station site awarded to a Council’s majority party in the City Council of Kampala, Uganda.

• The misuse of power by the prime minister of Ghana, Kwame Nkrumah, over the illegal issuance of import licenses.

Table 1: Corruption in Africa

Source: 2007 TI Corruption Perception Index; Governance Matter 2007 World Bank Governance Indicator 2007 Notes: Only countries in sub-Saharan Africa that used more than 4 surveys in the CPI were included in our sample

Table 1 shows the ten most corrupt and ten least corrupt countries in Africa and their CPI scores. The Corruption Perception Index (CPI) is “compiled from a number of other indices produced from surveys undertaken by a number of polling organizations and business risk consultancies. . . . [T]he business codes the responses of businessmen, diplomats, and journalist who travel and work in various parts of the world.” The 2007 CPI uses 14 sources, 12 of which are independent institutions. Since the CPI measures perception, it holds certain biases depending on the sample groups. The rankings are not an absolutely precise measure of a country’s performance with an absolute precision. “Countries which were assessed by three or four sources can have the same minimum and maximum values, but in the latter case we can feel much more confident about the country’s score.” Countries with three or fewer sources do not fully capture corruption possibilities, so they have less statistical accuracy. Therefore, we excluded the countries that used four or less surveys in our country selections. Despite these problems, the CPI is still a reliable source as seen by its high level of correlation with other corruption indices. The Importance of Good Governance Kaufmann, Kraay, and Mastruzzi define governance as, “the traditions and institutions by which authority in a country is exercised for the common good.” The Africa Commission said that “Good governance is the key. . . Unless there are improvements in capacity, accountability, and reducing corruption . . . other reforms will have only limited impact.” Kaufmann, Kraay, and Mastruzzi organized six indicators of governance for The World Bank: voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption. We chose to study in detail the three indicators political stability , rule of law, and voice and accountability because we felt they would have the strongest

effect on corruption. It was illogical to study the effects of the indicator “control of corruption” because our study was based on the effects of good governance on corruption. We also excluded the regulatory quality and government effectiveness indicators from our study because we felt that these indicators resulted from corruption rather than contributed towards corruption. The governance indicators include measurements for 199 countries during the years of 1996, 1998, 2000 and 2002. They are compiled from several hundred variables measuring the perception of governance from 25 sources and 18 organizations. Political Stability and Corruption Political stability of a state can be measured by “the likelihood that the government in power will be destabilized or overthrown by possibly unconstitutional and/or violent means.” Political stability is necessary if a government is committed to improving the economic conditions of its country. Political instability increases the negative impact of corruption as it “dissipate[s] the economic opportunity to raise the quality of life.” In a politically unstable environment, governments behave in a myopic manner. This implies that individuals in the government are unlikely to propose long-term policies if they feel the benefits of their proposals will not rightly be accredited to them. Thus, political instability leads to unmotivated government officials with a tendency to under-invest. According to calculations reported by Mo, “political instability accounts for about 64% of the effect of corruption on the rate of productivity growth.” Corruption may lead to an increase in inequality and reduces the productivity of economic activities, therefore encouraging rent-seeking behavior. The politically unstable environment in Africa is revealed by the frequent regime shifts between “more or less authoritarian civil rule and military government.” Continuance of civil wars, resulting from the frequent regime changes, hinders the governments’ capabilities in improving the welfare of the society. There must be political stability in order to enforce the transfer from one political regime to another. Table 2 shows the political stability scores of the ten most corrupt countries and ten least corrupt countries in Africa. The corrupt countries tend to have negative political stability scores; whereas, the political stability scores for the ten least corrupt countries vary from -.26 to 1.23. From the table, it appears that being relatively less corrupt does not guarantee political stability. However, corrupt countries appear to be relatively more politically unstable. Rule of Law, Voice and Accountability, and Corruption The rule of law consists of rules that “govern the enforceability of contracts, disputes settlements, criminal behavior, procedures for the judiciary, the protection of property rights (including intellectual property rights), the extent of tax evasion, and the extent of black market activity as an impediment to business development.” A strong rule of law is need-

ed to foster economic development. Society runs smoothly when citizens have faith in the laws and know that the justice system is fair. Table 2: Corruption in Africa

Source: 2007 TI Corruption Perception Index; Governance Matter 2007 World Bank Governance Indicator 2007 Notes: Only countries in sub-Saharan Africa that used more than 4 surveys in the CPI were included in our sample

Arvind Jain effectively describes the complex relations of rule and law. An external shock can lead to an increase of corruption in a country characterized by a poor legal system. This environment provides elites heightened opportunities to accrue income through corruption. In order to easily continue their corrupt behavior, corrupt elites will weaken the enforcement of the legal system by inefficiently allocating resources and delegating unmerited appointments for important positions. Thus, the weakened legal system will be unable to effectively fight against corruption. Ultimately, “a weak judicial system becomes a cause as well as a consequence of corruption.” Table 3 shows the rule of law scores of the ten most and ten least corrupt countries in Africa. The most corrupt countries tend to have relatively weaker rule of law. However, there is no such trend within the least corrupt countries. Table 3: Rule of Law in Africa

Source: 2007 TI Corruption Perception Index; Governance Matter 2007 World Bank Governance Indicator 2007 Notes: Only countries in sub-Saharan Africa that used more than 4 surveys in the CPI were included in our sample

It has been shown that without established rule of law, access to information, and accountability to public actions, improved voice and accountability has little effect on corruption. Voice and accountability measures the ability of citizens of a country to select the government. It also measures media independence; freedom in media monitors and holds authority figures accountable for their actions. Public accountability also ensures that public money is spent economically. Corruption is a problem when public officials have little accountability. Table 4 shows the current levels of voice and accountability in Africa. The average level of voice and accountability amongst the ten least corrupt countries is .067, and the average level of voice accountability amongst the ten most corrupt countries is -1.171. Table 4: Voice and Accountability

Source: 2007 TI Corruption Perception Index; Governance Matter 2007 World Bank Governance Indicator 2007 Notes: Only countries in sub-Saharan Africa that used more than 4 surveys in the CPI were included in our sample

Regressions We used regression models to examine the relationship between three governance indicators – political stability, rule of law, voice and accountability – and corruption. Table 4 shows all the regressions that we created for the purpose of our study. In order to examine the separate relationship between each governance indicator and corruption, we used linear regressions. Linear regressions are used to describe the linear relationship between one response variable and one explanatory variable. However, an observed relationship does not prove that the explanatory variable causes a change in the response variable. Column one in Table 4 shows the results of a single regression between the explanatory variable, political stability, and the response variable, corruption. The coefficient for political stability is 1.126, which means that a one-point increase in the CPI results in a 1.126-point increase in the political stability index. This relationship is very statistically significant; the p-value for the regression is .02, meaning that there is a two percent chance that the observed relationship between political stability and corruption will occur if there is no relationship.

Column two shows the results of a single regression between rule of law and corruption. The coefficient for rule of law is 1.465, meaning that a one point increase in the CPI results in a 1.465 point increase in the rule of law index. This relationship is very statistically significant; the p-value for the regression is .0005. Column three shows the results of a single regression between voice and accountability and corruption. The coefficient for the voice and accountability is .924, meaning that a one-point increase in the CPI results in a .924 point increase in the voice and accountability index. This relationship is statistically significant; the p-value for the regression is .016. In order to examine the combined effects of political stability, rule of law, and voice and accountability on corruption, we used a multiple regression. Multiple regressions use one or more explanatory variable to examine the value of the response variable. Column four in Table 4 shows the results of a multiple regression between rule of law, political stability, voice and accountability, and corIt has been shown that without established rule ruption. The coof law, access to information, and accountabilefficient between ity to public actions, improved voice and acpolitical stability countability has little effect on corruption. and corruption is -.312 when rule of law and voice and accountability are held constant. However, this coefficient is not statistically significant as the p-value is .577. Therefore, there is no significant relationship between political stability and corruption when taking rule of law and voice and accountability into account. Interestingly, the coefficient between rule of law and corruption is 2.217 when political stability and voice and accountability are held constant. This indicates that there is a positive relationship between rule of law and corruption when political stability and voice and accountability are taken into account. This coefficient is statistically significant because the p-value is .053. The coefficient between voice and accountability and corruption is -.432, when political stability and rule of law are held constant. The p-value is .43; therefore, there is no significant relationship between voice and accountability and corruption when taking political stability and rule of law into account. In accordance with our hypothesis, separately, political stability, rule of law, and voice and accountability each have a positive relationship with corruption. However, the multiple regression analysis does not support our hypothesis that there is a positive relationship between political stability, rule of law, voice and accountability and corruption. According to the multiple regression analysis, only rule of law and corruption have a statistically significant relationship. The lack of statistically significant relationship between political stability, voice and accountability and corruption may suggest that there are non-linear relationships between those variables. The small sample set may have caused the lack of significant relationship in the multiple regressions between political stability, voice and

accountability and corruption: A sample set of 10 countries might be too small to show a significant relationship between the three variables. In the future, an analysis using larger sample sets may lead to different results. To keep in accordance with analyzing the least corrupt countries, we propose dividing all of the countries in sub-Saharan Africa into two categories: most corrupt and least corrupt, then examining the relationship between the variables amongst the least corrupt countries. This will provide a larger sample set for the least corrupt countries, which may result in a more statistically significant correlation. Table 5: Relationship Between Corruption and Good Governance (Political Stability and Rule of Law)

[ ] indicates p-value * coefficient statitistically significant at the 10% level ** coefficient statistically significant at the 5% level *** coefficient statistically significant at the 1% level

Policy Proposal Since there is no significant relationship between political stability, voice and accountability, and corruption we propose that in order to reduce corruption a larger share of official development aid (ODA) should be focused on strengthening the rule of law in society. Currently, the social sector is the largest recipient of foreign aid, accounting for 36% of ODA in Africa. Figure 1 shows the distribution within the social sector. The social sector is divided into several categories including: education, health, population and reproductive health, water supply and sanitation, government and civil society, and other social infrastructure and services. The government and civil sector account for the largest donor commitment with 10.9%. This sector consists of aspects such as: legal and judicial development, strengthening of civil society, government administration, and other aspects that relate to the rule of law. Since aid that is given to government and civil society will also be used towards aspects that are independent to rule of law, we propose that 10.9% of the 38.6% of aid committed to the social sector is not enough. If more aid were distributed towards government and civil society, then

ODA would be more effective. Aid can be used to strengthen rule of law and a strong rule of law is necessary to combat corruption. A multiplier effects also takes place because a decrease in corruption will also lead to a more efficient use of aid. The ultimate goal of ODA directed towards rule of law is improved justice. In order to eventually create better justice ODA must first be used to improve: political leadership that is supportive of rule of law, existing legal structures, social and economic equity, and judicial capacity. Political leadership can be improved through constitution and coalition building; aid should be used to support the media and create responsible lawyers communities. Structural reforms such as new judicial processes and autonomous judicial budgets will improve existing legal structures. In order to improve social and economic equity, the practice of excluding non-elites must be terminated. NGO advocacy and media monitoring programs should be established in order to evenly disperse the access to public goods throughout the population. Increased court budgets, court modernization, and supervision of lower courts are targeted aid programs that will improve judicial capacity. Aid directed towards rule of law will be most successful if these specific strategies are implemented. However, a base level of political stability and voice and accountability is necessary for the success of these rule of law strategies. The importance of political stability and voice and accountability is emphasized in the significant coefficients of the single regression between each variable and corruption. Figure 1: ODA to Africa Within the Social Sector as a Percentage of Total Donor Commitments

Source: 2007 OECD Development Aid at a Glance Statistics by Region, Africa

Before donors initiate aid programs, they look to efficiency as a main criterion for sending aid. Donors want to be assured that their money will be used for increasing growth in African countries and that the

poor are recipients of benefits. Burnside and Dollar found through regression analysis that overall foreign aid has done very little to help growth in African countries. This lack of development in African countries discourages donors from providing aid because donors feel that their aid money does very little, if anything, to alleviate the problems it is intended to fix. Many economists such as Patrick McAuslan and William Easterly have become skeptical of the benefits of aid, and their skepticism has negatively affected the outlook of donors. Burnside and Dollar found that the reason aid has little affect on growth is because the growth of developing economies depends largely on their own economic policies. Burnside and Dollar formed an index consisting of budget surplus, inflation rate, and an openness dummy variable to interact with foreign aid. They found that this policy index had a positive effect on growth in good policy environments - countries with good policies and significant aid performed well. On the other hand, it was discovered that countries with poor policies used the aid to increase government spending in all areas, not just in the specific sectors for which donors were targeting. Aid in these countries increased government consumption and had no positive effect on growth. Furthermore, Burnside and Dollar measured aid recipients and found that there were no more tendencies to allocate aid to countries with good policies. McAuslan argues that most aid is not only wasted, it is misused in that it is stolen and squandered by government officials. Burnside and Dollar feel that aid should be directed towards countries with good policy. However, many of the countries that suffer from poor policies need aid to better their rules of law to ultimately combat corruption. The cyclical problem between aid and policy can be partially solved through a systematic provision and monitoring of all aid that is provided. MacAuslan suggests that auditors made up of internal and external personnel can provide a full process of governance in countries, which would be published in the state where the audit took place and in the donor community. He suggests that major donors to particular countries and international NGOs can monitor these audits collectively. We propose that the World Bank act as the leading organization to conduct audits of provided aids because the organization already provides monetary assistance to developing countries and represents almost two hundred countries. Before this system is established, donors can still insist that their personnel monitor the recipient country and trace the details of how their aid money is spent. If a donor country detects misuse of aid funds, the donor can cease aid. Targeted and monitored aid that is distributed to countries with poor rule of law should effectively alleviate corruption. After the corruption in these countries has been improved, the aid provided to them can be used more efficiently to further decrease corruption. Overall, the proposed aid distribution plan combined with the multiplier effect should very successfully cure corruption.

Conclusion In the past 50 years, many countries have made significant improvements in economic development, but according to the United Nations Development Program (UNDP), Africa remains the poorest region in the world. It is apparent that corruption continues to hinder economic development and growth. In Africa corruption is an especially problematic issue due to the country’s predisposed position created by its past government structure. Corruption decreases innovative investments, and the investment in Africa has especially been affected by its corruption. There have been many attempts to decrease corruption; however, few have succeeded in their goals. The negative results from attempted programs to alleviate corruption have discouraged future donors, and there has been no consensus regarding the best strategy to ease corruption. One of the key determinants of corruption is known to be governance. We found through regression analysis that the rule of law segment of governance has a very significant relationship with corruption. Therefore, we propose that the best strategy to ease corruption is to focus monitored aid towards strengthening rule of law. A strong rule of law should result in a decrease in the level of corruption. Appendix A For data sources to construct the Governance Indicators, surveys on how respondents in each country recognize the level of the governance are used. The respondents include individuals, corporate, development agencies, or NGOs who are familiar with the state of the governance by having actual experience residing or working in the country. According to the World Bank, 311 variables from 33 sources and 30 different organizations were used for 2007. An Unobserved Component Model processes the responses collected. The UCM assumes the following: “The “true” level of governance is unobserved and noisy “signals” of the level of governance are constructed from the available sources.” The model calculates “a weighted average of the sources” as the best estimate, by weighting less to the sources that are less reliable with “larger noise” or “larger measurement errors.” All scores stretch out in the range of -2.5 and 2.5, with “an expected value of zero” and “a standard deviation of one” across countries. Higher scores indicate better outcomes.

Appendix B: Political Stability, Rule of Law, Voice and Accountability and Corruption - 2007

Sources Bank, The World. “World Development Report 1997: The State in a Changing World.” 1997. Bohn, Frank. “Corruption and Public Investment Under Political Instability.” Economic Liberalization and Integration Policy. Berlin: Springer Berlin Heidelberg, 2006. 233-244. Burnside, Craig, and David Dollar. “Aid, Policies, and Growth.” The American Economic Review 90 (2000): 847-868. “Development Aid At a Glance.” The Organisation for Economic Co-Operation and Development. 2007. The Organisation for Economic Co-Operation and Development. . Friedrich, C.J. “Corruption Concepts in Historical Perspectives.” edited by Arnold J. Heidenheimer, Michael Johnston, and Victor T. LeVine. In Political Corrupt: A Handbook. New Brunswick: Transaction, 1990. 15-24. Harch, E. “Accumulators and Democrats: Challenging State Corruption in Africa .” Journal of Modern African Studies (1993): 31-48. Jain, Arvind K. “Corruption: A Review.” Journal of Economic Surveys (2001): 71-121. Kaufmann, Daniel. “10 Myths About Government and Corruption.” Finance & Development September 2005: 41-43. Kaufmann, Daniel, Aart Kraay and Massimo Mastruzzi. “Government Matters III: Governance Indicators for 1996-2002.” 2003. Khan, Adil M. and Chowdhury, Numayr. Public Accountability, Corruption Control, and Service Delivery: Governance Challenges and Future Options. The United Nations.
50. McAuslan, Patrick. “Good Governance and Aid in Africa.” Journal of African Law 40 (1996): 168-182. Mo, Pak Hung. “Corruption and Economic Growth.” Journal of Comparative Economics (2001): 66-79. Murphy, Kevin M., Andrei Schleifer and Robert. W Vishny. “Why is Rent Seeking So Costly to Growth?” The American Economic Review (1993): 409-414. Radelet, Steven. “Challenging Foreign Aid: A Policymaker’s Guide to the Millennium Challenge Account.” 2003. The World Bank. 15 March 2008 . Riley, S. P. (1999). Petty Corruption and Development . Development in Practice , 189-193. “Development Aid At a Glance.” The Organisation for Economic Co-Operation and Development. 2007. The Organisation for Economic Co-Operation and Development. . Szetfel, Morris. “Misunderstanding Africa Politics: Corruption & Government Agenda.” Review of African Political Economy (1998): 221-240. UNDP. Human Development Report. New York: Oxford University Press, 1995. Uslaner, Eric M. “The Bulging Pocket and the Rule of Law.” 2005. 15 March 2008 . Werlin, H.H. “The Consequence of Corruption: The Ghanaian Experience.” Political Science Quarterly (1973): 71-85. World Bank. About The World Bank. 16 March 2008 .

Microfinance In Africa: A Look at the Effect of Policies on Women’s Financial Empowerment Kelly Goodman, Uday Vadula - University of Michigan

Microfinance is a term used to refer to financial services given to the poor. This encompasses small loans to start businesses and means to save their earnings and invest. Both formal and informal sectors are addressed by microfinance policies initiated by both governments and private companies. The informal sector is the sector of the economy consisting of off the books small loans between neighbors, products made and consumed in villages where no records are kept, and many other unofficial economic activities. Access to microfinance in Africa is limited, as lending to the poor is expensive due to high screening, monitoring and enforcement costs. Less than 10 percent of those who need microfinance services receive aid “although sub-Saharan Africa has the highest proportion of people living in extreme poverty, with more than 40 percent living on less than $1 per day.” Microfinance and Women Microfinance often targets women, who represent the poorest of the poor. Women are more willing to divert resources to children’s health and education than men and to their development. Women are less mobile than men and more likely to work in or near the home. These factors facilitate the monitoring of these women by bank managers and by peers. Following from this relative immobility and fear of social sanctions, women “tend to be more risk-averse than men and more conservative in their choice of investment projects,” and are less likely to default on loan repayments than men. Policies designed to enhance women’s empowerment would increase the capacity of women to make choices and transform those choices into desired actions and outcomes. Empowering policies also focus on enhancing the social, economic, political, and spiritual strenght of women and their communities. Kenya, Ghana, Burkina Faso Not all microfinance policies are effective, programs in some African nations are plagued by problems such as defaulting on loan repayments, social and economic instability, and corruption. Here the microfinance policies of Kenya, Ghana, and Burkina Faso are examined to see which policies appear to have a causal relationship with the economic empowerment of women. These countries were chosen with regard to several indicators. GDP was chosen to gauge the overall size of the economy. The level of conflict was also considered as some countries are heavily burdened with ongoing violence and conflict. This is a disincentive for people to set up shops and start their own businesses, save, and invest, because their economic situation, as well as their safety, are uncertain. Corruption

was also considered because the government can play a large role to help and create microfinance policies. Studying similarly stable countries will largely eliminate conflict as a confounding variable. Ghana and Burkina Faso, which are adjacent, have high levels of corruption while Kenya has extreme levels corruption. Stability is then used to indicate an absence of conflict within the country. Although Burkina Faso is susceptible to the destabilization of of it’s neighbor Cote d’Ivoire. Kenya has large microfinance operations and until recently, has had no internal conflict. Ghana is similarly stable and growing its economy through political and economic reforms. Comparative Models of African Microfinance Microfinance in Kenya Kenya has many microfinance programs ranging from non-governmental organizations (NGOs), to Informal Sector Programs (ISPs) loans to bank loans for the poor through Rotating Saving and Credit Associations (ROSCAs). The overarching NGO that supervises smaller organizations is called the Kenyan Rural Enterprise Programme (KREP), and was set up by USAID. KREP has shown signs of dynamism by taking input on their practices in order to streamline and improve them. KREP manages two lending programs- the Juhudi and the Chikola. The Juhudi program organizes entrepreneurs into groups, called watanos, to disperse loans. These groups have had great success and a low default rate, due in part to the mechanism of group lending. After a Juhudi group has existed for a few years, it can become a Chikola program, which can sell loans to members. Group lending, while providing a support system for borrowers, also enforces a social pressure to continue payments. A group lending microfinance program in Kenya found that default rates were high when women deposited their installments in a bank account, and lower when women switched to a form of public repayment, such as face-to-face meeting with collectors. Arrears and defaults on loans have generally been maintained at a low level, until recently. In the Juhudi program, arrears and defaults stood at about Ksh 4.4 million in 1993 and at Ksh 23.6 million in 1995. The Juhudi program has recorded an average repayment rate between 96 percent to 99 percent during 1991-1993. In 1995, the Juhudi repayment rate was reported to be 97 percent. The Chikola program experienced a repayment rate of 99 percent in 1991. During 1994 and 1995, the repayment rate for Chikola loans fell to about 90 percent. This was due primarily to problems at one branch. Since the rate of defaults stayed constant while the total defaults in Ksh increased substantially it can be concluded that the amount disbursed also increased substantially. The Juhudi program operates in two areas, Eldoret, one of the fastest growing cities in Africa, and Kibera, the second largest slum in Africa. Although the Kibera branch faces many challenges, it has positive sustainability indicators. However, “KREP found that richer members were not repaying and making poorer members cover their loans.” KREP is increas-

ingly effective as it has begun talking with clients, doing internal research, and evaluation to improve its methods. The Informal Sector Programme (ISP) is another provider of micro-loans aimed at informal businesses with growth potential. Financed heavily by German GTZ funds, ISP requires a license for loans, but will lend to women without their husband’s consent. The ISP is controlled by the Government of Kenya and is not operationally independent. The ISP has a lower repayment rate, which is generally in the 70 percent to 90 percent range. Only 18 percent of borrowers are female, as compared to 54 percent female borrowers under the Juhudi scheme. This is because loans are targeted at the manufacturing sector, which men dominate. A third source of microfinance comes in the form of Rotating Savings and Credit Associations (ROSCA), which are formed as groups by friends and neighbors who pool their savings and make loans from the common pot to each member in turn. “The typical ROSCA cycle lasts for about one year” during which the pot is roughly one quarter of average monthly household expenditures. The main ingredient to Kenya’s However, the order of who gets a system of microfinance is group loan is contested. Random assignment seems fairer and provides an lending, which adds pressure to incentive for even the last person borrowers to repay, yet at the same time creates a support sys- to get a loan to cooperate. Anderson, Baland, and Moene find that tem for people who are having a Kenyan women solve the problem hard time repaying or saving. by settling on a fixed order that gives loans to the most untrustworthy last, which requires extensive screening of members who may need a recommendation or time to build their reputation. In a survey of 308 Kenyan ROSCA members, Gugerty found that 37 percent of women joined ROSCAs primarily because it was “difficult to save at home because money got used up in small household needs”, 22 percent reported that it was “difficult to save alone, that they ‘got the strength to save’ by sitting with others,” while just 10 percent reported that they joined “as a response to household conflict, fear of theft, or demands by kin.” Membership in ROSCAs is less common in rural areas, as distance between borrowers dilutes the pressure of enforcing repayment. ROSCAs are a good way of mobilizing savings instead of keeping the money at home, and spending it or having it stolen. The main ingredient to Kenya’s system of microfinance is group lending, which adds pressure to borrowers to repay, yet at the same time creates a support system for people who are having a hard time repaying or saving. The formal lending program is very careful about defaults, extensive screening is performed on applicants, and training is provided to recipients of loans. Ghana susu In Ghana, susu money collectors are overwhelmingly male, however, the informality of their approach, based on relationships, makes saving

comfortable for women. Susu meet with villagers to collect about $0.73 a day per client. “At the end of each month, the savings are returned to the depositors; the collectors keep one day’s deposit, or 3.3 percent of the monthly savings, as commission” which accumulates to an average profit of $600 a month, six times the average income in Ghana. The informality of the system, however, doesn’t prevent calculation of repayment rates. In 1990-1991, 70 to 80 percent of these informal lenders had perfect loan recovery rates. Susu could expand as intermediaries between the banks that cannot afford micro lending and the 60 percent of clients who request loans. Accumulated funds, protected from the appeals of family and friends, act as self-loans taken out monthly to restock supplies. Surveyed collectors could only fill 13 percent of these requests, and largely in smaller amounts. Daily collection visits could also be used to monitor loan repayment with little marginal cost, about 3 percent of the loan cost. Since susu deposit their client’s money in the formal financial sector, they could access credit to ensure continued liquidity while expanding lending. However, the banks face the problem of ensuring that collectors carry out the bank’s policy. Susu, whose rates are 50 percent higher than the formal sector, may not want to participate if their banking partners demanded lower interest rates be charged. Singh argues that the high interest rates are mainly due to high opportunity costs, not to monopoly profits, suggesting that decreasing screening costs should lower interest rates. The informal susu collectors are an interesting concept and should be studied further. Intuitively, it seems like such collectors in poor countries would have plenty of incentive to steal people’s savings. The reason for the success of this kind of policy may be the fact that the susu has been around for a long time and is well known and familiar, and susu collectors may have built up trust with the community. Such a policy may not work in a country that has not had informal collectors like this. It may also not work in countries with high levels of violence and conflict, as the safety of the collectors may be uncertain and their mobility may be hampered. Burkina Faso In 1994, the West African Economic and Monetary Union, of which Burkina Faso is a member, imposed legal and regulatory frameworks aimed at creating sustainable microfinance initiatives (MFIs). In Burkina Faso, the poor seem constrained by lack of access to credit, rather than high interest rates. Women in particular had limited access to credit. “In 2000, the total number of MFIs clients stood at 497,000, representing 8.3 per cent of the target populations. Despite the rapid growth of MFIs clientele, their outreach remains small compared with the potential demand.” However, MFIs are young- on average, 9 years old- and in high coverage pockets of the expanding network coverage ranges from 30 percent to 60 percent. The Project de Promotion du Petit Credit Rural (PPPCR) is a nonprofit credit program targeting the poor in various regions of Burkina Faso. This project is loosely modeled after the group-lending model of

the famous Grameen Bank in Bangladesh, funded by a Nobel Peace Prize winner Mohammed Yunus. In the PPPCR’s adaptation of the Grameen model in Burkina Faso, loans are recorded individually. Group penalties are used as a repayment incentive: “if any member of the group defaults, the entire group is blocked from future credit, thus encouraging the use of peer pressure and solidarity.” The PPPCR extends the reach of group liability, denying loans to the entire urban sector or rural village if an individual defaults. Group leadership development is necessary to prevent the domino effect that causes an increasing number of defaults after the first group defects and diminishing peer pressure during loan the cycle. In their survey of 140 PPPCR lending groups, Paxton, Graham and Thraen found a statistically significant relationship between leadership and training; “Groups that had been trained well by bank workers had been taught contingency plans for when problems occurred, and groups with a trustworthy, strong leader were more likely to repay their loans.” The domino effect is felt less in urban areas, as opposed to rural areas, where diversity of economic activity fosters “healthier portfolio diversification and some protection from the economic impact of droughts.” Group credit institutions, such as PRODIA and FAARF, have high repayment rates, which “appear to be closely linked to group loans and to the use of group-based liability. These mechanisms are particularly adapted to small borrowers, especially women who generally lack traditional collateral-suitable assets.” Among PPPCR groups, urban loan repayment was found to be higher because rural loans were invested in agriculture, which entails a higher degree of income variation, risk, and covariant incomes. ROSCAs had failed in the past in rural areas largely because of the lack of monetization in the barter economy. The modified group-lending program also failed in such an environment where “selfsufficiency prevails over product diversification and specialization.” In the urban market, women were familiar with financial tools and monetary transactions through proximity and previous participation in tontines or other lending groups. The hierarchical rural social system and group homogeneity limit criticism and the effectiveness of peer pressure. The individual loans here are reinforced by group collection, the same mechanism that has been shown to be effective in Kenya. Effects on Women Theoretical Bounds The debate over what indicators and measurements are important for program evaluation, and thus recommendations of program policy planks, is structured by ideological views of what the outcome of microfinance should be financial sustainability, integrated community development, and women’s empowerment. Different approaches have varying internal logic, leading to different policy emphases. The financial sustainability approach is interested in control over increased incomes. The integrated community development approach recognizes women’s empowerment and community self-reliance as compatible and aimed at alleviating poverty. The women’s

empowerment approach aims to use micro-finance primarily to increase the status of women in the community. Financial sustainability is measured by “institutionalists” who are interested, not in subjective indicators but rather, “in market variables, such as the repayment rate, transaction costs, the degree of financial self-reliance, etc.” Integrated community development and women’s empowerment are measured by the performance criteria of the “welfarists” concerned with household studies and living conditions. These criteria are “the number of savings accounts or the number of loans, the improvements in productivity, incomes, capital accumulation, food expenditures, and social services, such as education, health, housing, etc.” There is still a lot of work to be done to improve microfinance, especially in the context of empowering women. Microfinance is still evolving and being refined, but there are some policies that may have a causal relationship to women’s empowerment that should be studied further. Group lending is a mechanism works well in some places. In addition to helping creditors secure their loan, it also helps women organize and have a support group to secure their independent financial position. This is especially true in the case of the Kenyan Women’s Finance Trust; which is an all women MFI in Kenya that has one of the lowest default rates in the country. The susu of Ghana is another model that may provide useful techniques. Susu collectors that go door-to-door to collect savings and debts may be more comfortable for women to interact with. There are definite problems with this kind of savings and loan mechanism, especially in countries with high levels of conflict or countries without a long history of informal financial tools, which deserve further study. There are many new innovations in the field as well, including, “geographic targeting of programs to reach high-risk areas; active program in disadvantaged communities, including poverty targeting; ensuring MFI staff are committed to work with the poorest; and innovations to credit products that are adapted to the needs of the very poor.” Cell phone banking is an example of an innovation that adapts to the needs of the people. Cell phone usage has been on the rise in Africa, and being able to monitor one’s finances instantly will be very useful in helping people save and plan for their future. Each African nation is economically and socially unique, therefore it may not be necessary to have one standard application of microfinance policies. As is seen in Ghana, the informal susu collectors have been providing microfinancial services for a long time, making some of the policies practiced by such collectors more easily adapted. Further Research The year 2005 was the international year of microcredit, followed in 2006 by the Nobel Prize being awarded to Muhammed Yunus, founder of the Grameen Bank. This generated a lot of interest in microcredit, but a lot of work must still be done for the continued success and permeation of such policies, and specifically what effect these policies will have on the empow-

erment of women. In order to infer some causal nature of each policy it will be useful to collect large amounts of data on economic indicators. First, the size of the informal sector should be properly estimated. How many informal transactions happen and where? Who participates in these actions, mostly men or mostly women? What industries are women underrepresented in and if possible, why? The lack of capital, or access to their own savings makes it difficult for women to start their own businesses especially the industrial sector where large amounts of capital are needed. An interesting statistic would be to track divorce rates over time as more loans are given out. There are obviously confounding social variables, but it would be interesting to see if financial empowerment for women leads to higher divorce rates and social empowerment as well. Savings rates between genders could also help to clarify how microfinance affects savings and specifically if there is a difference between the savings rates of men and women. Sources “Africa’s women go to work.” The Economist Jan. 2001: 43-44. de Aghion, B. A. and J. Morduch. The Economics of Microfinance. Cambridge: MIT Press, 2005. Buckley, G. “Financing The Jua Kali Sector In Kenya.” Finance Against Poverty Vol. 2. Ed. D. Hulme and J. Moseley. London: Routledge, 1996. Congo, Youssoufou. “Performance of Microfinance Institutions in Burkina Faso.” Columbia International Affairs Online (2002): 1-18. Debt, Aids, Trade, Africa (DATA). Facts Map. (2007). 10 March 2008 . Dondo, Aleke. “Institutional Action Plan.” Countdown 2005 (1998). 4 April 2008 . Karlan, D., and S. Mullainathan. “Is Microfinance Too Rigid?” (2006). 10 March 2008 . Karlan, D., and J. Zinman. “Credit Elasticities in Less Developed Countries: Implications for Microfinance. “ American Economic Review, forthcoming. 10 March 2008 . Mayoux, Linda. “Women’s Empowerment and Micro-Finance Programmes: Strategies for Increasing Impact.” Development in Practice 8 (1998): 235-241. Mayoux, Linda. “Questioning virtuous spirals: Microfinance and women’s empowerment in Africa.” Journal of International Development 11 (1999): 957–984. McKnight, John. “Politicizing health care.” The Careless Society. New York: Basic Books, 1995. Mohan Kaul. “Move microfinance to the centre.” African Business 332 (2007): S10. Morduch, J. (1999). “The Microfinance Promise.” Journal of Economic Literature 37 (1999): 1569-1614. Noor, Ras. “Access to Finance.” Network Journal 15.2 (2007): 24. Pronyk, Paul M, Hargreaves, James and Jonathan Morduch. “Microfinance Programs and Better Health: Prospects for Sub-Saharan Africa.” The Journal of the American Medical Association 298.16 (2007): 1925-1927. Paxton, J., D. Graham & C. Thraen. “Modeling Group Loan Repayment Behavior: New Insights from Burkina Faso.” Economic Development and Cultural Change 48: (2000): 639655. Pederson, Glenn D. and Washington K. Kiiru. “Kenya Rural Enterprise Program: Case Study of a Micro-Finance Scheme.” Micro-Finance Series, AFTE1, Africa Region, Washington, D.C.: World Bank, (1996). Schreiner, M. “Informal Finance and the Design of Microfinance.” Development in Practice 11 (2001): 637-640.

Steel, William, and Ernest Aryeetey. “Informal savings collectors in Ghana: Can they intermediate?” Finance and Development 19.2 (1994): 36–37.

Realities of the African Stock Exchanges Madison Iannone - American University

Mention investment in one of the African stock markets to a seasoned investor and expect doors to close. Options for portfolio diversification have expanded in our increasingly interconnected world with the success of emerging markets in Asia; however, Africa has generally been left out of consideration. The characterization of Sub-Saharan Africa as an incubator of famine, war, genocide, and starving orphans is primarily to blame. These characterizations have coalesced into a general perception of high risk for investment that is greatly overstated. People are comfortable sending their money to Africa for aid and relief causes, but sending their investment funds is not even considered an option. Seemingly forgotten is the fact that many of the African Stock Exchanges find themselves annually on the top ten performMention investment in one of the ing markets list worldwide. African stock markets to a seasoned Africa now has a neighborinvestor and expect doors to close. hood for investment where high returns are abundant. Kenya’s Nairobi Stock Exchange saw returns of about 400 percent from 2003 to 2007, far outdistancing China and India, the primary destinations for emerging market investment. Of course, investment in any developing country has its risks, but the reason behind the lack of investment in Sub-Saharan African markets is the difference between real risk versus perceived risk. Changing Africa Many people refer to Africa in a united sense, rather than as an enormous continent with many different nations, cultures, and types of government. Much of Africa is impoverished, and has problems with corruption, but times are changing. Since 2000, more than two-thirds of the continent has had multiparty elections and most of the countries are at peace, leading to an improving investment neighborhood. African governments are beginning to realize that it is not the state that is going to create jobs, but rather private sector investment leading to many more pro-small business policies than seen previously. However, the global media consistently shows negative images of Africa. “The image of the starving child as sort of an iconic image of Africa is so entrenched in people’s minds, and I know that these things are done to show people what is happening…to support aid to the continent, but there is a benefit and a cost.” We need to open our minds to Africa’s potential and consider why the continent is only perceived in one way. While no other continent in the world boasts the enormity of natural resources that Africa offers, this fact has become a limiting classifica-

tion rooted in colonial thought of Africa as a simple source of raw materials for the global “north,” rather than seeing natural resource wealth as a stable jumping off point leading to eventual economic expansion. In fact, the business and investment opportunities are immense. There is development potential in multiple sectors of different nations economies beyond natural resources. Much of Africa is positioned to take on light manufacturing. There is tremendous demand for construction and real estate development, as well as roads and other infrastructure. In addition, as many African countries have instituted privatization measures, many have opened up their electricity sectors to private enterprises. Significant returns have already been seen in telecommunications, information technology, tourism, agriculture, and infrastructure projects. Like the already highly pursued emerging markets, Africa’s potential consumer base of 900 million people can also be considered an immense resource. For companies experiencing fairly saturated markets and needing to expand, investment in Africa could be a potential asset. Returns in African Markets African markets have the potential to deliver much more than their competitors mostly in the form of high returns. As a result of the perceived high risk, they cannot attract capital unless they give a high rate of return. As soon as more people embrace the opportunities in the African markets, the rate of return will decrease and begin to level off to rates similar with the rest of the world. This would accompany a level of development in Africa attained by other middle-income countries. A high level of economic growth and overall increased income is the overarching goal of international development and poverty alleviation efforts. Governments that have the ability to ensure such economic growth would trickle down to the rest of the economy helping even the poorest of the poor. For example, Botswana, as a result of good leadership, has used the proceeds from diamond exports for the development of the country: to build roads, hospitals, and provide free education from kindergarten through advanced graduate degrees. Unfortunately, there have also been instances of governments utilizing natural resources to enrich their personal accounts. African countries still have some barriers to investment, but the important point is that countries are recognizing such barriers themselves and are one by one changing policies to be more accommodating to trade and investment. One of the effects of a company becoming involved in stock exchanges is that the participation becomes a source of pressure to conduct business using best practices. Companies endure external pressures to keep their accounts in order and self-audit, as they are accountable to a group of shareholders. Africa often has the highest returns on direct investment in the world, the fastest growing stock exchange rates, some of the fastest growing economies, and total exports rivaling the Middle East. On average they have outperformed every market in the world. Many investors taking advantage of the many benefits of the African markets have admitted to losing more on the New York Stock Exchange than on the African Stock Exchanges. More private equity funds have created

Africa dedicated funds, and also for the first time Africa dedicated hedge funds are emerging, particularly in the United States, certainly a sign that Africa is beginning to be taken seriously by the international markets. All of the major emerging market funds take positions in Ghana, from the Morgan Stanley Fund, to the emerging market funds, to the Scott Stevens, Bleakley, Soros Group, and Quantum Fund. Case Studies: Botswana, Ghana, Nigeria and South Africa According to the Governor of the Bank of Botswana, Botswana “[doesn’t] expect to be Wall Street overnight, we don’t expect to be the city of London overnight, but we should be able to compete with the likes of Malaysia and Ireland.” African markets are booming. Many medium enterprises in Ghana are looking at the stock exchange as a viable Africa often has the highest returns alternative for financing, and on direct investment in the world, Ghana is about 92.5 percent the fastest growing stock exchange small to medium enterprises. rates, some of the fastest growing If Ghana is able to galvanize economies, and total exports rivaling such enterprises to enlist, they the Middle East. will see an incredible growing market ahead of them. Nigeria is another such country where investors see high returns on their investments. Nigeria has moved on to a new platform, with comprehensive reform programs, which are becoming more favorable to business than ever before. While opportunities are immense and returns on investment are about 35 percent, there is no claim that the scenario is perfect. The risks of developing markets are the same worldwide. Small markets tend to have less liquidity, leading to market conditions that could potentially make finding buyers more difficult. Botswana and South Africa remain the safest places in Africa to invest. Not only is Botswana’s sovereign credit rating the highest in Africa, it is rated higher than many developed countries, ranking higher than Japan. However, another factor that should be considered when investing internationally is the country’s currency. Most African countries have somewhat volatile currencies and this must be taken into consideration when choosing investment locations. At this time, Botswana’s currency is stable and as a result its bonds are nearly as good as gold. As a former World Bank vice president said, “The currency that is being devalued now is the dollar, so actually we’re making money every day we sit with our money invested in African currencies.” Most people do not think of African countries as potential service economies, an idea reserved for the most developed countries, but Botswana is well-suited for services in financial and telecommunications sectors. The country is trying to position itself as a hub in the Information technology sector. Meanwhile, South Africa is the twenty-second largest economy in the world, and the Johannesburg Stock Exchange is the seventeenth largest in the world. As a result, South Africa is already a significant player in

the global context and has already acquired a voice in the world economy. South Africa has tremendous financial resources, which can benefit other Sub-Saharan nations. As the development of South Africa is intrinsically linked to its neighbors, the region as a whole will need to grow as a unit. The Ghana Stock Exchange has also gained attention, especially after the successes of the Databank Index founded by Ken Ofori-Atta and his partner Kekeli Gadzekpo in 1990. Initially, the index began with eleven companies and an index level of 100. Today, the index is over 4000. The Databank Group also formed the first mutual fund in the country. The initial capital was about fifty US dollars (250,000 cedis) with five staff members. The fund is now over 230 billion cedis, over twenty-five million US dollars. In order to diversify the portfolio, it has been expanded to Nairobi, Lagos, and the Botswana stock market. For two years the return was seventy percent. In 2006, it was 137 percent return. In U.S. dollar terms, over a seven year period, that is about a 60 percent real return. Conclusion Smart investors can see risk elevate over a period of time. To mitigate risk, investors can diversify a portfolio across many different countries in Africa, being aware that the perception is not always the reality, making flexibility and nimbleness assets in avoiding problems before they begin. Investing in Africa requires doing research. While many African countries are stable and have healthy, growing stock exchanges, many could be more risky for an investor. In the twenty-first century and beyond, Africa’s involvement in the global economy will be essential for future sustainability and development. The misperception of the African investment climate is mostly the result of an information asymmetry; a gap in knowledge between the investor and the potential destination. As Ken Ofori-Attq has observed firsthand, “On Wall Street, comfort level goes a long way to making decisions.” The challenge for Africa is how to share the right information to prospective investors to make them feel comfortable about the realities; positive and potentially negative alike. This information dissemination of the African investment dynamic holds value for both individual and institutional investors, who should re-evaluate their policies towards investing in emerging markets. Sources “Biography: Joseph Huggins.” U.S. Dept of State. 2003. United States Department of State. 17 Feb. 2008 . Director’s Page.” Africa Open For Business. 2006. 17 Feb. 2008 . “Edward V.K. Jaycox Biography.” Emerging Capital Partners Team: Directors. Emerging Capital Partners. 17 Feb. 2008 . Fulthrup, Dan. Interview. “The Good News from Africa: Carol Pineau.” IdeaStream. NPR: WCPN 90.3. 2007. 5 Dec. 2007 . Pineau, Carol. “Africa Investment Horizons.” Forthcoming Documentary. Unpublished Transcript, 22 May 2007.

The Dilemma of the African Patriot: South Africa and Regional Peacekeeping Efforts Amy K. Frame - American University

“To end these (African) conflicts and find lasting solutions to their causes is something must seize the collective mind of Africans, and participating in a practical programme of their resolutions the joint responsibility of each and every African patriot.”

Overview Through all of the upheaval on the African continent since the end of the Cold War, there has been no nation whose role has changed as much as South Africa. Once a pariah state, both on the continent and internationally, South Africa was a textbook example of a rouge state. However, their peaceful transition to democracy relieved South Africans and astounded the world. During apartheid the country was the worst kind of regional neighbor, spreading terror and instability not only within its own borders but to neighboring countries as well. Now, more than a decade after the institution of majority rule, the country’s regional role is almost the diametric opposite of what it was during the apartheid years. Not only is the twenty-first century South Africa not a pariah, it is fast becoming a continental leader on peace and security issues. Since the transition, the ANC led government has become a major actor in sorting out some of Africa’s most brutal conflicts. Its participation in both the Southern African Development Community’s Organ for Politics, Defense and Security, and the African Union’s security arrangements illustrate the radical change the nation has made in regional relations. Far from being the omnipresent outsider, the country has become an enthusiastic participant in the continent’s regional security arrangements. Because of its economic resources and historical experiences South Africa has a lot to offer the region in terms of peace efforts. Nowhere is this more true than in the area of peacekeeping. South Africa has enormous resources compared to most other countries on the continent. It has well-developed, diversified industries, numerous natural resources, and its economy attracts wide foreign investment. Additionally, the country has a professional, well-equipped, civilian controlled army. Finally, South Africa has the recent historical experience of a peaceful transition to democracy after a protracted internal struggle that can inform its efforts to help settle other conflicts. Because of these strengths, South Africa can and should play a leadership role in regional peacekeeping on the African continent. A History of Regional Non-Cooperation It is impossible to fully appreciate South Africa’s current position without first taking a look at the country’s military relations in a historical context. During apartheid the nation was moving on a politically opposite path

from the rest of Africa (or for that matter, the world). While colonized countries around the globe were freeing themselves from minority rule, the small Afrikaner population was consolidating power. While Americans were dismantling separate facilities during the civil rights era, the apartheid government was trying to push black Africans into literally separate countries. While other African countries were birthing liberation governments, the apartheid regime was stifling dissent and imprisoning dissenters. This push against the tide of freedom created conflict between South Africa and her neighbors. Africans were ready to control their own countries and were willing to take up arms for their causes. The existence of apartheid and its codified repression of the African majority was an affront to the newly liberated Africans and their consciousness of white oppression. Military conflict was almost guaranteed by the situation. After the National Party took power in the post WWII era, South Africa still had many other white-controlled nations to ally itself with on the continent. However, as the attraction of colonialism faded, European powers began to leave their possessions in the hands of indigenous populations and retreat back to Europe. By the mid 1960’s most of the former colonies held by Britain, France, and Belgium had been returned to local control. This left only the Portuguese colonies of Angola and Mozambique and the settler controlled Rhodesia as South Africa’s white allied governments. In this period South Africa tried to assert its own “Monroe Doctrine” with a “natural sphere of influence” in southern and central Africa. This policy attempted to keep other nations from interfering with South Africa’s policies on the continent by claiming that the country’s relative power afforded it special status in African affairs. Additionally, South Africa created informal, supportive relationships with the governments of Rhodesia (who had pulled out of the British Commonwealth to avoid majority rule), and Portugal. This alliance was non-codified; no treaties or written pacts were drafted. Rather, it was designed as regional support system of weapons and training assistance that required no formality. However, in the 1970’s a coup in Portugal caused the nation to pull out of its African colonies. Furthermore, the government of Rhodesia was facing a losing battle with its own independence movement and could contribute little to the alliance with South Africa. This increasing regional isolation led to P.W. Botha’s Total Strategy, a utilization of any economic and military means necessary to crush opposition to apartheid both internally and externally. The Total Strategy had devastating effects for South Africa’s neighbors. The country was a regional giant with enormous military and economic resources, and it used all of these to quash any regional resistance to apartheid. The country illegally occupied Namibia (then South West Africa) in order to create a buffer zone between South Africa and opposing states in defiance of United Nations demands that it be granted independence It participated in the bloody and protracted civil war in Angola, supporting the National Union for the Independence of Angola (UNITA) in a conflict that ultimately cost 1.5 million lives and create anger and resentment with potential conscripts at home. It also supported the Mozam-

bique National Resistance (RENAMO) in its efforts to terrorize the citizens of that country. By 1983 South Africa had invaded or carried out raids in every country that bordered it. These often-covert actions created wide regional instability. Even when the apartheid government signed treaties (as it did in regards to Angola and Mozambique) the raids continued. So defiant was South Africa that when a group of Commonwealth diplomats visited the country in 1986 to open a dialog with the government, the country carried out attacks in Botswana, Zambia, and Zimbabwe who were all members of the Commonwealth. No amount of international protest or UN condemnation could stop South Africa’s military aggression against its neighbors. Additionally, South Africa used its economic power to intimidate and force cooperation from neighboring countries. The country was not only rich and natural resources, but it also attracted substantial Western investment, which enabled it to develop a more sophisticated economy than neighboring states. Because of this, apartheid South Africa was not only a large regional exporter of supplies like electricity and coal, but it was also often the sole significant importer of goods from its neighbors. The country also had control over most of the regional ports and railways, which made it difficult for other nations to transport imports and exports without the apartheid regime’s cooperation. The economic situation was further complicated by the fact that South Africa employed more than a quarter of a million foreign workers in its industries, which provided substantial income to families back home. The economic dominance enabled the apartheid regime to bully its neighbors, and to create severe economic disruption should they not cooperate in frustrating the efforts of the ANC and other groups battling the regime. For their part, the newly emerging liberation governments of Southern Africa sought to create their own regional security structures to counterbalance the South Africa Goliath. Initially, other African countries sought compromise with the apartheid government. Some countries, for example, Zambia tried to seek out a negotiated detentes in the mid 1960’s, but were frustrated by Pretoria’s refusal to make compromises. In 1969 the organization of African Unity endorsed the Lusaka Manifesto, which suggested noninterference in South Africa in exchange for a gradual transition to majority rule. Unfortunately, these overtures were ignored and South Africa continued its aggressive activities in the southern part of the continent. This led to the organization of the Front Line States (Angola, Botswana, Mozambique, Tanzania, Zambia, Zimbabwe, and later Swaziland, and Lesotho), a semi-formal, regional group united against South Africa on economic and military matters. The FLS supported the South West African People’s Organization (SWAPO), the Popular Movement for the Liberation of Angola (MPLA), and the ANC. The FLS created two subgroups organized to oppose the apartheid regime. The Interstate Committee for Defense and Security (ISCDS) which was concerned with military coordination, and the Southern African Development Coordination Conference (SADCC), which attempted to allow for economic cooperation without the interference of South Africa. Though both of these groups won

few victories against the apartheid government, they created the ground work for today’s South African Development Community (SADC) which has evolved into the regional structure that South Africa itself has become a leader in. A New Regional Leader Emerges After the 1994 transition to majority rule, the new republic’s military priorities and policies shifted dramatically. The ascent of the ANC to the ruling party meant that former adversaries became allies. It also meant that a massive program to integrate and restructure the military was undertaken. During this process, the regional role of the newly reformed South African National Defense Force (SANDF) was necessarily decreased as the military looked inward to redefine its role for the new republic. By 1998 the Department of Foreign Affairs was ready to articulate its new vision for the SANDF. In a Defense White Paper from that year, the department outlined the nation’s future objectives for regional peacekeeping missions. The White Paper noted that both domestic and international actors were expecting the newly democratic nation to play a leading role in international peace missions, and that alleviating the suffering of other peoples would be a high priority for the SANDF. It also noted that South Africa’s recent history would be a valuable experience in helping to resolve conflicts. Furthermore, it noted that the nation had both substantial military and civilian resources to offer the international community for peacekeeping operations. The White Paper laid out specific ground work and parameters for peace missions. It set guidelines for relationships with UN peacekeeping forces and cooperation with regional security structures like the AU and the SADC. But what makes the White Paper extraordinary is that it defines regional peace and human security as a vital interest for the nation. It notes: “In short, it is in the South African National Interest (their bold) to assist peoples who suffer from famine, political repression, natural disasters, and the scourge of violent conflict. South Africa may provide civilian assistance and armed forces in common international efforts when properly authorized by international authorities to help in such efforts”.

Apparently this sentiment is shared by the South African public, as the report goes on to point out, A nationwide opinion survey showed that more than two-thirds of respondents indicated their support for the nations involvement in peacekeeping missions. Since the publication of the White Paper, South Africa’s involvement in peacekeeping operations has grown steadily. The country’s involvement has been primarily under the auspices of two regional organizations, the Southern African Development Community (SADC) the African Union (AU). Both organizations have security and peacekeeping structures, as well as economic and political components. South Africa has become a leader in both groups, committing money, troops, and expertise. It is within these two organizations that South Africa will find its

future leadership role as a regional military force. The SADC evolved from the regional cooperation structures created by the Front Line States, and after the transition to democracy South Africa immediately joined the federation. The new ANC government was instrumental in helping form the Organ for Politics, Defense, and Security in 1998. The SADC Organ is a wide reaching project that seeks to address a myriad of security issues. These include conflict prevention, early warning systems, arms control monitoring, cease fire monitoring, humanitarian assistance, peacekeeping, and peace enforcement initiatives. The goals of the SADC organ are ambitious, and while not all of its operations have been completely successful, the SADC Organ has increasingly relied on South Africa in its operations. In 1998 the SANDF sent six hundred troops into Lesotho to prevent a military coup after an election dispute. The SADC had been involved in the situation in Lesotho Because of its recent historical experisince the election, when ence South Africa can offer much needed the Lesotho Congress of support to countries such as the DRC Democrats won a split that face difficult security situations. election to take almost all of the nations parliament seats. The opposition party, which included most of the members of the military, effectively shut down the government in protest, and fear of an impending coup was widespread. As a preemptive move South Africa sent troops over the border under the auspices of the SADC. Unfortunately, the force deployed was not sufficient, and the capital of Maseru was plagued by arson and looting. Fifty-eight members of Lesotho’s army were killed, as were eight SANDF members. Additionally, the legality of the intervention was questioned, as that the Article that covered such operations had not been ratified into the SADC Organ’s constitution at that time. The operation gave South Africa a black eye internationally, as Garth Shelton notes, “...the badly managed intervention raised doubts internationally about South Africa’s military competence. It raised the concern that if South African could not handle a relatively small problem, like Lesotho, it could not serve as the sub-region’s policeman. The Lesotho operation suggested that the SANDF was not adequately trained and equipped for a peacekeeping operation which rapidly changed to a peace enforcement mission. Lack of focus on peacekeeping training along with a preoccupation with conventional war-fighting probably lay at the root of the problem”. In an effort to avoid such problems, the SADC, with South Africa’s lead, began a concentrated effort to prepare its forces for international peacekeeping. In 1999 the country participated in a massive peacekeeping rehearsal called Operation Blue Crane with eleven other SADC nations in an effort to practice the integration of military command structures. The exercise was the largest ever held on the African continent and was given substantial financial backing by several Western powers. Though the operation hit a few snags, particularly a lack of Standard Operating Pro-

cedures (SOPs), the exercise showed a commitment by both South Africa and the SADC countries to create to create a viable regional peacekeeping structure. The additional training would prove useful as the SADC became increasingly involved in the volatile situation in the Democratic Republic of the Congo (DRC). In 1998, under the mandate of SADC, Angola and Zimbabwe sent troops to the DRC to protect the government of Laurent Kabila from being toppled by Ugandan and Rwandan forces. South African and United Nations forces followed by the end of 1999. Though South Africa supplied troops, it contributed more to the effort than just military might. First, the ANC government opened the Inter-Congolese Dialogue, a process of reconciliation and negotiation that continues to this day. The Dialogue has been instrumental in keeping the various DRC factions talking to one and other, and though there is still significant instability in the country, it has helped keep an all out war from resuming. Additionally, South Africa applied specialized military experience to the situation with Operation Teutonic, a military integration program aimed at merging the various warring factions into a single, viable army. Operation Teutonic allowed South Africa to share its own historical experience with other regional players. As Brigadier General J. Liebner, Senior Liason Officer for the SANDF explains: “We must prepare ourselves because we will be more and more involved in countries in African due to the fact that we have experience in post-conflict restructuring and also the integration process we went through. Basically, all of the countries we are are involved in must go through this process. I think our role will have to expand more in terms of military assistance, but I think now is the time the military can play a restructuring and a building role.”

Because of its recent historical experience South Africa can offer much needed support to countries such as the DRC that face difficult security situations. While South Africa has been heavily involved in the security initiatives of SADC, it has also been part of the broader continental security structure of the AU. The AU, which has evolved out of the OAU, has broad goals for a united Africa that solves her own problems and creates her own opportunities. As the AU has worked toward continental integration it has begun to develop its own structures for peacekeeping activities. The most significant AU operation that South Africa has been involved in thus far was the African Mission to Burundi (AMIB). Initially, in 2001, the SANDF was sent to the ethnically divided nation to protect opposition politicians from harassment and retribution during the peace process. However, as the situation became less stable, a broader contingent of AU troops was brought in to keep order while Nelson Mandela helped negotiate a settlement. Burundi was a largely successful operation for the AU, though disorder in the DRC creates challenges for the country the peace has generally held, and the AU mission certainly has helped to keep casualties down. Another AU operation South Africa has become involved in is the

African Union mission to Sudan (AMIS). The operation, aimed at keeping order while a settlement is negotiated in the chaotic Darfur region, has faced enormous difficulty in obtaining both funding and international logistical support. Though South Africa thus far has only dispatched 97 Special Forces troops, it has agreed this week to consider sending more to augment the overwhelmed AU force (Reuters). However, President Mbeki has been a strong advocate for the people of Darfur, advocating for assistance from Western powers, and appealing directly to President Bush for diplomatic support. Recently, the UN Security Council finally agreed to dispatch a better-funded and larger peacekeeping force to Darfur, which will take over from the AU by December of this year. Hopefully, UN involvement will give some protection to the people of Darfur while a settlement is worked out at talks in Arusha. This kind of operation illustrates how the AU can work to augment the UN security structure. These kinds of stabilization missions can utilize regional security structures as first responders during conflicts, while the international community as a whole orchestrates a coordinated response. Additionally, because of South Africa’s history it can provide a voice of legitimate moral leadership on human rights issues. The struggle against apartheid gave the ANC government a credibility that can be used to aid people facing repression of their own governments. Though these operations have been a significant contribution to the AU peacekeeping effort, it is perhaps South Africa’s future involvement in the African Standby Force (ASF) that will ultimately be its greatest contribution to the organization. The ASF, which is hoped to be fully operational by 2010, is a continental military force that the AU began assembling in 2002. It is an enormous undertaking aimed at providing the continent with a flexible, multinational force made up of five regional brigades and a central AU unit that will have a total of 15,000 to 20,000 peacekeeping troops. The force aims to be able to deploy within thirty days of a crisis, unless there is a situation involving genocide, in which it will deploy within fifteen days. The ASF will work closely with UN peacekeeping structures to provide rapid response to crises that the UN cannot quickly intervene in. South Africa is a key player in the ASF, its resources and military experience put it in the leadership role for the southern region, and its strong economy makes its monetary contribution essential to the success of the endeavor. Though the goals of the ASF may be very difficult to achieve, the organization provides another opportunity for South Africa to take the lead on increasing human security on the continent. Recommendations for A Future Peacekeeping Role It is important to note in any discussion of South Africa’s future role in peacekeeping that the nature of armed conflict in Africa is changing. With the departure of the Cold War powers and their ideologically based battles, new motives and strategies have emerged in the continent’s conflicts. As Allister Sparks points out, wars are often merely a pretext for plundering the resources of a nation. The conflict in the DRC is an excellent example of this, meaning that the warring parties often have little

incentive to end their activities. Additionally, ethnic conflicts have become prominent, and they are often difficult situations to solve because they are centered on identity and not politics, which makes political solutions difficult. The changing face of war on the continent means that the regional peacekeeping structures in Africa will constantly have to design new strategies if they wish to be effective. However, the regional nature of groups like the AU and SADC means that they will have a deeper historical and cultural understanding of these conflicts, which can aid in finding lasting solutions. South Africa in particular has negotiated its way out of a racial disaster, and its experiences can be valuable to other states facing the same challenges. South Africa also is in the position of having its own wealth and resources, which may make it less tempting for them to view conflicts as an excuse to loot the countries where it is involved. Not only is the nature of conflict changing, but so is the nature of peacekeeping operations themselves. Because of the new realities of war, peacekeeping is a much broader effort that involves many more actors than just the soldiers on the ground. As Cedric de Coning notes: “Consequently, peacekeeping is no longer exclusively a military affair where a neutral force is deployed between two warring parties to monitor a ceasefire. Today, peacekeeping missions are complex. multi-dimensional campaigns, where the military is just one player in a multidisciplinary team that includes diplomats, conflict resolution experts, humanitarian relief agencies, human rights workers, and civilian police”. South Africa seems to be prepared to deal with this complexity, sending negotiators like Mandela to talk to the combatants while using its troops to stabilize the situation as it did in Burundi. Its White Paper on peacekeeping also discusses the importance of civilian contributions to these efforts. These factors will help the nation to be an innovative actor in these missions, which is important as it takes on a larger leadership role. There are a number of other reasons that South Africa is an appropriate leader for the African security community. To begin with, as Keith Gottshalk noted in a recent lecture, South Africa has some key strengths that are lacking in other African nations. She has high political participation by her citizens, the military is well under the control of the civilian government, and the culture is less militaristic that many African nations. This means that South Africa is less inclined to abuse its neighbors militarily (as the apartheid regime did), which means it is a trustworthy actor in peacekeeping. Because of civilian control the military, the SANDF is not in the habit of abusing its own citizens like many African nations, so it will not export those bad habits. Additionally, South Africa does have the legitimacy created by its own peaceful transition to democracy. This is especially important considering the past abuses of outside actors in Africa such as US support of dictators like Mobutu, or recent abuses by UN peacekeepers in the DRC. South Africa’s legitimacy can help build confidence among the warring parties that they will be treated fairly in intervention activities. Another key strength South Africa has in this area is its economic resources. The wealth of the nation can go a long way in funding always-

expensive peace operations. SADC has already benefited greatly from South African funding. As Lt. General L.G. Fisher and Dr. N. Ngoma noted in an occasional paper for the Institute for Security Studies: “What augurs so well for the SADC region is the willingness by South Africa to place its massive resource capability at the service of the region in a manner that has not reflected the much written about ‘hegemony’ thesis. With this support and the region’s strong capacity to project unanimity of purpose, the task of meeting the challenges of the new millennium has not only been made lighter but a reality. Of course, there are numerous obstacles to fully developing effective regional peacekeeping structures in Africa. The major difficulty has and will continue to be acquiring the funding necessary to successfully carry out missions. The AU and SADC are largely funded on the whim of outside donors, and though South Africa is relatively wealthy, it cannot support peace initiatives on its own. As Theo Neethling notes in the African Security Review, “Yet it should be clear that the SANDF does not have an unlimited capacity-given the current financial constraints within the South African budgetary framework. In fact, some defence analysts argue that the SANDF would be able to handle its immediate commitments for some time, but that it would not be able to sustain those deployments for any length of time or take on any other extended large-scale missions. It has even been suggested that South Africa’s military is letting its enthusiasm outrun its military capacity.” However Neethling continues on to note that South Africa could afford to increase its military spending .4% even with its burdensome social spending and still be expending less of its budget on military affairs than most other nations in the world. In addition, a more peaceful Africa will make for a more prosperous Africa, which will increase the ability of other nations to share in the peacekeeping burden. Ultimately, if Western donors wish to delegate peacekeeping activities to regional groups they will have to invest substantial seed money to support those efforts. Deputy Prime Minister Sue Van De Merwe of the Department Foreign Affairs recently said that the DFA was optimistic about the creation of the African Standby Force, particularly because it was receiving a lot of funding pledges from G8 nations, which will enable it to be operational by the 2010 deadline. This is obviously a welcome sign for the AU, since without the proper funding the Standby Force is just another source of meetings and paperwork. Another key obstacle for these peacekeeping arrangements is potential turf wars over leadership roles. This is illustrated in the conflict between Robert Mugabe and Nelson Mandela over the initial decision to send troops to the DRC. Mugabe, who feels he is the preeminent statesman in African politics, came into conflict with Mandela because he felt he should be the permanent chair of the SADC Organ, rather than having the position rotate. When he was rebuffed, Mugabe asserted his independence as security chair by joining Angola and Namibia in sending troops to the DRC. The SADC and South Africa were forced to authorize the move retroactively, which not only created a division in the group, but also reduced the credibility of SADC. These kind of issues will need to be addressed

if SADC and the AU are to present the united front they need in delicate peace operations where the strength of coalition is the key to success. The incident with Mugabe also brings up another key issue for these regional partnerships. If these efforts are to be successful then Africa must work harder to create good governance oversight. It is difficult for outside donors to take peacekeeping structures seriously if they are made up of countries that are corrupt or abuse human rights. This is particularly true with ZimSouth Africa’s knowledge and expertise babwe. As MP Tony Leon is a welcome contribution to the military (DA) recently noted, the culture on the continent. South Africa’s Zimbabwe issue is making it difficult for SADC knowledge, discipline, and civilian control to obtain funding from needs to be replicated by other militarizthe West. In fact, the US es, and interaction during peacekeeping has pulled $20 mil in missions is an excellent opportunity to funding from SADC bemake that transfer. cause it continued to let Mugabe participate. This creates an obvious problem. Both SADC and the AU have set up good governance initiatives as a NEPAD, but these must actually have teeth in them if they are to solve these issues. Countries must trade a bit of sovereignty for regional cooperation in this regard. However, there has certainly been progress in this area. The reality is that more African states are becoming democratic and more transparent. The fact that Africa is even having this discussion is a remarkable sign of improvement, and African leaders are well aware of the fact that continued aid money will rely more and more on democratic reform. This expectation of reform may be one of the few things the West is doing right in regard to African peace and security. For all the difficulties it may entail, on balance a larger role in regional peacekeeping is in South Africa’s interests. The country certainly seems to be moving in that direction, and further funding and involvement is a wise move, not just for other countries, but South Africa herself. To begin with, South Africa’s knowledge and expertise is a welcome contribution to the military culture on the continent. South Africa’s knowledge, discipline, and civilian control needs to be replicated by other militarizes, and interaction during peacekeeping missions is an excellent opportunity to make that transfer. Additionally, regional peace will go a long way towards regional development. As Bentley and Southall note “the attainment of peace is necessary for economic development”. If countries such as the DRC have the stability needed to develop their economies the entire continent will benefit, and wider regional peace gives South Africa stable trading partners, and places to invest their money. It is also impossible to ignore the fact of South Africa’s own history of bitter struggle to attain human rights. This struggle gives the nation an obligation to help secure rights for others on the continent. The people of many African nations rallied around apartheid’s resisters, and it is natural that South Africa returns some of that effort and expenditure. Finally, South Africa’s history gives it a special leadership role that the world desperately needs.

As Michael Clough and Loubna Freih state in an article for Human Rights Watch: “If South Africa gives up its leading role in the worldwide struggle for justice, it will be a great loss for the world, for Africa and for South Africa. The world will lose a voice that is able to speak out credibly against the governments of great powers such as the United States and the United Kingdom when they fail to live up to the principles they espouse. Africa will lose the leader it so desperately needs if it is to realize its hopes of a political and economic rebirth. And South Africa stands to lose its special international status in the world, and the influence that it gained from that status”. Africa desperately needs leaders on these issues, and after decades of regional aggression it is time South Africa used it’s strengths to improve human security in Africa and to make the African Renaissance a reality. Sources Bentley, Kristina, and Roger Southall. An African Peace Process: Mandela, South Africa, and Burundi. Cape Town: Human Sciences Research Council, 2005. Clough, Michael and Loubna Freih. “Will South Africa Speak out on Darfur Today?.” Human Rights Watch 08/02/2007 de Coning, Cedric, and Kwezi Mngqibisa. Peacekeeping in the new Millennium: Lessons Learned from Exercise Blue Crane. Durban: ACCORD, 2000. Fisher, L.M., and N. Ngoma. “The SADC Organ:Challenges in the New Millennium.” Institute for Security Studies Occasional Paper(2005): Neethling, Theo . “Shaping the African Standby Force: Developments, Challenges, and Prospects.” Military Review May/June(2005 ): 68-71. Neethling, Theo. “Military Spending, Socio-Economic Challenges and Foreign Policy Demands: Appraising South Africa’s Predicament.” African Security Review 15(4)(2007): Ngoma, Naison. Prospects for the Security Community in Southern Africa: An Analysis of Regional Security in the Southern African Development community. Pretoria: Institute for Security Studies, 2005. “President Bush Meets with President Mbeki of South Africa .” whitehouse.gov. 12/08/2006. 2 Aug 2007 . Shelton, Garth. “The South African National Defence Force (SANDF) and President Mbeki’s Peace and Security Agenda: New Roles and Missions.” Institute for Global Studies March(2004): South African Department of Foreign Affairs, “White Paper on South Africa in International Peace Missions.” (1998): Southall , Roger. “Lesotho: Democracy at Gunpoint. South Africa Invades.” Southern African Report 14(1)(1998): Sparks, Allister. Beyond the Miracle: Inside the New South Africa. Cape Town: Jonathan Ball Publishers, 2003. Thompson, Leonard. A History of South Africa. New Haven: Yale University Press, 2001.

Africom: An Introduction Erin Stubbs - University of North Carolina

In February 2007, President Bush announced that ten years of planning by the Department of Defense had culminated in the creation of the United States African Command, or AfriCom. The creation of the new command was to consolidate oversight of all US operations in Africa into the jurisdiction of one centralized organization, replacing the current disjointed administration of US-African affairs. The creation of AfriCom has been highly controversial, with both critics and advocates being extremely vocal on the probable outcomes of the venture. The creation of AfriCom has signaled an increase in the relative strategic importance of Africa to US interests. The structure of AfriCom indicates that the new regional command is intended to be a long-term investment in the future of Africa. What is AfriCom? The Africa Command represents a new phase of American regional policy because it is constructed to be a “hybrid of military and civilian government know-how.” Other regional commands, such as the European Command (EuCom), the Central Command (CentCom), or the Pacific Command (PaCom) all of which had jurisdiction in parts of Africa before the creation of AfriCom, were primarily focused on military operations, and lacked a consistent connection with humanitarian or diplomatic programs working within their AfriCom will not replace the functions of the jurisdictions. In Department of Defense or of the US embascontrast, AfriCom sies in Africa. Instead, the program is intendwas created to encompass both ed to facilitate the missions of those organizamilitary and civiltions by coordinating resources and expertise ian operations on toward a common goal. the continent. The command includes officers with expertise in civilian affairs, whose primary responsibilities are to coordinate AfriCom efforts with those of other US government agencies that run humanitarian operations in Africa. As is traditional with global military commands, one commander oversees the entire operation. On September 28, 2007, the Senate confirmed the appointment of Army General William E. “Kip” Ward as commander of the Africa Command. His jurisdiction encompasses 53 countries– the entire African continent, with the exception of Egypt, which will remain a part of CentCom because of its strategic importance in Middle Eastern affairs. According to the Air Force Times, AfriCom is intended to “tackle diplomatic initiatives, humanitarian aid, and counter-terrorism operations in all of Africa.” As such, General Ward has two deputies, one to direct military operations and one to direct civilian-humanitarian opera-

tions. Vice Admiral Robert T. Moeller has been appointed as Deputy to the Commander for Military Operations, and Ambassador Mary Carlin Yates has been appointed as the Deputy to the Commander for Civil-Military Operations. In addition to military personnel, the staff also includes “officers from the State Department and the US Agency for International Development (USAID).” The vast array of concerns on the African continent has been addressed in a plan from the US Department of Defense to create a regionalized program within AfriCom, in which five regional offices report to the AfriCom commander. The plan creates these offices based on the regional divisions created by the African Union, with each of the five regional commands (East, South, West, North, Central) tailoring programs to target issues unique to each region. Oversight for the regional offices, as well as programs that pertain to the entire continent or that transcend regional jurisdiction, would still be addressed by the main AfriCom office. The Pentagon’s outline for the regionalization plans argues that it “would facilitate appropriate interaction with existing African political-military organizations” and would form links with existing African Union and USAID programs that are specifically targeted at individual regions. Each regional team is intended to contain “planners, ‘area experts’, health capabilities, and command and control systems,” although the details of personnel and operating procedures are still being determined. According to the original plans for AfriCom, the base of operations would be located within a partner country on the African continent. However, the increasing concern of African nations as to the real purpose of AfriCom has prevented the creation of an African home base. For the foreseeable future, the headquarters will remain in Stuttgart, Germany. The initial working operations of AfriCom began on October 1, 2007, as a sub-unified command under EuCom; the Africa Command is anticipated to reach full working capacity and to become an independently functioning command on October 1, 2008. Like the commands which will be replaced by AfriCom, the new command will “continue to support medical- and disaster-preparedness exercises and communications interoperability efforts” and “will help nations [in Africa] to confront poverty, disease, terrorism and other challenges that affect regional security and stability.” The veritable laundry list of concerns for AfriCom will be addressed with a mere $50 million budget for fiscal year 2008. What is AfriCom not? The discussion of what Africom is not has proved more controversial than the discussion of what it is. Perhaps most importantly, AfriCom will not replace the functions of the Department of Defense or of the US embassies in Africa. Instead, the program is intended to facilitate the missions of those organizations by coordinating resources and expertise toward a common goal. According to both the Department of Defense and the officials of the new command, AfriCom “will primarily work on diplomatic, developmental, economic, and security projects” despite the military presence necessitated by instability in the region. In response to concerns

voiced by many African leaders, Christopher R. Henry, the principal Deputy Undersecretary of Defense for Policy, stated that AfriCom is absolutely not intended to supplant the current leadership in Africa, but rather to assist in the stabilization of current governments. Critics say… The Southern African Development Community (SADC), a regional organization with 14 African member nations, rejected a proposal by US officials to place the Africa Command headquarters on African soil in 2008. South African Defense Minister Lekota stated that the African Union, of which all 53 African countries under the jurisdiction of AfriCom are members, would likely support the SADC decision. According to critics, the fact that African nations are blocking the The fact that African nations are blocking the plans for Afriplans for AfriCom’s development is significant Com’s developevidence that the new regional command is inment is signifitended only to further American interests while cant evidence ignoring the needs and desires of the African that the new regional command governments it claims to help. is intended only to further American interests while ignoring the needs and desires of the African governments it claims to help. Among the most vocal opponents of AfriCom have been South Africa, Libya, and Nigeria, all of whom argue that AfriCom is indicative of an “unwanted expansion of American military influence” and that Africa will be merely another theater for the War on Terror. Given the history of American intervention in Africa during the Cold War, the fear that purported aid to Africa will simply serve as an excuse for fighting proxy wars on African soil is not entirely unfounded. Algeria, Morocco, Egypt, and Djibouti have also vocally opposed hosting the headquarters, which is particularly interesting considering the fact that an American military base is already operating in Djibouti. Some experts have suggested that, while certain countries might welcome the headquarters of AfriCom and the additional jobs it would bring, African governments are hesitant to appear too friendly with the US government. Similar to the charges leveled against the US government for its invasion of Iraq, many critics have suggested that AfriCom will serve primarily to protect US oil interests as Africa becomes an increasingly important supplier of petroleum for US consumption. The majority of the oil exported to the US currently passes through the Gulf of Guinea, and experts estimate that as much as 24% of current American oil consumption comes from Africa. In addition to concerns over US oil interests, important US allies have expressed apprehension that “AfriCom will only strengthen America’s ties with unsavory regimes.” The history of American support of the so-called “banana republics” and African dictators during the Cold War suggest that this too is not an unfounded allegation. The economic interests of the US are becoming more intricately tied to those of Africa

both as oil production and Chinese influence increase on African soil. The United States currently has fewer embassies and consulates in Africa than China does, a fact which many critics of the program argue has precipitated the need for a US goodwill campaign in Africa, in the form of AfriCom. For many African leaders, the primary fear of AfriCom is that American counter-terrorism efforts will increase instability in Africa (as they have in the Middle East), an area that is already prone to civil wars and ethnic conflict. One such fear is that an increased presence of American personnel and military bases increases targets for potential terrorist activity on African soil, which would add increased violence to an area already plagued by problems. Advocates say… According to military experts, the integration of American programs dealing with Africa (including the African Center for Strategic Studies, Africa Clearinghouse, the Trans-Sahara Counter-Terrorism Partnership, and the International Military Education & Training Program, among others) will enable better coordination and will reduce bureaucratic overlap, as formerly three commanders had to work with all of these organizations, despite the fact that their primary interests lay in other regions of the world. Despite many of the criticisms that AfriCom represents a militarization of US-African policy, advocates argue that a significant American presence already exists on African soil; the creation of AfriCom will only allow the current presence to function better. According to Robert Rotberg, a professor at Harvard who specializes in African affairs, the consolidation of African programs into one centralized command could actually increase the capacity of the US to provide “more training, more peacekeeping, more conflict resolution alongside African armies.” Terrorism remains a major concern of US policy, and many US experts agree that to win the war on terror, the US must ensure the stability and security of areas which might foster terrorist cells; thus, Theresa Whelan acknowledges that “AfriCom is about helping Africans build greater capacity to assure their own security.” Conclusion The future of Africom is hazy. The Department of Defense has indicated no plans to delay the October 1 deadline of AfriCom’s functionality, despite opposition from the African continent. Whether African interests will be blanaced with US interests is debatable, but with proper oversight and increased support from the African continent, consolidation of humanitarian, diplomatic, and military efforts on the continent could perhaps improve the situation dramatically. Sources Agency Group 09. “AFRICOM HELPS PARTNERS CONFRONT STABILITY CHALLENGES.” (2007) FDCH Regulatory Intelligence Database. 3/6/2008. Bennett, John T. “DoD Plans Five Regional Teams Under AfriCom.” Air Force Times 2007. 3/6/2008.

Ford, Neil. “Doubts Over Africom.” African Business 2008Business Source Premier. 3/6/2008. Johnson, Scott, et al. “The Next Battlefront.” Newsweek (Atlantic Edition) 2007MasterFILE Premier. 3/6/2008. McMichael, William H. “AfriCom Opens its Doors.” Air Force Times2007 3/6/2008. Pitman, Todd. “AfriCom HQ in Germany for Forseeable Future.” Air Force Times2008 EBSCO Host 3/6/2008. Shabazz, Saeed. “Africa Rejects Bush U.S. Command in Africa Known as AFRICOM.” Amsterdam News2007, sec. 98: Academic Search Premier 3/6/2008. Volman, Daniel. “US to Create New Regional Military Command for Africa: AFRICOM.” Briefings - Review of African Political Economy 34.114 (2007): 737-44. . 3/6/2008.

Book Review: Stepping Out of the Silence Kendal Nystedt - University of Arizona



Starved for Science: How Biotechnology is Being Kept out of Africa By Robert Paarlberg, 235 pages. Harvard University Press. $24.95.

Robert Paarlberg is quick to acknowledge that his ideas are unpopular. In the opening pages of Starved for Science he states, “Many of my colleagues and students would recoil if they knew I wanted to replace traditional African farming practices with an increased use of high-yielding crop varieties, or even worse, genetically engineered crops. In polite company the best social strategy for me has usually been not to talk about these ideas at all, but in this book I have decided to step out of that silence.” Paarlberg steps out of the silence with an argument so powerful that even the skeptics may be persuaded to support his cause. With remorse, Paarlberg asserts that “rich countries,” in particular the states of the European Union, have inappropriately projected their opposition to agricultural science onto poor, rural Africa. In doing so, rich countries have handed Africa a death sentence. Paarlberg breaks down his argument into bite-sized portions. Given that his target audience resides within rich countries, he begins by analyzing (1) why consumers in rich countries have developed an aversion to genetically modified agricultural products and (2) why rich countries have subsequently abandoned research and development in the field. Paarlberg challenges individuals to consider whether or not a universal opposition to agricultural science is justified. Rich countries can afford to dislike genetically modified organisms (GMOs) because domestic agricultural yields are sufficient to ensure survival. Due to strong “psychological” ties between African states and Europe, Africa’s dependence on foreign aid for development projects, and the prevalence of NGOs like Greenpeace and Friends of the Earth in Africa, rich countries’ dislike of GMOs traveled through the pipeline and into Africa with ease. Instead of embracing increased agricultural productivity in order to alleviate poverty, African leaders adopted Europe’s strict regulatory policies and refused to approve GM crops for commercial use. “Europeans,” Paarlberg asserts, have imposed “the richest of tastes on the poorest of people.” Paarlberg concludes by detailing why agricultural science is a perfect fit for Africa. Given that 40 percent of farmers in Africa farm in arid or semi-

arid regions, Paarlberg has specifically isolated one window of opportunity: drought resistant crops. Paarlberg’s argument falls slightly short when he neglects to adequately address the “how.” Given that we accept that Africa’s rejection of biotechnology is really a reflection of a wealthy country’s agenda and given that we recognize the need for increased productivity and yield stability in order to end poverty in Africa, where do international development agencies go from here? How should the technology be implemented in an equitable and just manner? How do we address problems with infrastructure, disease, violence, and corruption, all factors that have the potential to undermine the effectiveness of any technological advances? I’m holding out for volume two. For skeptics and supporters alike, this book is worth a thorough read. Paarlberg provides fresh and concrete ideas that challenge perceptions regarding biotechnology and force the international community to look at agricultural development in a new light.