Saturday, February 24, 2007

China - Did you say yellow colonial masters?

Much is to be said about the wave of Chinese investment in Africa. The resource poor nation's thirst for raw materials and energy as well as market for cheap consumer goods is driving trade and investment across the poor continent of Africa with trade between the two standing at more than 40 billion a year having more than tripled since 2000.

So you ask why some think this is a bad thing?


China's business style of "no questions asked" is in sharp contrast to that of Western countries whose aid and investment come with "ties" for example world bank loans. Sometimes African countries are expected to meet certain standards, which could be anything from democratic principles to forest policy - all entirely up to the donor.


Not China.


Driven strictly by business savvy and ignoring all of the socioeconomic problems of its trading partners, China has drawn sharp criticism from Western governments and some NGOs for not going beyond trade to address social and political issues such as corruption, good governance and human rights. Beijing has been accused of being too cozy with Mugabe's corrupt Zimbabwe and the genocidal Sudanese regime but is the coziness based on trade or political support? I would think the former.


We must ask ourselves this: has the Western way of doing things in Africa lifted Africans out of poverty? The answer is a resounding no.


In late July, Zambian miners rioted against Chinese-owned mines when union leaders accused mining management of violating labor laws. They complained of poor working conditions, low pay and lax safety standards in the mines. Correct me if I am wrong but is it not the government's duty to protect its citizens from exploitation by putting in place strong labor laws?

 It is time Africans took their destiny in their own hands and stopped blaming enterprising foreigners for their lack of good leadership.

Is it China's duty to police African governments to act in the best interests of their people? Why should China be concerned with the corruption rates in Zimbabwe or the genocide in Sudan over its own gains from trade? No reason.


In short, China owes Africans no duty of care.


The major difference between the attitudes of China and the west is that China's conscience is clean of colonialism. They can afford to treat Africa like any other trading partner without opening historical wounds for Africans. The West should therefore continue its efforts in sorting out the mess it created but also let the new player bounce its own ball.


Chinese have been noted by corruption watchdog, Transparency International as one of the most rampant bribers in Africa and it is definitely possible that an unquestioned business relationship will bring out the worst in African leaders but it is about time Africa came to terms and dealt with its worst problem – leadership. Until good governance is achieved, there will be no gains from trade, no peace, no chance of competing in the global market and no chance of escaping poverty.


Raising legitimate concerns that come with the Chinese wave of investment in Africa is indeed important; but even more important is channeling those concerns away from feelings of xenophobia against the Chinese toward challenging African governments to making laws that protect their people from exploitation and give them equitable gains from trade so as to lift them out of poverty.

Olivia Byanyima.








Sleepless in New York

Nearly all our day-to-day decisions, actions and challenges can be described by some economic theory; but the subject of economics remains largely esoteric. While undertaking graduate studies at Columbia University in the city of New York, the study of economics gave me sleepless nights as I suspect it has many scholars before me. I stayed awake analyzing the situation in Africa today and the more I learnt the more I realized that although there isn't one single thing I can do to save the situation, there may be a couple of things I can do and one of them is to share with you my analysis of why our continent may be chained to an unachievable dream of economic development or at least an unrealistic path to the said development.


I come from a family of revolutionaries. Right from a great great grandfather King Ndagara, the last king of Buhwejhu who died fighting the colonialists. My family tree is scattered with dead heroes. People who saw right and wrong and no in between, people who shook establishments and went against status quo hoping to make a positive change for others in spite of the imminent losses to themselves. The revolutionary in me awakens more with every book I read. Sharing knowledge, ideas and the unanswered questions of my sleepless nights in New York, will if nothing else, help me understand this world better.


Foreign Aid

Official development assistance (ODA) is one form of foreign aid. There are several forms of foreign aid – grants, loans and humanitarian aid; we could even choose to call preferential trade agreements that developed countries extend to developing countries a form of aid. But Official Development Assistance (ODA) specifically refers to grants and loans and it will define the scope of foreign aid in this piece.


Foreign aid usually refers to a transfer of income from one country to another. It is meant to benefit both the recipient and the donor country even though the latter intention is not usually expressed. The recipient's interests are mostly economic growth and development while those of the donor are typically financial and/or political.


Financial gains are accrued by producers in the donor country if the recipient country buys donor exports using aid dollars or if consultants are hired from the donor country to provide "technical assistance" on aid-funded projects. Political gains for the donor are illustrated best by the case of African former French colonies in which France used aid for political support – countries received aid only under the explicit agreement that France would be consulted before these African countries voted on any important issue at the United Nations. The US also gave aid to Spain on the terms that it could build military bases on their soil.


The donors design the machinery that implements the transfer of aid. This gives the donor leverage or the ability to use aid to bring about the recipient's compliance with any action that's in the donor's interest. Limiting the analysis to financial interests, the donor is most likely to set up the machinery in order to ensure that the recipient country imports its goods and services. This is usually done subtly but can also be done explicitly in form of set conditions, as is with the case with "procurement tying" which clearly specifies where all the materials and equipment used in aid funded projects must be imported from. It's anybody's guess where that might be.


There is a strange theory in economics called the transfer paradox, which postulates that a transfer of income may worsen the recipient's terms of trade while improving the donor's terms of trade if the recipient has a higher propensity to spend on its export good than the donor. English translation: A transfer may cause the donor's export prices to rise relative to its import prices and the recipient's export prices to fall relative to its import prices leaving the recipient worse off and the donor better off after the transfer.

This theory was stumbled upon when, after World War II, France demanded war reparations payments from Germany (payments to compensate for France's loss during the long war against German invaders). The effect of the payments on either country sparked a historic argument between two great economists, John Keynes and Hecksher Ohlin. Keynes argued that Germany would have to decrease its export prices on top of paying the war reparations and would therefore suffer greatly but Ohlin argued that Germany would not necessarily have to worsen its terms of trade. Eventually, the reparations were never paid out but the theory of the "transfer paradox" was born. It explains a situation that arises when a transfer of income leaves the recipient country worse off and the donor country better off. Interestingly, when a recipient country uses all of its aid dollars on imports from the donor, the transfer is "a fully effected transfer". On the other hand, when the recipient country spends only a small portion of the aid on imports from the donor and the rest on local goods, the transfer is "an under-effected transfer". Note the subtle implication of the semantics!


Clearly, a fully effected transfer could lead to a case of the transfer paradox – decreasing welfare of the recipient country and improving that of the donor. But interestingly, the IMF is very persistent in encouraging "full aid absorption" which in English means spending aid on imports. So is the IMF misleading poor African countries? A good hypothesis for research would be: under what conditions is a country most susceptible to the transfer paradox phenomenon when there is full absorption of aid as recommended by the IMF? But even without complicated and rigorous statistical analysis, I believe our policy makers – legislators, ministers, politicians should be aware of these ambiguities when dealing with aid issues.


The contradictions of foreign aid are not a favorite subject for many but books like "Confessions Of An Economic Hit man" give a chilling account of how foreign aid has long been used, along with other more vicious and even bloody tools, by the US government for purposes of "empire building". And if that is too conspiratorial for your reading appetite, there is the argument between two renowned economists – Jeffrey Sachs and William Easterly that echoes that of Keynes Vs Ohlin. It is spelt out in two books – " The end of poverty" by Jeffrey Sachs and "The White Man's Burden" by William Easterly. Jeffery Sachs is a strong proponent of aid for development while Easterly thinks aid has failed to work in the past for various reasons and there is no reason it will work now as long as proponents of aid do not address the old reasons for failure of aid to promote growth and development for recipient countries.

All the ado notwithstanding, the world's richest countries announced a $50 billion increase in aid at a G-8 meeting in July 2005 mainly aimed at meeting the Millennium Development Goals (MDGs) articulated under the auspices of the United Nations. Now is definitely the time to investigate the many contradictions of foreign aid because like it or not, the money is on its way!


My people have a saying "Mira; mir'omuriro, chweera; chweera obunuzi" (If you swallow that which is now in your mouth, it will burn your throat like a fire and yet if you spit it out, you will lose out on so much sweetness).

During my sleepless nights, when I am not thinking about the enormous bills that come with living in New York, I find myself wondering what my great-great grandfather King would have done as a leader. In the light of these contradictions, would he have performed a crude cost benefit analysis and accepted the aid if the benefits outweighed the costs or would have rejected foreign aid outright - based on principle? I am more inclined to believe that he would choose the latter but of course I will never know.


Olivia Byanyima.





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