The Power and the Money

Dictatorship rising

In 2011, John Quiggin hypothesized that we were on the verge of eliminating old fashioned tyranny, “in the historical sense of absolute rule by an individual who has seized power, rather than acquiring it by inheritance or election.” 

I can understand his optimism. In the below photo, I am standing atop an abandoned monument to the absolute dictatorship of Enver Hoxha in Albania. There are a lot of former dictatorships in the world.  

But ...

In 2011, in response to a post by John Quiggin, Doug Muir pointed out that there were still quite a few dictatorships left. We defined dictators as (1) a solitary leader, who (2) wields tremendous personal power, and (3) rules in a generally illiberal manner, and (4) will not leave office or surrender power unless compelled by force majeure, and (5) is not a traditional monarch. So we do not include Arab monarchies (like Saudi Arabia), collective one-party states (like Vietnam), illiberal democracies (like Hungary), elected governments formally limited by unelected bodies (like Iran), or military juntas (of which there seem to be none at this moment.) 

Still, back in 2011, you could see a pattern. The New World was free of dictators outside Cuba. Every other dictatorship other than Syria was either in post-colonial Africa or the post-imperial Soviet space. And the Syrian dictatorship, many thought, was not going to be with us for much longer. 

Another but ...

Today that pattern no long exists. Dictatorship is everywhere. Consider the countries that were dictatorships in 2011 and are still dictatorships in 2018: Angola, Azerbaijan, Belarus, Cambodia, Cameroon, Chad, Congo Republic, D.R. Congo, Cuba, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Kazakhstan, North Korea, Rwanda, Sudan, Syria, Tajikistan, Turkmenistan, Uganda, and Uzbekistan.

The only two three countries to leave are Gambia, Zimbabwe and South Sudan ... the latter by dint of falling into prolonged civil war. (In comments, J.H. pointed out that Gambia is no longer a dictatorship.)

What about newcomers? Well, we have Fiji, Maldives, Nicaragua and Tanzania, and Togo ... plus Egypt, Russia, Turkey and Venezuela. It seems as though China has joined them and Honduras is making a play after the incumbent got the Supreme Court to nonsensically overrule the constitution and then blatantly stole an election. 

In total we have six small newcomers and five major ones. Only two are in sub-Saharan Africa. Two have nuclear weapons.

The world is still more peaceful than ever before. But inasmuch as you believe that said peace is due to the spread of democracy, we may have some frightening years ahead.

I would like to be wrong. Please tell me that I am wrong.

What does the word “civilizational” mean in French?

There’s been a bit internet pile-on President Macron over the past few days. I dislike these things, on principle. The tweets that fill up my feed seem more designed to let the tweeter enjoy their own self-righteousness or special enlightenment than to express true outrage. It’s all rather unpleasant. I was sad to see the author of one of my favorite books join in.

What are they beating up the French president about? Well, his comment is here:

President Macron expresses doubt that aid will work without institutional reform, favors more aid and direct French involvement in security, praises growth in African nations, calls the continent “a land of opportunity,” and supports aid. Those comments do not seem to be the cause of the outrage.

One issue seems to be that the President misreported fertility rates. Only Niger has a total fertility rate above seven; for most of the continent, the number is around five. Perhaps I am too generous, but this seems like an entirely forgivable mistake.

A second issue is whether high fertility contributes to African poverty. A large literature on demographic dividends implies that yes, it does, at least on the margin. I do not see grounds to criticize the French president on that.

A third issue seems to be that he left out references to the negative impact of the European empires. This blog certainly has an interest in the subject. But Macron has been outspoken in his critiques of France’s imperial past. And in his quote he actually agrees with the idea of a Marshall Plan for Africa; he certainly is not dismissing the idea that Europe owes Africa a debt. I am, however, open to an argument that Françafrique imposes a rhetorical special burden on French presidents. (Does it?)

Which leaves us with his choice of the word “civilizational.” My friend Gabriel Mathy pointed out to me that Macron’s statement is the logical equivalent of calling Africans “uncivilized,” and that, I think most observers will agree, would have been offensive. Language, however, is not algebra: I have no idea of Macron’s odd word choice (to speakers of English or Spanish) has an offensive connotation in French.

At the end of the day, whether there is any basis for outrage hinges on that one word. If it has a racist connotation, like “Oriental,” then Macron deserves connotation. If it does not, then there seems to be nothing here, and I fail to understand the reasons for the pile-on.

And I do wish, sometimes, that the mockery and outrage would stop.

Was the French Empire predatory?

There is a long debate over colonialism, particularly the late-19th-century variant. Most of the literature focuses on long-term effects. So it often loses sight of a simple question: did imperial institutions function basically the same as capitalist institutions in non-colonized places or did they serve to transfer resources to the metropole? That is, did colonialism simply bring areas into the modern world economy (for better or for worse) or did it directly suck resources out of the colonies?

This is not an easy question to answer. In a classic work, for example, Davis and Huttenback showed that British colonial enterprises were less profitable than similar British enterprises at home, in the Dominions, or in the Americas. But profitability tells us little. Imagine that British colonial enterprises had been phenomenally profitable. Would that have meant that they were bad for the colonies? Clearly not! Some other measure is needed. 

So here comes Federico Tadei (Universitat de Barcelona) with an obvious measure: did colonial commodity producers receive the same price for their goods as producers elsewhere, accounting for differences in transportation and insurance costs? 

In a bit more detail, here is what he does:

1. Gather prices at French ports for each commodity between 1898 and 1959. Also gather producer prices (what African farmers received at the farm gate) at African ports. Tadei can do the latter because French African statistics broke port out trade costs from producer prices; 
2. Construct estimates of trading costs including Atlantic shipping, insurance, inland transportation, port charges, and export taxes;
3. Calculate (1) − (2) to get what producer prices should have been under non-predatory institutions;
4. Compare (3) to the actual prices received by African farmers;
5. Check the results by comparing (1) against producer prices for U.S. cotton and wheat exporters or European settlers in Africa to see if American producers selling to Britain were as disadvantaged as French African producers selling to France;
6. Check the results by seeing how much of an increase in world prices is passed on to French African producer prices, plus a few more abstruse checks.

Here is the headline result, as a % of prices:

And here is French Africa compared to the United States for cotton:

Moreover, there is a plausible mechanism for extraction: monoposonistic trading companies and compulsory harvest quotas. The effect of the former is obvious; the effect of the latter was to prompt African producers to grow more than they would have in a competitive market. In addition, poll taxes might have induced African workers to enter the labor market, driving down production costs for African farmers and thereby prompting them to grow more. (Forced labor may have had the same effect, inasmuch as it also drove down costs for African producers.)

What I would like to see is the same method applied to Latin American and Asian producers. Brazil, Ecuador and various Caribbean countries exported cocoa; China exported peanuts; Brazil exported cotton. As for palm oil … well, forget that. (United Fruit introduced it into Guatemala, Panama and Honduras in the 1920s without much success. I was involved in a failed effort to introduce it to Chiapas in 1999.) But it is a way of stress-testing the hypothesis. If producers in Latin America and China faced similar extraction rates, then formal imperialism might not have been the problem.

Thoughts?

Wagging the Dog: Lessons from France and Gabon

In 2011, France was wracked by corruption scandals in which African leaders, from Côte d’Ivoire and Gabon in particular, passed off millions of dollars in cash to the Jacques Chirac and Dominique de Villepin. It was the flip side an earlier scandal in which the French national oil company, then called Elf Aquitaine, funneled millions of dollars per year into the coffers of Gabonese leaders. The African tail had begun to wag the French dog; some politicians called it “reverse colonization.”

And now it looks like something similar could happen under President Trump. Consider our own former colony in the Philippines. President Rodrigo Duterte has appointed Jose E.B. Antonio to be Manila’s special representative to the United States. Antonio also happens to be the CEO of Century Properties Group, which is building the Trump Tower Manila and paid the organization around $5 million for the privilege of using the Trump name. More payments are due: one Trump deal in Puerto Rico involved a 12.5% share of profits plus a 4% slice of operating revenues in addition to the up-front fee. 

What happened in France was illegal. What is happening in America appears to be legal: the payments from the Philippines are not coming directly from the government.

But what happened in France had tangible effects on Africa. France continued to prop up the execrable Bongo dynasty well past its sell-by date. In 2008, for example, the French government shut down an investigation into the provenance of Omar Bongo’s Parisian real estate portfolio. In 2010, the American embassy in Cameroon reported that the Gabonese government embezzled funds from the Banque des Etats de l’Afrique Centrale — that is to say, one of the two central banks serving French West Africa — and used them to support President Nicolas Sarkozy. When Bongo’s son, Ali, won the 2016 election with a razor-thin (and clearly fraudulent) margin the country erupted into riots. Ironically, the 2011 corruption scandal made France reluctant to pressure Gabon with anything stronger than mild language: not because Gabonese oil is so important, and not because Hollande received Gabonese money, but because the public scandal itself made any French actions in Gabon appear to be a continuation of the illicit ties between the two nations. 

Right now, a legal battle between President Bongo and his sister is bringing some of the looting to light and the European Parliament threatened sanctions on February 2nd. But Bongo is still there and Gabon is looking far more fragile than an oil-rich coastal statelet of 1.5 million people has any right to be. 

So now in the Philippines you have Duterte running death squads and cozying up to China. Maybe no U.S. president would have been able to do much about the former (and the latter likely deserves no response). But President Trump is not even going to try. And maybe he would not have tried no matter what. But the stench of corruption lies about it. Françafrique, meet Philamerica.

And worse yet, there are other, even more depressing places involved. Wagging the dog, indeed.

While you were away ...

 ... the Democratic Republic of Congo entered a constitutional crisis. 

Short version: the DRC was supposed to hold a presidential election this year. President Joseph Kabila asked the opposition to postpone the election until 2018. (Polls showed he would lose.) Quite reasonably, the opposition said no. But Kabila refused to hold the election. So now, on Monday, his term is up, but there is no sign that he will leave office. 

Why does Kabila want to stay? In this case, it is not just power-hunger. (In fact, he shows some signs of wishing that he could leave.) It is that evidence of extreme corruption has piled high around him, but nobody has been able to credibly promise that he will not be prosecuted the second he steps down. He is not a Muslim, so Saudi Arabia is out, and traditional places (like Uruguay) no longer hold themselves above international law. 

Kabila owns a shady business empire, but that is not why he is in trouble. He is in trouble for “a string of suspicious bank transfers totaling $95.7 million, dubious mining rights sales that have generated millions more and possible money-laundering schemes involving a bank executive widely described as Mr. Kabila’s adopted brother.”

Reports are that social media has been blocked and barricades are going up. This could end very badly.

Dictators, revisited

 Four years ago this week, I had a debate with John Quiggin over at Crooked Timber. Briefly, he said that dictatorship was on the way out as a form of government. I sharply disagreed. Four years seems like a reasonable amount of time to circle back and ground-truth.

Here is the original post. Take a moment to click through, so that we’re all agreed on definitions. Good? Okay, then: Who are the world’s remaining dictators, and have their numbers changed since 2011? The 2011 list is below, with original comments in italics and 2015 updates in parentheses.

Angola: Dos Santos has been the President nonstop since 1979. There are significant limits on his power, but IMO he qualifies. (Dos Santos celebrated 35 years in power last year. NO CHANGE.)

Azerbaijan (NO CHANGE)

Belarus (NO CHANGE)

Cambodia: Hun Sen, a bland and retiring little man, has ruled unchallenged since the middle 1980s. (He rules still. NO CHANGE.)

Cameroon: Paul Biya since 1982. The country has kept the trappings of a democratic republic, including opposition parties, but Biya is in charge and he’s not going anywhere. (He hasn’t gone anywhere. NO CHANGE.)

Chad (It’s still Idriss Déby. NO CHANGE.)

Congo Republic (NO CHANGE)

Congo, Democratic Republic: President Kabila, son of the late President Kabila, is likely to stay in power for the foreseeable future. He’s in a tie with Aliyev of Azerbaijan for youngest dictator — they’re both just 40. (And now they’re both 44. But otherwise, NO CHANGE.)

Cuba: Raúl, not Fidel. It’s surprising how many people think it’s still Fidel. (NO CHANGE.)

Djibouti (NO CHANGE.)

Equatorial Guinea: This is a nasty one. Doesn’t get much attention, of course. (It’s still nasty. NO CHANGE.)

Eritrea: Afewerki is another nasty one. A shame, since his rule started with really high hopes. (NO CHANGE.)

Ethiopia (Ethiopia’s long-term dictator Meles Zenawa died in 2012. However, his successor, Hailemariam Desalegn, has been governing in much the same manner — centralized one-party rule with no public opposition or criticism. In May 2015 Ethiopia held parliamentary “elections”; the ruling party won 90% of the seats and its allies took the rest.  Ethiopia’s human rights record continues to be dire, and it looks like Desalegn has settled in for the long run. NO CHANGE.) 

Kazakhstan (NO CHANGE.)

North Korea (Supreme Leader Kim died in late 2011, and was replaced by his son, Supreme Leader Kim. NO CHANGE.)

Rwanda (NO CHANGE.)

South Sudan: I’m jumping the gun here, because the country of South Sudan is just a few months old. But President Kiir has already made it pretty clear that he’s not going anywhere. (And he hasn’t. Four years later, Kiir is a post-colonial African dictator in the classic style. But the country is in the middle of a civil war, and therefore by definition not stable. So ... CHANGE.)

Sudan (NO CHANGE.)

Syria: At least for the nonce — I think Assad has a decent chance of sticking around. (And four years later he is still around. You can argue whether he’s a proper dictator, though, as he has now lost control of about half his country’s population and ¾ of its territory. I’ll give this CHANGE.)

Tajikistan (NO CHANGE.)

Turkmenistan (NO CHANGE.)

Uganda: To nobody’s surprise, President Museveni won a fourth term a few months ago. (And he’ll likely win a fifth next year. NO CHANGE.)

Uzbekistan (NO CHANGE.)

Zimbabwe: Robert Mugabe, still hanging in there at age 87, has been the world’s oldest dictator for a while now. (And, good grief, he’s STILL hanging in there at age 91. NO CHANGE.)

So, of 24 clear dictatorships in 2011, two have perhaps slipped out of that category — South Sudan is in the middle of a civil war, and Syria’s Assad has lost control over much of his country.

Did we overlook anything in our original list? Gambia has a good case: Yahya Jammeh came to power in a 1994 and shows no sign of leaving soon. So did Burkina Faso, but Blaise Compaoré fled at the end of 2014. Acting retroactively, that would make Burkina the third country to have left dictatorship since the original post. 

Have any new dictatorships been added? We would say yes, three. Two of these are pretty minor and one is not minor at all. The minor ones are Fiji and Togo, both of which I listed as borderline cases back in 2011. In Fiji, the Prime Minister operates within what looks like a British-style constitutional framework, but a permanent legislative supermajority, a hand-picked judiciary and an unfree press means he can basically rule at will. In Togo, President Gnassingbe has just won another “election” and looks good to stay in power indefinitely.

The not so minor one is Russia. Back in 2011 I said that Russia was authoritarian, but not a dictatorship. But in the last four years, Russia has become dramatically more illiberal, power has been ever more centralized, multiple critics and opponents of the regime have been prosecuted, imprisoned, or murdered outright, and the cult of personality around Putin has grown extreme. All of these things were just getting started in 2011, but they’ve moved very rapidly since. At this point we think it’s reasonable to call Russia a dictatorship.

We also have two new borderline cases. The small one is Burundi, where President Pierre Nkurunziza plunged his country into unrest after what looks to have been a power grab. He hasn’t established full control, however, so it’s not a dictatorship and looks unlikely to become one. The big one is Venezuela. A while back, we argued that the Polity IV database had jumped the gun by classifying the country a dictatorship. It still isn’t there yet — President Maduro does not rule by decree and he is facing contested legislative elections in December. But the trend since Chavez’s death has been sharply authoritarian. The government has banned opposition candidates, refused to permit foreign observers, and arrested opposition leaders. We hesitate to call it a dictatorship yet, however — partly because this trend is fairly recent, and partly because it is not clear how much power is really consolidated in President Maduro’s hands. The December elections should provide strong evidence one way or another.

In summary: two medium-size countries have fallen out thanks to ongoing civil wars. One small one has ousted its dictator. Meanwhile two small countries and one large important country have joined the club.

In other words, dictatorship does not seem to be on its way out as a form of government.

There is still no good economic theory of the Scramble for Africa

 There is no commonly accepted explanation for why European powers carved up the African continent in the 1880s. Most historians today discount economic explanations: by the 1880s African commodity exports were a sideshow. Rather, the explanations have to do with prestige-seeking by European governments combined with the fact that military imbalances made annexation easy. Related explanations add two sorts of security dilemma: (1) the fear that if one country did not annex an area another would; and (2) local political crises driving expansion as the easiest solution. 

Now come Ewout Frankema (Wageningen University), Jeffrey Williamson (UW-Madison), and Pieter Woltje (Wageningen University) to show that African commodity prices enjoyed a sustained upturn between 1845 and 1885. Moreover, that upturn was stronger than for other regions.

This is pretty neat stuff, but as an explanation for colonialism it leaves a lot to be desired. No matter how you slice it, the profits from this trade were pretty small. In addition, we need to know how much of those profits were seized by Europeans even in the absence of formal control — my prior is that it would be a lot. Finally, we would need to know why the scramble waited until the 1880s: after all, the price rise started 40 years previously. (The authors partially address this with the point that French inland expansion started earlier.) 

That said, these results do blow a hole in the Hopkins thesis that declining commodity prices caused intra-African wars over the remaining rents, thereby opening the door to European conquest. Neat stuff. 

Juan Linz was wrong

 I think I need to spell it out more clearly: Juan Linz was wrong.

(1) There are very few instances of democratic collapse in Latin America which involved partisan gridlock. The only one which clearly fits the bill is the Brazilian coup of 1964 ... except for the fact that Brazil tried a parliamentary system in 1960-63, which did nothing to resolve the country’s underlying political conflicts. Three others fit if you squint hard: the Argentine coup of 1966, the Honduran coup of 2009, and the Chilean coup of 1973. The latter, however, also involves a President who was in open defiance of the Supreme Court as well as Congress.

This is a small subset of the democratic collapses in Latin America. 

(2) Now, Latin America is all presidential regimes, save the 19th-century Brazilian Empire and that brief early-Sixties experiment. But Africa has a mix of presidential and parliamentary systems. And on that continent, both systems are equally-likely to break down.

(3) Postwar Europe has not had a lot of democratic collapses, but there have been a few close calls. They do not fit the Linz formula. Perhaps the coups in Czechoslovakia and Hungary should not count, because they both involved the Soviet Union ... but they nonetheless occurred in parliamentary systems. The collapse of the Fourth French Republic was not a coup per se but it was certainly a constitutional breakdown ... and the Fourth French Republic was a parliamentary system. The 1982 putschists in Spain launched their assault on a parliamentary government. Finally, the 1960, 1971, 1980, and 1997 coups in Turkey overthrew prime ministers, not elected presidents.

The U.S. may go into a crisis. We may develop a political culture most unsuited to our constitutional structure. Jonathan Chait explores that idea here. But if that causes us to go into crisis, it won’t be because of our constitution per se.

Sometimes the Europeans could do no right

 There is an overwhelming amount of evidence that the European empires did very little right in Africa. I will admit that these results came as a surprise to me; my prior would have been that the Europeans would have left behind some institutional innovations or physical infrastructure of value. That case, however, turns out to be extremely hard to demonstrate outside of Southern Africa. 

The slave trade, of course, was one of the most egregious ways in which the Europeans managed to play havoc with Africa. It follows, of course, that ending it should have positive effects. And it did! The Middle Passage was a horrifying meatgrinder ... no possible cost could outweigh the reduction in human suffering from insuring that fewer people would suffer in it.

But the passage of the U.K. Slave Trade Act of 1807 may have had the consequence of boosting conflict in Africa. James Fenske (Oxford) amd Namrata Kala (Yale) argue that it did, by weakening the authorities whom had enriched themselves off slave exports. They take advantage of the fact that the British were rather more successful in reducing human trafficking from West Africa than elsewhere as a form of natural experiment to test their hypothesis.

The time series evidence is fairly compelling that something happened around then:

But I am not wholly convinced of the validity of their experiment. First, look at the above figure: there are a disconcerting number of zeroes among the controls. Second, look at the map to the right, which shows the treatment area in red and the control in blue. Are they really comparable regions?

The authors do vary the treated area and find the same result. In the map, the treated area consists of everything within 1,000 kilometers of a slave-trading port. They varied that distance to as low as 250 kilometers, with the same result. They also defined the treated zone as the current borders of countries with historical slave ports; again, similar results. Finally, they threw out the four territories annexed by European powers in 1807-40: Sierra Leone, Gambia, and Côte d’Ivoire. They also threw out Liberia for similar reasons. Again, the results hold.

Nonetheless, it still seems as though there may be a data problem: we know less about conflicts in the interior. And even if we did have comparable information, the interior likely had a radically different state structure and a much lower population density. The comparison seems forced.

Even without the experiment, the time series certainly make it seem like something happened to increase conflict in coastal Africa in 1807! The Slave Trade Act is the most probably culprit. Moreover, it is hard to argue reverse causality, i.e., that the Act was a response to rising levels of intra-African conflict. They do a good job of demonstrating that British interest in the slave trade had no correlation with interest in African conflict. (Google Ngrams is pretty neat.) In short, the experiment may be unconvincing ... but it also may be unnecessary. Read the paper!

But if they are right, it is depressing to think that ending the slave trade may have done as much to weaken African states as the trade itself. 

War in Africa before the Europeans

 There is a long literature stating that war contributed to state building. Here, for example, you can find a paper by Nicola Gennaioli (Bocconi) and Hans-Joachim Voth (Zurich). It argues that European states needed money to win wars. Thus, states got better at raising money or resigned themselves to irrelevance.

It a powerful thesis, so much that even Paul Collier alluded to the possibility that Africa might be better off if the post-1945 world allowed for violent border changes. Let Rwanda expand! In extremis, you might even want to create institutions (like the ones in the pre-1914 West) that would encourage cohesive states like Rwanda to expand. 

Or perhaps not. Did war encourage state-building in Africa before the Europeans invaded? If so, then it might be true that the continent would be better off had that process been allowed to continue. If not, however, then the implication is that European conquest did not abort local state building ... and unless something has changed radically, there would be little reason to believe that allowing that process to restart today would result in anything other than more death and destruction.

Mark Dincecco (Michigan), James Fenske (Oxford), and Massimiliano Gaetano Onorato (IMT Lucca) have done the work. They coded up 1,750 conflicts in Africa, Asia, and Europe between 1400 and 1799. In Europe and Asia, more war in the past predicted stronger and richer states in the present. But not in Africa! In Africa, more war before 1799 has no effect on economic development today ... and is in fact associated with more civil war.

The result is strong and intriguing. Go read the paper! Africa is different. Past war does not improve present results on that continent. The unanswered question is why. Section 6, where they try to address that question, is the weakest part of the paper. 

Any suggestions?

Long-ago history does not always matter

 There has been a recent spate of papers in the category of “history only happens once.” They generally take the form of showing that some long-ago historical event continues to reverberate in the present. Two of the best in the genre are Nathan Nunn’s (Harvard) work on the effect of the slave trade on Africa or Nico Voigtlaender (UCLA) and Hans-Joachim Voth’s (Zurich) work on the medieval origins of anti-semitic violence in Nazi Germany. I had the honor of criticizing an early version of the latter paper; the authors effectively dealt with all my complaints. Amazing work.

But sometimes it can go too far. For example, many have argued that Latin America’s extreme level of inequality has its roots in the colonial past, when my people (oh, my people, at least some of them) arrived and managed to botch everything up. Except here comes my friend and colleague Jeffrey Williamson (Harvard and UW-Madison) to point out that it isn’t true. From the abstract:

Most analysts of the modern Latin American economy have held the pessimistic belief in historical persistence — they believe that Latin America has always had very high levels of inequality, and that it’s the Iberian colonists’ fault. Thus, modern analysts see today a more unequal Latin America compared with Asia and most rich post-industrial nations and assume that this must always have been true. Indeed, some have argued that high inequality appeared very early in the post-conquest Americas, and that this fact supported rent-seeking and anti-growth institutions which help explain the disappointing growth performance we observe there even today. The recent leveling of inequality in the region since the 1990s seems to have done little to erode that pessimism. It is important, therefore, to stress that this alleged persistence is based on an historical literature which has made little or no effort to be comparative, and it matters. Compared with the rest of the world, inequality was not high in the century following 1492, and it was not even high in the post-independence decades just prior Latin America’s belle époque and start with industrialization. It only became high during the commodity boom 1870-1913, by the end of which it had joined the rich country unequal club that included the US and the UK. Latin America only became relatively high between 1913 and the 1970s when it missed the Great Egalitarian Leveling which took place almost everywhere else. That Latin American inequality has its roots in its colonial past is a myth.

In other words, something good happened in the North Atlantic during the 20th century. (Well, good in terms of inequality: there is evidence that it took a lot of depression and war to get there.) That good thing did not happen in Latin America. This is a very different view than one which dates the region’s inequality to the 16th century ... and a much more hopeful one, I think.

Gender shock

 We know that European colonization affected Africa in multiple ways. The direct effects were generally, well, at best neutral. Outside a few long-standing enclaves (like Dakar) and (maybe) Tunisia and South Africa, it’s difficult to imagine a counterfactual in which the Europeans never extend sovereignty and the Africans have a harder time of it in the 20th century.

One understudied way in which the Europeans might have affected Africa negatively is through gender norms. If there were benefits to, for example, learning English or French, but the colonial authorities only taught men, then gender inequality would increase. One can imagine many other channels in which this effect could have operated.

On the other hand, it is far from given that pre-colonial Africa was a paragon of gender equality, relative to Europe. It hard to see how colonization might have improved the situation, but it is possible.

So what was the effect? Well, Felix Meier (Utrecht)  and Jacob Weisdorf (Southern Denmark)  have an answer! It turns out that the Protestant churches in Kampala kept incredibly detailed occupational data going back to the 19th century. They found that the initial impact of colonialism was what you’d expect … but it didn’t last:

“We find that the arrival of Europeans in Uganda ignited a century-long transformation of Kampala involving a gender Kuznets curve. Men rapidly acquired literacy and quickly found their way into white-collar (high-status) employment in the wage economy built by the Europeans. Women took somewhat longer to obtain literacy and considerably longer to enter into white-collar and waged work. This led to increased gender inequality during the first half of the colonial period. But gender inequality gradually declined during the latter half of the colonial era, and after Uganda’s independence in 1962 its level was not significantly different from that of pre-colonial times. Our data also support Boserup’s view that gender inequality was rooted in indigenous social norms: daughters of African men who worked in the traditional, informal economy were less well educated, less frequently employed in formal work, and more often subjected to marital gender inequality than daughters of men employed in the modernized, formal economy created by the Europeans.”

In other words, the British conquest had little overall effect at the end of the day … or at least by the end of the 20th century. Thoughts?

Violent rebellion in theory and practice

 Many have speculated that drought set off the Syrian Civil War. We presented some evidence from Mexican history that supports the hypothesis ... but we also showed that the Mexican results were highly sensitive to how you defined “revolutionary activity.” 

Is there more evidence that drought causes unrest?

Cornelius Christian and James Fenske of Oxford University provide an interesting answer. In French West Africa during the colonial period, low rainfall or high temperature are associated with more unrest. Interestingly, however, they find that the effect is less in places where the French took over existing pre-colonial states. In those areas, the story goes, the French were able to use existing institutions to collect taxes even in the face of peasant resistance. In other places the state only arrived with the French, and resistance was commensurately higher.*

Does the same pattern hold in modern Francophone West Africa? No! First, they find some correlation for rainfall but none for temperature. In fact, for temperature the effect is sometimes reversed. Second, it no longer matters whether the area was part of a 19th-century kingdom; that part of the past really does seem to be past. 

I am not sure if the results have a direct application to Syria. The Syrian drought does appear to have been record-breaking; the West African shocks are not of the same magnitude. But they do imply that the correlation between unrest and drought is not one-to-one. They also provide a useful corrective to the recent spate of articles that in effect argue that history matters once: history matters, a lot, but its effects are not permanent.

The extraterritorial British empire

 The U.K. goes a little bit further than the United States in letting people use its courts against foreign sovereigns. The basic law is laid out in the State Immunity Act of 1978. First, the British law does not require that any state-owned property must have some sort of economic connection with the activity that gave rise the underlying claim. (E.g., there is no equivalent of Section 1610(a)(2) in the British law.)

Second, in general it is a little easier to “pierce the corporate veil” and go after the assets of state-owned companies. For example, 2006 a British company went after the Congolese Republic for unpaid debts. The Congolese government tried to sell oil through the  state0owned Société Nationale des Pétroles du Congo (SNPC), which then sold it through a web of holdings. The British courts held that SNPC was an “organ of state” because:

1. The board of SNPC could delegate powers to a chairman appointed by the President of Congo;
2. SNPC had unaudited and unverifiable financing arrangements with the state; and
3. SNPC neither declared dividends nor returned profits to the state in cash. Instead it made expenditures normally made by government.

Other than maybe the first half of the third clause, that would certainly apply to PDVSA.

Now, that case did not involve sovereign debt per se, but a similar one did in 2005. That year, a British vulture fund managed to grab the revenues from Congolese oil sales. Now, the Congolese had done a good job of protecting themselves. SNPC established a subsidiary, Cotrade.  Cotrade sold oil to the Africa Oil & Gas Corporation (AOGC), incorporated in Canada. AOGC then sold the oil to a company called Sphynx, which in turn sold it to Glencore. The vulture fund successfully intercepted the money that Glencore owed Sphynx by arguing that SNPC and Cotrade had no independent existence from the Congolese state and AOGC was nothing more than a convenient front. (This is the best link for the story.) That seems rather more direct than what happened in Texas! 

Now, to be fair, a similar attempt to go after a joint venture part-owned by the government of the Democratic Republic of the Congo failed in 2012. So while easier than in America, it is not a sure thing.

Finally, there is the global Mareva injunction. British courts can freeze assets in advance of a judgment. No sneaking things out of the country here! 

I AM NOT A LAWYER! I have no idea how difficult it would be to wield these tools against Venezuela in the advent of a default. I kinda think it would be hard, since the bonds were issued under New York law and Citgo assets are in the United States. But Mareva injunctions can be global. So I suspect U.K. courts will play a role in whatever happens.

Which will be default --> legal mess --> restructuring. Hold on to your hats.

Recommended reading on migration

Three recommendations. First, for those of you with a casual interest in the topic, there is a very brief review paper by Joseph Ferrie (Northwestern) and Timothy Hatton (Essex) on the last two centuries of international migration. (The paper actually covers the last four centuries, although it moves quickly over the 17th and 18th centuries.)

Second, Paul Collier’s new book, Exodus. It is a very well-written and thought-provoking brief in favor of immigration restrictions. If you click the link, it will take you to multiple reviews of the book. Most of the negative ones are tendentious and a little strange. This fellow here argues that countries should abandon all income redistribution in order to facilitate open borders. In that, he concedes Collier’s main argument, which is precisely that unlimited immigration could destroy the national sentiments that underpin liberal democracies. (Collier has a fascinating discussion of the theoretical circumstances under which this might happen; it is not a blanket argument. A blanket argument would obviously be stupid.) Nathan Smith at Open Borders starts by conceding Collier’s main point and calling for countries to impose special taxes on migrants instead of preventing their entry. (As an American, I recoil at that idea: differential taxation based on birthplace is contrary to the 14th Amendment. It is an odd suggestion for a proponent of open borders.) He follows up by saying that democracy is bad as part of an attack on Why Nations Fail, by Jim Robinson and Daron Acemoglu.To be fair, I am not sure that he realizes that he is arguing that democracy is bad. (I should mention that Jim Robinson is a friend.) Kenan Malik argues against a caricature of the book. One of the best parts about Exodus is how Collier lays down the conditions under which a diaspora will grow indefinitely and those under which it will not. Malik, however, writes, “A key argument in Exodus is that the levels both of migration and of problems created by it are linked to the size of diasporas.” Well, sometimes! But not always. I was left unclear what troubled Malik, other than that Collier is wrong about Great Britain. (Not being British, I can’t say, although Collier explicitly gives large shout-outs to the U.S. and Canada for our ability to assimilate immigrants.)

Finally, here is an incredible bit of investigative reporting into a Nigerian human trafficking ring. It is horrifying ... and quite amazing how the reporters made their escape.

“Politics is costly & Africa had to pay that price”

I just read a very good essay by Andrew Mwenda in a Ugandan newspaper. (I am not in Uganda.) Here is the conclusion:

Could post independence governments in Africa have performed better? Perhaps, but at a price; they should have aimed at preserving their limited capacity; using it only sparingly. Instead, most governments in Africa moved fast to elaborate public functions. Botswana avoided this mistake perhaps because it had had an almost absentee colonial state. This could have reduced the demands for rapid africanisation. But acting like Botswana would have been a purely technical response to what was actually a burning political problem.

The nationalist struggle for independence emerged to challenge legally sanctioned exclusion of Africans from state power outside of traditional institutions in colonial Africa. That was its fuel. Upon independence, the first demand therefore was rapid africanisation. Although technically disastrous, it was politically popular. The second demand was derived from the first. Africans wanted to take public services to the wider population. Few governments would have survived by resisting this demand.

Political pressure for africanisation undermined the meritocratic systems of external recruitment and internal promotion that allowed the civil service to uphold its high standards. Rapid elaboration of functions without existing capacity made a bad situation worse. What was politically right was technically disastrous. And in our ethnically heterogeneous polities, promoting social inclusion – even on the face of things – was more politically desirable than sustaining technical competence. The problem is that it eroded competence and allowed cronyism and corruption to flourish. Politics is costly and Africa had to pay that price.

Many African elites focus on technical failures in Africa and ignore the political compromises that brought that failure. In other words, the price of political compromise was technical failure. It is possible that if such compromises had not been struck, many states in Africa would have collapsed under the weight of civil war. It is remarkable that African leaders who inherited fictions of states left behind by colonial rule were successful at creating a common national consciousness. This has sustained the sovereignty and territorial integrity of these nations. Today, few states in Africa have fallen apart like Somalia. In others, the state may not be omnipresent yet, but the concept of nationhood has gained a lot of ground.

Click the link and read the whole thing!

I find this a fascinating hypothesis. How to test it? Ted Miguel provides partial evidence from the Kenya-Tanzania border. The border sliced through the same diversity of ethnic groups on both sides, yet villages on the Tanzanian side find it much easier to muster collective action and raise resources to provide public goods than otherwise identical Kenyan counterparts. Ted’s work, however, just indicates that nation-building strategies can work. It doesn’t quite get at Andrew Mwenda’s hypothesis.

I wish I saw an obvious way to operationalize the hypothesis. Calling Suresh Naidu! 

Why I am in Colombia: Spreading the word on the resource curse, or lack thereof

I am in Colombia for many reasons. One is to start a big research project. Another is because I like the country. But the main one was to attend a conference on mining put on by the Universidad de los Andes.

El Tiempo reported on the conference. Here is a translation of part of their report:

“In his presentation, Noel Maurer, a professor at Harvard Business School, said ‘there is no curse’ from the resources created by mining discoveries. For him, there is no evidence from any country where either democracy or development has severely deteriorated after an increase in income generated by mining activity.”

That is worded a little more strongly than I would like (you can find some evidence of a resource curse in Nigeria and Zambia, and it is unlikely that the 1997 crisis would have unseated Suharto at a time of high mineral prices) but it does about sum up my opinion. To be fair to El Tiempo, they added my caveat in this tweet.

Lina Holguin of Oxfam-Québec tweeted in response to my caveat, “Congo, Chad and Niger...????” I would answer by saying that while all three countries are poor and unstable, there is no evidence that they would be less poor or less unstable without natural resources ... with an additional caveat that natural resources may have increased violence in particular regions of Congo. Possibly.

El Tiempo also tweeted a few other quotes from yours truly. First: “The decrease in Venezuelan democracy started before the oil boom.” Second, a somewhat misquoted, “No resource boom has affected countries rich in resources.” (I am mildly unhappy with that one: my argument was only about democratic stability.) Third: “Colombia ought to avoid wasting the current mining boom.”

While my discussion was about democracy, that last quote is correct: lots of countries have blown resource booms, leaving them no better off than they entered. Colombia should avoid that. Of course, that is something easier said than done!

Finally, let me end by presenting the (weak) evidence for a resource curse in Zambia.The red line measures the country’s Polity score, a commonly-accepted measure of democracy. The blue line measures the government’s real direct income from the copper industry; the green line measures the percentage of government revenues from copper.

Zambia’s polity score dropped precipitously between 1968 and 1972, while copper revenues boomed. The country then democratized in 1991, after a period of prolonged low copper prices. The argument would be that copper revenues made it easier for Kaunda to establish a one-party state, while the period of low prices was essential to see the fall of that state.

The rub, of course, is that lots of countries in Africa followed the same trend around the same time. (See the below chart.) But you cannot rule out a curse for Zambia.

And the United Nations makes Ghana give Argentina its warship back

There is something amusingly science-fictional about the title of this post, like something that John Brunner would have written satirically in the 1960s.

The International Tribunal on the Law of the Sea (ITLOS) is an international court (loosely-associated with the United Nations) that rules on disputes related to the Law of the Sea Treaty. It consists of 21 judges elected by the governments of the states party to the Law of the Sea Convention. They serve nine-years terms; decisions are made by majority. Since it was created in 1996, the Tribunal has only seen 20 cases.

And today it released its decision in case #20! “Ghana shall forthwith and unconditionally release the frigate ARA Libertad, shall ensure that the frigate ARA Libertad, its commander and crew are able to leave the 22 port of Tema and the maritime areas under the jurisdiction of Ghana, and shall ensure that the frigate ARA Libertad is resupplied to that end.” It also ordered each party to pay its own costs associated with keeping the ship in berth to date.

Ghana argued that the ITLOS did not have jurisdiction because:

1. The ARA Libertad was in Ghanaian territorial waters (p. 4 at the above link);
2. Argentina had waived immunity under U.S. and U.K. law (p. 5);
3. Domestic appeals in Ghana are continuing (p. 6).

ITLOS declared (in paragraphs 94-100 at the link to the decision):

1. A warship is an expression of the sovereignty of the State whose flag it flies;
2. In accordance with general international law, a warship enjoys immunity, including in internal waters, and that this is not disputed by Ghana;
3. Any act which prevents by force a warship from discharging its mission and duties is a source of conflict that may endanger friendly relations among States;
4. Attempts by the Ghanaian authorities on 7 November 2012 to board the warship ARA Libertad and to move it by force to another berth without authorization by its Commander and the possibility that such actions may be repeated, demonstrate the gravity of the situation and underline the urgent need for measures;
5. The urgency of the situation requires the prescription by the Tribunal of provisional measures that will ensure full compliance with the applicable rules of international law.

And so, the decision! Argentina gets its ship back, although the two parties can continue to argue about the underlying principles. The Argentines also wanted Ghana to salute the flag and otherwise genuflect, but the Tribunal wisely seems to have ignored all that.

The decision was unanimous, but some of the judges added their own wrinkles. Anthony Lucky of Trinidad thought the Tribunal should have been more forceful in asserting sovereign immunity. Chandrasekhara Rao of India was annoyed that the Ghanaian government took a different view before ITLOS than before its own courts. He also wanted the Tribunal to state more forcefully that a state that allowed a foreign warship into its waters automatically gave up jurisdiction over that ship. Finally, Rüdiger Wolfrum of Germany and Jean-Pierre Cot of France had ... well, what seems to this non-lawyer to be a lot of hair-splitting that ends up in the same place as Lucky and Rao.

And thus, this latest attempt to seize Argentine assets comes to naught. Even in today’s world of limited sovereign immunity, it is hard to collect on sovereign debts. An expropriation case would be different (at least if it involved export industries) since foreign courts could easily go after production from the expropriated assets. But when it comes to sovereign debt, about the only leverage seems to be going after new issuances.

In short, Argentina won and Ghana lost. Sorry, LT.

Argentina v. Ghana, round 1½

The Argentines are going to fly their sailors home ... on an Air France plane. The reason is obvious: they are nervous that Ghanaian courts would just seize any Argentine aircraft!

It looks like the Ghanaian port authorities are going to move the Libertad. It’s clogging up a needed berth, costing the port $3,667 per day.  To be fair, that is a lot less than the $50,000 that the Libertad is currently paying in docking fees ... well, that Argentina is ratcheting up in fees. I suspect that Argentina isn’t actually paying them. After all, it has stated that it is going to claim those fees in damages in the suit it plans to file against Ghana at the U.N. Law of the Sea Tribunal in Hamburg.

Speaking of the U.N., nobody should be surprised that the Security Council is not treating this as a threat to world peace. So much for hyperventilating about an Argentine strike on Ghana ...

P.S. No, nobody in Argentina is seriously discussing war with Ghana!

Argentina loses round one in Ghana

In most countries, military and diplomatic assets owned by foreign states are untouchable by judicial action. That’s why the attempt to attack Argentine embassy accounts in France ultimately failed. But that does not — so far — seem to be the case in Ghana. The creditors are winning.

On October 11, 2012, Judge Richard Adjei Frimpong of the Commercial Division of the Ghanaian High Court held that the Argentine government had waived sovereign immunity in the initial bond contracts. (Technically, in the 1994 fiscal agency agreement attached to them.) I have not yet been able to get a copy of the ruling, but I have some idea of what the two sides in the case argued. Argentina’s lawyer, Latty Otu, argued two things. First, you can’t seize military vessels under the Law of the Sea. Second, the fiscal agency agreement only covered assets inside Argentina.  

The creditors’ lawyer, Ace Ankomah, posed several counterarguments. First, he argued that while the Law of the Sea recognizes that naval vessels are immune, it says nothing preventing states from waiving that immunity. Second, the fiscal agency agreement applies outside Argentina — the clauses specifically applying to assets located inside Argentina involved the assets that the government refused to allow to be attached.

This is not what I expected to happen. Now, there are two more appeals to go in the Ghanaian court system. The first is the Court of Appeals. The second is the Supreme Court. The fastest that these could go is three months. One thing that won’t happen is an intercession by the Ghanaian government. Government lawyers took Argentina’s side in court, but the Ghanaian government is not going to interfere with the legal process. Just yesterday, Argentina’s deputy foreign affaris and defense ministers  returned empty-handed from a visit to Ghana. Meanwhile, in Buenos Aires the head of Argentina’s intelligence services has had to resign — understandably, she should have seen the Ghana incident coming — as has the head of military strategic intelligence and the Chief of the Navy. Meanwhile, Argentina continues to rack up $50,000 a day in docking fees and around $550 per hour for a good lawyer. Still, there’s one good thing. After reports came out that the sailors on board the ARA Libertad reacted very badly to the visit by the Argentine negotiating party, Ace Ankomah’s office brilliantly announced that they stand willing to fly all the sailors home immediately at no charge.

If the Ghanaian court decision surprised me, the reaction of the Libertad’s crew to a visit by the Argentine negotiating team has me completely stonkered. From Clarín:

The team announced, “We want to bring the greetings and support of the Argentine people.” The sailors’ cold anger was visible. Witnesses to the visit stated that the team spent no more than 15 minutes on board before abandoning the ship for the Ghanaian capital. After the [pair of Argentine officials] left, the Libertad’s sailors dropped the pretense: they confessed to their superiors that they wanted to “punch them.”

 Oh, my.

I suspect that Argentina is going to get its ship back, but now it is just a hunch. Argentina is going to the International Tribunal for the Law of the Sea (located in Hamburg) for a judgment. Does anyone know anything about law to make a prediction about the Ghanaian appeal or the Tribunal’s ruling? If this one sticks, and a naval vessel really can be seized to force repayment of debt, we really will be in a revolution.

UPDATE: Argentina will evacuate the crew of the ship. No word on whether they will take the creditors’ offer to pay for their flights home.

Ghana declares war on Argentina, seizes naval vessel! Or not.

Argentina, like a lot of countries, keeps a few old-line sailing vessels in its navy. They use them to train sailors and show the flag. They don’t fight, they don’t get involved in disputes. So imagine how surprised 200 sailors must be to find themselves trapped in Ghana, their ship being held as if war had just been declared!

The ARA Libertad pulled into Tema, Ghana, on graduation tour down the West African coast. A hedge fund with a legal claim on Argentina had been monitoring its movement. The ship docked to find a bailiff from the Superior Court of Judicature waiting there with a court order to hold the vessel. “The Accused (the Foreign Ministry of Argentina), its officials, agents ... including the captain of the Ship, Pablo Lucio Salonica, and the crew are prohibited from moving the frigate ARA Libertad from Puerto Tema without a new order from this court.” The crew then had to surrender to the court. Argentina can release the ship by paying a bond: the local press has mentioned $10 million; technically, the bond will have to be equal to the value of the ship.

Elliott Capital is chasing money it claims Argentina owes it. Argentina defaulted on its debts back in 2002, and then essentially repudiated most of it. Most creditors accepted the deal, but Elliott did not. (More accurately, Elliott bought Argentine debt on the secondary market after the default but before the repudiation.) Elliott owns bonds with a face value of $630 million; including past-due interest, they are now worth $2.3 billion. (That is a lot of interest!) Elliott has done relatively well in New York courts, getting judgments worth about $1.6 billion. That is what the Ghanaian seizure is about.

The thing is, the New York courts have been pretty strict about what the creditors can actually seize. They have ruled out going after Aerolineas Argentinas, stating that it is in receivership and not really a state entity. Ditto for state funds held in New York. On the other hand, the court only just declared in favor of the bondholders in these two orders here and here, which changes things from the days when creditors were just looking around for assets without a legal decision in their favor.

Anyway, I predict that the Argentine ship is released: it is a naval vessel, protected by sovereign immunity. But I also predict that Argentina is going to find itself in a gigantic heap of trouble, particularly as the economic situation continues to deteriorate. It will be basically locked out of foreign markets, although it might be able to raise dollar funds at home. (Maybe. And at high cost.)

Any interest in a post on the state of Argentina?

Ethiopia, North Korea, and Some Half-Formed Thoughts on Dictatorship

North Korean dictator Kim Jong-Il died late last year. He was promptly succeeded by his twentysomething son. Some observers questioned whether the son would be able to take over and impose effective personal rule, but nearly a year has passed and he seems to be doing just fine.

Ethiopian dictator Meles Zenawi died last month. He hasn’t been succeeded by anyone yet. (Formally, officially, the Deputy Prime Minister has stepped up. But nobody seems to be taking him too seriously. He’s a mild-mannered guy, not a member of the revolutionary generation, and the wrong ethnicity to boot.) Zenawi was a “slash the tallest flowers” kind of guy; years of life on the run as a guerrilla in the bush seem to have rendered him permanently paranoid. Anyone who seemed too popular or too competent got demoted. At best demoted. So there’s no obvious successor.

I think the odds of Ethiopia staying a dictatorship are pretty good. It’s a country that has never known democratic rule or any sort of pluralism. Since the Emperor Haile Selassie consolidated his rule in the late 1920s, Ethiopia has had exactly three rulers: Selassie himself, Stalinist dictator Haile Meriam Mengistu, and the recently deceased Mr. Zenawi. That’s just three guys in almost 90 years, all of them absolute rulers with little or no tolerance for dissent. The country has almost no liberal traditions. Civil society does exist — there are NGOs and labor unions and even a few lawyers who are willing to sue the government — but it’s young and small and weak. It won’t be too surprising if a new strongman emerges. But it may take a while, and Ethiopia may go through a period of oligarchic rule and jockeying for power before things sort out.

Regimes with clear lines of succession are generally stronger regimes. Part of the reason is that they’re slightly harder targets — you not only have to take out the top guy, you have to get rid of his designated successors as well. But I think the bigger reason is that everyone knows what’s coming next after the dictator. Even if the successor is a dubious character, he’s likely to seem better than chaos and uncertainty.

Traditional monarchs have known this for millenia. But the lesson applies to dictatorships as well. We currently have at least five extant examples of non-royal dictatorships that have been successfully transferred to a son or brother of the dictator: Azerbaijan, Congo, Cuba, Syria, and North Korea (twice). Gabon and Togo are authoritarian regimes run by sons of former dictators; if we include them, the club expands to seven.

Examples of transfer to a non-relative are much much rarer. There have been a couple in the past. (Ataturk hand-picked his successor; Mexico in 1934-94 had an extremely powerful president who chose his successor from the party leadership, but they did not meet the definition of dictator. After all, they had to leave after six years in office.) But not a single extant dictatorship fits this pattern! (Burma’s dictator chose a successor who is still in power, but the successor seems to prefer being primus inter pares to being a true lone ruler.)

Now, it’s a long established principle that old age is a dangerous time for a dictator. All three of the dictators picked off by the Arab Spring were in their golden years. (Porfirio Díaz in Mexico and Juan Velasco in Peru also went down in their dotage.) More generally, an old dictator with no clear successor is pretty clearly putting himself at risk. That said, some dictators do run the course and die, more or less peacefully, in office.

So what happens when a dictator manages to pull this off — grows old and dies without first being overthrown or losing an election or whatever? Well, we can sketch out a tentative typology.

1. A son or other close relative steps up. (Several extant examples, see above.)
2. A hand-picked successor takes over. (Rare; no extant examples.)
3. There is a party or other system independent of the dictator that chooses a new dictator. (Rare outside of the Communist world; Mexico in 1934-94 comes closest. No extant examples, though we might see one soon in Cuba.)
4. After a period of uncertainty, brief or prolonged, a new dictator takes over. (A couple of extant examples — Turkmenistan, South Sudan.)
5. There’s a shift to authoritarian but non-dictatorial rule, either by a single ruler, an oligarchy or junta, or a party system. (China, Vietnam, Ivory Coast.)  This seems to be the single most common outcome in the last decade or two.
6. There’s a relatively rapid shift to relatively liberal or democratic rule. (Portugal, Spain. In the former, it took six years and revolution to get democracy.) This happens, but it’s less common than we might like to think. A shift in the direction of liberalism is much more likely when the dictator has been overthrown, or has voluntarily stepped down (Indonesia, Tanzania, Singapore), or agreed to elections (Chile, Zambia, Senegal). A system that lets the dictator die in office seems less likely to produce democracy at first go.

Numbers 2 through 6 include the possibility of foreign intervention; the United States, France and the Soviet Union have all intervened in this manner at one time or another. We may call these 3a (party picks a new dictator, foreign approval makes the difference: the Eastern European model, 1945-1990), 4a (new dictator takes power subject to foreign approval) and so forth. There aren’t really any extant examples of these at the moment — the U.S. seems to have lost interest in installing dictators in Central America and the Caribbean — but I would not be surprised if Russia’s “near abroad” in Central Asia were to throw up a 4a or 5a in the next little while.

6a is damnably rare, actually nonexistant: Panama would be one of the rather few cases since WW2 in which foreign intervention replaced a dictatorship with a democracy. Iraq sort of maybe kinda if you squint really hard. The jury is out (to be charitable) in Libya. And all of those interventions happened when the dictator in question was very much still alive and in power.

Anyway. There are enough elderly dictators out there that we should expect to see some more examples in the next few years. I expect that (5) “a shift to authoritarian but non-dictatorial rule,” will continue be the most common outcome. Which means that some countries that are currently dictatorships will drop off the list! If the number of dictatorships is to remain constant, then new ones will have to emerge. How likely this is ... well, this post is long enough. In a bit.

A short primer on the Ethiopian banking system

 Because this is what I do.

Ethiopia’s banking system is weird. It’s like a throwback to an earlier Africa, the Africa of the 1970s or 1980s. Three reasons.

First, the system is dominated by two big state owned banks. One of them — the Commercial Bank of Ethiopia — accounts for almost 50% of all lending, by itself. Throw in the other one (the Development Bank of Ethiopia) and the majority of lending in the country is being done by state-owned banks. That was pretty common in Africa thirty years ago, when almost everyone had a big state-owned bank or two that dominated the sector. But in 2012, state-owned banks are an endangered species. About half of all African countries don’t even have them anymore. In those that do, the state-owned bank is usually small and specialized, focused on some neglected sector like agriculture.

There are a couple of reasons for this. One is that, historically, African state-owned banks generally didn’t work very well. Another is that the big multinational lenders — the World Bank and the IFC — dislike state-owned banks, and have encouraged African countries to break them up and privatize them, or at least shrink and marginalize them. (For the record, I think this was mostly a positive thing — but like a lot of World Bank/IFC policies, it’s been applied in a rather ideological and ham-handed way. A lot of bad, corrupt, ineffective old state banks needed to go, but a lot of babies got thrown out with that particular bathwater.)

Ethiopia, though. Ethiopia is run by a bunch of former revolutionaries who are very nationalistic and not inclined to trust or listen to the World Bank and its ilk. So they’re keeping their big state-owned banks. But at the same time, they’ve allowed — no, encouraged — the growth of a vibrant private banking sector. There are about fifteen private banks in Ethiopia today, and they account for about 40% of lending and about 60% of deposits. They’re a vital part of the economy already, and they’re growing by leaps and bounds. So the banking sector is a true public-private hybrid. In this, Ethiopia looks a bit like a less-developed version of Brazil, where public banks are common and the BNDES development bank plays a major economic role ... but keep reading.

The second odd thing about the sector is that it’s closed and protected: no foreign banks are allowed. Ethiopia has no Barclays, no Bank of Africa, no Citi or HSBC. That’s also weird and unusual, because in 2012 most African and Latin American countries have opened up their banking sectors to foreign competition. Among other things, you can’t join the World Trade Organization unless you agree to do this — and everyone wants to join the WTO. Out of 54 African countries, all but seven or eight are already WTO members. (The ones that aren’t in the WTO are either oil-rich — Libya, Sudan, Equatorial Guinea — or recluse states like Eritrea, or tiny places like the Comoros. Oh, and Somalia, which doesn’t have a functioning government.) So pretty much everywhere in Africa, from Botswana to Senegal, you’ll encounter a bunch of international banks. But not in Ethiopia.

The third weird thing: the Ethiopian Central Bank? The guys who regulate the banks, control the money supply, set interest rates and all that? The Central Bank is not independent. Doesn’t even pretend to be. It’s an arm of the executive branch. It’s there to do all the normal central bank stuff, but it’s also there to carry out government policy. (In this, Ethiopia is also quite different from Brazil. The Banco Central do Brasil has little statutory independence, but plenty of de facto autonomy.)

Here’s an astonishing example. Couple of years back, the Ethiopian government wanted to build a hydroelectric dam. Huge, huge thing. Going to light up half the country. Also going to displace tens of thousands of villagers and do untold ecological damage, including possibly wiping out Lake Turkana, but do you want electricity or not? — So they want to build a dam, but for various reasons nobody wants to lend them money to build it. (Ethiopia’s credit is not good: Dagong rates the government at CCC, and Moody’s and Standard & Poor’s don’t even bother.) Where to get the money, then?

Well, the government of Ethiopia simply followed the Willie Sutton principle. The Central Bank told the private banks that they needed to start buying dam bonds. Lots of them. In fact, the Central Bank announced that for every dollar lent by a private bank, they would have to buy twenty-seven cents worth of bonds. Since commercial loan rates in Ethiopia are around 12% to 15%, and dam bonds pay just 3%, the banks were not very happy about this. But they had no choice: if they didn’t comply, the Central Bank would shut them down. So they’ve been buying dam bonds — millions and millions of dollars of them. And now the government has money to build its dam.

So, a mixed public-private banking system that’s protected from international competition, run by a non-independent central bank with a history of brutal intervention. How’s that working out?

Surprisingly well. But this may need another post.

In Ethiopia

 So, I’m in Ethiopia.

Addis Ababa, to be specific — the capital. This is a job for my current employer, and it’s relatively short as these things go — just ten days. I’ve been here a week already, so I go back in a few days. Meanwhile, a few things about Ethiopia.

It’s high. Most of the country is mountains or plateaus. Addis is about 2300 meters or 8000 feet up. You can definitely notice this. I have the habit of running or trotting up stairs; after three flights, I’m noticeably wheezy, and half an hour on the hotel’s treadmill the other night left me light-headed and shaky. There’s about 25% less air in every breath, so I guess one must either breath 1/3 more deeply or 1/3 more often.

The altitude also means that it’s not that hot during the day, and it’s actually coolish at night. You see people walking around with jackets and sweatshirts, which is not something I’m used to in Africa. (It also means Ethiopia is mostly free of malaria mosquitoes and some of the more hair-raising parasites.)

It’s Africa. But it’s slightly askew. By which I mean that in some ways, it’s very typically Sub-Saharan African, but in others it’s just weird. For instance, it’s mostly Christian and part Muslim, which is pretty common in Africa. But the Christianity isn’t Catholic or Protestant. No, it’s the Ethiopian Orthodox Church, which is 1700 years old, rather Old Testament (no pork, lots of fast days), and looks down on Catholicism as an upstart newcomer. Or: everyone speaks English as a second language, which is common enough. But the first languages are Oromo or Amhara, and everything is written in both English and the Amharic script — which is its own weird alphabet that resembles nothing so much as Armenian.

Ethiopians look different, too. On one hand, there are some very typical Ethiopian faces — one spots that right away. On the other, there’s a remarkable range of skin colors and hair textures. My tentative assumption is that I’m looking at different ethnic groups, but that’s just a guess. Certainly the place has had a history complex enough to support a lot of mixing.

The food is supposed to be excellent. Unfortunately, I’m here on business, which means I’m gravitating towards bland foods that are thoroughly cooked. I broke with this rule one day, and had some chili, and ended up getting really sick for a day — nausea, chills, you name it. (Man, I hate chills.) Business travel makes you conservative, y’know? So I can’t talk much about the food. Well, I can note that the coffee is brutally strong, and any meat is going to be tough. (Seriously. Africans generally enjoy their meat tougher than Europeans or Americans, but Ethiopians seem to take this to an extreme.)

Ethiopia is poor, but it’s also seeing very rapid economic growth. Very, very rapid. As in: better than 8% average growth per annum sustained for over a decade. Since the turn of the century, they’ve more than doubled the size of their economy. Since their population is growing rapidly, per capita income has only grown by about 50%. But that’s still pretty impressive. And you can see the growth happening in real time: downtown Addis is basically one huge construction boom. I haven’t seen anything like it since 1990s China.

Of course, it’s growth from a very low base. Ethiopia is still very poor. It’s poor even by African standards. And you see that too — people in ragged clothes, beggars, you name it. But fifteen years ago, it was very very poor. Now it’s just very poor.

I’ll probably have more to say about the economic stuff in a day or two. Meanwhile: questions about Ethiopia? 

Somalia irredenta

 Somalia is a desperately screwed up corner of the world — war, poverty, anarchy, mass famine. It’s also a significant haven for terrorists. So we’re likely to see it in the news a bit over the next little while. That being the case, I thought I’d pass along another one of my personal idiot tests. Here it is: anyone who discusses Somali politics without at least mentioning Ethiopia probably doesn’t know what they’re talking about.

Something that mostly gets missed: Ethiopians are the traditional enemies of the Somalis. The reasons for this are complicated, but here’s the big one: back in the 19th century, Ethiopia clawed off a big hunk of Somalia. Sometimes called Ogadenia, it’s an Arizona-sized territory, mostly arid, with a population of around 4 million people, almost all ethnic Somalis.

This might have worked out OK if the Ethiopians had treated their new Somali minority well and integrated them. Alas: up until the 1990s, various Ethiopian regimes treated the Somalis of Ogadenia with varying degrees of oppression and contempt. The Somalis, of course, responded with guerrilla movements, insurgencies, and rebellion. At one point in 1977 the government of Somalia actually sent troops over the border into Ethiopia to help the Ethiopian Somalis try for independence, It failed, but you can believe it’s remembered in Ethiopia.

I said “until the 1990s” because the current Ethiopian regime — while dictatorial, brutal, and obnoxious in all sorts of ways — actually has a surprisingly good track record in Ogadenia. It’s given the Somalis there limited autonomy under traditional leaders, and has mostly quit oppressing them. This has gone far (not all the way, but far) towards appeasing their grievances. There are still anti-Ethiopian conspiracies in Ogadenia, but they’re fairly small (for now). It doesn’t hurt that Somali is currently such an anarchic hellhole that few Ogaden Somalis want to join up, nationalist sympathies notwithstanding. The Ethiopian government may be a brutal dictatorship, but at least it’s an actual, more or less functioning government.

But! On the Somali side, taking back Ogadenia — whether the Ogadenians want it or not — has become an unquestioned tenet of Somali nationalism. No right-thinking citizen can question it, and all political leaders vie with each other in the intensity of their anti-Ethiopian rhetoric. And as Somalia descended into anarchy back in the 1990s, various leaders decided to show their chops by supporting insurgencies in Ogadenia, raiding across the border, etc. etc.

(BTW, I said that Ethiopians are the traditional enemies of the Somalis. That’s true, but the converse is not. Somalis see Ethiopia as an imperialist power that grabbed a third of their country and that remains a menacing, existential threat. Ethiopians see Somalia as an intermittent annoyance — sometimes negligible, sometimes an obnoxious nuisance. A rough comparison might be, say, Georgia and Russia.)

Anyway: back in 2007, Ethiopia eventually lost patience with this and invaded. Nominally, they were doing it to support the Somali “government” against “insurgents.” This was nonsense; the Somali “government” was just another armed group, and not one of the stronger ones. From Ethiopia’s POV, the invasion had nothing to do with supporting one group over another. It was more about throwing Somalia against a wall, hard. The idea was to demonstrate that Ethiopia was strong, Ogadenia wasn’t going anywhere, and Somali cross-border fun and games would carry a very high price tag. And arguably the Ethiopians succeeded at this, albeit in a way that generated massive negative externalities for all other players. A lot of people died, Somalia got even poorer and more anarchic, and the government that Ethiopia was “supporting” ended up even weaker than it had been, because they’d allied themselves with the hated Ethiopians. But the border quieted down.

Anyway: if nothing else, knowing the history gives you a useful bullshit detector. If someone starts nattering on about the conflict and either (1) never mentions Ogadenia, or (2) tries to frame the Ethiopia-Somali relationship as a religious conflict (as opposed to a classic nationalist-territorial one that Somali jihadism is making worse), then they’re talking crap.

More generally, you can’t talk about Somalia in isolation. That’s true of most countries, of course, but in the case of Somalia its lawlessness and open borders have encouraged all sorts of intervention, good and bad — okay, mostly bad — by outsiders. Kenya shares a border and mostly supports the government, but is wary because there’s a large Somali-speaking minority in Kenya too. (Back in the 1960s, the Somali government supported an insurgency in Kenya. It didn’t work out.) Eritrea supports the largest anti-government group, the Taliban-like Shabab, and other groups that are ferociously anti-Ethiopian. (That’s because Eritrea hates Ethiopia, and the two have their own little regional mini-cold war going.) The Chinese are quietly looking for oil. Even Uganda has a presence in Somalia. (Which resulted in Shabab blowing up a crowded restaurant in Uganda’s capital Kampala last year.) So it’s just impossible to separate Somali politics from regional politics.

But while Somalian politics is fractally complicated and dominated by violent conflict between different armed groups, Somalian political ideology is much more consistent: Somalia should be a united state, the state should be formally Islamic, and Somalia should recover its lost territories — most particularly, the Ogaden. The warring parties may disagree on the details (formally Islamic like Pakistan, or like Iran, or like Saudi Arabia? Attack Ethiopia right away, or wait until they’re weak?) but they’re in firm agreement on those essentials. Somalia has managed to maintain a very high level of intense, ferocious nationalism despite the near complete absence of a functioning state. This may explain why only Somaliland in the north has tried formal secession. And Somali nationalism is still going strong, despite the continuing political violence and some desultory attempts to imitate the Somaliland example.

Incidentally, the government — after a bewildering series of twists and turns — seems to be on the upswing at the moment; they drove the Shabab out of the capital last month. I wouldn’t count on that being a harbinger of much, but it isn’t a bad sign.

China doesn’t have an empire, except maybe in one unexpected country and only if you squint hard

 Empire is one of those ill-defined terms. Problem is, define it too narrowly—say, formal sovereignty over a subordinate political community—and you deny the existence of, say, the Soviet empire in Eastern Europe, or the American one in the Caribbean. That’s not a useful definition. Define it too loosely, however, and every power imbalance becomes an example of “empire.” That’s not helpful either.

One useful way to define empire is through the threat of sanctions. If one political community enforces its writ over another by the threat of sanction (active painful sanctions), then you’ve got an empire. Might be strong, might be weak, but it’s imperial. A corollary, of course, is that the stronger political community will extract either political control or economic benefits from the weaker one. (China gets no visible non-commercial benefit from its presence in the Bahamas, for example.)

Chinese energy policy is often accused of being imperialistic, especially in Africa. The evidence comes in three flavors. First, “equity oil”: the tendency of Chinese state-owned companies to buy equity stakes in foreign oilfields and oil producers. Second, the way China ties state-financed loans to oil agreements. If countries want the cheap finance, they need to give China cheap oil. Finally, the long-term nature of such agreements, putatively locking the producing nations into providing China with oil at a discount.

The most famous of these deals, with Russia, turned out to be a lot less when examined it up close. China lent Russia money at market rates to build a pipeline that would deliver hydrocarbons to China at market prices. It’s hard to see the imperialism. Where was the threat? Where was the benefit?

OK, but that’s with the Russian Federation, you say. Russia is a great power, sort of, and not subject to Chinese pressure the way that smaller and poorer places might be. Okay. To test that, we can go over the universe of loans-for-hydrocarbons deals signed by China since the beginning of 2009. How many of them involved the delivery of oil at less than market price? Not Angola, not Brazil, not Bolivia, not Kazakhstan, not Ecuador, not Turkmenistan.

Has China managed to get a price discount anywhere? Yes, once. In February 2009 the People’s Republic inked an agreement with the Bolivarian Republic which provided a $4 billion loan from the China Development Bank in return for 200,000 barrels of oil per day at a $2.00 per barrel off the market price, invoiced monthly. Now, to be fair, a discount in that range is fairly standard. The problem is that Venezuela’s “market price” is completely opaque. Venezuelan crude trades at rather less than WTI or Brent simply because it costs much much more to refine. Only PDVSA is, shall we say, rather opaque at providing information about the prices that it charges. So how to benchmark against the market price, when the market price (while existant) is hard to find?

You would have to go all James Bond to get the answer. Fortunately, the State Department did so in 2009. Venezuelan sources told State that PDVSA supplied China with oil as low as $5 per barrel. That’s a not a discount of $5 per barrel (which would already be above the $1-$3 norm for such agreements); that’s a price of $5 per barrel.

Wow! Now that’s imperialism!

Only ... well ... imperialism is not defined by a smart bunch of Chinese companies taking advantage of the administrative wreck that is Petróleos de Venezuela. Rather, it is defined as the use of sanctions or the threat of sanctions to alter the governing policies of a subordinate political community. I suppose that maybe you could define the possibility that China would withhold its capital as a form of sanction ... except that the only reason Venezuela has trouble raising capital at much better terms elsewhere is the mismanagement of the Hugo Chávez. (For what it’s worth, which isn’t very much, Venezuela now insists, “We don’t cut prices in any of our international agreements.” Except to the Bolivarian Alliance countries. And Spain. But other than that, we should believe Minister Rafael Ramírez. I mean, he said it below portraits of Che and Fidel!)

I suppose you can call it crafty Chinese imperialism, or you can say, “The people now charged with reaching international supply agreements on PDVSA’s behalf couldn’t negotiate their way out of a wet paper bag.”

Ghana, I should add, appears to be doing a much better job. For all the Ghanian deals’ faults, and there are many, Ghana hasn’t even given the Chinese preference for oil contracts in exchange for their money, let alone a price discount.

In short, Chinese hydrocarbon companies are going abroad ... because that’s where the oil is! Other than in cases of truly gross local incompetence they haven’t gotten particularly good deals, despite widespread bribery on their part.

Uranium, of course, is a different story.

Dog bites man, East Timor loans money to Portugal

 Yesterday, the government of East Timor announced that it would purchase $700 million in Portuguese bonds. (Hat tip: Randy McDonald.) At first glance, that seems kind of stunning. One of the poorest countries on the planet is lending money to a member of the European Union? It sure looks like “an interesting inversion of the standard postcolonial paradigm.”

At second glance, there is a story here, but it isn’t the one you might think. The story is that East Timor is handling its oil boom quite responsibility. The rest is unsurprising. Let me start with the unsurprising part.

First, capital flows from oil-rich ex-colonies to their former metropoles are nothing new. The UAE, Qatar, and Bahrain have been investing a lot of money in the U.K. for quite some time. The nations of French West Africa hold a minimum of 65% of their foreign exchange at the French treasury (and in practice rather more) in essence lending money to the metropole. In fact, such capital flows predate independence: Britain hung on to the sterling zone for a long time because it feared that its colonies would no longer lend to the U.K. without it.

Second, Portuguese bonds are a pretty good investment. The 10-year bond is yielding 6.7% — that’s 2.7 times the yield on German bonds. Unless Portugal repudiates past-due interest payments (and in postwar debt restructurings, only Argentina has done that) bondholders would come out ahead as long as the haircut on debt principal is less than 25%. (To be fair, the math is a bit more complicated, because it depends on when Portugal defaults, but that serves to make the bonds more attractive.) In other words, the East Timorese deal is far from charity.

Third,the purchase has the obvious additional benefit of buying some Portuguese goodwill, which ain’t nothing, considering that Portuguese aid averaged €42.6 million per year between 1999 and 2009. Moreover, Portugal has been cutting foreign aid significantly, so buying goodwill could have a big return. Considering that East Timor will earn €34.4 million per year on its investment, that is a pretty cheap way to buy goodwill.

From Portugal’s point-of-view, however, there is no charity. First, the loan is a drop in the bucket compared to the country’s total debt of €145 billion. Second, the loan is being made at commercial rates, and will involve buying existing sovereign debt, not the provision of new money. Third, it might not all involve Portuguese sovereign debt: the Timorese authorities have added the following weasel words: “Investments could be made in highly successful public or quasi-governmental enterprises that guarantee high returns.” Considering that $700 million is a legal maximum for East Timor, which has to invest 90% of its assets in U.S. Treasury bonds, the implication is that the Portuguese government will get less than that.

In other words, Portugal will get a small amount of help from a source with every incentive to lend it money regardless of political connections. (I suppose East Timor could buy Greek bonds instead.) Not much to feel grateful about. Portugal probably will anyway. That isn’t a bad thing. But it doesn’t make this loan into any sort of new post-colonial paradigm, or give Portugal a serious lifeline. It is, sad to say, a sideshow. Dog bites man.

 

The real story is that East Timor has the money to invest. Why? Simply that since 2004, most of the country’s oil revenues have been placed into a fund and invested overseas. On average, 82% of revenues have gone into the fund, and never less than 74%, in 2006. (See the above chart.) Considering that Gabon, for example, has made a complete hash out of a similar fund, as have many other countries, that is an impressive achievement. other countries haven’t even tried. (It would be churlish to suggest that the extreme level of foreign influence over the Timorese government has anything to do with the success.)

 

In the long-run, East Timor is guaranteeing itself a perpetual income around $500 million per year, which isn’t bad for a country of only a million people, although population growth will reduce the per-capita value of that benefit over time. (That’s the shrinking dashed line in the above chart, which assumes $60 per barrel oil.) It won’t solve the country’s many problems, and it may be invested too conservatively (90% in U.S. treasuries? Really?) but if the Timorese government can stick to it, then the oil discoveries have a good shot at promoting the nation’s long-term good. That’s the big news, not the decision to invest in Portuguese sovereign deb.

The blog is back, with notes on Finland, Zambia, and baseball

 We aren’t quite returning to normal levels of activity here, but we’re getting close. Things have been busy, what with teaching and casewriting and book-finishing. I still need to complete a book manuscript before the blog fully revives, but I do now have some time to breathe.

And so, I present you with four unrelated links. First, listen to Finland’s foreign minister talk a remarkable amount of sense regarding European defense. Time for Europe to “grow up,” says Alexander Stubb. “I don’t believe the U.S. presence in Europe is permanent. The U.S. is starting to flirt with other partners than the Europeans. The E.U. is not as sexy as it once was. We are like a grumpy old couple. We’ve been together for 60 years. We nag at each other. We might have the same values but America is starting to look elsewhere. If the Americans are looking elsewhere then we have to start up coming up with European solutions, we can’t operate in the security field as 27 different entities.”

Well said. Budget-cutting is turning several Europeans forces into almost ceremonial remnants. He didn’t quite come out and call for a single European army, but that’s the implication. In a world of declining defense budgets, Europe has to decide whether to become a giant Costa Rica (with two nuclear-armed provinces) or try to get more bang for the euro by merging their militaries. The U.K. and France have already begun the process. The more direct politicians are about the choices, the better. (And no, I don’t think that the previous statement is always true.)

Second, Doug Muir is in Zambia! As always, he writes good stuff. The World of Warcraft reference goes over my head, which actually makes it funnier. He discusses Zambian English (which seems to be just another accent), trade with the DRC (which seems to suffer from a severe lack of transport infrastructure, if I’m reading it right), and the European presence. (I met several white Zambians in Mexico a few years back; they seemed healthily attached to the new country, although their accents seemed vaguely British.) He also tells us that Zambia tried to acquire nuclear weapons. That last is not something that I ever woulda guessed. Doug still refuses to carry a camera, though, for his own strange reasons and which I am sure he will regret in 20 years. Anyway, read the posts, and encourage him to keep it coming.

Third, we have Jussi Jalonen on the significance of Kaarlo Kurlo, a Finnish soldier who volunteered to fight in the Polish-Soviet war of 1919-21. It is fascinating stuff, which in a time gone by would have appeared on this blog here. (Yes, that makes me sad. But ni modo, progress is progress.)

Finally, baseball! Word, baseball. You might think that the sport expanded from the United States at the point of a bayonet, since the map of serious baseball countries looks a lot like a map of the unofficial American Empire circa 1940. But you would be wrong. Still no explanation of why the sport faded out in the Philippines.

What’s the case for dollarization?

 This is not a post about organized crime in Mexico, although I will be returning to the topic shortly. This post asks simply: given all the things that can go wrong with a fixed exchange rate, let alone a currency union, why do so many countries continue to return to them? After all, when they go wrong, they can go very wrong. You can get horrible explosions like Mexico in 1994 or the Asian currency crashes in 1998, or you can slow grinding meltdowns like the depressions in Argentina around the turn of the century or the Baltic States today. 

Yet countries continue to do it. All the West Indies save Jamaica fix to the dollar. Ecuador, El Salvador, and Panama have dollarized. The Baltic States have already been mentioned. Denmark fixes to the euro. The euro itself has no shortage of suitors, even now. In fact, even with the Eurozone’s problems, countries want to form currency unions. East Africa wants to form a currency union. Why? 

Well, history is a big reason. The CFA franc, for example, exists and is linked to the euro because of the French non-empire also known as Françafrique. A similar thing can be said about the West Indian links to the dollar. These historical links make it very hard to figure out the effects of a currency link. Maybe countries link to countries with which they trade. Or countries trade more and link with countries with whom they have special political links. All that would make it hard to tell whether exchange rate certainty has a big effect on trade, because causality could run both ways. That didn’t stop Andy Rose from trying, but the results were still highly contested.

Jeffrey Frankel came up with a neat natural experiment. In his own words:

“The long-time link of CFA currencies to the French franc has clearly always had a political motivation. So CFA trade with France could not in the past reliably be attributed to the currency link, perhaps even after controlling for common language, former colonial status, etc. But in January 1999, 14 CFA countries woke up in the morning and suddenly found themselves with the same currency link to Germany, Austria, Finland, Portugal, etc., as they had with France. There was no economic/political motivation on the part of the African countries that led them to an arrangement whereby they were tied to these other European currencies. Thus if CFA trade with these other European countries has risen, that suggests a euro effect that we can declare causal. The dummy variable representing whether one partner is a CFA country and the other a euro country has a highly significant coefficient of .57. Taking the exponent, the point estimate is that the euro boosted bilateral trade between the relevant African and European countries by 76%. It is not doubling, and the timing is not perfect. But it does suggest that the effect on trade among small countries is very substantial even after correcting for endogeneity.”

It is true that the CFA franc is in a fixed exchange rate with the Eurozone, not a currency union. Still, as fixed exchange rates go, this one is very strong. It’s supported by the French treasury and not just the governments of the countries in question. Moreover, these countries are dependent on France in umpteen ways, and their governments would find it very difficult to leave the zone without risking economic and political collapse. So there doesn’t seem to be a strong institutional reason to reject the results. It isn’t quite a currency union, but it is close. So what happened in 1999 between the CFA countries and the Eurozone wasn’t quite an accidental currency union, but it was close. And even if it isn’t a real currency zone, the experiment can shed a lot of light on fixed exchange rates. 

So fixed exchange rates promote trade! Great news for those of us with strong intuitions that fixed exchange rates and currency unions should be good things for small countries. Problem is, the quantitative results are a little odd:

First, the effect starts in 1997, not 1999. It is possible that expectations of the fixed rate with the rest of Euroland caused the trade boom, but that seems a little ad hoc. Second, the effect seems to have faded out by 2006. Neither result lets one say with confidence that dollarization (or even fixing to a bigger currency) is a good thing for poor countries. Either the result from the CFA-Eurozone experiment is stronger than it looks (maybe 2005-06 were just bad years, or the authors failed to correct for some important factor), or fixed exchange rates only have brief and transitory effects. 

We still have a mystery. Thoughts? 

What is the weather service like in Tanzania?

 That is something that I have always wondered. And lo, Doug Muir answers:

Much better than you’d think. Not clear why. But it’s providing good, real-time information for both weather predictions and best-guess seasonal stuff. 

Tanzania has 95% mobile coverage. So almost every community — every dusty little plains village, every wandering band of Masai — now has at least one guy with a cell phone who can get regular text updates on when the rains are coming and how long they’re likely to be.

Satellite data is cheap or free, basic forecasting techniques are known and easily taught. So why don’t other African countries have good weather services too? I’m not sure, but I think this is another positive-legacy-of-socialism thing: lots of little local weather stations, plus a good tradition of a strong government weather service. Apparently the weather guys are something that’s all too rare in Africa: an educated elite who aren’t afraid to spend time out in the villages or get their hands dirty. 

Anyway, good weather service = huge, huge difference in quality of life. If nothing else, it dramatically reduces the uncertainty.

Why aren’t all oil contracts service contracts? Evidence from Iraq

 When I first started to study oil contracts in a serious way, something puzzled me. Why weren’t all oil contracts service contracts? That is, why didn’t countries simply hire oil companies to extract their oil at a fixed fee per barrel? After all, that’s what many oil contracts turned into after the fact. Consider Venezuela: Chávez’s “nationalizations” basically had the effect of keeping the oil companies’ revenues per barrel around a flat $11. Or consider Chad, where the World Bank and major oil producers acquiesced in the Chadian government’s demands for more revenue as oil prices spiked above all expectations. (They didn’t have to: the government’s oil revenues were deposited with the World Bank, E.U. troops protected the facilities, and President Déby relied upon French military support to stay in power. But why not? It avoided all sorts of trouble.) Ecuador temporarily raised its windfall profits tax to 99% of all revenues when oil rose above the price at which the contracts had been signed, but implementation has been spotty. (Hm. Bernard may have been right about Mr. Correa, although the jury is still out.)

	Oil revenue		Payments to Chad
	Actual	Original	Actual	Original
2003	$234	$0	$45	$0
2004	$2,063	$600	$166	$31
2005	$3,138	$1,186	$300	$80
2006	$3,444	$1,197	$774	$88
2007	$3,600	$1,210	$1,220	$96
2008	$5,040	$1,216	$1,564	$1,000
Cumulative	$17,519	$5,409	$4,069	$1,295

Source: Ben Esty, World Bank.

The answer to the puzzle is simple: exploration risk. Lots of fields turn out to be much harder to work than anticipated. Similarly, exploring for oil is a very costly undertaking these days — in general, if the oil were easy to find, somebody would already be extracting it.

And that is exactly what Oil Minister Al-Shahristani realized made Iraq unique: the exploration risk was minimal. The fields had all been explored back in the 1970s. If it hadn’t been for the Iran-Iraq and First Gulf War, they would have been developed and on-line a long time ago. So why not auction off service contracts to the fields? Competing consortia were allowed to bid on how much they would increase production from the fields. They were also allowed to bid on the per barrel fee they would receive above a minimum level fixed by the Iraqi government. The winners would have to post a bond which they would lose if they didn’t invest a specific amount within a certain amount of time.

So how did it go? Not too well in the first round. There were few bidders—most fields were uncontested, in fact—and all the consortiums posted per-barrel fees that the Iraqi oil ministry considered too high. Lifting costs in Abu Dhabi are about $1.50 a barrel, and Baghdad considered $2.00 a reasonable maximum for most fields. The only bid to be accepted came from a consortium of British Petroleum (which isn’t called that anymore, but hey) and the China National Petroleum Company. The two bid $3.99 per barrel on the Rumaila field, but accepted the government’s insistence on $2. They also put up a bond (called, perplexingly, a “recoverable signature bonus”) of $500 million, and pledged to take production up from the current 1.02 million barrels per day to 2.85 million … although they would only earn a fee for production over 1.75 million bpd. The lowest bids on the other fields were rejected.

If that doesn’t sound like a good deal, that’s probably because it wasn’t. There were real questions as to whether BP-CNPC would exercise the option that it had (in effect) purchased for $500 million. Would it? Should it? What was BP thinking? Had Shahristani gotten a deal that really was too good to be true?

Many questions. Thoughts? More questions? Anyone? What about you, LT?

Overwork, French neocolonialism, and the economics of labor migration

 One thing that truly does suck is being in Paris on a rainy weekend with your wife and being utterly unable to enjoy the city, let alone take that side trip to the south of France, because a chapter of your next book (and an article for a conference) is taking much longer to write than it ought to. This post therefore gets a leisure tag, because of the lack thereof. But now you know why I haven't finished the Dubai posts (one more is waiting about Iran) or said more about nuclear power, the reason for my trip.

One thing that doesn't suck is Doug Muir's explanation of Comorian independence. It may be unsatisfying, but so is reality. It does leave me wishing that Julius Nyerere, a heroic man of heroic accomplishments, hadn't been so ... well ... unyielding in his anticolonialism. The world, I think, would be a marginally more happy place with 800,000 additional French citizens in the Indian Ocean, rather than 800,000 poor victims of lousy institutions wedded to French neocolonialism.

Something that doesn't suck but is, I think, incorrect, is Charlie Stross's analysis of the economics of restrictions on labor mobility. The discussion gets started at comment #27. Go, argue!

Of course, I have a dangerous streak of Francophilia, and am therefore not to be trusted.

Near-recolonization in the Comoros

 Oh, gosh, the Comorian story gets weirder. I knew that one of the Comorian islands, Anjouan, had to be invaded by the African Union (with much French support) in 2008 when Mohamed Bacar refused to step down as the president of the province following a disputed election. I also knew that Anjouan had declared independence in 1997 and was reluctantly coaxed back into the Union, which contributed to the crisis 11 years later.

What I did not know was that the separatists did not actually want independence. Rather, they wanted reunion with France. In all seriousness, the rebels raised the Tricolor and asked to become an overseas collectivity. Paris said no, of course. It would wreck relations with Africa and cost no small amount of money. And where would it end? Still, I can't imagine that nobody in Paris was tempted; one hell of a compliment, that. I don’t know of any British ex-colonies petitioning to re-become a Crown Colony. 

To be fair, the story isn’t completely unique: Cape Verde tried to get into the European Union back in 2006, and given how reluctantly it accepted independence I suspect that a vote to reunite with Portugal would probably pass. That said, I’m still not sure what to make of the Anjouan story. Probably nothing, truth be told. But it does bring home to me the overall weirdness of the initial vote to secede from the French Republic. Puerto Rico, Samoa, the CMNI ... most American possessions with status akin to an overseas collectivity do not seem to want independence. The few that did (e.g., the TTPI, whose residents were neither American citizens nor nationals, whereas the Comorians enjoyed full French citizenship before 1975) carefully negotiated a limited form of independence that preserved the benefits of association with the United States. So what happened in the Comoros to push its leaders into not only accepting independence, but a very badly negotiated independence deal with a French government that would have been happy to keep the islands within its orbit?

And don’t say nationalism, because many places are nationalist yet eschew sovereignty when the costs are high enough. They certainly were high in the Comoros, and it would seem that by the 1970s those costs should have been manifest. Why then did Comorian nationalism drive its leaders towards secession ... a decision a good chunk of the nation’s people seem to regret?

The decolonization that wasn’t

 Spain holds two small enclaves on the Moroccan coast.  The twin cities are currently heavily-fenced enclaves of the European Union. Their presence causes occasional minor spats between Madrid and Rabat, but in general relations are very good. Neither government would gain any internal advantage from risking a conflict. The two countries had a brief spat over Perejil island in 2002, but war was never in the cards. (For a rather silly exploration of a 2002 Spanish-Moroccan war, go here.) If I had to bet, I would bet that Spain will still have control over Ceuta and Melilla 93 years from now, in the year 2103.  

It turns out, however, that if things had gone slightly differently 93 years ago, in 1917, the territories might indeed be Moroccan today. The British Foreign Office wrote a memo suggesting that it would make strategic and diplomatic sense to swap Gibraltar for the North African enclaves. The General Staff and the Air Ministry concurred; the Royal Navy, unsurprisingly, did not. Foreign Secretary Arthur Balfour concluded that “the difficulty of negotiating such an exchange (of Gibraltar for Ceuta) would be great, and that to raise the question at the Peace Conference would, therefore, only be justified if the naval and military advisers of His Majesty’s Government were in complete accord on the subject.” So nothing happened. Seven years later, in 1926, the Spanish government raised the possibility of making the swap, but this time the U.K. rejected it.

So what if Ceuta and Melilla became British in either 1919 or 1926? Well, given the history of British imperial retreat in the 1960s and 1970s, I’m having trouble imagining that London wouldn’t return the territories to Morocco. Why not? It buys goodwill with a strategic ally at no political, strategic, or economic cost. The Spanish inhabitants might or might not drift back to Spain (Britain certainly would not have allowed them entry) and that would be that.

OK, this is not a big change, as these things go. And it’s hard to see how the Royal Navy would have been convinced to change its position, or why Balfour would have decided to overrule the R.N. But it is an amusing little wrinkle in history; something I only noticed because of the earlier discussion of Britain’s proposal to “buy” an Indonesian island during the 1979 Vietnamese refugee crisis.

Thoughts? Not that I’m expecting any, but surprises are always welcome.

UnMENDed

 Gah. MEND is back. For those of you who don’t know, MEND stands for the Movement for the Emancipation of the Niger Delta, another well-acronymed rebel movement, if not quite as well-acronymed as the MILF.

Two things are not clear. First, why MEND’s command has decided to go back to ground. I don’t know, obviously, but there seems to be little sign that the Nigerian government has decided to back away from its cease-fire promises. For those of you who don’t follow Nigerian politics, President Umaru Yar’Adua has been sick in a Saudi Arabian hospital for a little over two months. This announcement may be nothing more than an attempt at warning shot over Acting President Goodluck Jonathan’s bow, although it sure is phrased in a crazy-threatening way for that. It is also something that MEND leaders have denied. Nonetheless, MEND has been saying for a while that they were dissatisfied with the way talks were proceeding, and there was a “warning” attack on a pipeline in December.

Second, whether MEND still has the ability to limit Nigeria’s oil production the way it did back in 2005. Most of its commanders accepted the cease-fire. They haven’t reneged.

That said, it is hard to see an upside in this news. Does anyone know more about what exactly happened in the negotiations? I honestly thought it was a done deal.

Customs receiverships and Crown Agents

  So Doug is in Tanzania, working on something mysterious designed to make the world a better place. On a previous excursion to Congo, Doug discussed the general malfeasance of the Congolese government. He also thought hard about the administrative competence of the Belgian bureaucrats who ran the colonial government. They ran that government to little purpose, but they ran it efficiently. 

One way to stylize Congo’s dilemma is that the government can’t control its own agents. To which there may be a solution: get foreigners to do it.

Kris Mitchener and I have just written a brief piece for Paul Romer’s Charter Cities blog that summarizes our work on customs receiverships and Crown Agents. The piece draws from the early 20th-century experience of circum-Caribbean countries with customs receiverships, where countries relinquished management of their customs services to a small group of American managers, and the early 21st-century southern African experience of doing the same thing with a small group of British managers. There was a failure — the fellow who was able to run customs in Haiti found the more sophisticated Panamanians running rings around him when he became the fiscal agent there — but in general corruption went down and collections went up. Crown Agents, the organization that took over in the 21st century, had an earlier cameo on this blog.

Politically feasible? Well, Angola and Mozambique did it. So did several eastern European countries (in a slightly disguised form) when customs corruption looked set to hold up their ability to join the E.U. Long-term benefits or spillovers to other parts of the government? Well, at best the jury is out. But sometimes peoples need their governments to do certain things well right now.

Read the piece and tell us what you think.

The Rwandan empire in Congo

  A “stylized fact” is a fact accepted as true for the sake of argument.  Good stylized facts are true statements that have been simplified in order to allow the creation of tractable arguments.  Bad stylized facts are oversimplified at best, and false at worst. 

One stylized fact is that Rwanda extracted great economic resources from its control of eastern Congo in 1998-2004.  It is accepted.  But is it true?  The answer is not as clear as you might think.

The Rwandan-backed RCD collected fees from local producers.  In Bukavu, merchants who commercialized peasant production were forced to pay a $1,300 fee, in addition to a $3,000 deposit.  In addition, the RCD used military planes to export palm oil to Kisangani.  The rub, however, is twofold.  First, there is not any evidence that the RCD taxes on commerce flowed to Rwanda ... although they did obviously reduce the subsidies that needed to flow the other way.  Second, according to merchants involved in the trade (HBS is very well plugged in to Rwanda) palm oil exports were barely able to cover their costs during the period; Rwanda in fact subsidized the RCD’s profits by providing the planes.

Following the general pattern of the Mexican Revolution, Ugandan and Rwandan troops did not destroy the Sotexki textile plant during their invasion and occupation.  On the other hand, the plant did basically shut down.  The gave an advantage to Rwandan exporters, but it is hard to believe that the additional profits were significant, even in an economy as poor as Rwanda.   

The Sominki gold mines (which also produced coltan and cassiterite) would have been, well, a gold mine, had they not gone bankrupt in the 1980s.  The mine holding company was renamed Sakima, and wound up in the hands of a Canadian corporation, Banro.  In 1998, the DRC expropriated the mine.  (Banro sued Congo at the all-powerful ICSID ... the panel wisely decided to use the fact that Canada had not signed the Washington Convention to punt and let the DRC get away with the expropriation.  Otherwise ... ugh.)  The RCD took over the mines in 1998 and quickly requisitioned 312 tons of coltan and 190 tons of cassiterite.  The DRC gave the concession back to the Canadians in 2003, but the RCD continued to pick over the bones until 2004.  Still, they really were bones, at least in terms of gold; the mines were dead, even by Central African standards. 

So far, so little.  Rwanda “let them [the RCD] exploit the sub-soil for their survival,” and that certainly made it cheaper to maintain control of the area in an international environment that precluded formal annexation.  (There is some evidence that Rwanda wanted to annex the region, which would have completely altered the game, quite possibly for the better.)   That, however, was not a reason for Kigali to continue its occupation; it merely made it cheaper to continue a policy that it wanted to pursue for other reasons.

But that isn’t quite right either.  The U.N. argued that the Congo Desk of the Rwandan Patriotic Army came up with a number of schemes to extract resources from its Congolese territories.  There is even an unconfirmed report of Kagame calling the war “self-financing.”  Thing is, theU.N. report really seems a bit dodgy.  Its estimate of $320 million a year comes from one unidentified source.  It also comes to 20% of Rwanda’s GDP, an four times its official military budget, an enormous sum.  The report gives percentage breakdowns of coltan exports, without mentioning either prices or quantities.  As social science, it is really really bad, inexplicably so.  I could have done a much better job ... but I don’t have reasons to want to find evidence of massive resource extraction. 

I don’t have reasons not to find such evidence either.  In fact, there is solid data regarding diamond profits.  The RPA and RCD apparently set up a powerful monopsony, using force to insure that exports went through their hands.  In 2001, the RCD even studied how their designated tax farmer was performing.  The quota was about $500,000 per month, and the fellow was meeting it ... but the market value of the quantity exported was over $2 million.  The U.N. concluded that the Congo Desk diverted the difference, but in the absence of data on how much was paid to producers and middlemen (and harder price and quantity data) that conclusion is dodgy.  In addition, the maximum estimate of diverted funds comes to a little less than $17 million per year.  That is a lot of money by Central African standards, but it is not $320 million.

In short, it is undeniable that the RCD financed itself from local resources.  It is also undeniable that the RPA got something from the occupied territories.  What we do not know is whether it was anywhere near enough to provide an incentive to prolong the occupation in the absence of security concerns. It really depends on the coltan numbers, which AFAIK we do not have.  Inexplicably.  Here is a pretty bad journalist’s report.  It has numbers, though, and it might be possible to use it to ballpark Rwandan coltan profits, if any. This report seems better, and it might be possible to tease out some real numbers.  I am sure that there is other data available, for anyone with the time and the interest.  (I have only the second at the moment.)

The really interesting counterfactual is whether the Second Congo War and its aftermath would have been as prolonged or as destructive in the absence of an effective taboo against de jure border changes.  And that counterfactual, of course, depends on the amount of resources that could be extracted and the security concerns faced by the relevant parties.  But it is food for thought:  do our post-1945 institutions really contribute to peace and well-being?  I honestly think that they do — but like all stylized facts, it bears the occasional reconsideration.

So ... I ask you all for two things.  (1)  Hard evidence on Rwandan extraction; and (2) thoughts on the impact of the effective end (with a few exceptions, here and there) of de jure annexation?

The Democratic Republic of Congo

  These are honestly the best series of posts from Doug yet, and that is setting a rather high bar.  All they lack are representative photographs.

Here Doug visits Katanga.  The post details the province's problems, covers some colonial history, and shows why visits to Africa often produce wistfulness and confusion regarding the European empires even among people who hold no emotional attachment to them.  In Doug's case, quite the reverse.

This post explores a practical question:  how do central banks manage to get currency into the hands of people who need it?  Money as a unit of exchange is worthless if people with wealth can't convert their stores of wealth into units of exchange.  But that turns out to be much more complicated than it might seem.  Latin American countries have at times encountered problems of small change --- Argentina recently went through one such episode, and I lived through another in Mexico in the early and mid 1990s --- but I know of nothing on the scale of the problems Doug describes.  He also describes a minor miracle in which millions of dollars in cash sits undisturbed and barely protected in a place where one would not expect it to last.

Doug also investigates past and present plans to dam or make navigable (these are different) the lower reaches of the Congo River.  Mobutu, it turns out, built a massive long-distance power line to move electricity from one of the dams on the Congo (the last of which was built in 1958) to Katanga, in order to make the province dependent on the central government.  It didn't work out too well.  The whole mess makes me wonder.  Did decolonization in Congo have to be such a mess?  Was a better outcome at all possible?  I know not.  But Mozambique suggests that it might have been better.

And in the latest, he asks the question:  how bad is Congo's government?  You won't like the answer, nor the paradoxically Pollyannish (but almost certainly correct) explanation.

Also, in recognition of my co-blogger, we now have a Finland tag!  Enjoy. 

Magersfontein, December 11th

  Eighty-five years and one-day ago, on December 11th, 1924, the Republic of Finland celebrated a very special anniversary.  The state and the military establishment hosted it at the Officers’ Casino Building in the Katajanokka neighborhood of Helsinki. The celebration commemorated the 25th anniversary of the Battle of Magersfontein, part of the Anglo-Boer War of 1899-1902.

The conservative newspaper Uusi Suomi (New Finland) advertised the event on its front page, and the periodicals of the Finnish Civil Guard published articles on the conflict between the Boer republics and the British Empire.  The celebration opened with the the Finnish Naval Orchestra’s performance of “Kent gij dat volk,” the South African anthem. Among the guests of honor were Lauri Malmberg, the minister of defense, and Per Zilliacus, the chief of staff of the Civil Guard. The Finnish Civil Guard also sent a wreath tied with blue-white ribbons to South Africa, where it was laid at the monument on the battlefield of Magersfontein. 

Why did independent Finland celebrate a battle fought in a British colonial conflict in South Africa?  Simple:  Finnish volunteers had fought in the battle as soldiers of the Scandinavian Corps of the Boer forces.  The Scandinavian Corps was founded in Pretoria on September 23rd, 1899, supposedly as a testimony of loyalty felt by the Scandinavian immigrants towards the South African Republic. It included 118 men; 48 Swedes, 24 Danes, 19 Finns, 13 Norwegians and 14 other miscellaneous nationalities, mainly Germans and Dutch. In addition, three Swedish women served as nurses in a separate ambulance unit. The Scandinavians fought in the siege of Mafeking and the battles of Magersfontein and Paardeberg; of these, Magersfontein was the most significant.

After the war, a special Scandinavian monument was constructed on the battlefield. The monument consisted of four cornerstones, representing the four Nordic countries, each decorated with the Scandinavian valkyrie and national symbols of each country. The verse is from Johan Ludvig Runeberg’s March of the Pori Regiment, these days the ofificial Finnish presidential march: “On valiant men the faces of their fathers smile.”

The names of the fallen soldiers are engraved on the shield. Emil Mattsson died in Magersfontein; he’s buried in the field. The British captured Henrik Hägglöf, who died from his wounds at an infirmary near the Orange River. Johan Jakob Johansson — whose name is mistakenly written “Jakobsson” — died at the prison camp on St. Helena and is buried in grave number 18 at the Knollcombe cemetery. The name of Matts Laggnäs, another Finnish volunteer who died in captivity on St. Helena, is missing.

My very first peer-reviewed academic article concerned this very topic, and it was published in the Finnish Journal of History a few years ago. Afterwards, I was delighted to note that an Afrikaner fluent in Finnish had read my article and discussed it in his own blog. Reading my own text translated in Afrikaans was an interesting experience. The term “Boer War” was translated as Tweede Vryheidsoorlog, the “Second War for Freedom.”  The official term in the Afrikaner historiography for the wars against the British Empire in 1880-1881 and 1899-1901 were the First and Second War for Freedom, and the terms seem to still be in use.  Non-Afrikaner South Africans do not seem to use the phrase, understandably enough.

The history leaves us with three obvious questions.  What significance does the Anglo-Boer War have today, eleven decades after the war broke out?  What is the significance of the Finnish Republic’s 1924 commemoration of its citizens’ participation in that war?  And what are we to make of the fact that an event considered highly significant in 1924 has been almost forgotten in 2009?

Doug in Congo, first days

   My good friend Doug Muir is in Congo, and as usual he has some interesting things to say.  So I’ll post some links below.  The fact that it never ever ever occurs to Doug to do likewise on either of the blogs that he regularly posts on, regarding either this blog or serious academic work, is not relevant.  

Here is a brief discussion of Congo’s bizarre borders, or at least the poor country’s lack of an Atlantic coast.  Congo is effectively land-locked, what with the eponymous river being impassable in its lower reaches.  I am surprised to hear that the railroad from Mabadi still works at all.  Doug tells you why the border was drawn so that Congo cuts the Cabinda enclave off from the rest of Angola, and how this weird geography sparked a long secessionist battle against Luanda. 

The unmentioned wrinkle is that Cabinda rests on a sea of oil, first discovered in 1962, late in the colonial era.  (It says something about the Portuguese desire to get the hell out of Africa that they didn’t set up Cabinda as a separate neocolonial enclave; it’s what Charles de Gaulle would have done.)   Cabinda’s Block Zero produces about 22% of the country’s production.  Block 14 produces another 3%, but it’s production is set to rise from 55,000 bdp to 340,000 by 2010.  Onshore exploration in the portion of Cabinda labeled “CN” on the map is underway. 

Currently the provincial government gets 10% of the oil revenues from its territory, which has done a lot to en ... uh ... lower the intensity of the insurgency.  Or at least get it down to a level where government ministers can credibly declare an end to the organized rebellion.  A Chinese company is supposedly developing a highway-bridge combo that will provide a direct link over Congo to the rest of Angola; I have my doubts, but it will be cool if it gets built.  (Note:  the article at the other end of the link was paid for by the government of Angola; it is not a real news report.) 

Meanwhile, here and here are some of Doug’s early impressions of Kinshasa; the place seems to make Tegucigalpa seem lively, Caracas seem safe, Maputo feel orderly, and Jalalabad seem ... well, it is probably better than Jalalabad.  Maybe.  That secret police story creeps me out, more so since they don’t seem to be a very effective secret police at creating a, you know, police state.  I eagerly await more reports.  Even if the jerk never bothers to link to me.

End it, don’t MEND it

  So it appears as though the Nigerian government may have finally negotiated an end to the MEND rebellion.  MEND stands for Movement for the Emancipation of the Niger river Delta, and it has caused both the Nigerian government and the world oil industry major headaches over the past decade.  This success produced a lot of breathless hyperventilating about the unstoppable postimperial chaos overtaking the world ... only a matter of time before they blow up the Lincoln Tunnel!  Or something. 

 
The Yorkshire Ranter (who sometimes comments as Alex on this blog) summed it up pretty well.  MEND was not an amorphous group interested only in chaos, a sort of budget version of SPECTRE.  John Robb runs a website called Global Guerrillas, which postulates that the future lies with such unstoppable nihilists, who will use what he calls systempunkts to bring down our complicated economic systems.  (Calling Ashton Kutcher!)  Posts like this one assumed that MEND’s main goal, like SPECTRE, is chaos.(His math, I’ll add, is pretty fuzzy.  1.4 billion barrels disrupted?  Huh?  The increase in the oil price engendered by MEND attacks was a loss?  Wha?  The money was, what, burnt?)   

Rather, MEND in fact had specific goals that it wanted to accomplish and a specific set of tools to accomplish them.  Once the Nigerian government realized this, and got its act together sufficiently to deploy a rational set of carrots and sticks, the rebellion ended.  Now, the Nigerian government needs to follow through on its promises ... but MEND and the like seem to be standard guerrillas.  Inasmuch as they slid into criminality, they were standard criminals. 

Maybe I’m too much of a small-c conservative, or maybe I’ve just seen the movie before with good old General Manuel Peláez, who wrote the playbook later followed by Jomo Gbomo et al.  (God, that Wikipedia article is terrible.  Ni modo.)  But the Yorkshire Ranter is neither, and he saw through it. 

Which bring me to a question.  Why the resonance of all the “chaos is upon is!” mongering, when that is pretty clearly not the case?  Brazilian drug gangs notwithstanding.

Back to Angola

  The Portuguese empire collapsed in Africa under the worst possible conditions.  After 15 years of bloody conflict, a military coup in Lisbon replaced the existing government with one that wanted to get the hell out of Africa yesterday.  The result was a chaotic flight of a half-million Portuguese settlers back to the metropole.  Over the subsequent decades, Portugal attracted some immigration from its former colonies, but other the Cape Verde (a country that almost certainly would have preferred to remain united with the metropole) it was never great.  As of 2007, only 33,000 Angolans lived in Portugal.  The reasons were simple.  First, it cost a whole lot of money to get to Portugal from Angola, and most Angolans were poor and getting poorer.  Second, Portugal shut the door to the citizens of its former colonies.  Third, Portugal itself wasn’t exactly a glowing destination for immigrants. 

But now it looks like the Portuguese are headed to Angola.  And not in small numbers, either.  Something like 17,000 people moved to Angola in 2006, followed by 24,000 in both 2007 and 2008.  So far this year they’re moving at an annual rate of 31,000.  Of course, 31,000 people is only 0.3% of Portugal’s population and 0.2½% of Angola’s, but still.   

The question is whether they’ll stay.  I tend to doubt it.  First, while Angola’s economy is exploding, it is pretty much all due to oil.  Most of the growth pulling in Portuguese expats (and Portuguese capital) is construction-driven and paid for out of government revenues.  To be frank, I would bet that the boom will last for a while, but the challenge for Angola is making the growth permanent.  Not that Gabon is a terrible outcome, but turning into Gabon is something that happens once, after which the foreigners who came in to help build stuff turn around and go home. 

Second, some of the movement is driven by a crappy economy in Portugal.  That could also turn around.

Finally, it isn’t all clear that Angola will be that welcoming.  Expats from the developed world go to all sorts of places.  Relatively few of them settle down and raise families outside their home, and even then mostly in other developed countries.  (Right, Doug?)  The French in Gabon, for example, are clearly an expat community and not part of the local fabric.  In Côte d’Ivoire they’ve mostly gone home.

So while this is a neat story, I’ll bet that it won't have much lasting effect on Angola.  I would like to be wrong.  Thoughts?

Chinese oil expansion

  What are Chinese state firms doing in Africa?  Among other deals, last year the CNPC agreed to get the right to the Agadem oil field in Niger in return for the construction of a 20,000 bbd oil refinery in the country.  It will also build a pipeline to export whatever it finds, although the route is still unclear.  And now the Chinese government has announced that it might start to subsidize the acquisition of natural resources even more.  Well, there are economic reasons to think that such subsidies don't make all that much sense.  So what is China doing?

I think there is an answer.  In reverse order:

(1)  Price hedging.  China wants to hedge against another oil spike.  Inasmuch as the Chinese will be able to push around African states, and keep them from expropriating the surplus, this would work.  And China might be able to do it.  States aren't unitary actors.  Bribing individuals within them brings value; recently the Chinese were involved in a bribery scandal in Namibia.  That one wasn't energy-related, but leaders can be bought, and so can influential actors within weak states.

(2)  Mad Max insurance.  What if the global trading system collapses?  Well, if the Chinese government has control of the marketing tools,and can plausibly threaten to destroy or interdict them, then it may have the ability to insure that its consumers have access to oil.  Moreover, it may be assuming that foreign states won't have the ability to find alternate markets in the event of such a collapse.  The rub?  I'm trying to picture such a collapse, short of a third world war.  It isn't coming to me.  Maybe a war that China isn't involved in?  I don't know.

(3)  Production.  Maybe Chinese officials believe that oil investment won't increase as much as they need it to.  Oil companies sell project management skills more than anything else, but are subject to political risk.  Perhaps (1) is wrong, and the Chinese assume that African governments will hose them in the event of oil price spikes ... and perhaps they don't care, because the more oil that Chinese state firms can bring on line, the less likely such spikes will be.  If rational private actors won't make the investments, then the Chinese government will.

I'm leaning towards (3), but I don't know.  Thoughts?

More Doug in Senegal, and why you shouldn’t worry about the deficit

  It seems as though I start a lot of posts with the words “it seems.”  I will try to rectify this in the future. 

Ditto, “so,” a verbal tic I blame on my unbridled admiration for Doug Muir, who has, by the way, written a little more about Senegal.  He tells us about the Mourides, a powerful Muslim sect of which I am embarrassed to say I knew nothing.  He bemoans the crappy state of Dakar’s airport, and receives in turn a useful warning from Bernard.  Finally, he wraps his trip with a discussion of W, railroads, France, birds, the CFA franc (e.g., France yet again, although he doesn’t say so), the weather, the expats, and the clothes.  I am pretending not to be annoyed at not getting a shout-out on the France tip, which means that pique is not the reason why I am not explaining the story of the Senegalese railroads under French colonial rule. 

Which brings us to the U.S. federal deficit.  You hear a lot of worring about how interest rates are going to rise from all this wild borrowing.  Where will the money come from?  We are doomed, doomed!!  No links, because I actually like and respect many of the people doing the worrying.  But they need not.

I just had a colleague in my office with the latest BEA numbers, worrying about just that.   Where will the money come from?  So I pulled out a spreadsheet and showed him.  In the first quarter of 2009, annualized personal savings came to $620 billion, or 5.7% of personal income.  Total savings (again, annualized) came to $1,273 billion, or 9.1% of GDP. 

Personal savings is only going up.  If we assume that nominal GDP growth is flat in 2010 (meaning, most likely, that real GDP keeps falling), a rise in the personal savings rate to 10% will produce $468 billion of additional savings.  Retained earning are also likely to rise, say from 4.6% to 5.0% of GDP.  That’s another $47 billion.  Total of $515 billion in new savings ... just as the federal deficit is projected to fall by $393 billion.  Plenty of wiggle room should private investment rise (one can hope) or the current account deficit fall (which seems likely).  A rise in real interest rates does not seem like something we need to worry about.

Rather, what we need to worry about is a continuing shortfall in demand.  What if Americans don’t substitute domestic consumption for imports?  Final demand will fall.  What if domestic investment doesn’t quickly rebound?  (It was $2 trillion in 2008, a full 25% higher than in the beginning of 2009.)  Final demand will fall.  In that situation, we might be wishing for another round of stimulus, rather than worrying about the deficit. 

UPDATE:  The May numbers just came out from the BEA.  Looks like the personal savings rate hit 6.9% that month.  We are on track to exceed 10 percent in 2009, and in my opinion the country will permanently return to 1970s savings levels.  That said, past performance does not always predict future results.  Any counterarguments?

Doug in Senegal part 5

  Doug is now in Goree, a small island off the Senegalese coast.  I don't have much to add at the moment, unfortunately.  (Or not.)

Doug in Senegal parts 3 and 4

  My friend Doug Muir is in Senegal.  He is visiting a city that I am deeply ashamed to admit that I had never heard of.  His reports from Kaolack are here and here.

Read the posts.  They pose an interesting question, about infrastructure, trade, and prosperity.  How much would an improvement to Kaolack's port reduce transport costs?  How much would a reduction in transport costs increase peanut production?  (In other terms, are there increasing returns in peanut production?)  These are unanswered questions; it isn't a sure thing that fixing Kaolack will promote growth.  After all, a declining peanut economy could provoked the city's decline, rather than the other way around. 

Which isn't to say that Doug is wrong; he probably isn't.  Just that any and all development quick-fixes deserve careful stress-testing before they are implemented. 

Hopefully we'll hear more from him soon.

Domingo flojo, and Doug in Senegal parts 1 and 2

  ¡Domingo flojo!  Despierta tarde en el mediodía, llama al tren, pa’ver q pasaría ... Narnia?  No no no no no. 

So I line up a trip to the deep-pit copper mine.  Chido!  At which it point it starts to hail around here, and the company cancels.  (Liability issues.  Chile is not Mexico, it seems.)  So I figure, hey, Chile has restarted passenger train service, why not chill in Chillán?  Metro to the train station, thin attractive woman a little older than me and wearing this cute little neo-hippy snoopy hat sells me a ticket with just the right amount small talk to remind me why I like this country so much.  Only ... she realizes that the return trips are all sold out.  I debate taking the bus back, decide no, and now regret it.  WTF am I going to do in Santiago on a rainy lazy Sunday?  Work in my hotel room?  Too depressing! 

I'll figure something out.  Meanwhile, Doug Muir is in Senegal, with details here and here.  I, of course, am fascinated by the French influence.  As always, don't expect pictures from Mr. Muir, but do expect lots of information, historical detail, and very good analysis about what it all means. 

You can also go here and here on this blog, where we discuss another part of the French not-empire in West Africa, or here, where you find out how Burundi got a handle on infectious disease.

I'll be back with more about regional inequality, copper, and the effect of the Panama Canal on Chile, but right now I'm going to go brave the rain and wander aimlessly around Santiago for a while.  I will, however, take requests for any Chile-related topics you might want to know more about.  (Randy has one pending on regional inequality.)  Hasta pronto, mis cuates desconocidos. 

The great socialist scramble for Africa

  So, China is trying to get into the Nigerien uranium business, for reasons known only to the China National Uranium Corporation.  (Although I will guess later in this post.)  Here's the story to date.  On June 5, 2007, the Nigerien government formed the Société des Mines d'Azelik (Somina) a mining enterprise intended to exploit the Azelik uranium deposit way up in the north.  Niger got a 33% stake in the enterprise, with China getting 67%.   On July 6, Toureg rebels kidnapped a Chinese national for four days.  On November 9, Somina got an official license to work at Azelik.  On November 11, the Toureg rebels declared that China's contracts were "invalid."  At which point the Nigeriens accused Areva (the French state-owned nuclear company) once again of funding the rebels.  The same rebels, that is, who attacked Areva in April.

So the Chinese suspended work.  And the Nigerien government started to hem and haw and stall and delay.  So much for all those Chinese plants to build 50 MW of (conventional) power plants in the country and a €27.3 million bridge over the Niger river.  On the other hand, the Chinese didn't want to lose their options, so on April 30, 2009, they agreed to lend the Nigerien government $95.22 million at 2% over ten years, with the loan explicitly (but vaguely) tied to the stalled Azelik project.  China, meanwhile, sold 5 percentage points of its interest in the mine to a state-owned Korean company, which promised the Nigerien government that it would buy 400 tons per year once (if) the 700 tons-per-year mine gets up and running.  The president of Niger has just visited the site, in order to show his seriousness about getting the project back on track. 

The hitch is that as the Chinese project in Azelik stalled, France was on the move. In January 2009, Areva signed a deal to open the largest uranium mine on the continent, and President Sarkozy visited Niger in March to give it his full-throated support.  That's a problem for the Chinese.

Now, the Chinese still have a good project if they can get it running.  After all, they have gotten the Korean government to implicitly promise to buy the uranium at whatever price the Chinese charge, which will be quite a coup if the mine opens.  Not a terribly bad plan.  That said, the overall impression is that the Chinese really don't yet know how to play this game.  

So what exactly is the game?  Suggestion below the fold.

On the edge of the French energy empire

  In 1965, the French discovered uranium in Niger.  Here is what the New York Times had to say about it in 1969, right before production began.  It makes for fascinating reading.  

The paved road comes to an end in this isolated, dust-colored market town on the southern shore of the sand sea known as the Sahara.  About 300 miles farther north, along an ill-defined track, lies the town of Agadez.  About 150 miles beyond that, near the jumbled boulders of the Air Mountains, the village of Arlit is rising.  Where nothing more than tumbledown mud huts stood two years ago, French and African workmen are building cement-block houses, shops, an electrical generating plant big enough for a city of 40,000 — and two uranium processing plants. 

The uranium will be produced by a company in which the government of Niger holds 20 percent, German groups 10 percent, and the French Atomic Energy Commission and two French mining companies 70 percent ...

In a country where the per capita income runs about $75 a year ($351 in 2008 dollars), peanuts and bony steers constitute the only significant exports, where fuel is so scarce that technicians once tried and failed to make a power plant run on peanut husks, the discovery of uranium was an extraordinary event.

Niger will receive about 40 percent of the company’s profits ... Niger is counting on only $4 million a year in revenues by 1975 — about a tenth of the current national budget.  “Even with this strike,” said a local economist this week, “this is never going to be a rich country—unless they find a market for sand.” 

Imperialism can pay ... the imperialized

  The French empire in Africa never really ended.  In 1960, the autonomous territories of the “French Community” got seats in the United Nations, but for most the change was less than dramatic.  Only Mali dropped the use of the old colonial currency.  The new African governments increased trade restrictions, bit by bit, and the French market closed to their exports, bit by bit, but Paris fought hard to keep the European market open for a very long time.  The Yaoundé and Lomé conventions granted the “associated” states preferential access to what later became the E.U. 

Empire didn’t go away in another more visible manner:   French troops remained on the continent, French nationals staffed the governments and newly-created armies, French companies (often state-owned) dominated the export industries, and France knocked over more than a few recalcitrant governments while propping up others. 

Niger, where the French found uranium, made for a particularly egregious example.  In 1963, French troops rescued the government of President Hamani Diori from a coup.  In 1969, the French discovered uranium, and two French companies got exclusive rights.  In March 1974, French, Nigerien, and Gabonese representatives meant in Niger’s capital to discuss Diori’s insistance that the country’s uranium contracts be renegotiated.  Coincidentally, Diori fell to a coup the next month.  It seems that all of Diori’s French military advisors had gone on vacation and no one picked up the phone in Paris when news of the violence arrived.  The New York Times went so far as to accuse France of abetting the coup because Diori wanted to give uranium concessions to Exxon.  The next guy kicked French troops out of the country, but the French remained in control of the mines ... and their troops came back in 1981 anyway.

So what did the combination of continuing French intervention and French uranium mining mean for Niger?  An unexpected answer below the fold.