From the NYT (link, and others, below)

The “Loi Obama” or Obama Law — as the Dodd-Frank Wall Street reform act of 2010 has become known in the region — includes an obscure provision that requires public companies to indicate what measures they are taking to ensure that minerals in their supply chain don’t benefit warlords in conflict-ravaged Congo.  The law has brought about a de facto embargo on the minerals mined in the region, including tin, tungsten and the tantalum that is essential for making cellphones.

For locals, however, the law has been a catastrophe. In South Kivu Province, I heard from scores of artisanal miners and small-scale purchasers, who used to make a few dollars a day digging ore out of mountainsides with hand tools. Paltry as it may seem, this income was a lifeline for people in a region that was devastated by 32 years of misrule under the kleptocracy of Mobutu Sese Seko (when the country was known as Zaire) and that is now just beginning to emerge from over a decade of brutal war and internal strife.

Meanwhile, the law is benefiting some of the very people it was meant to single out. The chief beneficiary is Gen. Bosco Ntaganda, who is nicknamed The Terminator and is sought by the International Criminal Court. Ostensibly a member of the Congolese Army, he is in fact a freelance killer with his own ethnic Tutsi militia, which provides “security” to traders smuggling minerals across the border to neighboring Rwanda.

All this might be a price worth paying if the law were having its intended effect of economically asphyxiating the warlords who turned eastern Congo into the deadliest conflict zone since World War II. But by the time President Obama signed the law last summer, the conflict had moved into a different phase. Most of the militias that wreaked havoc between 2003 and 2008 have since been incorporated into the Congolese Army. The two or three of any significance that remain get their money from kidnapping and extortion, not from controlling mining sites or transport routes. The law has not stopped their depredations.

I wrote about this issue back when the law was passing. I said then that I thought it was a really bad idea because the law works on the assumption that transitioning from a failed state to a governed state is like turning on a light switch. Now everyone seems to have come to the agreement that it was a really bad idea because… transitioning from a failed state to a governed state isn’t like turning on a light-switch. It requires co-opting various other power groups, and it requires doing so from a position of strength. The law weakens both the state’s monopoly on power and its ability to assert control over regions which rebels still hold, which is at this point extremely dangerous.

The Chinese on the other hand have actively supported the national government as well as the security and livelihood to those who work for local Chinese mines. Chinese investment in poor African states is usually something of a mixed blessing, but they would have to do a lot before they match the harm done by America.

How Congress Devastated Congo – New York Times

Interview with Eric Kajemba on Conflict Minerals – Congo Siasa

The DRC minerals mess – Texas in Africa

On Christmas eve of this year China inviting South Africa to join the occasional meetings of heads of state of the BRIC countries – Brazil, Russia, India and China. Jim O’Neill, the man who coined the term BRIC in 2001 to stand for the four largest emerging markets with “near unlimited” growth potential, responded that South Africa doesn’t really fit into his schema (Via BeyondBrics):

The size of its economy is $350bn. And as O’Neill notes:

… this is quite small by not only BRIC standards, but compared to some others. For example, Russia is around $1,600 billion, nearly 5 times larger than South Africa. And, India is currently similar in size to Russia. Brazil is currently closer to $2,000 billion in size, while China is considerably larger at around $5,500 billion.

That’s of course not the point, the point is that China sees Africa as as a huge potential market, and wants to integrate the continent as much as it can into the “BRIC” story. The largest economy under a single political grouping is South Africa, and thus…

It’s always been a somewhat interesting question whether Africa actually fits in to the BRIC story. BeyondBrics has a bit of a non-committal no. But as I’ve previously mentioned comparisons to India are often made. And of course India and China are much more diverse (even politically) than their single national government would make seem. The rate of demographic growth in Africa throws another variable into the mix.

Of course the BRIC concept was kind of arbitrary to begin with, so how much Africa fits doesn’t really matter greatly. The big point though is that the African story is gaining traction in the global economy. As it should.

This is unhelpful:

The half-dozen strangers who descended on this remote West African village brought its hand-to-mouth farmers alarming news: their humble fields, tilled from one generation to the next, were now controlled by Libya’s leader, Col. Muammar el-Qaddafi, and the farmers would all have to leave.

“They told us this would be the last rainy season for us to cultivate our fields; after that, they will level all the houses and take the land,” said Mama Keita, 73, the leader of this village veiled behind dense, thorny scrubland. “We were told that Qaddafi owns this land.”

Across Africa and the developing world, a new global land rush is gobbling up large expanses of arable land. Despite their ageless traditions, stunned villagers are discovering that African governments typically own their land and have been leasing it, often at bargain prices, to private investors and foreign governments for decades to come.

Organizations like the United Nations and the World Bank say the practice, if done equitably, could help feed the growing global population by introducing large-scale commercial farming to places without it.

But others condemn the deals as neocolonial land grabs that destroy villages, uproot tens of thousands of farmers and create a volatile mass of landless poor. Making matters worse, they contend, much of the food is bound for wealthier nations.

I bet you can guess which side the article tilts towards. Particularly because they decided to reference the noticeably eccentric Qaddafi, instead of the scores of other more sensible people who are making such investments. I’ve gone over elsewhere why I don’t really think these agriculture deals are a bad thing, and I don’t think its that necessary to draw that much attention to this article but I think its worth pointing out that the area where this article focuses on happens to also be an area which is increasingly unsustainable for subsistance agriculture:

During the Sahel’s nine-month dry season, roughly from October to June, the subsistence farmers who make up most of its inhabitants eagerly await the rain. Temperatures can touch 50 degrees Celsius. Many go hungry towards the end of these dry months, known as the “lean season”. The United Nations Children’s Fund, better known as UNICEF, says that malnutrition kills 225,000 children a year in five Sahelian countries alone (Burkina Faso, Chad, Mali, Mauritania and Niger).

But now the rains have started bringing problems too. Farmers and aid workers say rainfall has been more erratic and stormy for at least the past five years, though it is unclear whether any areas are getting more water overall.

Or in other words, properly executed moving subsistance farmers off their lands to places where they wouldn’t be… well… subsistance farming, could potentially substantially lower the chance of death by malnutrition – rarely a bad thing. The problem is of course the execution of these relocations and the quality of governance involved. This seems to be poorly done in the best of circumstances, but that doesn’t mean we shouldn’t continue trying.

And please stop calling this neo-colonialism. It’s pretty much demeaning to everyone.

Below are links to some recent discussions about mining in the Eastern Congo, profits of which are said to go towards funding some very violent and very nasty rebel groups. After each link I have included some of my thoughts.

The true cost of your new Christmas laptop? Ask the eastern Congolese – The Guardian

This story is highly hyperbolic, which makes me disinclined to accept any of it, but its fairly clear cut that some fairly nasty rebel groups are involved in mining in the Eastern part of the country, and increased oversight doesn’t sound like that irrational of an idea.

The DRC mining ban: the view from Kamituga – Texas in Africa

Everyone I have spoken to about the DRC generally agrees that mining is one of the better opportunities for poverty alleviation available over there and some academic studies argue that DRC could recover from its civil war as fast as Angola did primarily because of the presence of a large quantity of mineral wealth. Still, despite this and the previous article completely disagreeing about the effectiveness of the Kivu mining ban, I’m inclined to believe that they are talking about the same thing, corrupt practices and violence related to control of the mineral sector.

Exclusive: Interview with UN group of experts – Congo Siasa

The main problem is the assumption that the Congolese government is acting as a unified actor, which this article makes abundantly clear is not the case. Some factions in the FARDC (the DRC military) are likely to be just as criminal as the people they are fighting.

Like all problems in failed states there’s no easy answer here, but I’m pretty sure the answer is not robbing one of the poorest countries in the world of one of its few tools of poverty alleviation. The problem is made far more complicated though by the fact that its not even clear that Kabila (the DRC’s president) has control over the army (people I have spoken to who have done business there indicate that he doesn’t), so its unclear whether he can actually extract the army from “guarding” mines.

China has been doing a lot that is rather helpful in this regard, in that they are creating a mining zone that is subject to the demands of external investors. China’s mines of course have their own safety problems, and there are always appropriate questions about worker treatment, but in general they have managed to create a stable, developing area in the South of the country, despite often being put in deliberately bad situations. (Someone at the China-Africa Development Fund told me that the mines they were given in return for an infrastructure loan were essentially worthless).

Though the absolute decimation of the local wildlife has a lot to do with demand from China, so we shouldn’t give them too much credit.

More on China-Zimbabwe (which I’m writing about at the moment for a publication). I was just looking over two articles, and noticed a strange coincidence:

From February 21, 2010:

Deputy Prime Minister Arthur Mutambara says the Chinese want all loans to be repaid before loosening its purse. According to the Mutambara the Chinese President Hu Jintao revealed to him during a brief meeting at the World Economic Forum in Switzerland that he considers Beijing relationship with Harare as ’business partners’ and not ’friends’.

The Chinese are quoted telling the Mr. Mutambara that: “We’ll not condemn you publicly but we’ll not give you cash”. And according to the Deputy Prime Minister, “unless we do the right thing the Chinese will not work with us.”

From February 9, 2010:

Zimbabwe passed a law that compels all businesses with assets worth more than $500,000 to be 51 percent black-owned within five years, according to a copy of the law distributed by Harare-based Veritas Trust.

The law was published in the Government Gazette, a public document. It comes into effect March 1 and stipulates prison sentences of up to five years for non-compliance. Veritas is a Harare-based non-governmental organization that monitors the passage of laws through parliament and their publication.

Oh wait, that’s probably not a coincidence at all.

As I mentioned in a previous post, I have recently spoken to people from Huadian Power who said that after the passage of the February law they lost interest in investing in the country. That doesn’t really explain why the agricultural investments seem to still be going on, but China was obviously not pleased about having their investments redistributed.

Just when I think I have a grip on what Chinese people are doing in Zimbabwe something like this throws me for a loop:

Sino-Zim Development Company has registered 180 000 cotton farmers in Zimbabwe for contract growing and acquired 40 000 tonnes of fertilisers and 6 000 tonnes of seed ahead of the 2010/11 farming season.

The firm is targeting to contract over 300 000 cotton farmers* this farming season.

Sino-Zim operations manager Mr Tanga Matema said the organisation had mobilised enough inputs to cover 130 000 hectares of land so far.

“Our initial target was 200 000 hectares countrywide. Due to a few problems, we have managed 130 000 hectarage at the moment, but we still hope to reach our target. We have registered farmers from such districts as Chiredzi, Gokwe, Mt Darwin, Rushinga and Mhangura,” he said.

Mr Enderani said farmers would clear their debts at the end of the season after marketing their crops, but stressed that they would not victimise farmers for failing to meet their end of the bargain in the event of a bad season.

“In fact, we are flexible and will give a grace period in which we will try to work out a method of payment that will enable the farmer to survive and complete payments later.

“What we guarantee at the moment is that we will be offering good prices just like we did this past season so farmers contracted to us can bring their crop to us and we debit our dues leaving them with enough to go back and finance their operations. We do not export the cotton we buy, but intend to process it locally so we have no shipment costs, hence our capacity to pay good prices,” he said.

As I’ve mentioned elsewhere on this site, China is heavily, and somewhat bafflingly, involved in Zimbabwe’s agriculture industry. Chinese companies have received contracts for irrigation systems as early as 2003. China has also supplied a large amount of food aid, and has also been sending piles of machinery.

Though the system here seems to be somewhat deliberately opaque, as far as I can see they are transforming the small scale farming operations which Zimbabwean agriculture has turned into, into a sort of contract farming. Which would be a clever work around to the farm ownership laws – farmers could at least make use of economies of scale in financing and purchasing even if they can’t in the actual process of farming. The trick here though is that Zimbabwe has also recently passed laws that require 51% black ownership of all corporations based in Zimbabwe.

I talked to someone recently from Huadian Power who said that this new law kept them from investing in Zimbabwe despite originally being interested. This was just one man at a cocktail party, so who knows if it is representative of the situation with most Chinese investment. But in this case they either found a work around, or they have something else in mind other than profits. Like low-cost inputs for Chinese textile mills.

*There was an interesting study published by the BBC that showed that over the past decade Zimbabwean agriculture has transitioned away from tobacco and towards cotton. (The graph to the left shows the basic trend.)

While I’m sure there are a number of reasons that this took place, I don’t think its too far fetched to point out that during that time China became Zimbabwe’s number 2 trading partner (after South Africa), and China has the largest textile industry in the world and as well as being the world’s largest producer of tobacco. Which is fine. That’s just how trade works, and with cotton at a 140-year high it’s pretty good that Zimbabwe started growing it. But it does make the textile input idea a bit more appealing.

Correction: The story in the Guardian which I linked to above was later shown to be incorrect. The contract which was awarded to China International Water and Electric Corporation, was in fact for an irrigation system, and not farming. The project never got off the ground. (source: The Dragon’s Gift by Deborah Brautigam)

Economic statistics in Africa aren’t great, everyone knows that. And there are a lot of work arounds you have to do in order to get a good glimpse at what’s really going on in the continent. A new article on VOX presenting a working paper by Maxim Pinkovskiy and Xavier Sala-i-Martin of MIT and Columbia University respectively presents one such work around and some excellent numbers that came out of it.

Essentially, they estimated poverty alleviation by comparing GDP growth and income inequality, and found that contrary to the perception that Africa’s recent growth spurt has gone mostly to the upper classes who benefit from resource exploitation, inequality has actually fallen from between 1996 and 2006, and hence the wealth of the poor grew faster on average than GDP growth.

In recent research (Pinkovskiy and Sala-i-Martin 2010), we use the methodology of our previous paper (Pinkovskiy and Sala-i-Martin 2009), to combine the standard Penn World Tables GDP series with a comprehensive inequality database to estimate African income distribution for the period 1970-2006. For countries and years with inequality data, we compute the distribution of income by fitting a lognormal distribution to the inequality data, whereas for countries and years without inequality data, we interpolate inequality on the basis of neighbouring years. If a country has no inequality data for the sample period, we interpolate on the basis of the average inequality of countries with inequality data.

Figure 1 presents our main result:

• Using the $1/day definition of poverty adopted by the Millennium Development Goals, African poverty declined strikingly, from 41.6% in 1990 to 31.8% in 2006¹.
• Poverty seems to co-move with GDP almost perfectly.
• African inequality has also fallen over this period, almost entirely reversing its rise since 1970, but still remaining at a high absolute level (Figure 2).

Figure 1. African poverty and growth

Figure 2. African inequality

Thus, during the period of positive and sustained African growth (1995 to 2006), not only did inequality not fail to explode as would have been the case if all the growth went to a narrow elite, but it actually declined substantially.

The real outlier is the Democratic Republic of Congo. If the DRC was removed from their calculation then Africa would hit its poverty reduction target as per the UN millenium development goals by 2012, as it is now they will most likely hit the target by 2017 (with a 2015 target date).

There is some optimism involved in this assumption. First, they argue that the DRC is likely to recover at a similar pace to Angola, which would be great, but is not an obvious conclusion. I’m also certain that there is going to be a lot of debate over some of the assumptions they used to make these calculations. Still, more and more evidence is piling up that poverty reduction in Africa is finally working and that Africa is carving out a real place for itself in the global economy.

You can see my previous comments on how this relates to China here.

A few years back I did some research work for a consultancy looking to advise a Middle Eastern state how to invest in Sudanese agriculture, without running into the kind of political backlash that ruined the South Korean company Daewoo’s investment in Madagascan agriculture (details here and here). The deal ended up dying of its own accord, but these types of “food security” deals have since become a major facet of Asian and Middle Eastern investment in Africa, and have become accepted to the extent that African countries are making similar investments in other African countries:

The Egyptian government is hoping to cultivate wheat and other cereals on fertile land in African countries to feed its growing population of over 80 million.

In early September it signed a deal with the Sudanese government to give Egyptian companies access to Sudanese farmland.

… Egyptian officials say African and Nile basin countries, such as Uganda, Rwanda, Kenya, and Ethiopia, are high on a government list as potential places in which to make agricultural investments. They add that, apart from strengthening links with these African countries, the move would help Egypt avoid depending on its limited water resources.

So have we finally put to bed the spectre of neo-colonialism over these deals? Well perhaps not. The article goes on to describe how these other countries might become a bit testy about leasing their limited water resources to already thirsty Egypt. And let’s not forget that the main reason why Egypt needs to look South for more farmland is colossal mismanagement of their land resources under a pretty much planned economy.

We really should put these concerns to bed though, because in many cases selling land for foreign agricultural development increases the quantity of food sold on the domestic market. Part of this obviously depends on profit and product sharing agreements, but these agreements allow for a quick transition from subsistance farming to industrial farming, which can increase yields substantially, as well as providing other benefits.

Of course food output isn’t the only problem. There’s also the problem of relocations, which, though we’re quite used to them in China, is hardly something you’d wish on people elsewhere. The issue is made more complicated by poorly demarcated land rights in Africa, which can significantly add to the pool of people looking for a kickback in relocation schemes. But this is a governance issue, not an issue with foreign investment in farming. And the move of people out of subsistance agriculture is essentially the definition of poverty alleviation.

With peak oil approaching agricultural substitutes will get more valuable, and Africa’s extensive amount of arable land will be increasingly seen as a sustainable revenue source. Industrialization has to happen sooner or later, and this sort of foreign investment speeds the process up. I don’t expect it to be uncontroversial. But lets just say its better that Africa have this sort of problem, than this sort.

Following up from the interview below. I want to point out that there is a fundamental problem with the aid vs. trade debate. Too many commentators structure the argument as either/or, where in reality in many cases the most effective solution is both.

The impetus to make this point comes from a post on Cato at Liberty. The writer makes the very correct point that trade is most important prong of the west’s three pronged developmental assistance plan (the others being aid and debt relief), but goes a bit far in dismissing the value of aid.

Foreign aid, as many (including myself) have argued, is a very bad idea. Aside from encouraging corruption and helping to keep nasty dictators in power, it is a major disincentive to necessary political and economic reforms.

(following the link)

aid has harmed rather than helped Africa. It has failed to stimulate growth or reform, and encouraged waste and corruption. For example, aid has financed 40 percent of military spending in Africa. Similarly, debt relief has failed to prevent African countries from falling into debt again.

There seems to be a serious problem of definitions here, first of all she’s lumping in “cold war military aid” (which is the only way that statistic makes sense) with public welfare aid, and then doesn’t differentiate between broad governmental aid and targeted project based aid. While I share her suspicion of direct governmental aid, either of the military or civil sense, non-project based aid is a small and shrinking parts of aid budgets, and almost entirely limited to areas like Iraq and Afghanistan where what we really want to do is help keep nasty governments in power, because the alternative is a power vacuum where terrorists can thrive.

If we throw out broad governmental aid and focus solely on project based aid – hydro-electric dams, food aid, medical treatment – then there is still plenty of room for criticism – there is a bloat of NGO’s many of which don’t seem to do all that much. But on the other hand, some aid is necessary for business in these areas.

An example: I was talking to an executive at BHP Billiton, who said they had problems getting a mining project off the ground (I believe in Tanzania, but not 100% sure) because right when they got everything up and running there was a malaria outbreak. Similarly The Democratic Republic of the Congo has a government budget on USD 2 billion on government revenues of USD 700 million, and it, no surprise, has one of the highest rates of malaria infection in the world. We could wait for “free market” forces to rise high enough that everyone can buy their own mosquito nets (and are well educated enough to know why its necessary) before working with the country to trade its vast mineral wealth, or we can assist in building the structures that a functional trading economy is based on – roads, schools, hospitals, and at least basic medical care.

There is difficulties and plenty of potential wastage involved in this kind of aid+trade two pronged approach, and in order for it to be effective the aid has to be project based – i.e. it has to involve bringing things to people not an open-ended subsidizing of what should be governmental operations. But there aren’t really all that many other options if we are to have a global economy that integrates development poor but resource wealthy areas of the world.

The answer here isn’t categorial dismissal, but rather more oversight and more of a focus on concrete results and wealth creation. And, of course, we should remember that altruism doesn’t have to contradict self-interest.

I was wondering how long it would be before we got a story like this:

Sudan, after nearly constant civil war over the past five decades, is seeing tensions boil again ahead of a planned independence referendum early next year that stands to split Africa’s largest country in two. Voters from the oil-rich, largely Christian south are expected to vote to break away from the country’s largely Muslim north. As the Jan. 9, 2011, election date approaches, both sides accuse the other of amassing troops.

The vote poses a conundrum for China. Beijing has consistently opposed independence movements abroad, lest it embolden separatist sympathies at home. And despite its recent overtures to the south, Beijing seeks to maintain its longstanding economic ties with Khartoum, the seat of Sudan’s government and center of northern power. China armed and supported the north in the 23-year civil war against the south from 1983 to 2005, in which two million people are believed to have died. It continues to arm Khartoum and has built the north infrastructure projects, including the largest hydroelectric dam in Africa.

In 2008, China opened a consulate in Juba, the south’s capital, an unusual move for China in a place with separatist aspirations. Last week, a Chinese Communist Party delegation visited southern officials. Top officials from the south have also visited China, said Li Baodong, China’s U.N. ambassador, in an interview during a United Nations Security Council diplomatic mission to Sudan this month.

And Kenyan officials say China has expressed interest in a new pipeline for southern oil. Last week, the south’s government collected bids to build a route that would avoid the country’s current main line to the north, a 1,000-mile pipeline to a Chinese-financed refinery, and go through Kenya instead.

I’m not entirely surprised, because while much has been made of China’s willingness to trade with the current government, many people have pointed out that China was selling weapons to both sides. The real question seems to be what China would do if there was renewed fighting in the region, or, more optimistically, what China could do to prevent fighting in the region. But I think the current message is clear: China doesn’t care who controls South Sudan, as long as the oil keeps on flowing.