Democratic Republic of Congo

America embargos the Congo

Posted by Bradley Gardner at 5:38 pm China vs. the West No Responses »

Aug 082011

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

African poverty could be disappearing surprisingly quickly

Posted by Bradley Gardner at 10:08 am In the News No Responses »

Dec 082010

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.

More Aid vs. Trade

Posted by Bradley Gardner at 5:15 pm Uncategorized No Responses »

Oct 282010

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.