Financing for (Under) development in Africa? [Professor Alemayehu G. Mariam]

Fin Devt

How the West underdeveloped Africa and is now trying to “finance develop” it

The “Third International Conference on Financing for Development” was held in Addis Ababa last week. It was billed as a “gathering of  high-level political representatives, including Heads of State and Government,  Ministers of Finance, Foreign Affairs and Development Cooperation, as well as all relevant institutional stakeholders, non-governmental organizations and business sector entities.”

The Conference was organized to “assess the progress made in the implementation of the Monterrey Consensus and the Doha Declaration”, and produce an “an intergovernmentally negotiated and agreed outcome, which should constitute an important contribution to and support the implementation of the post-2015 development agenda.”

The checklist of things to do at the Conference covered included evaluation of “recent multilateral efforts to promote international development cooperation and the interrelationship of all sources of development finance”,  “assessment of the synergies between financing objectives across the three dimensions of sustainable development” and finding ways of “supporting the United Nations development agenda beyond 2015.”

In 1972, Walter Rodney, the Guyanese historian and political activist wrote his seminal book, “How Europe Underdeveloped Africa” and argued that European colonial exploitation is principally responsible for the present underdevelopment of much of the continent.

Rodney examined the political economy of African “underdevelopment” since the Europeans came to Africa in 15th century and concluded African “underdevelopment” is the outcome of a historical process of exploitation and oppression of Africa for the benefit of Europe. Rodney argued the political economy of Africa’s underdevelopment is rooted in the Atlantic slave trade, European violence, conquest, dehumanization, displacement, domination of African peoples and destruction and distortion of indigenous African institutions.

Rodney asserted that European industrial development occurred at the high price of asphyxiation of African colonial economies or underdevelopment. European capitalism created an international division of labor based on domination, subjugation and exploitation of Africans and their natural resources. The structure of international capitalism has always relegated African economies to be providers of raw materials, a dependent relationship which the West will maintain in perpetuity for its own advantage. The contemporary African state exists with its alliance with foreign interests. The only way to break out of dependency is to repudiate imperialism, argued Rodney.

Wole Soyinka, the Nigerian poet and playwright who six years after Rodney’s assassination in Guyana in 1980 received the Nobel Prize in Literature, described Rodney as an individual who “was no captive intellectual playing to the gallery of local or international radicalism. He was clearly one of the most solidly ideologically situated intellectuals ever to look colonialism and its contemporary heir black opportunism and exploitation in the eye.”

Rodney observed, “There was a period when the capitalist system increased the well-being of significant numbers of people as a by-product of seeking out profits for a few, but today the quest for profits comes into sharp conflict with people’s demands that their material and social needs should be fulfilled.” (Emphasis added.)

Today, the West is concocting all sorts of economic conferences and scams to rescue Africa form the Four Horsemen of the Apocalypse.

The latest get-rich-quick scam to “develop” underdeveloped  Africa and make it rich is the “Global Conference on Financing Development”.

When I was very young, I used to wonder, actually ask the elders, why people in the “West” (“white people”) were rich and Africans poor. People in the West lived better lives than Africans. They had all sorts of consumer goods that was the envy of everyone. They had planes, trains and cars to make their lives easier. Africans had four-legged beasts to barely keep them alive.  People in the West had a much higher standard of living. Africans were dying from famine, starvation, preventable bacterial diseases, poor sanitation and on and on. Could it be an irrevocable divine curse, I wondered?

I got my answer in a rather odd folkloric way.  The elders jokingly (I think) told me that God made man from clay (mud). When it was time to create the white man, he washed his hands and started again. That is how the whites got to be prosperous and black Africans not. Thus the Amharic expression “tatbo yeserachew”.

In retrospect, the particular tale of creation and predestination seemed to me to be particularly out of place.

Ethiopia was never under European colonial rule. In fact, Emperor Menelik II was the first African leader to crush a modern European (Italian) army in 1896 and send them home with their tails between their legs. Two years earlier in  1894, the Europeans held the Berlin Conference and carved up Africa.  European colonialism consumed Africa until decolonization in the early 1960s.  Ethiopia remained independent and served Italy ignominious defeat during the Second Ethiopian-Italo War which began in October 1935.

I asked my undergraduate economics professor why some countries were rich and others poor. He gave me an explanation which I do not remember, but he suggested I read Adam Smith.

I tackled Adam’s Smith’s “The Wealth of Nations”, a masterpiece of clarity and intelligibility.

My takeaway from Smith’s work was that the wealth of nations is the result of division of labor which increases production.  Industrial specialization in production is the key to creation of wealth (accumulation of capital).  The more the accumulated capital is invested, the more wealth it re-creates through increased productive capacity, expanding markets, technological innovation and efficiency.

I was intrigued by Smith’s argument that an economy based on division of labor does not need societal regulation because it can regulate itself through an “invisible hand.” He exhorted, “We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages. ”

I interpreted the “invisible hand” to mean individual self-interest (greed?) could somehow end up serving the common need. In other words, as the individual strives to use his capital and labor to produce the greatest value for himself (to get rich), an invisible hand unintentionally makes him serve the public interest through market competition.

What does all that mean for Africa where the vast majority of the African population lives in rural areas eking out a bare existence on subsistence agriculture and conducts economic exchange through a barter system. How could Africa be “industrialized” out of poverty? How could Africa’s vast natural resources transform poor Africans into rich ones?

Much later, I became acquainted with the idea of “each individual contributing according to his ability and receiving  according to his need”.

Karl Marx  argued  “after the enslaving subordination of the individual to the division of labor, and therewith also the antithesis between mental and physical labor, has vanished; after labor has become not only a means of life but life’s prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly — only then then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs!” (Emphasis added.)

How could Smith’s division of labor which is the engine of wealth accumulation transmute into Marx’s “enslaving subordination”?

Well, that is sort of the problem I have with the political economy of the “international conference of finance development”.  How can international capital at once be a weapon of liberation from poverty in Africa and a tool of enslavement of African peoples?

In mid-July 2015 in Addis Ababa, African dictators and their Western saviors are back at it again trying to save Africa from itself. International finance has assembled its mighty forces in Addis to rescue Africa from under-development by financing its development, that is by mobilizing international capital.

Has global capitalism undergone a tectonic transformation since Rodney recounted how Europe underdeveloped Africa?

Are the profit motives of global capitalism aligning smoothly with the material and social needs of Africa’s poor in 2015?

Is “financing for development” the magic wand the West will wave to save Africa from itself and into the promised land of proseprity?

Could Rodney’s words be getting a new life in Africa in the second decade of the 21stcentury: “There was a period when the capitalist system increased the well-being of significant numbers of people as a by-product of seeking out profits for a few…”

Point Four Program in Ethiopia

Before the “Global Conferences on Financing Development”, there was the U.S. Point Four Program.

I was a teenager when America’s first response to global poverty was in full swing.

The Point Four program was an ideological weapon in the Cold War.  In 1951, the Truman Administration and the Imperial Ethiopian government signed an agreement promising “to cooperate with each other in the interchange of technical knowledge and skills and related activities designed to contribute to the balanced and integrated development of the economic resources and productive capacities of Ethiopia.”

The Program launched field missions in Ethiopia and three dozen other countries, with the aim of improving agricultural output and  technical training  to improve overall economic performance. I specifically remember the use of the pesticide DDT to control and eradicate malaria in the countryside. From my fading memory, it seemed like the anti-malaria program worked.  Years later it was said DDT had serious cancer risks to humans. Today malaria still remains one of the greatest health threats in Africa and a major cause of mortality for children under 5. Billionaire Bill Gates spends over $4bn per year fighting malaria, AIDS and tuberculosis in Africa and other parts of the world.

“Sustainable Development” and poverty eradication in Africa

There is no phrase in the English language I detest more than “sustainable development”. To paraphrase George Orwell, “sustainable development” is political language designed to make lies sound truthful and poverty sound like prosperity,  and give an appearance of solidity to pure wind.

When the phrase was “invented”  in 1992, it was intended to refer to the simultaneous realization of three things: “environmental recuperation/revitalization, social progress, and economic development”.

I am not sure what the phrase means in 2015, but it drips from the lips of every African thugtator and international poverty pimp.

The mantra among the international loaners and donors is “sustainable development, democratization and good governance”.

The story of “financing for development” begins in 2002 with the so-called “Monterrey Consensus,” aimed at “promoting sustainable development.”

The aim of the July 2015 “Third Conference” in Addis Ababa was to assess the progress made in the implementation of the Monterrey Consensus and the Doha Declaration and identifying obstacles and constraints encountered in the achievement of the consensus-built goals and objectives and addressing new and emerging issues.

Reinventing the wheel of financing for development  

Following the Asian financial crises of the late 1990s, under the nominal oversight of the UN Conference on Trade and Development (UNCTAD), the Western powers and the bulwarks of international finance including the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO) began a rescue mission for Africa and other “developing economies”.  They fashioned a new agreement to “restore confidence in the international financial economic system and globalization.”

The First Global Conference on Financing for Development was held in March 2002 in Monterrey, Mexico.

The First Conference was organized “to address key financial and development issues”. It was reported that 50 Heads of State or Government and over 200 ministers along with hundreds of leaders of major intergovernmental financial, trade, economic, civil society and monetary organizations attended.  They issued the Monterrey Consensus which aimed at providing a new global approach to financing development. That included “mobilizing domestic financial resources for development, mobilizing international resources for development, foreign direct investment and other private flows , international trade as an engine for development, increasing international financial and technical cooperation for development, external debt, addressing systemic issues: enhancing the coherence and consistency of the international monetary, financial and trading systems in support of development.”

The key objective in the Consensus was to use financing flows for the purpose of achieving the agreed upon goals of sustainable development, not goals uniquely tailored to meet the needs of a specific country. It was a one-size-fits-all development strategy.

The Second  Global Conference on Financing for Development was held in Doha, Qatar in 2008. It was supposed to be a follow up on the First Conference. The Second Conference concluded:

The implementation of the Monterrey commitments has been by and large mediocre. Commitments to increase official foreign aid were made, but the actual delivery has been disappointing. As of now, it seems unlikely that aid would reach the target of $150 billion a year needed for reaching the internationally agreed millennium development goals by 2015.

International financial markets have remained turbulent over the past year, with slackening output growth in leading industrial countries and rising inflationary pressures.

Since the Monterrey meeting, the economic power balance has shifted in favour of the developing world, thanks basically to high-performing China and India and other developing countries.

What these developments suggest is that the stakes of developing countries in the outcome of the Doha meeting are even higher than at the time of the Monterrey meeting. (Emphasis added.)

The Third Global Conference on Financing for Development’s “Addis Ababa Action Agenda” was long on empty promises and declarations and short on specifics.

The heads of state and representatives declared that they “affirm [their] strong political commitment to address the challenge of financing and creating an enabling environment at all levels for sustainable development in the spirit of global partnership and solidarity.” They said they are committed to respecting all human rights, gender equality and women’s and girls’ empowerment. They will promote peaceful and inclusive societies and advance fully towards an equitable global economic system.

Among the specific pledges included:

Delivering social protection and essential public services for all particularly the vulnerable, persons with disabilities, indigenous persons, children, youth and older persons.

Scaling up efforts to end hunger and malnutrition by fighting malnutrition and hunger among the urban poor.

Establishing a new forum to bridge the infrastructure gap by building on existing multilateral collaboration mechanisms, led by the multilateral development banks.

Promoting inclusive and sustainable industrialization by addressing major challenges such as growth and jobs, resources and energy efficiency, pollution and climate change, knowledge-sharing, innovation and social inclusion.

Generating full and productive employment and decent work for all and promoting micro, small and medium-sized enterprises by promoting affordable and stable access to credit to micro, small and medium-sized enterprises, as well as adequate skills development training for all, particularly for youth and entrepreneurs.

Protecting our ecosystems by providing greater protection to marine and terrestrial ecosystems reducing pollution  and combating climate change, desertification and land degradation.

Promoting peaceful and inclusive societies by promoting  good governance, rule of law, human rights, fundamental freedoms, equal access to fair justice systems, and measures to combat corruption and curb illicit financial flows will be integral to our efforts.

The foregoing checklist is exactly what UNCTAD, the International Monetary Fund and the World Bank and the World Trade Organization have been saying since the Monterrey Conference in 2002. What else is new!?

The Emperor of Global Financing for Development’s new clothes?

There is a fable about a vain emperor who cares about nothing but the fine clothes he wears to show off to his impoverished subjects. The emperor hires a couple of con men who promise to bring him a special robe that it is invisible to anyone who is unfit for high position or hopelessly stupid. The Emperor marches in procession to the applause of his subjects until a child steps forward and tell the Emperor he is naked. The Emperor looks at himself and sees he is naked but continues in the procession.

As far as I have been able to research and analyze the work of the Global Conference on Financing for Development, I find it to be nothing but a fraud and a scam perpetrated on the world’s poor, the African poor.

For 15 years, the heads of states, ministers and representatives have been strutting on the world stage promising and pledging to beat the old horse of poverty to death in Africa. Poverty continues to spread like wild fire in Africa as the international loaners and donors get on their high horses and with great fanfare issue the same old empty promises, sweep up their old broken promises under the rug and recycle the same old pledges about sustainable development and the rest of their meaningless litany.

The principal conclusion of the Second Conference in 2008  was, “the implementation of the Monterrey commitments (“First Conference” in 2002) has been by and large mediocre.” The reason is obvious. “Commitments to increase official foreign aid were made, but the actual delivery has been disappointing.”

Isn’t the implementation of the Monterrey commitments in 2015 by and large still mediocre?

Has the gap between promised and actual aid and investment in Africa actually changed in 2015?

Has the West delivered the $150 billion a year it promised in the Monterrey Consensus to help Africa and the other developing economies reach the internationally agreed millennium development goals by 2015?

Ban Ki Moon says the global mobilization behind the Millennium Development Goals(MDG) has produced the most successful anti-poverty movement in history. In 2000, the West promulgated the MDG and pledged to “spare no effort to free our fellow men, women and children from the abject and dehumanizing conditions of extreme poverty”.

How many African countries have reached the first goal of “eradicating extreme poverty and hunger”?

According to one analysis,  out of 153 countries, only seven were able to accomplish the goal “eradicating extreme poverty”. Only Botswana and Equatorial Guinea were able to achieve the goal in Africa. The analysis concluded, “Other African economies would have to grow at an astonishing rate of 7 percent between the years 2000 and 2015 in order to halve the number of people living poverty.”

The truth about these “conferences” is that they are public relations stunts.

The loaners and donors talk about “sustainable development” but in reality they only sustain themselves and their lackeys by conducting ostentatious round table discussions,  seminars and forums, giving speeches, holding  press conferences, making official statements and announcements, issuing reports, holding  retreats and having parties. Basically, they bloviate to each other and go home to plan the next conference.

Is poverty halved in Ethiopia?

According to recent data published by the United Nations Development Programme (UNDP) the “proportion of people living below the poverty line in Ethiopia has declined from 45.5 % in 1995/96 to 27.8 in 2011/12 (GTP-APR MoFED [“Ministry of Finance and Economic Development”], 2011/12). This represents a significant reduction of 38.9% over the last sixteen years.” The UNDP is basing its conclusions on statistics issued by the regime in Ethiopia.

I have no confidence in statistical data issued by the regime in Ethiopia.

As I have demonstrated beyond a shadow of doubt, the ruling regime in Ethiopia cooks the economic numbers like an executive chef at a Michelin 3-Star restaurant.

The regime has been bragging for years that it had achieved double-digit economic growth for the past decade. I have demonstrated that claim to be a boldfaced lie, a damned lie and a statislie (statistical lie).

The UNDP report  further claimed, “Food poverty is also declining in Ethiopia. The hunger index, weighted equally on three indicators consisting of malnourishment, children’s underweight and child mortality, declined from 43.2% in 1990 to 28.7% in 2010/11.”

The UNDP concluded, “With this performance, the country needs to reduce poverty by 3.8 percentage points over the remaining three year period in order to meet the target of 24% headcount poverty by 2015. While poverty in the rural areas is higher than the urban areas, the gap has narrowed down quite significantly over the last sixteen years (1995/96 – 2011/12).”

That’s all poppycock!

The late Meles Zenawi, in one of his first press conference at the Ethiopian Embassy in Washington, D.C. [nearly a quarter of a century ago], in reply to a question about his goals, declared his Gold Standard for economic growth and development. Meles said he would consider his government a success if Ethiopians were able to eat three meals a day. In 2011, Meles pompously declared, “We have devised a plan [“Growth and Transformation Plan] which will enable us to produce surplus and be able to feed ourselves by 2015 without the need for food aid.”

I ask the UNDP, the World Bank, the IMF and all the rest who chant the litany of bogus economic growth statistics and massive reduction of poverty in Ethiopia three simple question:

Do the vast majority of Ethiopians eat three meals a day in 2015?

Are the vast majority of most Ethiopians better off economically today than they were five years ago?

Is Ethiopia able to feed itself in 2015 “without the need for food aid” as Meles “devised” in his “Growth and Transformation Plan”?

What is the real story on Ethiopia’s economic growth and poverty reduction?

The Economist Magazine in its March 2013 issue told the truth on “one of the fastest-growing economies in the world”. The Economist wrote, in Ethiopia,

Even [regime] supporters do not have much faith in official numbers. Annual productivity gains in agriculture are probably not 5-6%, as the official statistics suggest, but more like 2-3%, though that is still impressive. An insider says: ‘Officials are given targets and then report back what superiors want to hear.’ International experts are suspicious of the GDP growth figures of 11% flaunted by the government. They say the actual growth rate is only half that, around 5-7%—which is still respectable.

Other independent research organizations have reported even more jarring and distressing facts.

In 2014, the Oxford Poverty and Human Development Initiative (OPHDI) Multidimensional Poverty Index (formerly annual U.N.D.P. Human Poverty Index) reported for the fourth successive year that Ethiopia is ranked as the second poorest country on the planet. Yes, the second poorest in the world!

In 2010, OPHDI reported that the percentage of the Ethiopian population in “severe poverty” (living on less than USD$1 a day) was 72.3%.

The OPHDI 2014 poverty statistics are even more shocking.  In rural Ethiopia, 82 % of the population struggles “in severe poverty” compared to 18% in the urban areas.  The highest incidences of “severe poverty” in Ethiopia in 2014 were found in the following regions: Somali (93% ), Oromiya (91.2%), Afar (90.9%),  Amhara (90.1%) and Tigray (85.4%).

By OPHDI measures, poverty is not simply lack of money.

Poverty is quintessentially about bad health, bad education, bad nutrition, high child mortality, bad water and electricity supply, bad housing and bad sanitation.

The root cause of poverty in Ethiopia is bad governance!

Despite the hype about “double-digit economic growth over the past ten years”, Ethiopia is in very bad shape; and that is how she got to be ranked the second poorest country on the planet!

 Can the West finance develop Africa out of its “underdevelopment”?

To expect the West to “finance develop” Africa out of its “underdevelopment” is like expecting the robber to guard the bank vault or asking a monkey to watch your bananas.

The sure bet of 500 years of history says, the West will “finance  develop”  Africa out of underdevelopment when pigs fly.

Rodney anticipated the question of whether Europe and the West could “finance develop” Africa. He wrote:

When citizens of Europe own the land and the mines of Africa, this is the most direct way of sucking the African continent. Under colonialism the ownership was complete and backed by military domination. Today, in many African countries the foreign ownership is still present, although the armies and flags of foreign powers have been removed. So long as foreigners own land, mines, factories, banks, insurance companies, means of transportation, newspapers, power stations, etc. then for so long will the wealth of Africa flow outwards into the hands of those elements.

Foreign investment ensures that the natural resources and the labour of Africa produce economic value which is lost to the continent. Foreign investment often takes the form of loans to African governments. Naturally, these loans have to be re-paid; and in the 1960s the rate of repayment (amortization) on official loans in underdeveloped countries rose from $400 million per year to about $700 million per year, and it is constantly on the increase. Besides, there is interest to be paid on these loans as well as profits which come from the direct investment in the economy. These two sources accounted for the fact that over $500 million flowed outward from the underdeveloped countries in 1965. The information on these matters is seldom complete, for the obvious reason that those making the profit are trying to keep things quiet, so the figures given above are likely to be underestimates. They are meant to give some idea of the extent to which the wealth of Africa is being drained off by those who invest in, and thereby own, a large part of the means of production of wealth in Africa. Furthermore, in more recent times the forms of investment have become more subtle and more dangerous. They include so-called‘absentee’ management of local African companies by international capitalist experts. (Emphasis added.)

Things have gotten much worse for Africa since Rodney wrote those words.

In November 2014, The Economist Magazine wrote:

Africa used to borrow from official lenders: governments, the World Bank, the African Development Bank and the IMF. Today most of its borrowing is from private sources (see chart). Government loans and “assistance” are out of fashion. Instead it is private investors that are betting on Africa’s future ability to pay, with bond funds, private-equity and individual investors (including African ones) buying government debt. Private debt issued by larger African companies is adding to the pile; there have been large corporate-bond issues from Ethiopia, Mozambique and Nigeria, as well as from the traditional issuer, South Africa. Corporate debt is usually dollar-denominated, making it hostage to currency fluctuations, though several governments, including those of Mozambique and Ghana, have recently had to issue bonds denominated in dollars instead of in local currencies. But the bigger worry for Africa is the nature of private lending. If governments get into trouble and need to reschedule their debts or borrow more even while they pay less, official lenders typically oblige. Private lenders are less forgiving.(Emphasis added.)

The simple solution to Africa’s “underdevelopment”

If the West wants to “finance develop” Africa out of underdevelopment, it needs to do only one thing: Stop illicit financial outflows from Africa. Period!

In 2011, Global Financial Integrity reported:

Ethiopia, which has a per-capita GDP of just US$365, lost US$11.7 billion to illicit financial outflows between 2000 and 2009. In 2009, illicit money leaving the economy totaled US$3.26 billion, which is double the amount in each of the two previous years…

In 2008, Ethiopia received US$829 million in official development assistance, but this was swamped by the massive illicit outflows.  The scope of Ethiopia’s capital flight is so severe that our conservative US$3.26 billion estimate greatly exceeds the  US$2 billion value of Ethiopia’s total exports in 2009.

GFI concluded, “The people of Ethiopia are being bled dry. No matter how hard they try to fight their way out of absolute destitution and poverty, they will be swimming upstream against the current of illicit capital leakage.” (Emphasis added.)

Stop illicit capital leakage from Africa  to enable Africa to swim its way out of the rip tides of underdevelopment

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