Tuesday, April 26, 2016

Corruption; the Necessary evil.

I learnt of the term necessary evil way back in high school in a biology exam; in fact my biology teacher had to crack its meaning; I could not decipher its meaning even after series of  drilling by the biology teacher and numerous group  discussions ; till weeks later I understood what necessary evil is. To those who subscribe to the Christian mythology, I likened it to Judas Iscariot who sold Jesus to the Pontius army for a mere 30 bob; which such one evil act he ushered in the necessary Christian covenant with God. In one of our many sister schools, there was a sewage treatment plant that processes raw sewage to fertilizer. This essential product was given to the locals who made booming harvests from their corn and tuber fields. Instead of sugar factories in western Kenya of complaining of low quality cane from farmers, they can produce more ethanol.  I also learnt chicken droppings are a good supplement for dairy herd and fish.
To the Kenyan citizenry, I believe corruption is a necessary evil; I laud the national government on being keen to devolve this resource though not provided for in the 2010 constitution. It functions seamlessly in the context of a closed economy, where the only leakage from the circular flow of income is through inflated Government purchases and money laundering. Among the additional factors of production is an amorphous factor called corruption; its nebular nature allows it to disrupt the normal market demand-supply rules and inject the essential entrepreneurial impetus in a nascent economy.  To realize the full benefits there should be no capital flight inform of overseas bank account ; such proceeds of bleeding the government coffers should be invested loco and sustainably. The cost of capital is nil and as such to ensure the macroeconomic indicators such as inflation remain stable, the cost of capital will be some flashy lifestyles and hangers on; this has a larger multiplier effect than interest paid to the banks since in reaches a wider population.

The only check needed here is to ensure corruption doesn’t gnaw into capital inflows, FDI and Chinese neocolonialism. The proceeds of corruption needs to be reinvested back into the economy, in productive tested sectors like real estate, security/bonds markets. This will create employment of labor and capital.
Assuming the national government budget of KeS 1 trillion; 40% goes to administration. The balance 600billion is spent on supplies and development; 40% of this is sucked into corrupt pockets of dealers and tenderprenuers. If the kes240b is put into economically feasible and sustainable investments, the impact would be bravura. I have watched satellite towns grow out of this money; the purchasing power of the local grow multifold improving their lifestyles and life expectancy thus inching closer to Sustainable development goals. In laissez fairre economy, the government has no role in business; it’s the role is to provide enabling factors. In a highly taxed society, the violation of taxation principle of “no direct quid pro quo’ can only be achieved through bleeding the overbearing Caesar. It’s through corruption that the public funds with no accountability land into the hands of entrepreneurs eager to impact their lives and those of their communities. The impact is more direct and wide than the much hyped Kenyan Economics stimulus program during the 2008 global economic downturn. I have always believed, any sound mind being given an opportunity, the potential in them comes to fore. At the county level ordinary latrine masons and Mr. Fixit have matured to contractors doing office blocks and refurbishments; cyber café attendants have turned into IT consultants opening Facebook accounts for county bosses.; the Juakali artisans hatched by former President Moi can fabricate mkokotenis (hand drawn carts) and gates worth millions. This is must be the eighth wonder of the world. What do we need to see to believe we are global trendsetters?
The antidote we offer for corruption appreciates that the vice is here to stay; the so called independent institutions like EACC, Judiciary, Asset Recovery Agency, Prisons, parliamentary oversight committees et al ,  only serve the already corrupt but none seeks to address the mindset, the moral grounding and aspirations of the corrupt or aspiring. It’s inherent in the human nature to circumvent the rules, thus as in the Garden of Eden, we are evil. Then how can we turn this evil into a force to reckon with? The transpiration in kingdom plantae if prolonged it can kill the same plant it meant to serve. The stomata apertures serves as the control mechanism. With the assumption of a rational imp, is corruption bleeding the Caesar unsustainably?  I believe not.
Deciduous trees shed their leaves in periods of prolonged sunshine thus no loss of life sustaining sap substrate. What triggers this shedding of leaves and ultimately loss of the stomata? Are the stomata, the antidote ineffective? Does this lost water condition the environment? Well, if human beings, thus Kenyans, are intrinsically evil, then we only need to rope in the essential component of necessity and this corruption will serve us all well. Drawing further from the analogy of the plant, the trunk and the branches can shake off the leaves and the public coffers suffer no more hemorrhage; or the leaves, the Kenyan citizens must fall off the branches. But is this feasible in a free market economy? Is this pragmatic enough in face of inefficient government agencies? Can we trust the government to create wealth for all? We must embrace the necessary evil or perish.
ngubia emoji.

Monday, September 21, 2015

Quit sugar for small holder banana economy...

Uganda is the ultimate banana republic (no pun intended). Ugandans consume more bananas per person than anyone else on earth. I have remarked in the past on the Jubilee administration’s penchant for skidding on banana skins. You might expect that while in Uganda, they would watch out for banana skins. No such thing.
It is difficult to fathom how the administration would have put out a message that could be construed to mean they had traded milk for sugar. Commercial dairying being a predominantly Kikuyu-Kalenjin affair, and sugar cane a Luo-Luhya one, even ignoring for the moment the President’s conflict of interest issues, the political dimension of it would still have made it the most slippery banana skin that the administration has stepped on to date. But such is the nature of mediocrity. Just when you think it could not get worse, it does.
Why is Kenya’s smallholder tea successful and cane sugar a dismal failure? There are three factors. The first is market orientation, the second is the nature of the products and the third is the business model.

Market orientation.
Tea is an export crop, while cane sugar production was established as an import substitution industry. Because Kenyan tea farmers have to sell their produce in the world market, they have to be globally competitive. That is, they have to produce profitably a product the tea consumers out there want, at a price that they are willing to pay.
If they were not able to, there is not much that the government could do to protect them from competitors. It could be argued that the government could subsidize them. Perhaps, but not for long. It would quickly fall foul of competitors, who would report to the WTO. If that did not work, the competitors would do the same and being more competitive to begin with, the subsidy war would bleed us more.
The sugar industry on the other hand is a classic case of the pitfalls of import substitution. There are two of them. The first is that import substitution industries were seldom based on viability. Rather the argument was, we are importing so much of this product, why can’t we produce it ourselves?
The question that was seldom asked when import substitution industries were started was: can we produce our own competitively?
More often than not, the size of the market was hardly big enough for a viable industry. In the case of sugar, there was also immense political pressure — central Kenya had cash crops, coffee and tea, while western Kenya had none.
The second pitfall is that of infant industries refusing to grow up. Once an industry was given protection, there was no incentive for it to become efficient. In fact, the reverse happens.
The industry acquires political clout that ensures it is never exposed to competition. One way of doing this is ensnare the policy makers so that they acquire vested interests in keeping the industry protected no matter how inefficient. In the 70s, foreign investors did this by making policy makers sleeping partners, suppliers and distributors.
The infant industry problem is compounded if the industry is State -owned as is the case with our sugar industry. The industry becomes a gravy train for the elites since they know the State will always bail it out. This is precisely the case with our sugar industry. For well over a decade, we have sought protection from COMESA imports and have done nothing to make the industry competitive. We are not about to.

Product characteristics.
The reason why Kenya’s smallholder tea is successful, in fact the most successful in the world, is because smallholder farmers are able to produce much higher quality tea than plantations. The reason is deceptively simple. The smallholder farmers pick ‘two leaves and a bud’ – the shoots that give the best tea. Plantation workers are paid by weight so they pick three or four leaves.
Even if the plantation wanted them to pick two leaves, the supervision costs of enforcing would be too high. It would need an army of supervisors to inspect every basket. And of course the supervisors could always collude with the pickers for a share of the additional earnings.
The only foolproof solution is for the plantation owners to inspect every basket. In economics, we call this a principal - agent, or incentive compatibility problem.
Sugarcane is the complete opposite. Smallholder sugar does not command any quality premium over plantation sugar. If anything, the labour value-added is very little. Labour is required during planting and harvesting. In the intervening period - close to two years—farmers do very little. The earnings from sugarcane production are in essence returns to capital and land rent.
To illustrate, let us suppose sugarcane is grown by an absentee landlord. The cane is sold in a competitive market. The alternative is to rent out the land at Sh5,000 per year. It costs Sh50,000 per acre to grow a crop which takes two years.
Even assuming a very generous return on capital at 20 per cent per year, in a competitive market, and equally generous “entrepreneurial rent’ at 10 per cent of capital employed. In a competitive market, the returns to the absentee landlord would be Sh35,000. An average smallholder farmer in Meru who picks her own tea will have made at least Sh300,000 on an acre of tea.
Of course the two are not directly comparable. The tea earnings include returns to labour (about 50 per cent), which for the telephone farmer is a cost. Half of the balance is the quality premium. Once direct costs such as fertilizers are taken care of, the returns per acre become comparable to the sugarcane growing absentee landlord. And that is precisely the point. The purpose of smallholder cash crop farming is to provide them with profitable self-employment—to make them small capitalists, not slaves of capital.
Business model.
The architects of Kenya’s smallholder tea industry were remarkably clever and foresighted. In the 60s, state ownership of enterprises was in vogue. They went against the grain and chose outgrower owned, private sector managed enterprises.
The State, through the Kenya Tea Development Authority (KTDA), guaranteed loans to the factories which were repaid by deductions from farmers earnings. The factories were managed by the multinational tea plantation companies on contract and progressively replaced by the KTDA as local capacity was developed.
This is why the privatization of the industry did not entail sale of assets. The farmers had financed the assets. The State had simply been a facilitator and custodian.
The sugar industry took the State- ownership route. The one exception to some extent was Mumias which was a joint venture between the government and Booker Tate, a multinational sugar company, which managed the company until it was privatized and management localized. The rest is history.
Privatization is not a solution. As noted, the contribution of sugarcane to the value of sugar is comparatively little. Most of the value is created at milling, which is capital intensive. Sugarcane today is politically priced at well above its economic value.
The cost is paid by consumers twice, directly through high prices, and indirectly as taxpayers through bailouts. Private millers will have no business paying for cane more than its economic value.
There is no business model I can think of where, in a regionally integrated competitive market, sugarcane would emerge as the best alternative for western Kenya’s smallholder farmers. The only one with a fighting chance is if the government gives the farmers the mills, debt free, but this entails a huge assumption—that the farmers would run the mills efficiently. Doubtful.
One of the arguments forwarded against the Uganda deal by among others, my good friends Prof Anyang Nyong’o and Dr Mukhisa Kituyi, is Uganda does not have a sugar surplus and the deal will be a conduit for barons to bring in sugar from farther afield. I don’t disagree that mischief could be afoot, but the surpluses argument should not arise.
The EAC Common Market Protocol was signed in November 2009. It became effective on July 1 2010, with a five-year transition period which ended on June 30 this year. The EAC is now legally a single market. In a single market, you produce where it is cheapest and sell where it is most profitable. The Ugandan millers are not obliged to satisfy the Ugandan market first before selling in Kenya or any of the other EAC countries for that matter.
They are not demanding market access because they have a surplus, but because the Kenyan market is more profitable. They are entitled to our market. Moreover, you don’t produce a surplus and then look for a market. You find a market and then produce for it.
We may be able to stave off external competition for a while, but the bell has tolled for western Kenya’s sugar industry. The Kerio Valley Development Authority (KVDA) estimates that it can grow sugarcane on large scale at a quarter of the western Kenya cost in the Turkwell basin. Tana River County can put more land under large scale irrigated sugarcane than the entire western Kenya sugar belt with plenty to spare. The Ugandan millers or other investors could, and probably will, invest in large scale production here. Are we going to stop them?
What are the alternatives for western Kenya? There is no shortage of them, and at any rate, the lesson the region should learn from sugarcane is that mono-cropping is a bad idea. As I hope I have demonstrated, the alternatives should be evaluated on two criteria. The first is that it is labour intensive, meaning, it enables the farmers to employ themselves.
The second is that the farmer accounts for a high percentage of the end value of the product. A good example is, lo and behold, milk! Dairying is labour intensive, cows (or goats) must be fed and milked every day. Second, milk comes from the cow ready to drink.
That is as high a percentage of end value as you are likely to get. Processing i.e. pasteurizing and packaging fresh milk does not add value to milk per se, it simply improves the logistics of getting it to a mass market.
Most Kenyans in fact prefer their milk straight from the cow. As it happens, there is a technology, the “milk ATMS”, which is making it possible for farmers and consumers to cut out the processors from the value chain.
The milk ATMS have taken the market by storm, not just here but in the US and Europe as well. It is a good example of a highly disruptive technology. In the US, the milk processor lobby has secured bans in several states.
The informal market controls 80% of the Kenyan milk market; may the guys who sell chopped sugar cane may soon have a dominant share....

Friday, December 19, 2014


With poverty of the mind, values and matter we are bound to be trapped in the vicious cycle.
Various disciplines, among them economics have sought to address this scarcity of resources and how human behaviour is shaped by the scrabble of resources; perfected by Keynes , mercantilist et al

Politics , laws, family and marriage  and all associations seek to share these resources by each individual player seeking to have a cutting advantage over the other; to effectively control and eventually annihilate the other; thus Charles Darwin survival for the fittest.

How have modern societies escaped or perfected Darwinism??

Life is a rat race and to join the fast lane there has to be collateral damage inform of bad laws, death and collapsed buildings and other human made calamities.
To escape the rate race we have to seek an equitable way of fighting scarcity; to nourish the mind the soul and the body and that’s what Marxism is all about

Corruption, nepotism, is all ways of seeking competitive advantage over the other.

Laws, taboos are made by owners of resources  as a means of seeking to control the masses, the lumpen proletariat; they are meant to serve the ruling elite unless the masses (if they got the critical mass) rise and redefine the societal values.

The security bill, some say curtails some of the fundamental rights enshrined on the bill of rights.
But we forget that every right granted comes with a huge responsibility.
I hold the view that the media is irresponsible; they need to sell news. Are these the excesses of the untamed capitalism?
Unchecked social media is on the rampage where all abuses are traded?
Political utterances that fuel hatred and hatred; all later denounced?
Forgive me, but in a society where the social fabric is broken down,  we need laws  what those not in power call draconian;
 And focused dictators ; and that’s why Kagame  is my living model- I am a Kagame wannabe..

On a different note we need to change the word BRIBE to TIPS
In most western countries, one is obliged to tip almost everyone from bank tellers, hotel attendants, and cab drivers et al…. remember chickens.. IT’S THE ART OF THE DEAL

This would allow institutionalizing corruption (sorry giving tips) and stopping wasting resources fighting what seems a vibrant self-regulating enterprise.

Dowry is a way of appeasing the bride’s parents– is it a bribe or a tip??

Saturday, November 22, 2014

New railway is not value for money

So far, the raging debate on the proposed standard gauge railway is focusing on dodgy procurement. 
There are also questions about the cost although, on the whole, it is not evident that it is grossly overpriced. Many people seem to be under the impression that it is otherwise a good investment. It is not.
Three hundred billion shillings is not loose change. If it proceeds, it will be the biggest loan that we have borrowed to date. It will increase our external debt by close to one third, our debt to GDP ratio by nine percentage points and our interest payments on external debt by 50 per cent. 
The annual repayment of the principal amount translates to over Sh600 million per county - you may want to think what your county could do with an extra Sh600 million every year for the next 10 years.
If we are going to put ourselves in debt to this extent, we need to be sure we are getting value for money. Are we?
I have a simple back-of-the-envelope method I use to check whether a project makes commercial sense.
At the very minimum, a commercial project should pay the cost of capital. Let us put the cost of capital at 7.5 per cent per year, about the rate that we can expect to pay on the sovereign bond we are about to float. This means that the project needs to generate a surplus of Sh22.5 to pay for capital.
To generate this kind of surplus, the railway would have to have a turnover of at least Sh120 billion. Assuming that it charges the prevailing tariff of US$1,000 per container, it would need to carry 1.4 million 20-foot containers a year, 4,000 a day. That would take about 48 very long trains every 24 hours. The busiest single line railways in the US, for instance, run 20 trains a day.
What about cargo? The Mombasa port is now handling containers about one million TeUs (twenty feet unit equivalent). That means the new rail would have to enjoy a monopoly of Mombasa port cargo to pay its way. This is probably why the Chinese financiers are asking for guaranteed cargo. But what they do not seem to appreciate is that the Kenya State does not have the same command and control power that the Chinese State has.
One can argue that the cargo volume will grow. That is true. But we are not demolishing the old line. And the new one comes only to Nairobi at first.
It does not make sense to load cargo going beyond Nairobi on the new line only to transship it to the old line that could have carried it from Mombasa in the first place.
More importantly, the region is building competing transit corridors not least our very own LAPSSET. But the most immediate competition is Tanzania’s central line. This line goes from Dar-es-Salaam to Isaka, about 100 km south of Mwanza.  It is being extended to Kigali, with a branch line to Musongati in Burundi. At 1,400 km, the distance from Dar to Kigali is 25 per cent shorter than Mombasa to Kigali.
If our Chinese friends make good their pledge to build the mother of all ports at Bagamoyo, Mombasa will have a hard time competing for transit cargo to and from Rwanda and beyond. 
The Lamu port, if completed, will also take a chunk of domestic and northbound cargo. And Djibouti is also angling for South Sudan and Ethiopian business as well. No massaging of data, or growling at critics, will make this railway make commercial sense.  
The long and short of it is that the railway will be paid for by taxpayers’ money. Our constitution has set out five principles that public finance must fulfill. Two of these are pertinent.
Article 201(c) requires inter-generational equity that is fairness between current and future generations. Article 201(d) requires that public money be used in a prudent and responsible manner. Let us take 201 (d) first.
The fact that the railway cannot pay its way does not mean it is imprudent. It may be that it has huge indirect public benefits which are not captured by the revenues -- what we call in economics positive externalities, are very high.

A good example of this was JF Kennedy’s mission to put man on the moon. Its direct economic returns were zero, but the technological advances it engendered are said to far exceed its cost.
But it is hard to see what the public benefits beyond those that accrue to the owners of the cargo that is carried are. And the fact that alternative modes of carrying cargo on the same route, including modernising the existing one, means that even the additional economic benefits to those are not that significant. 
A good example of this was JF Kennedy’s mission to put man on the moon. Its direct economic returns were zero, but the technological advances it engendered are said to far exceed its cost.
But it is hard to see what the public benefits beyond those that accrue to the owners of the cargo that is carried are. And the fact that alternative modes of carrying cargo on the same route, including modernising the existing one, means that even the additional economic benefits to those are not that significant.  
If we must build a railway, it is doubtful that this particular one is the best value we can get for our money. It seems to me that a new line from Lamu to Thika represents better value for money. Three reasons.
First, it is a cheaper and faster alternative to the proposed LAPSSET route, as there is already a line from Thika to Nanyuki that only needs rehabilitation. All it would require to make LAPSSET a reality is a container terminal in Nanyuki and a good road from Nanyuki to Juba, as the road to Ethiopia is already under construction. The economic rationale for replicating the Mombasa-Nairobi line when we are struggling to secure funding for the LAPSSET infrastructure has totally escaped me.
Second, it would connect both the Northern Corridor and the proposed LAPSSET corridor to both Mombasa and the new Lamu port. Choice for the customer, and competition between the two ports, can only be a good thing.
Third, it will stimulate development of the historically marginalised regions along its route. It will carry livestock and livestock products to the ports for export, coal and cement from Kitui, and food from the million acres of the lower Tana that we are about to irrigate.  

Let us now consider 201(c), the inter-generational equity provision. This provision requires that we do not burden future generations unnecessarily, and vice-versa. It would be unjust to borrow money to consume today, for example, to throw the Golden Jubilee party, which would be repaid in 20 years.
That is obvious enough. What is less obvious is that it is equally unjust to tax poor people today for an investment that will benefit future generations who, in all likelihood, will be wealthier than we are today. 
It should be readily apparent that taxing people who don’t have enough to eat to finance a project whose benefits will be realised in 50 years is as unconscionable as burdening our children and future generations with debt whose benefits they will not enjoy.
So, how else then can we finance such a long-term investment as a good railway project? There are various ways, but the most obvious is to borrow as long term as possible. As it happens, we do have access to long term cheap loans from the World Bank -- 40-year maturity, 10-year grace period at 0.5 per cent interest. 
If it were World Bank IDA or the African Development Bank’s (ADF) money, the repayment works out to a third of the Chinese loan, and we will not start paying until 2024, by which time the economy will be much bigger, there will be a lot more cargo to carry, and in effect, the public financial burden less onerous.
But this funding will not be available for long, as it is only available to the poorest countries, a status that we will soon graduate from. What a smart government would do is take advantage of this to finance as many long term capital projects as the World Bank and AfDB are willing to finance.
There is no shortage of commercially viable infrastructure projects, energy ones notably, for the Chinese to finance. At any rate, the Chinese are likely to win most of the construction work even when it is competitively tendered.
It’s hard to see what is smart about getting into the kind of murk they now find themselves in on this project. All it does is to reinforce the negative perceptions that many people have about the way they are doing business with African governments.
It is a lose, lose, lose project. We lose, the President loses, the Chinese lose. It is not worth it.

Friday, May 23, 2014

Corruption is a social evil ; Six strategies to fight corruption

Thanks a lot for this insightful piece on combating the malignant social and economic malfunction called corruption
Broadly, there are three policy proposals on curbing corruption: lawyers approach, the businessman’s approach and the economists approach. These consist respectively in producing tougher new laws, tougher enforcement of existing laws and increasing the level of competition in the economy, both among firms and bureaucrats.
Singapore and Hong Kong are some of the least corrupt countries on the world are successful applications of lawyers approach – they have draconian laws on corruption; they also pay their bureaucrats exceptionally well but the level of political competition on this e countries is extremely low; this has allowed exception level of pay in the bureaucracy without too much political completion.

I will borrow example from one country in East Africa-Kenya; this is my country of birth.
The Kenya Civil service is among the highly paid; this was strategic to attract and retain and high performing from the private sector’s ; it started with an elite Dream Team crafted by the former president in late 90s to turn around the Kenyan economy; vision 2030 secretariat and et al.
Yes, the work by Rijckeghem and Weder (2001) that there is an inverse relationship between the level of public sector wages and the incidence of corruption may be partially correct; it ignores the rent seeking nature of the economic man and the politics of the country which are central to award of civil service jobs.; what about the level of civil liberties?
The Kenyan MP is paid over $10,000per month excluding various unwarranted allowances like sitting allowance (being paid to be in parliament), yet they still misuse constituency development funds, solicit bribes to support either private or public members bill , refuse to pay for child support?
Thus the questions is how much of the clean record if any in Kenya/LDC can be attributed to the policy of high wages?

The red tape of bureaucracy is not a choice of large institutions but product of the desire to systemize processes which should/must outlive the officeholders/owners; and that’s why  it’s easy for a small outlet in downtown street to complete an order for emergency backup generator that for GE( Kenya) to fix a rundown backup generator
Government are the highest rent seeking entity in the economy; they extract income through these bureaucracies; they also create employment otherwise every government unit/ department should be run as a business unit able to finance its operations.
I agree these needless regulations need to be removed but are the leaders ready to pay the political price?  And as such instead of dismantling these bureaucracies they create more efficient  ‘political outfits  ie centers of excellence like Huduma Centre in Kenya; constitutionalize various commission and authorities , merge moribund parastatals rather that privatize them et al
Thus there’s a a correlation between the nature Governance of a country and level of red tape.

Corruption is a social evil with immediate economic effects but long-term damage on moral fabric of the humanity; it eats into the family values where ones worth is measured by the size of the wallet.
It emanates from the Id- the instinctive nature of the being, the self, the selfish, the animal desire to fulfill immediate aggressions which matures into fully grow untamed ego.
It’s also fueled by the capitalism which advocates completion, privatization and wealth accumulation.

To address corruptions we need a bottom up approach

1.      Disband Anti-corruption agency- this agency serves the master.
2.      Set up a Whistle blowing agency whose sole mandate is educate the citizenry on corruption
3.      Make corruption a subject/ topic in basic education.
4.      Personalize corruption; carry out national wide HIV like campaign and sensationalize and sensitive citizens on evils/benefits of corruption.
5.      Set an alternative form of Social justice dedicated to corruption like the Rwanda’s Gecaca system.

Tuesday, May 14, 2013

Time for a Rethink: Why Development Aid for Africa Has Failed

Development aid to Africa has been flowing for decades, but the results have been paltry. Instead, recipients have merely become dependent and initiative has been snuffed out. It is time to reform the system.

Development aid to Africa is a blessing for all those directly involved -- both on the giving end and on the receiving end. Functionaries on the donor side, at least those abroad, earn good money. Many of those on the receiving end, for their part, know how to organize things in such a way that their own personal interests don't get short shrift.
There is no reason for these two groups to be interested in changing the status quo. Yet even so, some within their ranks are starting to suggest the situation as it stands cannot continue. The development aid of the past 50 years, they say, is hardly justifiable given the disappointing results. Even individual donors, who know little about how development aid works in practice, increasingly sense that something might be amiss.
They're right. The aid has failed to a large extent.
Donors have taken on too much responsibility for solving African problems. They have essentially educated them to, when problems arise, call for foreign aid first rather than trying to find solutions themselves.
This attitude has become deeply rooted in Africa. This self-incapacitation is one of the most regrettable results of development cooperation thus far. Poorly designed development aid has made people dependent and accustomed them to a situation of perpetual assistance, preventing them from taking the initiative themselves. It is this situation which represents the greatest damage done, far worse than the enormous material losses engendered by failed aid projects. And there are many. Africa is strewn with idle tractors, ruined equipment and run-down buildings.

Deeply Rooted Misconceptions
Tthe view has taken hold that donors  are primarily responsible for developing Africa. At the 2nd Bonn Conference on International Development Policy in August 2009, then-German President Horst Köhler, an experienced and dedicated African development activist, spoke about an energy partnership established between Germany and Nigeria two years previously. His conclusion:
"I cannot discern that the amount of electricity in Nigeria has increased since then. And I find it shameful for the industrialized countries, as well as for those responsible in Nigeria, that this large country, rich as it is in resources essentially, can't advance its socio-economic development because it hasn't yet managed to bring electricity to its rural areas. I find this shameful for the entire development cooperation that has existed for decades."
Here, the fact that Köhler mentions the industrialized countries before Nigeria when discussing responsibility for the failure is notable. More notable, however, is that he mentions the industrialized countries at all.
Are industrialized countries to be ashamed that one of the world's largest oil exporters isn't capable of providing its rural areas with electricity? Simply asking the question is enough to show how absurd the thought is -- and how deeply rooted the misconception.
This mothering mindset, widespread in industrialized countries for decades, is in direct violation of the subsidiarity principle. This principle states that providers of aid, whether private or governmental, should not assume any duties that could be carried out by the receiver country itself. Furthermore, it mandates that aid be given such that those providing it can cease giving as soon as possible.

Or are they all EHI-Economic Hit Men?

Tuesday, February 26, 2013

Confessions of an Economic Hit Man

excerpt from
Confessions of an Economic Hit Man
by John Perkins
Quito, Ecuador’s capital, stretches across a volcanic valley high in the Andes, at an altitude of nine thousand feet. Residents of this city, which was founded long before Columbus arrived in the Americas, are accustomed to seeing snow on the surrounding peaks, despite the fact that they live just a few miles south of the equator. The city of Shell, a frontier outpost and military base hacked out of Ecuador’s Amazon jungle to service the oil company whose name it bears, is nearly eight thousand feet lower than Quito. A steaming city, it is inhabited mostly by soldiers, oil workers, and the indigenous people from the Shuar and Kichwa tribes who work for them as prostitutes and laborers.
To journey from one city to the other, you must travel a road that is both tortuous and breathtaking. Local people will tell you that during the trip you experience all four seasons in a single day. Although
I have driven this road many times, I never tire of the spectacular scenery. Sheer cliffs, punctuated by cascading waterfalls and brilliant bromeliads, rise up one side. On the other side, the earth drops abruptly into a deep abyss where the Pastaza River, a headwater of the Amazon, snakes its way down the Andes. The Pastaza carries water from the glaciers of Cotopaxi, one of the world’s highest active volcanoes and a deity in the time of the Incas, to the Atlantic Ocean over three thousand miles away.
In 2003, I departed Quito in a Subaru Outback and headed for Shell on a mission that was like no other I had ever accepted. I was hoping to end a war I had helped create. As is the case with so many things we EHMs must take responsibility for, it is a war that is virtually unknown anywhere outside the country where it is fought. I was on my way to meet with the Shuars, the Kichwas, and their neighbors the Achuars, the Zaparos, and the Shiwiars—tribes determined to prevent our oil companies from destroying their homes, families, and lands, even if it means they must die in the process. For them, this is a war about the survival of their children and cultures, while for us it is about power, money, and natural resources. It is one part of the struggle for world domination and the dream of a few greedy men, global empire. That is what we EHMs do best: we build a global empire. We are an elite group of men and women who utilize international financial organizations to foment conditions that make other nations subservient to the corporatocracy running our biggest corporations, our government, and our banks.
Like our counterparts in the Mafia, EHMs provide favors. These take the form of loans to develop infrastructure —electric generating plants, highways, ports, airports, or industrial parks. A condition of such loans is that engineering and construction companies from our own country must build allthese projects. In essence, most of the money never leaves the United States; it is simply transferred from banking offices in Washington to engineering offices in New York, Houston, or San Francisco.
Despite the fact that the money is returned almost immediately to corporations that are members of the corporatocracy (the creditor), the recipient country is required to pay it all back, principal plus interest.
If an EHM is completely successful, the loans are so large that the debtor is forced to default on its payments after a few years. When this happens, then like the Mafia we demand our pound of flesh.
This often includes one or more of the following: control over United Nations votes, the installation of military bases, or access to precious resources such as oil or the Panama Canal. Of course, the debtor still owes us the money—and another country is added to our global empire.
Driving from Quito toward Shell on this sunny day in 2003, I thought back thirty-five years to the first time I arrived in this part of the world. I had read that although Ecuador is only about the size of Nevada, it has more than thirty active volcanoes, over 15 percent of the world’s bird species, and thousands of as-yet-unclassified plants, and that it is a land of diverse cultures where nearly as many people speak ancient indigenous languages as speak Spanish. I found it fascinating and certainly exotic; yet, the words that kept coming to mind back then were pure, untouched, and innocent.
Much has changed in thirty-five years.
At the time of my first visit in 1968, Texaco had only just discovered petroleum in Ecuador’s Amazon region. Today, oil accounts for nearly half the country’s exports. A trans-Andean pipeline built shortly after my first visit has since leaked over a half million barrels of oil into the fragile rain forest—more than twice the amount spilled by the Exxon Valdez.2 Today, a new $1.3 billion, three hundred–mile pipeline constructed by an EHM–organized consortium promises to make Ecuador one of the world’s top ten suppliers of oil to the United States.3 Vast areas of rain forest have fallen, macaws and jaguars have all but vanished, three Ecuadorian indigenous cultures have been driven to the verge of collapse, and pristine rivers have been transformed into flaming cesspools.
During this same period, the indigenous cultures began fighting back. For instance, on May 7, 2003, a group of American lawyers representing more than thirty thousand indigenous Ecuadorian people filed a $1 billion lawsuit against ChevronTexaco Corp. The suit asserts that between 1971 and 1992 the oil giant dumped into open holes and rivers over four million gallons per day of toxic wastewater contaminated with oil, heavy metals, and carcinogens, and that the company left behind nearly 350 uncovered waste pits that continue to kill both people and animals.
Outside the window of my Outback, great clouds of mist rolled in from the forests and up the Pastaza’s canyons. Sweat soaked my shirt, and my stomach began to churn, but not just from the intense tropical heat and the serpentine twists in the road. Knowing the part I had played in destroying this beautiful country was once again taking its toll. Because of my fellow EHMs and me, Ecuador is in far worse shape today than she was before we introduced her to the miracles of modern economics, banking, and engineering. Since 1970, during this period known euphemistically as the Oil Boom, the official poverty level grew from 50 to 70 percent, under- or unemployment increased from 15 to 70 percent, and public debt increased from $240 million to $16 billion. Meanwhile, the share of national resources allocated to the poorest segments of the population declined from 20 to 6 percent.
Unfortunately, Ecuador is not the exception. Nearly every country we EHMs have brought under the global empire’s umbrella has suffered a similar fate.6 Third world debt has grown to more than $2.5 trillion, and the cost of servicing it—over $375 billion per year as of 2004—is more than all third world spending on health and education, and twenty times what developing countries receive annually in foreign aid. Over half the people in the world survive on less than two dollars per day, which is roughly the same amount they received in the early 1970s. Meanwhile, the top 1 percent of third world households accounts for 70 to 90 percent of all private financial wealth and real estate ownership in their country; the actual percentage depends on the specific country.
The Subaru slowed as it meandered through the streets of the beautiful resort town of Baños, famous for the hot baths created by underground volcanic rivers that flow from the highly active Mount Tungurahgua. Children ran along beside us, waving and trying to sell us gum and cookies. Then we left Baños behind. The spectacular scenery ended abruptly as the Subaru sped out of paradise and into a modern vision of Dante’s Inferno A gigantic monster reared up from the river, a mammoth gray wall. Its dripping concrete was totally out of place, completely unnatural and incompatible with the landscape. Of course, seeing it there should not have surprised me. I knew all along that it would bewaiting in ambush. I had encountered it many times before and in the past had praised it as a symbol of EHM accomplishments. Even so, it made my skin crawl.
That hideous, incongruous wall is a dam that blocks the rushing Pastaza River, diverts its waters through huge tunnels bored into the mountain, and converts the energy to electricity. This is the 156- megawatt Agoyan hydroelectric project. It fuels the industries that make a handful of Ecuadorian families wealthy, and it has been the source of untold suffering for the farmers and indigenous people who live along the river. This hydroelectric plant is just one of many projects developed through my efforts and those of other EHMs. Such projects are the reason Ecuador is now a member of the global empire, and the reason why the Shuars and Kichwas and their neighbors threaten war against our oil companies.
Because of EHM projects, Ecuador is awash in foreign debt and must devote an inordinate share of its national budget to paying this off, instead of using its capital to help the millions of its citizens officially classified as dangerously impoverished. The only way Ecuador can buy down its foreign obligations is by selling its rain forests to the oil companies. Indeed, one of the reasons the EHMs set their sights on Ecuador in the first place was because the sea of oil beneath its Amazon region is believed to rival the oil fields of the Middle East.8 The global empire demands its pound of flesh in the form of oil concessions. These demands became especially urgent after September 11, 2001, when Washington feared that Middle Eastern supplies might cease. On top of that, Venezuela, our third-largest oil supplier, hadrecently elected a populist president, Hugo Chávez, who took a strong stand against what he referred to as U.S. imperialism; he threatened to cut off oil sales to the United States. The EHMs had failed in
Iraq and Venezuela, but we had succeeded in Ecuador; now we would milk it for all it is worth.
Ecuador is typical of countries around the world that EHMs have brought into the economic-political fold. For every $100 of crude taken out of the Ecuadorian rain forests, the oil companies receive $75. Of the remaining $25, three-quarters must go to paying off the foreign debt. Most of the remainder covers military and other government expenses—which leaves about $2.50 for health, education, and programs aimed at helping the poor.9 Thus, out of every $100 worth of oil torn from the Amazon, less than $3 goes to the people who need the money most, those whose lives have been so adversely impacted by the dams, the drilling, and the pipelines, and who are dying from lack of edible food and potable water.
All of those people—millions in Ecuador, billions around the planet—are potential terrorists. Not because they believe in communism or anarchism or are intrinsically evil, but simply because they are desperate. Looking at this dam, I wondered—as I have so often in so many places around the world—when these people would take action, like the Americans against England in the 1770s or
Latin Americans against Spain in the early 1800s. The subtlety of this modern empire building puts the Roman centurions, the Spanish conquistadors, and the eighteenth- and nineteenth-century European colonial powers to shame. We EHMs are crafty; we learned from history. Today we do not carry swords. We do not wear armor or clothes that set us apart. In countries like Ecuador, Nigeria, and Indonesia, we dress like local schoolteachers and shopowners. In Washington and Paris, we look like government bureaucrats and bankers. We appear humble, normal. We visit project sites and stroll through impoverished villages. We profess altruism, talk with local papers about the wonderful humanitarian things we are doing. We cover the conference tables of government committees with our spreadsheets and financial projections, and we lecture at the Harvard Business School about the miracles of macroeconomics. We are on the record, in the open.
Or so we portray ourselves and so are we accepted. It is how the system works. We seldom resort to anything illegal because the system itself is built on subterfuge, and the system is by definition legitimate.
However—and this is a very large caveat—if we fail, an even more sinister breed steps in, ones we
EHMs refer to as the jackals, men who trace their heritage directly to those earlier empires. The jackals are always there, lurking in the shadows. When they emerge, heads of state are overthrown or die in violent “accidents.”10 And if by chance the jackals fail, as they failed in Afghanistan and Iraq,then the old models resurface. When the jackals fail, young Americans are sent in to kill and to die.
As I passed the monster, that hulking mammoth wall of gray concrete rising from the river, I was very conscious of the sweat that soaked my clothes and of the tightening in my intestines. I headed on down into the jungle to meet with the indigenous people who are determined to fight to the last man in order to stop this empire I helped create, and I was overwhelmed with feelings of guilt. How, I asked myself, did a nice kid from rural New Hampshire ever get into such a dirty business?