Trade & Development, Part II

I’m usually skeptical of explanations for continued poverty in the developing world that point to the history of colonialism. Note, I’m not talking about the continued gap in economic development between developed and developing countries. I’m talking about the existence of deep pockets of extreme poverty after decades of political independence.

As we discussed in our recent post, Trade & Development, one pervasive, and corrosive, explanation for the poverty is corruption. Yet, I find this only a partial explanation. How is it possible to look at another human being and deny their right to the basics of life just to make more money?

In the context of Africa, one remnant of colonial rule may remain pertinent in our search for answers.

Colonial powers carved out their territories ignoring existing ethnograpical and cultural realities. The newly independent nations signed treaties in which they agreed to respect these political boundaries handed down to them. Yet, we know that the cultural memory lives on outside of these country borders.

For example: Just six years after political independence, the Muslim Hausas in northern Nigeria seceded and created the Republic of Biafra. A bloody civil war ended with the surrender to Nigeria by Biafra. Fifty years later the separatist movement continues. The religious and cultural tensions which led to the creation of Bangladesh (predominantly Bengali-speaking Muslim), Pakistan (Muslim) and India (Hindu and Sikhs) out of what had been British India survive today in the conflict over Kashmir. In Europe, Yugoslavia’s borders did not survive the death of President Tito. After several wars, it has been replaced by seven (7) countries organized along religious and ethnic lines.

Partition of Africa

Modern-day borders by colonial legacy (royal blue - France; pink - Britain; purple - Portugal; yellow -Belgium; green - Italy; light blue - Germany). Courtesy of Wikipedia.

Modern-day borders by colonial legacy (royal blue – France; pink – Britain; purple – Portugal; yellow -Belgium; green – Italy; light blue – Germany). Courtesy of Wikipedia.

At the Berlin Conference (1884-1885), the major colonial powers cut lines across the African interior that grouped together scores and dozens of ethnic groups. These lines also split up existing boundaries.

To use Angola as an example: For over 300 years prior to the arrival of the Europeans, the Bakongo (the Kongo people), had been united under the rule of the Kingdom of Kongo, one of the most important civilizations to emerge in Africa. Today, these several million people live in the Democratic Republic of the Congo, Congo-Brazzaville, and Angola. From the time of its founding by Ne Lukeni Kia Nzinga until its destruction in 1665 by the Portuguese, the Kingdom of Kongo existed as an organized, stable, politically centralized society. Left alone, this Kingdom might well have evolved intrinsically into a modern-day state. This process was interrupted by the partition of its territory among the European colonial powers.

Modern Consequences

Angola’s population today is divided ethnically into three main groups – the Ovimbundu (37% of the population), the Mbundu (25%), and the Bakongo (13%). The remaining 25% include scores of other ethnic groups, both large and small.

The decades-long war fought by Angola for political independence from Portugal reflected these ethnic lines within the country. Three liberation groups simultaneously fought the Portuguese and each other. The Movimento Popular de Libertação de Angola (MPLA) is predominantly Mbundu (what used to be the Ndongo Kingdom). União Nacional para a Independência Total de Angola (UNITA) is predominantly Ovimbundu (Bailundo Kingdom). Frente Nacional de Libertação de Angola (FNLA) is predominantly Bakongo (Kingdom of Kongo).

The winners were the MPLA, which has ruled Angola since its political independence. Over time, writes Assis Malaquias in Ethnicity and Conflict in Angola: Prospects for Reconciliation, the additional factors present in the liberation struggle – class and ideology — have diminished, leaving intact the ethnic divide. Effectively, the MPLA rules Angola in the interests of the Mbundu people, comprising at best about one-quarter of the population. The resources of the state have become “the property” of the Mbundu, rather than of the citizens of Angola.

In Angola and much of Africa, the arbitrary colonial divisions have “politicized” ethnicity (Assis Malaquias).

As long as this reality remains essentially ignored by the West, the search for solutions to end the corruption that diverts a country’s resources into the hands of a few, and the poverty this practice creates, is likely to remain elusive.

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Trade & Development

President Obama in Kenya

Photo Credit

President Obama’s current trip to East Africa (Kenya and Ethiopia) and the recent extension of the African Growth & Opportunities Act (AGOA) are an opportunity to ponder the tenuous link that, without sound domestic policies, exists between trade and poverty reduction. A recent PBS report on Angola provides a stark illustration:

Angola is the second-largest oil producer in sub-Saharan Africa. However, about 36% of the population lives below the poverty line, reports the African Development Bank (AfDB). The country is reportedly flush with money from oil and diamonds; yet Angola ranks near the bottom of the U.N. Human Development Index (149th out of 187 countries).

Angola’s capital, Luanda, has been ranked as the world’s most expensive city for expatriates — beating out Tokyo, Hong Kong, and Moscow. Angola also bears the unwelcome distinction of being the country with the highest child mortality rate in the entire world. The World Bank reported in 2014 that 167 out of every 1,000 children born alive in Angola were likely to die before reaching the age of five. And the government just proposed to cut the health budget by 30%.

What apparently abounds in the country, and accounts for these discrepancies is corruption. Corruption, says Transparency International (TI), is “. . . the abuse of entrusted power for private gain”. Economically, TI continues, it depletes national wealth as corrupt politicians invest scarce public resources in projects that will benefit them rather than their communities. In Angola, judges drive jaguars and the President’s daughter is Africa’s youngest billionaire. Angola is one of the least transparent countries in the world and one of the most corrupt. It is ranked by Transparency International at 161 out of 175 countries and as fifth (5th) from the bottom in Sub-Saharan Africa.

Angola is not the only corrupt country in Africa; nor is corruption restricted to the African continent. Other countries share this scourge. However, the disparities between the wealth generated by the exports of this oil-rich country and the stark conditions in which one-third of its population lives help to shine a bright light on the criminal consequences of corrupt domestic policies.

Angola will, undoubtedly, continue to benefit from its ability to export its oil under AGOA. Trade alone, however, can only do so much.

As we continue to explore this topic, we will address some questions that occurred to us about the connections between corruption and the legacy of colonialism and the present role of the companies doing business in Africa.

Ukraine Tug of War – When a Trade Pact is Not Just About Trade

Watching the escalating events in Ukraine, where a full-blown civil war is underway, it is very easy to forget the decision that sparked these events.

November 21, 2013, then Ukrainian President, Viktor Yanukovych, announced that his government was abandoning plans to sign an association agreement that would begin the process of strengthening ties with the European Union (EU). Within two months, protests against this decision had led to his forced resignation.

For a significant portion of Ukrainians, closer ties with the EU represent, among other things, a move toward a less corrupt society. The EU is more than a trade bloc. The association agreement signed by the new Ukrainian government with the EU includes an agenda for reforms to support the country’s economic recovery and governance.

For the Russian powers-that-be, one can only speculate that the same move represents a start down the path that has already been taken by Albania, Poland, Romania and other former communist Eastern European countries. Today, these countries are not just members of the European Union, but also of the North Atlantic Treaty Organization (NATO).

NATO is a political and military alliance comprising 28 countries, including the United States. Among other provisions, the North Atlantic Treaty states that an armed attack against one NATO member is considered an attack against all members, requiring them to come to the assistance of the attacked member. Created in 1949, the expected attacker was the precursor to today’s Russia – the Soviet Union.

The Soviet Union’s response to NATO was the Warsaw Pact, also created as a collective defense treaty that would bring its members to the defense of any one that was attacked. In this case, the expected attacker was the United States and its NATO allies. Defunct since the collapse of the Soviet Union, Warsaw Pact members included – Albania, Poland, Romania, and other former communist Eastern European countries. As a part of the territory of the Soviet Union, Ukraine was by default, also a part of the Warsaw Pact.

Today, NATO lives on. All EU members are not NATO members. However, all former Eastern Europe Warsaw Pact members are now NATO members.

The Cold War is ostensibly over, but apparently not for Russia. The steps taken by Ukraine that bring it closer to the EU are apparently being viewed through the cold war prism. Ukrainians deserve the right to choose their own way forward.

Perhaps, however, the United States and the EU have a role to play in de-escalating the rising tensions Ukraine EU Russia
by acknowledging that EU membership, particularly when elected by a
former Soviet republic, is about more than trade.

Regularizing and Decriminalizing the Movement of People

130 people from Ghana, Eritrea, and Somalia, including pregnant women and children, drowned off the coast of Italy (October, 2013) when the boat in which they were traveling caught fire and capsized. The boat left from Tripoli, Libya with about 500 persons attempting to reach Italy and enter the European Union. This route each year claims thousands of lives.  The death toll from this latest incident will only rise as at least another 100 passengers are missing. These tragedies happen around the world because, as the barriers to the movement of goods and some services have fallen, those facing people who merely seek the opportunity for a decent life continue to go up.

Labor or Economic Migration          

Whether fleeing political persecution or economic instability, most migrants seek the opportunity to live a normal life, earn a decent wage and support their families. Economic or labor migrants are motivated primarily by the search for employment. The irony is that, if given the opportunity to come and go legally for work, many would do so. Instead, they are forced to become “illegal migrants”.

Whether its Africans trying to make it to Europe or Central Americans and Haitians trying to make it to the United States, the

(Courtesy of Wikipedia)

(Courtesy of Wikipedia)

barriers they face force hundreds of thousands of migrants to place themselves at physical risk. They rely on smugglers who provide passage using overcrowded leaky boats or airless trucks. Women and girls run the risk of being sold into prostitution and slavery. Those who make it to their destination may end up living and working in sub-standard conditions and in enforced separation from their families.

Yet, as the International Organization for Migration (IOM) reports:

. . . when properly managed, labour migration has far-reaching potential for the migrants, their communities, the countries of origin and destination, and for employers.

The IOM further reports that, in 2011, there were 105 million persons working in a country in which they were not born, generating income of US $440 billion. The money they sent back to support their families – remittances – was around US$ 350 billion.

Trade Rules & Migration

The WTO’s General Agreement on Trade in Services (GATS) identifies four delivery modes for services trade; Mode 4 is the movement of natural persons as service suppliers. GATS and other trade agreements that provide for free movement of persons focus almost exclusively on the movement of professionals and skilled workers. Trade rules generally ignore and marginalize the low-skilled or unlicensed service providers. As a result, their migration is considered illegal.

Yet their services are no less in demand. They are the ones who migrate to pick fruit, mow lawns, clean homes, and care for children and the elderly. Until this discrepancy is addressed and policies and rules put in place to support the free movement of skilled and low-skilled service providers, tragedies like the ones in the Mediterranean will, unfortunately, continue to occur.

Progress on the Global Arms Trade Treaty

(Authors, Rafaela Tasca and Carlos Latuff, Courtesy of Wikipedia Commons)

(Authors, Rafaela Tasca and Carlos Latuff, Courtesy of Wikipedia Commons)

On Wednesday, September 26, 2013, the United States joined 106 other countries in signing the Arms Trade Treaty (ATT). As we wrote in a previous post, the ATT is the first global attempt to regulate the multi-billion dollar trade in conventional weapons. Signature of the treaty by the United States — the world’s number one exporter of these weapons — is progess to be celebrated!

The ATT creates common standards and rules to improve the control by states of the flow of arms. It regulates all conventional arms, and prohibits the transfer of arms that would be used in the commission of genocide, crimes against humanity, and certain war crimes. The treaty will require that signatory countries establish national regulations to control the international transfer of conventional arms and components and to regulate arms brokers. It also institutes an annual reporting system as well as regular meetings between heads of states to monitor implementation.

The treaty enters into force after 50 countries have ratified it. The treaty ratification process varies in each country, depending on its domestic law. In the United States, treaty ratification requires the consent by a two-thirds majority of the U.S. Senate. Most of us are aware of the disproportionately strong hold that the National Rifle Association (NRA) holds over the U.S. legislature, leading to the defeat in April, 2013 of the latest attempt to ban assault rifles. Not surprisingly, the NRA opposes the ATT. It lobbied against the US vote to pass the treaty, and against the US signature of the treaty. It will lobby against attempts to get the treaty ratified.

US signature of the Arms Trade Treaty sends a powerful message to the world and other arms exporters that it is time to regulate the arms trade. Those of us who support this progress must do all that we can to support the next phase – the inevitable battle for its ratification by the US Senate.

Best and Worst Places for Women Entrepreneurs in Latin America and the Caribbean

Women selling in market (IITA Image Library)

Women selling in market
(IITA Image Library)

The Inter-American Development Bank’s Multilateral Investment Fund (IDB/MIF) has issued a study which ranks Latin American and Caribbean countries based on risks to and support for women entrepreneurs. Highlights of the study presented in this slideshow rank the countries from first to twentieth place in this slideshow.

Jamaica, my country of origin, was ranked 20th. To persons who are familiar with the prevalence of women in all areas of Jamaican business and society, this low ranking will seem surprising. Women, for example, comprise 70% of the country’s university students and 50% of its workforce; they occupy management positions at various levels of society, including a female Prime Minister who is serving for the second time.

So, if visibility of women is not enough to secure top ranking, what are the other factors that the study authors considered? I have divided them into three categories:

Category 1: Societal Conditions

  • Overall strength of the economy, as measured by fiscal conditions, level of investor confidence,
  • Political factors, such as degree of political and institutional stability and the presence of good governance
  • Degree of corruption

Category 2: Support for Micro & Small Entrepreneurs

The majority of women entrepreneurs in Latin America and the Caribbean (indeed developing and emerging countries as a whole) operate micro and small to medium-sized enterprises (MSMEs) and so the availability of the following factors can play a huge role in determining success:

  • Ability of MSMEs to access credit
  • Access to technology and to technical support by MSMEs
  • Favorability of tax rates for MSMEs
  • Legal structure supporting MSMEs
  • Costs of starting and expanding a business

Category 3: Support for Women in Business

The following factors can speak volumes about the level of support that exists for women entrepreneurs:

  • Extent of access to business associations and enterprises
  • Levels of female enrolment in vocational programs
  • Extent of crime and security risks
  • Extension of property rights to women
  • Access to and/or level of spending on social services, i.e. child support and for taking care of the elderly

While a country need not have all of these factors in place to be ranked highly as a good place for women entrepreneurs, it must be able to provide evidence of societal support across all three categories. This was clearly evident in Chile, which ranked #1 for the following reasons: (1) good fiscal conditions, political and institutional stability, strong investor confidence, and perceptions of good governance; (2)  high access to technology; and (3) good security conditions and adequate access to social services.

Cultural Disconnect in Trade Negotiations

The June, 2013 G-8 Summit began with the announcement of the launch of negotiations between the United States and the European Union to conclude a Transatlantic Trade & Investment Partnership, or TTIP. The first round of negotiations concluded in Washington, D.C. on July 12, 2013.

At first glance it seems a very obvious thing to do. Already, trade between these two transatlantic giants accounts for about half of the world’s Gross Domestic Product (GDP) and nearly one-third of world trade flows.  Furthermore, as the biggest proponents of trade liberalization and open economies, EU and U.S. goods already enjoy very low tariffs upon entering each other’s markets. In other words, there is already a lot of trade happening between these two.

But, wait a minute! Why then is a trade agreement being negotiated?

Most of the benefit from a concluded TTIP is expected to come from removing or reducing regulatory barriers to trade – called non-tariff barriers or NTBs. Given the amount of trade already happening, the different regulations and standards on either side of the Atlantic Ocean create increased costs for businesses. Companies doing business in Europe and the United States face two or more sets of product approval processes, consumer safety standards, and inspection requirements. One anticipated outcome of the TTIP negotiations, then, are common standards or mutual recognition of each other’s regulatory requirements. Companies doing business on both sides of the Atlantic would then need to comply with only one set of standards and requirements.

US flag (courtesy of wikipedia)

US flag (courtesy of wikipedia)

At the same time, there is wide acknowledgement that this is not going to be as simple as it sounds. Arguably, there are some key areas in which regulations and standards differ for cultural reasons which may be difficult to overcome.

Food Standards: While genetically-modified or genetically-engineered foods (GMOs for short) are very much a part of the US agricultural and food landscape, European citizens have resisted the introduction of

EU flag (courtesy of wikipedia)

EU flag (courtesy of wikipedia)

“frankenfoods” into their food supply. The US sees the negotiations as an opportunity to revisit this issue. However, the European Commission —  the EU’s executive arm and negotiating party in these talks, has said that:

Basic laws, like those relating to GMOs or which are there to protect human life and health, animal health and welfare, or environment and consumer interests will not be part of the negotiations.

Buy American Act provisions: Legislation passed in 1913 restricts the purchase of non-US goods and services by the US Government. Need I say more?

Privacy: EU laws place a much higher value on protecting the privacy of European citizens. This interesting article by NBC news explains. This difference helps to explain why the negotiations almost broke down before they could even get started over revelations of the National Security Agency (NSA) spying activities. “US must justify why they treat us like enemies” said Martin Schulz, President of the European Parliament, in a Facebook interview.

 Copyright & Culture: The European Parliament is the EU’s directly-elected legislative body. It has issued its position paper on the US-EU negotiations, which included the request that cultural and audiovisual services be excluded from the negotiations.

Citizen Concerns: On both sides of the Atlantic, citizens have expressed concerns that “common standards” could actually mean a dilution of the national standards for which they have fought so hard.

Some of this disconnect even extends to the name. What the U.S. has dubbed the Transatlantic Trade & Investment Partnership or TTIP, Europeans have preferred to call the Trans-Atlantic Free Trade Agreement, or TAFTA.

These differences in cultural values help to explain why trade negotiations are so difficult. They are about more than reducing tariffs. As negotiators discuss the dry issues of regulations and standards they bring to the table cultural perspectives that they will have to work hard to first understand, then resolve.