Archive for Development

Guinea millitary rulers have no authority to sign mining deals

After the brutal killings and attacks on unarmed demonstrators last month that left at least 157 people dead and over 1000 injured, the military dictators in Guinea have no right to sign a $7 billion mining deal with a Chinese company. Even though these people came to power by force, initially they had a lot of support and goodwill in a country where the people were tired of the previous corrupt ruler and his drug dealing son. But after this massacre, they have forfeited their right to rule the country, and as such have no legitimate authority to sign any deals, let alone a $7 billion sell off of the country’s mineral assets.

It is also astonishing that the Chinese would sign this deal less than a month after the horrific attacks by the military on unarmed civilians. This is another clear example that China doesn’t give a damn whether Africans live or die as long as it gets its hands on Africa’s raw materials. Would anybody be surprised if China were to oppose the EU development chief’s call to put the Guinea ruler Capt Moussa Dadis Camara on trial for “crimes against humanity?”

In light of this latest development, one has to wonder what Rwandan President Paul Kagame was thinking when he praised China for the “way it does business in Africa.” Really, Mr. President? I wonder if the people of Guinea, or those in Darfur’s camps would agree with that. Or was he talking about how African dictators feel about the way China does business with them?

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micro-financing and ‘meso financing,’ not either or

Just listened to BBC World Service’s The Forum, where economist George Ayittey, if I am not mistaken, argues that what African small farmers need is not micro-financing but what he calls ‘meso financing.’ He advocates that rather than giving 1000 farmers $100 each, the $100,000 should instead be used to buy a truck to transport what the farmers produce to the market.

I have been thinking about this for a couple of years now, and I believe both micro and what professor Ayittey calls meso-financing are necessary in order to end poverty and build the middle class. By now it is clear that micro-financing has lifted many families out of poverty in the developing world, and it would be irresponsible to end it. At the same time, small loans in the amounts of $100 to $200 will not be enough to build a large middle class in an impoverished African country.

In addition to a free and good educational system (from elementary school to university level), a developing nation needs an affordable and accessible small business loan program in order to build a vibrant entrepreneurial class. Using professor Aittey’s example, a business man or woman should be able to borrow say $20,000 or $50,000 in order to buy a truck to transport farm produce to the market.  Or, in addition to lending the farmers $100 each to improve their output, why not also encourage them to create a coop and then lend the coop the amount of money needed to buy the truck?

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R&D in Developing Nations

An interesting look into Microsoft’s R&D in India by Navi Radjou at the blog. It’s great to hear that Microsoft is employing “development economists” and “social anthropologists” to develop products designed to specifically address real problems affecting subsistence farmers and small businesses in developing nations. The article also has several good recommendations to other multinational corporations as to how to conduct R&D and deploy solutions in developing nations.

What is missing from the article though is whether the inventions that come out of this research are patented and/or are restricted to work only with Microsoft products. Or are the inventions that come out of this made available to local and other entrepreneurs or NGOs, so that the products developed as a result of the research are affordable enough and without crippling restrictions as to their use and distribution to make them useful to their intended audience?

I guess my fear is that IT multinationals will follow the footsteps of agribusiness multinationals and their genetically modified seeds and the horror stories we keep hearing about the experiences of farmers in developing nations who use these seeds.

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Internal Colonialism

A new dam is being built in Ethiopia that has the potential to devastate the indigenous people who have lived there for hundreds, possibly thousands of years. Government officials say that the dam will reduce flooding, and will benefit the people who live downstream from the dam. The thing is, the people who live downstream don’t want the flooding to be stopped or managed:

One of the senior community priests, Bargaeri, said although they were aware of the dam, they had heard nothing official.

“We will suffer because there will be no more floods,” he said. “I don’t think the government likes the Omo tribes. They are going to destroy us.”

The floods lie at the very heart of the dispute over the dam.

According to anthropologist Marco Bassi, of Oxford University, the tribes have developed sophisticated agricultural techniques that have allowed them to live comfortably and sustainably for centuries.

Each wet season, the riverside communities retreat to higher ground, waiting for the flood that inevitably comes.

Once the waters retreat, the communities move back to plant their crops on the damp and newly replenished soils.

Their cattle feed on the fresh grasses. The higher the flood, the more land is inundated, and the more becomes available to farm.

Even the highest of floods are necessary to replenish the outlying bush lands that the communities use to feed their livestock during the equally inevitable droughts.

“It looks very primitive from the outside,” Mr Bassi said. “But when you investigate it, you discover that they have a very intimate knowledge of the land and its fertility.

“Each family has maybe seven or eight different varieties of sorghum that responds to different conditions. And combined, the community has 20 or 30.

“They know how to plant in a way that guarantees enough food whatever happens through the year.”

Why is it that some African central governments believe they know what is best for the indigenous people? How is this any different than the actions of former European colonizers who took land away from the natives in Eastern and Southern Africa in the 19th century?

As far as these Ethiopian tribes are concerned, the actions of the central government are no different than 19th century European colonizers. The only difference this time is that the colonizers are their fellow countrymen: this is nothing but Internal Colonization.

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I just reread this BBC article from a few months ago about how a Chinese state owned bank is investing $9 billion in the Democratic Republic of Congo in exchange for mining rights. There was also a similar article where a Chinese mining company is investing $3 billion in a Peruvian copper mine.

On the surface these investments seem exactly what these two developing countries need, but in reality the Chinese companies will end up making enormous profits:

But critics say the problem is not just fiscal privileges.

The whole arithmetic of the deal unfairly favours the Chinese. At current world prices for copper and cobalt, they claim, the Chinese side of the joint venture will make a colossal overall profit of about $42bn after all the investment’s been paid.

That is between a 4 to 5 times return on their investment. I don’t see how anybody can argue that the people of DRC are the winners here. What makes the deal even worse is:

The idea is that China will recoup its total investment within 10 years.

Thereafter the joint venture – one third DR Congolese, two-thirds Chinese – continues to exploit the mine.

Why on earth should a foreign entity end up owning 66% of a country’s natural resources? Again, how is this deal in the best interest of the people of the Democratic Republic of Congo?

This is an ideal time to reevaluate the whole idea of giving for-profit companies or foreign government owned companies the right to exploit developing countries resources, where the investors reap extremely handsome profits while the people in those countries see minimal benefits.

Hence I am proposing forming community profit organizations (comprofit or CPOs), where these entities would bid for contracts to exploit natural resources such as minerals, oil, etc., where all the profit would then be invested directly in the local community and country: to build schools, hospitals, roads, etc. The difference between this approach and what the Chinese bank is doing in the DRC would be investing $42 billion vs $6 billion in the local community.

In order for this to work the comprofits will need to be run like proper, for profit businesses. The only difference between a for-profit company and com-profit would be where the profits go. In the for-profit case the billions of dollars of profits go to individuals and investors, while in the com-profit case the money goes to the people who own the resources. For example, why should a steel magnate be worth upwards of $20 billion or a foreign government owned bank make $42 billion while the people who own the resources get crams in return?

The challenge is the comprifit would need to raise billions of dollars in order to compete with the likes of state owned companies or huge for-profit companies that can offer $3 billion upfront to developing countries who badly need the resources. What I have a problem understanding is that why doesn’t the World Bank encourage such ventures? May be it does, and I am not aware of it, but more often than not I am reading stories of deals pushed by the Word Bank that favor investors at the expense of the people.

Comprofits could also raise funds from private investors, such as large pension funds, and other institutional investors in return for reasonable returns.

Finally, I understand that Bill Gates and Warren Buffet are donating their fortunes to charities. Why not invest some of that money in comprofits? Not only would this reduce poverty and disease, increase literacy and build infrastructure, but the charities would also get a good return on their investments. I would call that a win-win.

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