International Policy Network - Critical Opinion

Bob Geldof is right: investment, rather than aid, is the way forward

Fri, 03 Sep 2010 13:10:24 +0000

Blog Author:

Alec van Gelder

Let business and the private sector do for Africa and Africans what a half-century of aid and government ineptitude could not.

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Lessons for Nigeria’s free-trade zone

Thu, 02 Sep 2010 15:58:43 +0000

Blog Author:

Alec van Gelder

Blog Author:

Timothy Cox

The news that China and Nigeria are partnering to form a 16,500 hectare free trade zone near Lagos could be a boon for potential investors and the Nigerian economy. But, the devil lies in the details: success depends on implementation. Similar “free trade” or “enterprise” zones have been tried before and have produced mixed results. Nigeria can look across Africa to the Mauritian experience to see that trading zones are not a “silver-bullet” but they can help promote lasting change if other pro-growth policies are pursued.

The idea in Nigeria is to create a free trade area that will allow foreign businesses to invest in Nigeria by circumventing the wide array of existing government imposed barriers. The need for a streamlined system of investment in Nigeria cannot be overstated. The World Bank reports that it currently takes over a month to satisfy the eight procedures in order to start a business at a cost of three quarters of a year’s average wages. In the new free trade zone this procedure is expected to take less than a week.

A similar country-wide Export Processing Zone was launched in Mauritius in 1970, allowing traders to import duty-free “inputs” (e.g. products used in exports) to circumvent vertiginous tariff barriers that crippled the rest of the economy. Yet success for the EPZs in Mauritius did not come until further liberalisation took place almost a decade later. A series of economic reforms launched in the late 1970’s, including reducing (eventually abolishing) the minimum wage (which had contributed to record levels of unemployment in the 1970s) and simplifying import licensing restrictions enabled the EPZ firms to develop and prosper, along with the wider economy. Since the mid 1980s the volume of imports and exports has grown, on average, by 8.7 per cent and 5.4 per cent respectively each year. At its peak, in 1999, EPZ firms contributed 12.5 per cent to total GDP and accounted for up to 75 per cent of all exports. And yet even these figures still do not fully account for the value of investment, migration and trade in goods and services that Mauritius’ EPZ garnered for the country’s wider economy.

The underlying point, that the government must listen to the needs of its businesses and investors, was essential to overcoming initial difficulties for the EPZs in Mauritius. The original reforms in 1970 needed to be bolstered by further reforms, which have helped the EPZs and the wider economy boom. This is essential to the success of the Nigerian experiment. Nigerian politicians should abandon their historical scepticism towards trade and allow their businesses and consumers to enjoy the expertise, investment and opportunities that opening up to the global economy will bring.

A free trade island surrounded by a fortress of protectionism is a good start. Let’s hope the free trade zone provides a beacon for the reforms so badly needed across the economy at large.

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The Critical Links: Wed 1st September

Wed, 01 Sep 2010 16:15:17 +0000

Blog Author:

Timothy Cox

Our daily round-up of what other think-tanks and commentators are saying on the big issues:

How to close a bank account in Lesotho in under three hours!

Trading on the recession: Alex Nowrasteh and Brian McGraw on why the US should look to freer trade, not protectionism, to revive economic growth.

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Seven Myths About Green Jobs

Tue, 31 Aug 2010 15:37:40 +0000

Blog Author:

Timothy Cox

A new IPN study reveals the hidden costs of so-called “green investments”, bringing a key policy of Britain’s coalition government into question. “Seven Myths About Green Jobs” (opens PDF) shows that subsidising “green jobs” wastes resources and reduces growth without necessarily protecting the environment:

Bureaucracy: In practice, “green investments” get spent on red tape. “Green jobs” are taken by bureaucrats, siphoning resources away from the productive sectors of the economy.

Waste: For those advocating “green jobs”, inefficiency is a virtue. A United Nations study on green jobs actually calls for fruit to be picked by hand rather than machine. “Green” subsidies effectively pay companies to make everyday items more expensive and scarce, taxing the public twice over.

Debt: Today’s “green investments” are made by increasing Britain’s colossal national debt, borrowing heavily in the hope of making future generations richer. If the green gamble fails, our children and grandchildren will be left with the bill.

“Green investment” isn’t even a reliable way to improve the environment, the study finds. Steel is one of the world’s most carbon-intensive industries, yet the United Nations Environment Programme counts steelworkers as having “green jobs”, because steel is needed to make wind turbines.

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Africans do not want or need Britain's development aid

Tue, 31 Aug 2010 13:50:12 +0000

Blog Author:

Timothy Cox

Aid Watch reports on a letter featured in last week’s Sunday Telegraph from African commentators decrying the need for UK budgetary support to African governments.

As Andrew Mwenda et al. claim, removing protectionist legislation like the EU’s Common Agricultural Policy would be of far greater benefit to ordinary African’s looking to expand their trading opportunities than any amount of foreign aid:

SIR – The parlous state of the public finances in Britain provides the perfect opportunity for British taxpayers to end their half-century-long experiment with "development aid", which has, since its inception, stunted growth and subsidised bad governance in Africa.

As Africans, we urge the generous-spirited British to reconsider an aid programme they can ill afford, and which we do not want or need. A real offer from the British people to help our development would consist of the abolition of the Common Agricultural Policy, which keeps African agricultural exports out of the European marketplace.

It is that egregious policy, combined with the weight of regulations, bad laws and stifling bureaucracy, subsidised by five decades of development aid, which prevents Africans from lifting themselves out of poverty.

Andrew Mitchell, the Secretary of State for International Development, speaks about a "moral imperative" to combat poverty around the world. We could not agree more. The British have a unique opportunity to cut the deficit and help Africa: please, ask your new government to stop your aid.

It’s time for the politicians in the UK, Europe and everywhere else to start listening to the actual needs of the world’s poorest, rather than continuing the folly of throwing yet more money at their governments.

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Wasteful aid spending shouldn’t be spared

Fri, 20 Aug 2010 13:32:06 +0000

Blog Author:

Timothy Cox

Leaked plans to redirect government spending to the foreign aid budget are condemnable, but hardly surprising.

While the coalition government has decided to increase foreign aid spending to 0.7 per cent of national income each year, almost all other departments are having to cut spending by an average of 25 per cent. No wonder civil servants are engaging in “budget juggling”.

In fact, the 0.7% spending target for foreign aid makes no sense: the actual needs of the world’s poorest bears no relation to the size of the UK economy. If the government is serious about development it should abandon arbitrary targets, and appraise each case for aid independently with the interests of those suffering at the fore.

Wasteful spending should be cut in the foreign aid budget, just as it is being in other government budgets.

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SADC: celebrating 30 years of pointlessness

Wed, 18 Aug 2010 17:30:34 +0000

Blog Author:

Alec van Gelder

Blog Author:

Timothy Cox

The thirtieth anniversary of the Southern African Development Community (SADC) is a stark reminder of just how ineffective the current network of African regional trade groupings is. Despite years of deal brokering and millions of dollars having been spent on trade facilitation, intra-African trade remains stifled. Less than ten per cent of African exports are destined for other African economies and the continent’s share of global trade has steadily fallen since the end of World War II. Today, France exports more merchandise than the whole of sub-Saharan Africa collectively.

Part of the problem is to be found in the prescription. Africans have zealously embraced European style political integration without much serious effort concentrated on boosting regional trade. The result is a tangled web of regional economic communities (RECs), all with overlapping memberships, separate policy provisions and independent institutional support. Of the 53 African countries, 27 are members of two RECs, 18 belong to three, and a couple are members of four. Only a handful of countries have maintained membership in one community.

Many of these groups, including SADC, are inherently weak. Bourne out of protracted negotiations, the final agreements that underpin these groups are watered down and are ill-suited to address the obstacles to trade that face African businesses. The vast majority of these barriers are found in the domestic regulations that make it prohibitively expensive to trade across borders, open business or even pay taxes. These are extensively documented by indices such as Doing Business, or the Logistics Performance Index, but they can only be dealt with at the national level.

Membership in regional economic communities has proven popular, but Africa governments would do their constituents the biggest favour by abandoning these do-nothing clubs and concentrating on these more important domestic priorities.

So while delegates in Windhoek enjoy the latest boondoggle and celebrate “30 years of progress”, it’s worth remembering that Africa’s many “high-profile” summits stand very little chance of addressing the real barriers to African prosperity.

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The Critical Links: Tues 17th August

Tue, 17 Aug 2010 18:53:47 +0000

Blog Author:

Timothy Cox

Our daily round-up of what other think-tanks and commentators are saying on the big issues:

Kieron Ryan: how the “blood diamonds” scare is a 24-carat disaster for Africa.

Tragedy of the wildlife commons in the US explained.

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The Critical Links: Mon 16th August

Mon, 16 Aug 2010 17:36:19 +0000

Blog Author:

Timothy Cox

Our daily round-up of what other think-tanks and commentators are saying on the big issues:

Brink Lindsey: Five books on traditional and liberal conservatism.

Steve Davis and Jonathan Woetzel: Chinese aid to Africa can be force for good.

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Will DfID “spend better”?

Mon, 16 Aug 2010 17:22:01 +0000

Blog Author:

Alec van Gelder

Scott Gilmore says:

"It’s possible that one of the global leaders in aid is beginning to move away from the mantra of 'Spend More!' which dominated the last twenty years, and is moving towards the idea of 'Spend Better.'"

But we're not so sure.

That would indeed be a welcome development and it may be what Andrew Mitchell wants us to believe but the devil lies in the detail, not in leaks to the Observer. DfID has not only promised to “ring-fence” aid spending, they have pushed to have a 0.7 per cent of GDP aid spending target enshrined in law. This would actually increase aid spending by a non insubstantial £2bn per year. Given that this was among their top priorities coming into Government, it’s not easy to believe “spending better before we spend more” rhetoric, much as we wish it were true.

We are particularly disappointed that the Coalition has decided how much to spend before the review into DfID’s current spending programmes has delivered its conclusions. Only a “top-down” aid agency could decide how much to spend before understanding which projects are worthy of UK taxpayer support.

The current debate in the UK re. aid appears to along the following lines: projects receiving DfID support are sporadically discussed by the media and then one of two things happen: 1) DfID rightly announces that funding to said project will be discontinued, mainly because of UK public outrage; or 2) DfID comes out in defence of the project it funds. With nothing seemingly thought through from the perspective of the aid recipients, it’s hard to take government claims to a commitment to “spend better” at face value.

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More evidence of Chavez’s failings

Mon, 16 Aug 2010 14:24:01 +0000

Blog Author:

Matthew Ridley

Recently at IPN we talked about the misguided policies of Hugo Chavez’s regime and why Oliver Stone was so dreadfully wrong to recommend them for the US. Since then, there have been further illustrations of just how badly Venezuela’s economic system is performing.

Thor Halvorssen informs us that Venezuela’s “disastrous food policy”, combined with electricity rationing, has led to a shocking 120,000 tons of food being left to rot at Puerto Cabello, a recently-nationalised port near Venezuela’s capital. Meanwhile the attempt by the Venezuelan government to provide food for the poor has been predictably corrupted by those within the political elite. Ricardo Fernandez, a businessman with close ties to the Chavez family, is estimated to have amassed a personal fortune over $1.5bn through the state-owned food chain, Mercal. And Fernandez is just one example of corruption that has become a way of life throughout Venezuela. Chavez claims to be establishing “21st-century socialism”, but the results are already proving as disastrous as its twentieth-century predecessor.

Problems of this type are not unique to Venezuela, but are common to any country with a planned, socialist economy. This is inevitable when politics and economics become too closely intertwined. Without market mechanisms and the information they discover and disseminate, the people in charge are blind to the real needs of consumers and workers and vulnerable to corruption by special interests.

Evidently concerned that Venezuelans are becoming dissatisfied with his regime, Chavez continues to tighten his grip on the media and eliminate opposition to his rule. But it doesn’t have to be this way. Left-of-centre politicians- such as the former president of Chile, Michele Bachelet- can accept the institutions of the free market and the need for fiscal responsibility, while at the same time advancing the causes of social liberalism and social justice. Chile now has one of the best performing and richest economies in South America.

If Hugo Chavez wants to be a truly progressive leader, he should look there for guidance instead of continuing his “experiment” in South American socialism at the expense of his people.

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Friends of the Earth’s vendetta against GMOs

Mon, 16 Aug 2010 14:03:52 +0000

Blog Author:

Stuart Bramwell

The Nigerian-based International Institute of Tropical Agriculture (IITA) has recently discovered a way to cure ‘Xanthomonas Wilt’, a disease that has rendered over half a billion dollars worth of damage to the agricultural industry in East and Central Africa. This development could help increase agricultural productivity in a region highly prone to food shortages.

However, betraying their fervent ideological commitment to the anti-GMO cause, Friends of the Earth Nigeria (FotEN) has recently denounced this development as an attempt by the biotech industry to colonise Uganda’s local food supply and negate their food sovereignty.

This is not the first time FotEN has resorted to emotive anti-colonialist rhetoric to add weight to their arguments. They previously denounced biotech tests on the Cassava shrub as “trading away our food future to modern colonialists that hide under the cover of agricultural biotechnology.” Such rhetoric is strategically employed to make FotEN out to be on the right side of the debate.

But this doesn’t change the fact that their prescriptions will almost certainly undermine progress in a continent that desperately needs it. That the EU gave FotE’s European subsidiary EUR 813,721 in 2009 should be a source of embarrassment for those looking to promote development practices that actually work.

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