Saturday, November 17, 2007

Good Africa, Bad Africa?

If you were to create a model for Globalization Man, he'd look a lot like Francois Woo. Woo's surname and taste for Cantonese food reflect his family's origins, three generations ago, in Guangdong province in southern China. His first name and French accent reflect the European culture of his adopted home on the Indian Ocean island of Mauritius. His children are at college in Perth, Boston and, soon, London. And his $200 million-per-year business is a microcosm of globalization in action. It buys raw cotton from Asia and Africa, ships it to Mauritius, spins it into yarn and makes it into clothes designed in-house. Those are shipped to retailers in Europe, Asia and the U.S. "We have to import all our raw materials, and we are very far from our customers," Woo says. "So the challenge is clear. We have to be the most efficient factory in the world."

More than 3,000 miles (4,800 km) to the west, in the Angolan capital Luanda, another entrepreneur, Adérito Cassolongo, faces far tougher prospects. As a young man, he taught himself English and wangled a job with the U.N. Then, with a civil war raging, he caught a plane to South Africa, where he slept rough on the streets of Pretoria before becoming a boxer and earning $30 a week. In the evenings, he taught English to other Angolans, then built his own computers from spare parts and used them to set up a computer-training school. Today Cassolongo's company, Cassca Technologies, is one of the only online testing centers in Angola for international IT certification, and as the economy booms--a predicted 35% this year--demand for Cassca courses is soaring. But unlike Woo's, Cassolongo's difficulties are entirely domestic. "We face a lot of corruption," he says, using the Portuguese slang gasosa, which literally means fizzy drink. "Documents don't come out until you pay. You have to have connections everywhere."

Two African entrepreneurs; two very different stories. Together they illustrate the promise and pitfalls of business on the world's second fastest-growing continent. Africa? That's right. In October, the IMF predicted that sub-Saharan Africa's real GDP will grow 6.75% in 2008, versus 7.2% in Asia, 3.2% in Europe and 1.9% in the U.S. Growth rates in several African countries evoke the Asian tigers of two decades ago, prompting keen international interest. In October, London-based New Star Asset Management announced the creation of a $200 million Heart of Africa Fund.

Mauritius is the development darling of Africa. The IMF predicts its real GDP will grow 4.1% this year. Known for high-end tourism, Mauritius is making its mark as a hub of global business, with taxes at a uniform 15% for individuals and businesses, and regulations so streamlined it takes three days to set up a company and $200 a year in fees to run it. Woo's business, the Compagnie Mauricienne de Textile, founded in 1986, is part of that boom. Its Port Louis factory is so big that workers use roller skates to get around in it, yet so nimble that it can switch from an order for 200 designer dresses to 200,000 Wal-Mart T shirts without missing a stitch.

To compete in a cutthroat global market, Woo, 57, is plowing $100 million into a new plant, investing in another in India and employing migrant workers from South Asia and China--a practice that has provoked controversy. In 2005, his Chinese workers protested over low pay. This year an article in the London Sunday Times quoted the International Textile, Garment and Leather Workers Federation as warning that some textile companies treat migrant workers "like slaves." Woo's response? His company pays workers more than the minimum rate set by the government and complies with the ethical codes laid down by customers.

Woo says "going global" is imperative if the business is to survive. That attitude, coupled with Mauritius' low taxes and ease of doing business, has made the country home to a rocketing finance industry as well. By April 2007, Mauritius was hosting 31,815 foreign companies, including 487 investment funds with a total net asset value of $36.92 billion. Some of that wealth is offshore, but the industry's lawyers, banks and investment houses employ Mauritians and do business with them.

Mauritius' secret? Good governance: the state, run by centrist parties that have peacefully swapped power since independence in 1968, ensures that growth lifts everyone. Mauritius is the only African nation to have eradicated malaria or provided free education and health care, and HIV/AIDS infects just 435 people a year. There have been no coups (Mauritius has no army), and its ethnicities--Indian, African, Chinese, European--are a model of integration.

If Mauritius is good Africa, Angola is not. An élite cadre of government figures, Angolan bosses and foreign oil companies holds on to the soar-away gains of its 35% growth while the country stagnates in destitution and inflation. Partly that's due to the lack of a diversified economy to harness the oil wealth. As a foreign diplomat puts it, "If you're dying of thirst, you can't drink from a fire hose. The water comes out too fast." But it's also due to corruption: a 2004 Human Rights Watch report claimed that $4.22 billion in oil revenues went missing from Angola from 1997 to 2002.

-The Highs and Lows of African Oil

Thanks to Fazeer

An ivory tower analysis of real world poverty by Easterly
The image of the trap is reinforced by Collier’s alarming statement that the bottom billion are falling further behind the rest of us. So is there a poverty trap—ie, the poorest countries are condemned to the worst growth? No, this is yet another statistical misunderstanding. If you pick out who are in the poorest 1 billion today, naturally they would be disproportionately likely to be those that had the worst growth of incomes over the previous decades...

So if you want to test whether there is a poverty trap, you need to look at whether those who were poor at the beginning of any period you want to look at were more likely to have poor economic growth than the rest afterwards. The answer is no.

Bhagwati interview;
Writing over 25 years ago, I distinguished between “supply-determined” and “demand-determined” aid flows. The former typically took the form of targets such as the 0.7 percent of gross national product in your quote. The latter, on the other hand, worked backwards from analyses of what aid could be productively used: my MIT teacher, Paul Rosenstein-Rodan, arguably the greatest development economist of his time, talked about “absorptive capacity” as early as the 1940s.

The smartest development economists, as against celebrities who often have huge talent and big hearts but no awareness of their ignorance of the complexity of developmental problems, never forget that absorptive capacity is important. Targets like 0.7 percent are like the Vatican’s tithe or the Islamic zakat. They can provide you with aspirational benchmarks. But would you really want your government to keep giving if the moneys were wasted or, worse still, misappropriated and led, in worst-case scenarios, to enrichment of corrupt leaders whereas the burden of aid repayments fell on the people you meant to support through induced development?

I do think that we can spend aid moneys wisely, but this requires carefully constructed programs and projects, and avoidance of sudden surges that can lead only to waste and corruption. This was the case in India where aid did serve a good purpose, but the Indian government was democratic (in fact, the only Third World government to be so for some decades) and development-oriented. Alas, that has not been generally true, and not just in Africa, where the developmental challenge is the greatest today.

Africa Catalytic Growth Fund (should we thank Rodrik?)
By using this fund to augment existing development programs, we can help selected countries overcome key binding constraints and break into higher growth. These programs can generate positive spillover effects for neighboring countries as well as powerful demonstration effect for all Africa by creating more convincing models for sustained transformation

1 comment:

Omodudu said...

Interesting, article. Thanks