Is Africa still being looted? A debate dodging World Bank schizophrenia

27 August 2010 by Patrick Bond


The continent’s own elites, the West and now China are still making Africans progressively poorer, thanks to the extraction of raw materials. Reinvestment is negligible and the prices, royalties and taxes paid are inadequate to compensate the wasting away of Africa’s natural wealth. Anti-extraction campaigns by civil society are the only hope for a reversal of these neocolonial relations.

Though it’s easy to prove, using even the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

’s main study of natural resource economics, apparently the looting allegation is controversial. When I made it during a Canadian Broadcasting Corporation (CBC) interview last week (http://www.cbc.ca/thecurrent/2010/08/august-10-2010.html), the World Bank’s chief economist for Africa, Shanta Devarajan, immediately contradicted me, claiming (twice) that I am not in command of ‘the facts’.

Before delving into the spat, consider the CBC’s framing. This public radio network is staffed by a better-than-usual crew of well-meaning journalists (not nearly so shallow as their neighbour to the south). So it is illustrative to consider CBC anecdotes of African success stories, around which a ridiculous claim is made, namely, ‘the end of the Third World’.

Unfortunately, the CBC appears to have cribbed the World Bank’s own ‘African Successes – One Pagers’ list on the ‘blogs.worldbank.org’ site. These pages make biased claims about the merits of cellphones, coffee exports and tourism (http://blogs.worldbank.org/africacan/african-successes-one-pagers).

CBC: “There are now nearly 260 million mobile phone subscribers in Africa. Network coverage extends to more than 60 per cent of the population. And that is changing the continent. The emergence of cell phones has created jobs, boosted investment and driven innovation and entrepreneurship. In many African countries, the telecommunication technology sector is now one of the top three sources of government revenue.

To be sure, the advent of more reliable telephony is a great step forward. But CBC and the Bank leave out a few caveats: Africa’s worsening digital divide, the cellphone operators’ monopolistic pricing habits, the amplification of household debt crises and diversion of scarce disposable income to buy airtime, cellphone crime, handset disposal problems, the source of coltan in the bloody eastern Democratic Republic of the Congo, and the lack of local production linkages to imported cellphones and broadcast technology.

In even the continent’s wealthiest national economy, South Africa, these are such notorious problems that it would be ludicrous to suggest that cellphones are anything much more than a lubricant for communication. They are not an economic development strategy.

From applauding imported technology, CBC goes to southern Rwanda, where “coffee is driving a different kind of economic success story. For years, farmers didn’t make much money from their coffee. Then, the government liberalized the coffee sector and gave them incentives to produce higher quality beans.” One coffee centre, Maraba, “used to be a ghost town. But the increased revenue from the coffee sector has transformed it into a bustling city.”

Neither CBC nor the World Bank admit vulnerabilities associated with highly volatile coffee prices, or the notorious middleman role of international marketing corporations which take away far more profits than do the farmers. The price of a kg of Robusta fell from $4.12 in 1980 to $0.63 in 2001 before a subsequent five-year commodity boom. In Ethiopia, coffee exports doubled in volume from 1992 to 2003, but falling prices meant the export value fell from $450 million to less than $100 million.

Ignoring price fluctuations of this magnitude is a serious oversight, for the 1994 Rwandan genocide occurred in part because of a dramatic economic destabilization in 1993 when coffee prices plunged by a third. For the CBC and the Bank to celebrate a return by Rwanda’s authoritarian regime of Paul Kagame to even greater coffee export dependency is quite unsatisfactory.

CBC: “In other parts of Africa, tourism is driving economic expansion.

Placing faith in tourism is also a terrible mistake, not only because of the sector’s extreme geographical unevenness and its distortion of local societies, property markets and ecologies. In addition, CBC and the Bank should at least consider the idea that the rapidly worsening climate crisis will lead to air travel taxes and thus diminish long-distance travel and tourism, but neither do.

From Washington to Ottawa to London, there were early economic development strategies in common that the World Bank and CBC should one day reflect upon: tariffs and subsidies aimed at supporting basic industries, with inward-oriented backward-forward linkages. These successful policies in the 19th-20th centuries are the opposite of what the Bank wants Africa to pursue.

Here is where we can join the relevant part of the debate.

Patrick Bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. : Africa is suffering neocolonialism, and that means the basic trend of exporting raw materials, and cash crops, minerals, petroleum, has gotten worse. And that’s really left Africa poorer per person in much of the continent, than even at independence. The idea that there’s steady growth in Africa is very misleading, and it really represents the abuse of economic concepts by politicians, by economists, who factor out society and the environment. And it’s mainly a myth, because, really, the extraction of non-renewable resources – those resources will never be available for future generations. And there’s very little reinvestment, and very little broadening of the economy into an industrial project or even a services economy.

CBC: Mr Devarajan, how would you respond to that view?

Shanta Devarajan: First, I just want to correct one of the facts, which is that the continent is not poorer per person. GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
per capita is not lower today than it was ten to fifteen years ago. In fact, it is considerably higher.

Here, Devarajan abuses the discussion about African poverty by using the Gross Domestic Product (GDP) measure, even though I had, just seconds earlier, warned against doing so. African economies suffer extreme distortions caused by the export of irreplaceable minerals, petroleum and hard-wood timber. Were he honest, Devarajan would confess that GDP calculates such exports as a solely positive process (a credit), without a corresponding debit on the books of a country’s natural capital.

But in seeking a less biased wealth accounting – i.e., by factoring in society and the environment so as to calculate a country’s ‘genuine savings’ from year to year - we find that Africa gets progressively poorer. This was demonstrated by even the World Bank’s own book, Where is the Wealth of Nations, published four years ago (and still available on the Bank website).

According to the book’s authors, “Genuine saving provides a much broader indicator of sustainability by valuing changes in natural resources, environmental quality, and human capital, in addition to the traditional measure of changes in produced assets. Negative genuine saving rates imply that total wealth is in decline.”

The authors are conservative in their assumptions, but once they factor in society and the environment, Africa’s most populous country, Nigeria, fell from a GDP in 2000 of $297 per person to negative $210 in genuine savings, mainly because the value of oil extracted was subtracted from its net wealth.

Even the most industrialized African country, South Africa, suffers from resource curse: instead of a per person GDP of $2837 in 2000, the more reasonable way to measure wealth results in genuine savings declining to negative $2 per person that year. From 2001, the problem became even more acute thanks to the delisting of the largest corporations from the Johannesburg Stock Exchange, which added not just the outflow of mineral wealth, but also of profits and dividends that in earlier years would have been retained in South Africa.

(SA president Jacob Zuma approved these policies and he is still relaxing exchange controls, thus permitting further wealth outflow. It was the height of United Nations incompetence or irony that Zuma was last week named as co-chair of Ban Ki-moon’s new panel on global sustainability, “tasked with finding ways to lift people out of poverty while tackling climate change and ensuring that economic development is environmentally friendly.” And after the United Nations climate summit in Cancun fails in December 2010, a year later Zuma will host the crucial Johannesburg follow-up to the Kyoto Protocol, whose targets of 5 percent emissions reduction expire in 2012. What might we expect? Beholden as he is to mining/smelting capital, with his son and nephew seeking mineral-tycoon status, Zuma signed the Copenhagen Accord last December. But this mainly confirmed that his climate-vulnerable kin in rural Zululand will suffer so that Melbourne and London shareholders of BHP Billiton and Anglo American can continue receiving the world’s cheapest electricity, from South Africa’s rapidly-expanding coal-fired power generators. Just so you are warned.)

As commodity prices soared from 2002-08, the outflow of wealth was amplified. But dating to the independence of so many countries over the past five decades, the story is the same: Africa looted in a manner that even World Bank environmental staff are openly confessing, even if Devarajan has (consciously or subsconsciously) ignored their research.

Hence it is misleading to the point of mischievousness for Devarajan to contradict my assertion that Africans are getting poorer.

The interview then turned to public policies associated with the looting of Africa.

CBC: The World Bank gets a lot of heat for your structural readjustment programme from some quarters. And that is when you offer to countries interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. -free loans but they’re contingent on some pretty severe austerity measures that some people say can be counterproductive because they hurt the economies in question more than they help them. And you’ve been criticized, notably, by economists like Patrick Bond and I’d like you to listen one more time to something he’s told us.

Patrick Bond: The World Bank and also the International Monetary Fund IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
, they sort of fooled us, in 2008-2009, because they seemed to shift their ideology away from a very hard-core agenda of promoting markets above everything else. And for a time it seems they were promoting government deficits and a Keynesian strategy: government should step in when the private sector fails. But now it seems like it’s back to business as usual, namely export orientation and austerity. And the World Bank, led by President Robert Zoellick who had come from the Bush Administration - he worked for Enron and for Goldman Sachs – this sort of leadership, and the Northern orientation and the banker mentality, means that the only way forward is to get away from these institutions, maybe to default on their debt, to kick them out of the country. And Latin America provides a good model for doing both of those things
.

CBC: And in fact some Latin American countries, Argentina, successfully told the institutions like yourself and the IMF to take a hike, and in fact it ended up doing them a lot of good. So how do you respond to someone like Patrick Bond?

Shanta Devarajan: Oh I think again that we have to look at the facts. There’s no question that the structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
policies of the 1980s and early 1990s received a lot of criticism. But then ask the question, ‘what changed?’ As I was saying, the growth has accelerated since the 1990s. We can’t hide from that fact. And you look at what changed. And it’s that these countries adopted exactly the Washington Consensus policies in the mid-1990s, the African countries. The difference is that they did it out of their own accord, out of domestic political consensus, rather than imposed from Washington or Paris or London. And I think that’s the point that people are not recognizing, that the actual policies that are generating the growth, are actually very similar to what was criticized in the structural adjustment era
.

Again, African GDP growth may have accelerated as commodity prices rose, but Africa became poorer once we calculate the net wealth effect and genuine savings. Devarajan can’t hide from that fact.

To disguise this by saying that structural adjustment did not work before the mid-1990s because it was ‘imposed’ by Devarajan’s colleagues, but did work after the mid-1990s because it was adopted through a ‘domestic political consensus’, is the most bizarre claim I’ve ever heard about African macroeconomics. There has never been a political consensus to structurally-adjust Africa, aside from the permanent problem of unpatriotic elites who are more closely allied with Washington, Paris, London, Brussels and Beijing string-pullers than with their subjects (a problem which in his 1961 book The Wretched of the Earth, Frantz Fanon so eloquently brought to our attention).

The Bank’s 2006 book mentions one obvious policy conclusion, learning from a country with petroleum resources that did not fall victim to resource curse: “Norway has used the flow accounts for energy and greenhouse gas emissions to assess a policy that many countries are considering: changing the structure of taxes to increase taxes on emissions and resource use.”

But liberalization imposed by the World Bank’s lending staff does precisely the opposite. This is the sort of schizophrenia we have come to expect from Bank researchers who arrive at common-sense ‘talk-left’ conclusions, such as that extracting resources from Africa leaves the continent poorer. But it is not surprising that Devarajan and World Bank operational staff ‘walk right’ when it counts, in interviews with gullible journalists like CBC’s Mike Finnerty (who failed to follow up on either of Devarajan’s whoppers) and when imposing neoliberal policies on wretched African elites.

In this context, the only encouraging signs are the myriad of challenges to extractive industries by activists who often put their bodies on the line in sites of sustained state and corporate violence like the Eastern DRC where human rights watchdogs struggle to document the murder of approximately five million people, Zimbabwe’s Marange diamond mines, South Africa’s Limpopo and Northwest Province platinum fields and the Eastern Cape’s titanium-rich Xolobeni beaches, the Niger Delta’s oil-soaked creeks and Chad’s oil fields, Firestone’s Liberian plantations, Lesotho’s dams supplying Johannesburg’s hedonistic water consumers, and other dam displacement zones including Gibe in Ethiopia, Mphanda Nkuwa in Mozambique and Bujagali in Uganda, to name just a few.

Because World Bank officials can be counted on to ignore their own research and hence continue promoting non-renewable resource exports; because this arrangement suits multinational corporations and donor agencies; and because African elites will continue taking this advice (often with sweetener bribes as was the case of the African National Congress’ role in the Medupi power plant controversy, funded by the Bank’s largest-ever project loan in April 2010), Africa will grow progressively poorer.

The African networks of civil society which promote ‘publish what you pay’ and other gambits for transparency, participation and human rights should finally come to the realization that this system of looting is not going to be reformed under the prevailing balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. of power, and that much more forceful resistance to extraction is required – and is underway.



Patrick Bond directs the Centre for Civil Society at the University of KwaZulu-Natal and from September will be on sabbatical at the University of California/Berkeley Department of Geography.

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Patrick Bond

Patrick Bond is professor of political economy at the Wits University School of Governance in Johannesburg and co-editor of BRICS: An anti-capitalist critique (published by Haymarket, Pluto, Jacana and Aakar).

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