Comment of the Week: The Economic Crisis is Not Necessarily Informal
This week's winning comment comes from Phillip Hafner in Portland. Phillip shares his thoughts on the informal economy based on his experiences with the informal sector in rural Jamaica. Phillip gets to choose between a $25 cash prize or a $25 donation made in his name to benefit a project of his choosing on Global Giving.
I visit friends in rural Jamaica every summer, and most of the individuals who make up the community in which I stay make their money through informal means. As mentioned in the post, this includes farming, child care, and transportation, to name a few. As I have found, and this is based on personal perception and may not represent the whole, there is a definite population of individuals in developing countries which stray from government contact, this including government sponsored jobs and aid. For my friends in Jamaica, and I assume for those who carry on in this manner in other developing countries, the state of the government’s well being does not necessarily reflect their own.
When considering the economic crisis, the situation remains the same. Small scale informal commerce will not suffer as much as large scale traditional commerce. This is to say, those selling fruit on the side of the road will generally stay in business while large corporations buckle under economic pressure. Still, when one looks at the whole, a decrease in economic growth will reduce spending. Yet, those not involved in traditional jobs will not be as affected. Moreover, as I am neither an advocate for or against the informal market, it is very interesting to see the subsistence informal trade and commerce is providing during the financial crisis.
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Dealing With Africa’s Resource Curse
Africa is a vast and exotic continent of about 900 million people in 54 independent countries. It has a total area of over 30 million square kilometres. Africa is rich in mineral and natural resources.
It possesses 99 percent of the world’s chrome resources, 85 percent of its platinum, 70 percent of its tantalite, 68 percent of its cobalt, and 54 percent of its gold, among others. It has significant oil and gas reserves. Nigeria and Libya are two of the leading oil producing countries in the world.
Further, Africa is the home to timber, diamonds, and bauxite deposits. Revenues from their extraction should provide funds for badly needed development, but instead have fueled state corruption, environmental degradation, poverty, and violence. Rather than being a blessing, Africa’s natural resources have largely been a curse.
Africa’s vast mineral wealth and strategic significance have encouraged foreign powers to intervene in African affairs. During the Cold War era, 1945-1990, there was increasing superpower intervention in Africa. The United States and the Soviet Union were major players on the African scene.
The 19th-Century scramble for Africa saw the great powers rush to control land so they could exploit natural resources. The key question for many is: will the exploitation of Africa’s rich resources benefit anyone other than the continent’s elites?
Oil is perhaps the most important lure, with competition between foreign states and companies to secure resources so intense it attracts more than 50 per cent of all foreign direct investment. In 2006, annual Foreign Direct Investment (FDI) raised to a historic high of $38.8 billion, exceeding record levels of 2005 — a growth of 78 per cent from 2004.
According to the UN World Investment Report, FDI cash was concentrated in a few industries, notably oil, gas and mining. And six oil-producing countries — Algeria, Chad, Egypt, Equatorial Guinea, Nigeria, and Sudan — hogged around 48 per cent of it.
European firms represent roughly two-thirds of the total FDI in Africa. More than half of European investment originates from the UK and France, going mainly to countries with which they have historic ties. French oil companies such as Total, locked out of the Middle East through France’s opposition to the Iraq war, have made large investments in Francophone countries such as Cameroon, Chad, and Gabon.
The US is interested in the region as a cheap and reliable alternative to the increasingly volatile Persian Gulf. West Africa already supplies about 12 per cent of US crude oil imports, and America’s National Intelligence Council predicts that this share will rise to 25 per cent by 2015. As is often the case with oil, military involvement follows behind trade. In February 2007 the US set up an Africa command (Africom).
It has established bases in and signed access agreements with Senegal, Mali, Ghana, Gabon, and Namibia. Despite its own big backyard, as it were, China is generally resource-poor and Africa offers the natural resources vital to fuel its rapidly growing economy.
China looks to the Democratic Republic of Congo (DRC) and Zambia for copper and cobalt, to South Africa for iron ore and platinum, and to Gabon, Cameroon and the Republic of the Congo (Congo-Brazzaville) for timber. For oil, it has been wooing Nigeria, Angola, Sudan, and Equatorial Guinea. China is now the second largest consumer of crude oil after the US, and was responsible for 40 per cent of the global increase in demand between 2001 and 2005. Indeed, it imports 25 per cent of its crude oil from Africa.
Beijing has charmed African rulers with a triple whammy of arms sales, canceled debt, and soft loans. Last year, President Hu Jintao and Prime Minister Wen Jiabao visited 10 African countries, including Uganda, and this increasingly intimate relationship was consummated at the China-Africa summit in October 2006, when Beijing rolled out the red carpet to almost 50 African heads of state and ministers.
The global demand for natural resources will bring benefits to Africa — increased FDI and, as exports grow, improving balance of trade figures — but one of the main concerns is that the scramble for Africa is fueling corruption, environmental degradation, and internal dissent.
The windfall gains from resource extraction cause more problems in Africa. It reduces a state’s incentive to impose a free and just taxation system, and encourages corruption and acquisition of weaponry and thus develops wars.
In the form of Neo-colonisation, Africa is being fragmented into many pieces at the will of super power countries and concentrating more on the exploitation of Africa’s rich resources than providing them the development aid. For example, the recent Organisation for Economic Cooperation and Development (OECD) report indicates that the world’s major donors (22 member countries of the OECD Development Assistance Committee, DAC), provided $103.9 billion in aid in 2006, which fell by 5.1 percent from the 2005 figure. This figure includes $19.2 billion of debt relief, notably exceptional relief to Iraq and Nigeria. Excluding debt relief, other forms of aid fell by 1.8 percent.
The fall was predicted. ODA was exceptionally high in 2005 due to large Paris Club debt relief operations (notably for Iraq and Nigeria) which boosted ODA to its highest level ever at $106.8 billion. In 2006, net debt relief grants still represented a substantial share of net ODA, as members implemented further phases of the Paris Club agreements, providing a little over $3 billion for Iraq and nearly $11 billion for Nigeria.
Excluding debt relief, ODA fell by 1.8 percent. Preliminary data show that bilateral net ODA to sub-Saharan Africa rose by 23 percent in real terms, to about $28 billion. However most of the increase was due to debt relief grants, excluding debt relief for Nigeria, aid to sub-Saharan Africa increased by only 2 percent.
Charities and NGOs working on the issue believe that even governments that are members of the OECD are reluctant to investigate allegations against western companies of corruption or complicity in human rights abuses.
In Equatorial Guinea — where US companies such as ExxonMobil and Chevron are active — the regime of President Teodoro Obiang Nguema has been accused of torture, electoral fraud, and corruption. Despite this, President Nguema was welcomed at the US State Department by Secretary of State Condoleezza Rice in April 2006 and described as a “good friend.”
The environmental impact is also alarming. The clearing of forests for timber exports increases vulnerability to erosion, river silting, landslides, flooding, and loss of habitat for plant and animal species. Gas flaring from oil production, where unusable waste gas is burned off, pumps large amounts of carbon dioxide into the atmosphere.
There is a fear that access to natural resources will fuel the kind of violent conflict seen recently in Sierra Leone, the DRC, and Liberia. The developed countries should realise and think to provide the development aid to Africa where millions are suffering with HIV/Aids, poverty, and other vulnerable diseases for their development instead of extracting their resources.
A Look at Africa's Exploitation
If anybody wants to understand Africa's plight today, there are few better ways than to watch Darwin's Nightmare, a documentary directed by Hubert Sauper, an Austrian filmmaker. The film was nominated for an Oscar for best feature documentary this year. Although disturbing to watch, the film shows one of the many ways Africa has been exploited by foreign powers over centuries.
In the 1950s, a new fish, the Nile perch, was introduced into Lake Victoria, the largest tropical lake in the world, in an attempt to improve its fishing yields. A voracious predator, the Nile perch rapidly multiplied and killed off hundreds of the native fish species. The exploitation of the Nile perch led to a fast-developing industry in which the fish are processed and the fillets exported to European countries and Japan.
Rather than benefiting, the local population has remained poor, unable even to eat the very fish they work to export. The film shows how locals end up eating fish carcasses ridden with maggots. The presence of foreigners with idle time and money to spare increases prostitution, which fuels the spread of HIV.
Several tons of processed fish are sent overseas every day in ex-Soviet cargo planes filled to capacity with fish fillets. But it's the first part of those cargo planes' journeys that is so disquieting. The planes arrive in Mwanza Airport in northwest Tanzania, carrying food to be distributed to nearby refugees. More ominously, though, also they frequently carry ammunition for countries involved in civil war in Central Africa. This dirty secret, which nobody wants to talk about, is the target of Sauper's ingenuity.
Through Sauper's inquisitive lens, at one end of the spectrum, we see local fishermen and workers, homeless children, and Tanzanian prostitutes. At the other end are World Bank officials, African ministers of government, and European Union commissioners. While they celebrate the success of the Nile perch industry, locals continue to live in misery.
Although filmed under the roughest of conditions, the documentary is filled with scenes of poignant beauty. As Sauper has remarked, "It was easy to find striking images because I was filming a striking reality. But it was also easy to get into trouble." The small crew had to disguise themselves as pilots and loadmasters and carry fake identification. Constantly questioned by police officers and held at checkpoint, they spent a large part of their budget on bribes and fines.
Sauper speaks to his subjects, be they the cargo-plane pilots, the workers at the fish factories, factory owners, or prostitutes. What emerges are the candid opinions of those involved, giving us special access to a troubling world of greed and survival.
The film painfully illustrates how exploitation by so-called civilized societies can keep a country rich in resources poor and abuse its population. Nor is this an isolated process. The point is, it is happening every day throughout Africa. Sauper is right to call his film "an ironic, frightening allegory for what is called the New World Order."
It wouldn't be fair to blame only foreigners for this human tragedy. As I have been able to see in my frequent trips throughout the continent, problems in Africa are often a collusion between foreigners' greed and local corruption and incompetence. While it is true that rich nations and entrepreneurs must reexamine the way they do business with and in Africa, saying that is not saying enough. Until local African leaders place the interests of their people before their own, their countries will continue to be prey to the rapaciousness of outsiders.
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