Not that the rest of the world consistently gets the idea either, but there are no other regions that so consistently mess up the nature of cause and effect. The source of this confusion is the economic boom that results from the mere good fortune of having some valuable resources.
In both Russia and Venezuela the near vertiginous rise of oil prices has stimulated economic growth; which is a good thing. It has also led the Big Men in power to associate that boom with their own blunt political ministrations. Both Hugo Chavez and Vladimir Putin have perverted their constitutions to ensure their continued control. “After all,” they think, “if it weren’t for me the economy wouldn’t be doing so well.”
Sadly – for themselves – this is a woeful fantasy that the citizens of these oppressed lands are willing to go along with. They remember the poverty of previous leaderships and confuse democracy with economic neglect.
Lest you think this is mere speculation, consider the following: In 2003 Hugo Chavez, president of Venezuela, took control of his country’s oil production after declaring his lack of faith in private endeavour. It is difficult arguing that Chavez’ nationalisation was a bad thing when daily oil revenues have risen from $ 50 million in 2003, to $ 190 million in 2007. Yet it has been an appalling disaster.
Between 2003 and 2007 oil production fell from 3.3 million barrels of crude per day, to 2.5 million â€“ a drop of 32%. Over the same period the price of oil has risen by over 500%. If the industry had been left alone Venezuela would be generating $ 60 million more per day. At the same time, rampant public spending due to Chavez’ determination to nationalise all parts of the economy has driven inflation to 21%.
In similar fashion the Apartheid-era dictatorship in South Africa was paid for entirely out of the proceeds of a rising gold price. In 1971 gold was $44/ounce, in 1972 it was $70/ounce and – by 1980 – it was $641/ounce. Without this windfall “separate development” would never have been possible.
Many societies confuse a lucky cash boom with sound economic policy. Where there is confusion there is opportunity for analysis.
Measuring how bad it is
Various international organisations have attempted to objectively quantify what it is that separates the countries with the best economies (consequentially offering more opportunities and better lifestyles to their people) from those who don’t. The UN produces the Human Development Index. The World Bank, The Ease of Doing Business Report. Even Africa has its own index after Mo Ibrahim, the genius telecoms billionaire, developed his African Governance Index.
These are new ideas and have rapidly taken hold. We have indexes ranking entrepreneurial expression, and environmental care. However, these could simply be rankings of GDP per capita. They offer little that is new, and little that is helpful for investors, or genuinely progressive governments.
The measure of an index is also in how it predicts the future. Does knowing that Gambia is 143 places behind Denmark in Transparency International’s Corruption Perception Index help in reducing corruption? What caused it in the first place? And what will the result be? You can figure it out, but it will require a lot of searching in other data series.
The graph above is from a new benchmarked index created by Whythawk Ratings. The benchmark is a selection of 25 emerging nations who are currently considered fantastic (and relatively stable) investment bets. The index is to be released late in January and will cover all emerging markets. Not to elaborate on it in any great detail, but consider the two notable “dips” resulting in the notable bow-tie shape.
The “Poorest 20%” measure considers the mobility of the poor; accepting that there is poverty, how much opportunity do the poor have to become less poor. The “Wealthiest 20%” is independent of the “Poorest 20%” and considers the extent of the middle-class and their quality of life. Low scores in both indicates that, not only is poverty endemic and enduring, but that wealth is concentrated within a tiny portion of society. That portion is the political class.
In other words, where poverty is entrenched and wealth derives only from political power, there is inherent instability. That doesn’t mean that society will break down, merely that all the elements are there for a blow-out.
Africa in Kenya, Kenya in Africa
The graph above is for Kenya. For those who weren’t aware of it (considering the excitement of the election nomination process in the US), Kenya just had an election. It was so profoundly rigged and stolen that the opposition supporters protested. Police opened fire, killing many. Churches sheltering women and children fleeing the violence have been burned down. Many of these murderous acts have started to look a lot like genocide. Neither of the two political leaders will talk to the other.
In a matter of days Kenya, which had been starting to look like an emerging market bet, has fallen apart.
African politicians, no different from politicians elsewhere, like to make big promises to reach out to key electoral groups. Since their countries are dominated by the poor, they make huge promises to that group. Yet promises are an implicit tax. Governments do not make money. The money they make comes from taxing businesses, the formally employed, or from royalties derived from the exploitation of state-owned resources.
African countries are terribly poor. There is no business class to tax. So most government largess is derived from royalties on oil, timber, minerals and the like.
Without a middle-class there is no external scrutiny. Political leadership is an opportunity to loot, buy the loyalty of key leaders of the police, courts and military, and salt away vast amounts of dosh. There is little that governments can do to relieve the suffering of the poor other than through promoting economic growth. Corruption antagonises all but the most robust businesses and little of that necessary investment will take place. Fearful of the corruption, local entrepreneurs choose to remain outside of the law in the informal sector.
After a few years of leadership the poor are no better off than before. Given the chance, they’ll vote for someone else. Lawrence Schlemmer, a South African social scientist, researched key voting trends around sub-Saharan Africa. “People usually vote for those who make the best promises,” he says. No-one worries about delivery until their chosen leaders are already in office. Nowhere in Africa do you get the sort of live, acrimonious debates between political candidates where they challenge each other on policy.
South Africa is the only real economy in Africa, yet the African National Congress (ANC) – the dominant party – has just elected Jacob Zuma as their leader. Zuma, who has just married his fourth wife, was found not guilty of raping a psychologically-disturbed, HIV positive, friend of his daughter’s when she stayed over at his house. Sex between the two was described as consensual. Zuma showered afterwards to protect himself from AIDS. If Zuma’s fourth wife – with whom he has already had two children – cannot trust him to be honest, how can the rest of us? Not much. Zuma was charged this week with racketeering, corruption, fraud, and bribery relating to payments received to promote Thint in South Africa’s arms deal in the late 1990s.
South Africa does not indicate the bow-tie shape in Whythawk’s curve, so it will be interesting to monitor how the country deals with so divisive a leader.
Ending the cycle
No politician anywhere in the world is prepared to tell their citizens the truth. It is much easier to blame external factors, or sheltered and vulnerable elites, for problems than to point out that poverty ends through hard work. The only experience of wealth that the poorest Africans have is through watching their elected representatives on television. The only peers they see getting rich do so through cronyism, political appointments, or state-allocated contracts. It is no wonder that they have a lottery vision of wealth: that it derives through luck; that wealth is not created, but taken.
It would be difficult to get elected through anything other than making improbable promises. Yet this is precisely what African countries need to change.
And there are a few who are doing so. But it isn’t easy. It requires a bedrock of a nation exhausted by violence and robbed of everything they ever had. Only when there is nothing left to be fought over do people seem willing to hear the truth.
The ex-communist countries of Eastern Europe are learning this. Africa still has a way to go.
In the meantime, as we watch the raucous political debate taking place in the US, consider that such a thing never happens in Africa. That the first time a citizen of an African nation has any idea – beyond sound-bites – what their politicians will do, is after it has happened. And by then it is much too late.