Africa Rising: Venture Capital on the Continent

China the Troublemaker

Develop Economies often waxes philosophic from his armchair in Africa about China’s role in the development of the continent. For some, the China love-fest is rooted in the fact that bilateral trade is not patronizing, unlike aid. For others, China is a ruthless competitor – a less explicit colonialist than the Europeans. In this journal, Develop Economies tries to remain neutral, presenting the facts. But, in recent months, he has given a disproportionate amount of airtime to the views of the former group. So it is timely that Yuriko Koike, Japan’s former minister of defense and national security adviser, has a none-too-kind piece in Project Syndicate titled “China’s Africa Mischief.”

From 2006

In discussing China’s last-minute, $200 million arms deal to former Libyan president Muammar Gadaffi, Koike explains how China has played its cards:

But, in recent years, China became an obstacle to Qaddafi’s African ambitions, and China did so by copying his methods: buying the support of dictators with weaponry and finance. Since 2000, China has actively courted Africa’s unstable and dictatorial countries with offers of aid and a refusal to back United Nations sanctions against them. Indeed, China has blithely entered into business with African countries that Europe and America refuse to engage with, owing to sanctions.

International sanctions, it now seems, were the door through which China rushed to gain access to Africa’s mineral wealth for its voracious industries. For example, instead of making an effort to foster peace in Sudan, as a permanent, veto-wielding member of the UN Security Council should, China’s deep involvement with Sudan, through the provision of oil infrastructure and weapons, actually prolonged the Darfur conflict. A letter to Chinese officials, signed by many members of the US Congress, and a report by Amnesty International state that China exported weapons to Sudan in violation of UN resolutions. The Oscar-winning film director Steven Spielberg embarrassed China by resigning from an advisory post for the 2008 Beijing Olympics because of its support for the government in Khartoum, calling the Chinese games the “genocide Olympics.”

It is hard (actually, impossible) to deny that China has been unscrupulous in its dealings with kleptocrats and dictators in Africa. But, by its own admission, China explicitly maintains a “no questions asked” policy when it comes to the scramble for resources. A few things come to mind, however, when thinking about China’s role in arming Africa’s “forever wars.”

Viktor Bout doing what he does

Today, Charles Taylor is on trial at the Hague. The ex-Russian military man who sold him the weapons – Viktor Bout – is currently sitting in a prison cell in Thailand, fighting extradition to face charges to in unleashing hell on Liberia, Sierra Leone, and countless other countries. The film “Lord of War” chronicles Bout’s escapades in the continent. These men are criminals of the worst kind – men whose actions, either directly or indirectly, led to unspeakable horrors. Now they are in court, where they belong. And Gaddafi, the jheri-curled tyrant who threatened to “show no mercy” to the residents of Benghazi, isn’t far behind (he’s hiding in Algeria, as a matter of fact). His onslaught against the people of Libya, as it turns out, might not have been possible had it not been for the subtle, behind-the-scenes deals cut with three major Chinese weapons manufacturers. The Canadian paper, The Globe and Mail, in a move that proves its host country is more than America’s top-hat when it comes to journalism, broke the story:

China offered huge stockpiles of weapons to Colonel Moammar Gadhafi during the final months of his regime, according to papers that describe secret talks about shipments via Algeria and South Africa. Documents obtained by The Globe and Mail show that state-controlled Chinese arms manufacturers were prepared to sell weapons and ammunition worth at least $200-million to the embattled Col. Gadhafi in late July, a violation of United Nations sanctions.

If China is supplying arms to a violent dictator – “in flagrant violation of the arms embargo instituted under UN Security Council Resolution 1970, which China approved” – then why is it not also treated as a criminal entity? That is a rhetorical question. It is a sovereign state and is technically free to do what it wants, particularly since the United States is bogged down in its own mess and Europe is on the brink of economic implosion. Not to mention, the West has not exactly been a model citizen when it comes to its dealings with Africa. China is the number two buyer of oil from Angola. The United States is number one. This leads me to my next point. The roots of geopolitical conflict can always be traced to oil. Always. From the Globe and Mail article:

The documents suggest that Beijing and other governments may have played a double game in the Libyan war, claiming neutrality but covertly helping the dictator. The papers do not confirm whether any military assistance was delivered, but senior leaders of the new transitional government in Tripoli say the documents reinforce their suspicions about the recent actions of China, Algeria and South Africa. Those countries may now suffer a disadvantage as Libya’s new rulers divide the spoils from their vast energy resources, and select foreign firms for the country’s reconstruction.

And Project Syndicate:

China has chosen a high-risk path – ignoring human rights and violating UN sanctions – to secure the energy and other resources needed to sustain its economy’s rapid growth. It is a choice that neither befits one of the permanent members of the Security Council, nor demonstrates China’s readiness to be a responsible stakeholder in the international community. China’s willingness to arm and defend African dictators, even in the teeth of UN sanctions, as in Libya, undermines its claim to a “peaceful rise.” Given China’s Libyan duplicity, the world should now determine whether it is a country that obeys international rules only when doing so suits its interests.

This principle, of course, is not limited to the countries of the Far East. One need not look further than the tiny country of Equatorial Guinea, where the per capital GDP is around $10,000 USD, yet more than half the population lives in poverty. Here is how Ken Silverstein describes the situation:

The United States historically had little interest in Equatorial Guinea and closed its embassy there in 1995 after the Obiang regime issued threats against Ambassador John Bennett, who had lodged protests over human rights conditions. But in an unfortunate twist, American companies soon discovered vast reserves of oil and gas in the waters off Equatorial Guinea, and successive U.S. governments have been slowly but steadily backtracking ever since. The key step came in 2003, when after an intense lobbying campaign by the oil industry, Bush approved the reopening of the U.S. Embassy in Malabo, Equatorial Guinea’s capital. (The embassy formally reopened three years later.) “With the increased U.S. investment presence, relations between the U.S. and the Government of Equatorial Guinea have been characterized as positive and constructive,” notes the State Department’s country profile.

Relations may be good, but the official U.S. assessment of the country is much less rosy. The State Department’s most recent global human rights reportcited abuses in Equatorial Guinea including “torture of detainees and prisoners by security forces; life-threatening conditions in prisons [and] arbitrary arrest.” Freedom House’s 2011 “Freedom in the World” survey put the country in its “worst of the worst” category for governments that violate political rights and civil liberties, along with North Korea, Sudan, and Turkmenistan. Equatorial Guinea’s economy depends almost entirely on oil, which generated revenues last year of well over $4 billion, giving it a per capita annual income of $37,900, on par with Belgium. “The oil has been for us like the manna that the Jews ate in the desert,” Obiang has said. It certainly has been for him. Obiang placed eighth on a 2006 list by Forbes of the world’s richest leaders, with a personal fortune estimated at $600 million. His population hasn’t fared so well. Human Rights Watch reports that one in three of Obiang’s impoverished subjects dies before age 40.

Silverstein’s article is worth reading in full. Whenever I write about the role of oil in the world’s conflicts, I feel like the Charlton Heston in Soylent Green – “It’s people!” Stories like these, however, lead me to believe I am at least somewhat correct in my assumptions. And I guess China isn’t so honest about it after all.

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American Poverty, Single Parenthood, and the National Review

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The New York Times published an article today discussing a disturbing trend: more than one in three young families – defined as under the age of 30 with children – is currently living in poverty. This is the highest percentage on record for this group. Some of the other statistics are not surprising – the highest rates of child poverty exist in black and Hispanic families, single-parent households, etc. Here are the grim facts:

Economists cited several reasons for the rise. First was the economy. College degrees hold greater value now, while opportunities for low-skilled workers have dwindled, as manufacturing and other industries have declined. That has pushed more young families into poverty. The number of men in their 20s with only a high school degree who worked full time fell by 22 percent from 2007 to 2010, while those with a college degree dropped by just 1 percent, according to census data. Fewer than a third of high school dropouts in their 20s were working full time last year. At the same time, the fortunes of poorer Americans, especially those with children, are more closely tied to the labor market because welfare reform in the 1990s made cash assistance harder to obtain. It was hailed as a success for getting more mothers to work, but now that jobs are scarce, young families have little to fall back on. In an analysis of government transfers over time, Professor Moffitt found that aid to the elderly living on less than half of poverty-level income rose by 13 percent from 1984 to 2004, while aid to single-parent families in the same situation dropped by about 38 percent. “The worst-off families have been left behind,” Professor Moffitt said.

The burden of poverty falls disproportionately on the children in these households, given that one in three families has difficulty providing for their family. It is a disgrace that, in one of the most developed countries in the world, this is the reality. Heather MacDonald of the National Review offered an explanation that I misinterprets a symptom for a cause. She wonders why the “mainstream media” (what a hilarious term) never highlights the fact that single parenthood is the most accurate predictor of poverty status. Like her colleague, David French, who I wrote about recently on this blog, she doesn’t seem to understand causality. 1. Causality

“In 2007, single-parent families were nearly six times more likely to be poor than married-parent families; that ratio has not significantly changed. The closest the Times comes to acknowledging the role of single parenthood in child poverty is to note that blacks and Hispanics have the highest rates of child poverty. Why that would be, the Times does not say, but it’s just what you’d expect from groups whose illegitimacy rates are 73 percent and 53 percent, respectively.”

Aside from the fact that this is an unambiguously racist argument, I will posit a few reasons while those people with skin a shade darker than Ms. MacDonald may happen to raise their children in a single-parent household. A year ago, Lexington, the columnist for the Economist, wrote a piece titled “Sex and the Single Black Woman.” In it, he reviews a book called “The Logic of Life,” which posits an interesting explanation for this phenomenon:

In the marriage market, numbers matter. And among African-Americans, the disparity is much worse than in Mr Harford’s imaginary example. Between the ages of 20 and 29, one black man in nine is behind bars. For black women of the same age, the figure is about one in 150. For obvious reasons, convicts are excluded from the dating pool. And many women also steer clear of ex-cons, which makes a big difference when one young black man in three can expect to be locked up at some point. Removing so many men from the marriage market has profound consequences. As incarceration rates exploded between 1970 and 2007, the proportion of US-born black women aged 30-44 who were married plunged from 62% to 33%. Why this happened is complex and furiously debated. The era of mass imprisonment began as traditional mores were already crumbling, following the sexual revolution of the 1960s and the invention of the contraceptive pill. It also coincided with greater opportunities for women in the workplace. These factors must surely have had something to do with the decline of marriage.

In this argument, the author explains why larger trends in the black community toward greater incarceration may explain the drop in marriage rates. Ms. MacDonald might raise the point that social dysfunction is the reason incarceration is on the rise. Wrong.

Could it be, however, that mass incarceration is a symptom of increasing social dysfunction, and that it was this social dysfunction that caused marriage to wither? Probably not. For similar crimes, America imposes much harsher penalties than other rich countries. Mr Charles and Mr Luoh controlled for crime rates, as a proxy for social dysfunction, and found that it made no difference to their results. They concluded that “higher male imprisonment has lowered the likelihood that women marry…and caused a shift in the gains from marriage away from women and towards men.”

The legacy of "Just Say No"

And why did incarceration rates explode among young black and Hispanic men? There are lots of reasons – in the 80’s, the crack epidemic and Ronald Reagan’s spectacularly counterproductive “Just Say No” campaign (see the graph at the left), coupled with draconian penalties for drug possession, saw the prison population skyrocket. With harsh restrictions placed on felons, rates of recidivism hover at around 60% at any given time – meaning that most ex-cons are back in jail within three years. Most recently, the for-profit prison lobby helped the Arizona state legislature draft a controversial bill designed to put more illegal immigrants in jail. More prisoners is, of course, good for business. Here is the conclusion, which would seem to support Ms. MacDonald’s conclusion:

The collapse of the traditional family has made black Americans far poorer and lonelier than they would otherwise have been. The least-educated black women suffer the most. In 2007 only 11% of US-born black women aged 30-44 without a high school diploma had a working spouse, according to the Pew Research Centre. Their college-educated sisters fare better, but are still affected by the sex imbalance. Because most seek husbands of the same race—96% of married black women are married to black men—they are ultimately fishing in the same pool.

This, of course, is only one part of her argument. She seems to posit that women are having children out of wedlock because they are fundamentally irresponsible and do not care for the prospect of marriage. According to “The Logic of Life,” this is not the case. What did not happen is that all of a sudden black and Hispanic men decided to no longer become good Christians and just divorce their wives en masse, leaving them in poverty. Such a shame that this isn’t the easy fix she claims it to be. This is one example of causality that Ms. MacDonald might prefer to overlook, since, if you trace the roots of single-parenthood among minorities back to its roots, it has less to do with the fundamental “depravity of the poor” and much more to do with social policies that have disenfranchised the poorer segments of the population over time – in large part, due to the platforms of the political party she supports. 2. The Mainstream Media

“The ban on discussing the effect of family breakdown is not surprising, since the single mother has become the cornerstone of Democratic politics. She provides the justification for the continuous expansion of the welfare state. Whether the topic is government-provided health care for the poor, taxpayer-funded housing for homeless families, federal Section 8 rental vouchers, more early-childhood-intervention programs, or greater redistribution of income from the rich to the poor, the frequent flyers in all these programs are single mothers. They provide the largest constituency for every means-tested government poverty program in the country, and they are a growing constituency.”

In this paragraph, Ms. MacDonald is reminding us that the subtle racist undertones of her first statement were not a fluke, and that she is, indeed, a racist. In this point, she is claiming that the mainstream media is the Fox News of the Democratic Party. In Ms. MacDonald’s warped sense of reality, by pointing out the fact that single parenthood and deadbeat dads are the sole source for poverty in the United States, the New York Times risks alienating its key constituency and the party for which it is (not) a mouthpiece. It’s just crazy. Regardless of this obvious fallacy, let’s dissect the argument. The New York Times does not want to alienate these people because they want them at the voting booths, creating a welfare state that is intolerable for the National Review. Unfortunately for Ms. MacDonald, the racist, the population is steadily becoming less white, which will empower minorities to elect officials that will reduce the penalties for the harsh drug laws that send one in three black men to prison during their lifetime. Right? Wrong again. Blacks and Hispanics are becoming increasingly marginalized at the polls as the GOP clandestinely makes it more difficult for minorities to cast a ballot, requiring new forms of ID and making it difficult organizations to conduct voter drives. Basically, they are screwed. I could go on, but it is not worth it. I have been reading politics for the better part of the last five years. I am not that old, and I understand that every generation thinks its political situation is worse than the ones that preceded it. But I swear – the discourse was never like this. Ronald Reagan, the hero of the National Review raised taxes 11 times during his presidency and supported amnesty for illegal immigrants who had laid roots in this country. It is absolutely amazing to me that people like this are even given the time of day when they posit arguments like this. The party of Ms. MacDonald has flown off the handle. But she is a symptom of a much larger, more nefarious problem with the political discourse in this country. The fact remains that the poverty rate, the income inequality gap, the wealth gap, and incarceration rates are at record levels. If you haven’t read it already, do yourself a favor and read Timothy Noah’s ten-part series in Slate magazine titled “The United States of Inequality.” Is single parenthood to blame? Let’s ask Heather MacDonald:

“There is a far more efficient solution to family poverty and the childhood problems associated with single-parent families: Revive the marriage norm among the poor. Public policy’s ability to restore the expectation that children be raised by both their parents is undoubtedly limited. But it is better to try than to do nothing. And making child poverty a political issue without mentioning father absence is worse than doing nothing.”

I agree. As a country, we should be trying to figure out how to reduce incarceration rates and look for other root causes for the breakdown of the family unit, and address them through smart policy. Abstinence-only education and “just say no” probably are not going to cut it. It is amazing how someone can spend five paragraphs making child poverty a political issue, and the close with a line disparaging people who make child poverty a political issue. Remember, however, that the New York Times is only making it a political issue because, in Ms. MacDonald’s mind, it is a stump for the Democratic Party, which minorities disproportionately support – the same minorities whose high rates of single parenthood are the major reason for their impoverished state. Fortunately for the world, she has identified the silver bullet we have all been looking for! It has been right under our noses all this time! Would loving, heterosexual, two-parent households end poverty in this country? If you are Heather MacDonald, the answer is irrefutably yes.

UPDATE: A friend sent an email offering a nice counterpoint to my argument. Here is what he had to say:

Interesting post. I’m really surprised you took such offense to that article. Maybe I’ve become a heartless bastard, but I am surprised you also think that her argument is racist. I think the angle of attacking the MSM is a tricky one, and yes, I generally think that Republicans are an insane, anti-intellectual, party of revisionist historians. But I wholeheartedly agree with what I think is a predominately feminist (not racist) and pragmatic undertone to the column.

The big problem is not single mothers but men that leave their wives and children. That is a serious issue. Extremely serious. Outside of the US context, from my limited time in Swaziland, I think that a complete lack of a family unit was the biggest driver of the country’s public health crisis (as in, the country could literally become extinct). Mothers with babies are everywhere, and fathers are nowhere.

As for why I don’t think the argument is racist, I point to a recent interaction that I had with a friend of a friend that teaches at a school in southern Illinois that has worse poverty rates than those we work with for GOTO. All of the students are white. All of them. And they have tremendously similar issues to poor blacks with the friend I talked to using a lot of the same language that conservatives use when talking about other single parent families that we think of as generally black.

Families matter a lot. A lot lot. We both come from insanely supportive families and have no clue what it’s like to have only known your father to be someone that had sex with your mom. This is an issue, and the fact that it mainly occurs in minority families is unfortunate but true and not racist. No more prejudiced than saying that Cambridge is really liberal. It is. Liberals live there. I hope I’m making my point or a point without being offensive or combative, but I take this issue extremely seriously, and I think it is at the crux of so many developmental issues.

Ultimately, change is driven from within, and it comes from the family. As a consultant, I think it would be irresponsible to look at the horrendous state of poor American families and not emphasize it and not notice that its most rampant incidence is among poor minorities. I’ll close this by noting that Bill Cosby, a black man, reiterates a lot of the same points that MacDonald does. http://www.theatlantic.com/magazine/archive/2008/05/-8216-this-is-how-we-lost-to-the-white-man-8217/6774/

And another:

I personally found both the NYT article and the Review article to be a little too dramatic (i.e. the “interview” with the single mom who looks for a job, and pretty much anything the Review writes) so I went to the Northeastern sourcehttp://www.northeastern.edu/clms/wp-content/uploads/The-Impact-of-Rising-Poverty-on-the-Nation.pdf After reading that, I basically just thought the Times and the Review are trying to draw more of a conclusion than is available from the data. What I struggle with is they’re attempt to portray what a “young family with a head under 30 years of age” looks like.

So let’s say it’s 2010, you’re 25 years old, married, and about to have your first child (this is the average age of first child birth). And let’s say the child bearing mother takes off time from work to give birth leaving her spouse to support the family. On average, I can’t imagine that a 25 year old dude 2-3 years out of college in the US even makes a per capital income of more than 30K…probably much less given the economy. So that means the “NORMAL” young family probably has at least 3 members with a combined household income of 20-30K. I think that basically means you’re POOR.

Thinking of it that way, I’d say the 30-40% rate doesn’t surprise me at all….but obviously that profile isn’t exactly what people imagine as “POOR”. If you look at table 3, in 1993, young families had poverty levels almost equal to current levels. By 2010, these individuals were in the 30-64 age bracket and had much lower poverty levels. I know there’s concerns about long term job prospects for currently young families, but I’m not sure the data in here suggests that these people are fucked. I really think it just says you’re young. Anyways….long winded way of saying I’m skeptical of all interpretations of this data…..

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How Burma Will Modernize

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Learning to read in Burma.

The photo on the header of this blog was taken in Bagan, a city in the center of Burma that is home to thousands of ornate Buddhist temples. I was sitting atop another of the thousand temples that litter the skyline, wondering how such a stunning place could have so few visitors. The temples in Bagan are relics of a once-prosperous society. Today, the country appears frozen in time, its potential ruined by a repressive military government that has left Burma in a developmental stasis for the last thirty years.

The strategic geography of Burma is undeniable.

But all of that is changing now. Traditionally, the West has always viewed Burma as a basketcase – a country rich in natural resources beset by post-colonial woes and chock full of human rights violations. Despite its hideous record of government and poor economic growth, Burma has always had a few things going for it. First, it has a wealth of natural resources. Diamonds, natural gas, oil, etc. Second, it is strategically located between two of the fastest-growing economies in the world, China and India. Combined, China and India make up a third of the world population and are contributing an increasing percentage of the global GDP. When speaking about the future of geopolitics and the world economy, these two countries are increasingly part of the conversation. And Burma, the basketcase of East Asia, sits conveniently between these two rising giants. Given that Russia lies further north, and Brazil dominates the Americas south of the Equator, Burma holds the distinction of being the only country in the world to sit directly in between two of the BRIC countries.

It makes sense that China and India would want to facilitate trade as efficiently and cheaply as possible. To do that, only one thing stands in the way: Burma. Given the Chinese government’s track record of long-term strategic thinking when it comes to developing its future trading partners, China has taken an active role in building up the infrastructure in a future vital trading partner. On Burma’s western front, India is taking a similarly proactive approach in making sure it takes advantage of the country’s location and resources. And, amazingly, it sounds like it could be a win-win-win situation:

A Hindu rite of passage. Day one in Burma

Watching these developments, some have warned of a new Great Game, leading to conflict between the world’s largest emerging powers. But others predict instead the making of a new Silk Road, like the one in ancient and medieval times that coupled China to Central Asia and Europe. It’s important to remember that this geographic shift comes at a very special moment in Asia’s history: a moment of growing peace and prosperity at the conclusion of a century of tremendous violence and armed conflict and centuries more of Western colonial domination. The happier scenario is far from impossible.

The generation now coming of age is the first to grow up in an Asia that is both post-colonial and (with a few small exceptions) postwar. New rivalries may yet fuel 21st-century nationalisms and lead to a new Great Game, but there is great optimism nearly everywhere, at least among the middle classes and the elites that drive policy: a sense that history is on Asia’s side and a desire to focus on future wealth, not hark back to the dark times that have only recently been left behind.

And a crossroads through Burma would not be a simple joining up of countries. The parts of China and India that are being drawn together over Burma are among the most far-flung parts of the two giant states, regions of unparalleled ethnic and linguistic diversity where people speak literally hundreds of mutually unintelligible languages, of forgotten kingdoms like Manipur and Dali, and of isolated upland societies that were, until recently, beyond the control of Delhi or Beijing. They are also places where ballooning populations have only now filled out a once very sparsely peopled and densely forested landscape. New countries are finding new neighbors. Whereas the fall of the Berlin Wall reopened contacts that had only temporarily been suspended, the transformations under way are enabling entirely new encounters. There is the possibility of a cosmopolitan nexus at the heart of Asia.

Readers of this blog know that I have a soft spot in my heart for Burma and its struggle. I’ve often ruminated on whether anything good would ever befall the Burmese people. But now, with two of the four BRIC countries looking to one another for a mutually-beneficial partnership in the post-American world, things are finally looking up.

Trekking to Inle Lake

I will close with a long paragraph from the Foreign Policy article quoted above that speaks to the optimism in the Far East:

A new friend.

It’s a fragile opening. The president seems determined to push ahead, but his is not the only voice. There are other powerful ex-generals in parliament and in the cabinet, and the structures of repression remain intact. Burma is at a critical turning point.

And now, for the first time, Burma’s politics matter beyond its immediate borders. If this opportunity for positive change is lost, Burma may remain a miserably run place — but it will no longer be an isolated backwater. The great infrastructure projects under way will continue, as will the much longer-term processes of change. Asia’s frontier will close and a new but dangerous crossroads will be the result.

But if Burma indeed takes a turn for the better and we see an end to decades of armed conflict, a lifting of Western sanctions, democratic government, and broad-based economic growth, the impact could be dramatic. China’s hinterland will suddenly border a vibrant and young democracy, and India’s northeast will be transformed from a dead end into its bridge to the Far East. What happens next in Burma could be a game-changer for all Asia.

As it turns out, rather than sanctions and a tourism boycott, simple economics might be just what Burma needs to become a vibrant democracy after decades of brutal military rule. I will look forward to going back.

Here are a few of my favorite pictures from this amazing place. The photos were taken by my friend, Gemma North, a fellow Kiva Fellow in Cambodia.

My first trip to the Kingdom

Tragedy in Kenya

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Joseph Mwangi, 34, sits in a state of shock after discovering the charred remains of two of his children at the scene of a fuel explosion in Nairobi on Monday. Image: Ben Curtis / AP

Today, a gasoline explosion killed more than 100 people in a slum in Nairobi. The ones who did not burn to death were left badly injured . Here is a description of the scene from Jeffrey Gettleman:

The whole slum seemed to spring into action, with men, women and children grabbing buckets, oil tins, battered yellow jerry cans — anything to carry the spilled fuel. Even minibuses raced in from miles away, looking for free gas, a small godsend in a place where most people are jobless and live in rusty metal shacks that rent for $25 a month.

But then the wind shifted, witnesses on Monday said, and embers from the garbage fires that routinely burn by the river wafted toward the gushing pipeline. There was no time to escape. The fuel exploded, sending a giant fireball shooting up over the slum, engulfing scores of people and scattering bodies that were left in various poses of anguish, burned to the bone.

I don’t know much about Sinai slum, other than that the company I work for operates a school serving the community. It is similar to the 65 other slums in Nairobi, which house more than 50% of the city’s population, yet occupy only 5% of the land. You can imagine the circumstances that lead to a tragedy like this.

My friends and family emailed to check in and see if I was affected, but the reality is the slums are another world from the other parts of Nairobi. Yesterday, I was thinking about writing a post on the cognitive dissonance that stems from seeing the Kenya I see, and the fact that the country is considered the 16th most failed state in the world. But I suppose this is it. The growing middle class and cosmopolitan young people that make Nairobi a culturally diverse and sophisticated African city stand in stark contrast to the kind of poverty that drives people to the site of a gasoline spill, risking their lives to earn a few extra bucks. Gettleman again:

Residents of the Sinai slum, where the fire broke out, said that fuel spills happened all the time.

“I can remember four times,” said Zackiyo Mwangi, a vendor of pirated CDs. “People started saying this morning, ‘There’s a spill, in the usual place, let’s get over there.’ ”

“Yeah, I know,” Mr. Mwangi added, “it’s dangerous, but that’s how life is here.”

“This just shows you how these people will do anything to generate a coin,” said Johnson Muthama, a member of Parliament. “Just look at them.” He gestured toward a crowd of thousands of onlookers, mostly young men in grubby clothes, staring gape-mouthed at all the bodies on the ground. “They are ready to risk their lives for anything.”

It is a tragedy. 100 people, including children, were killed. They shouldn’t have been anywhere near a broken gas line. Until the conditions change for Nairobi slum dwellers, the desperation that created this situation will remain. And that desperation will drive people to do it again. That is the real tragedy.

A woman is comforted after she saw the body of her child at the scene of a gasoline explosion in a slum area of Nairobi. (Tony Karumba / AFP/Getty Images / September 12, 2011)

Also, I need to comment on the photo at the top of this post. Few photos have affected me in the way this one has. For the last two days, I’ve come back and stared at this photo, which captures so vividly the numbness and despair when someone loses a child. This man, Joseph Mwangi, lost two of his children to the inferno. What is amazing about this photo, to me, is that it captures a moment in time that speaks to the despair felt by everyone in the community. This is the moment of realization after the initial confusion – somewhere on the spectrum of denial, anger, and acceptance. I can only imagine the grief he is feeling right now.

It shouldn’t have to be this way. After a period of mourning, everyone needs to take a long, hard look at the institutions responsible for creating this tragedy and demand a change. I’m afraid the fire in Sinai Lunga Lunga won’t be enough.

Depravity or Circumstance? The Nature of Poverty

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“It is simply a fact that our social problems are increasingly connected to the depravity of the poor. If an American works hard, completes their education, gets married, and stays married, then they will rarely — very rarely — be poor. At the same time, poverty is the handmaiden of illegitimacy, divorce, ignorance, and addiction. As we have poured money into welfare, we’ve done nothing to address the behaviors that lead to poverty while doing all we can to make that poverty more comfortable and sustainable.”

David French, Bigot

Believe it or not, somebody wrote that. Enough people have pointed out that David French, the author, confuses correlation with causality. Here is one argument from Seth Masket that sufficiently debunks the theory:

[T]hese key things — education, a successful marriage, and a job — are a lot easier to come by if you’re not poor. What’s more, they’re a lot easier to come by if your parents weren’t poor. But just being born into a poor home means a person is going to have a much harder time coming by these key things that keep him or her out of poverty. That doesn’t make the person depraved. It makes the person a victim of circumstances.

Here is another one from Matt Yglesias:

Now I suppose you could argue that the availability of drug treatment programs, battered women’s shelters, and food kitchens creates “moral hazard” and encourages people to become heroin addicts and/or bed down with abusive partners. But I don’t think that this is a very plausible story. People don’t become homeless drug addicts because the downside to being a homeless drug addict isn’t severe enough in the contemporary United States. And affluent parents don’t treat their children in this kind of punitive way. If a prosperous teenager develops an addiction problem, he’ll be given help. Any halfway responsible parent with the means to do so would bail out a daughter whose live-in boyfriend is abusing her. Poor people have, typically, made some mistakes in life and it’s often the case that had they lived lives free of error, they wouldn’t be poor. But it’s not like middle class people are living mistake-free lives. The difference is that middle class people have lives that give them a fair margin for error, whereas people who start out in bad circumstances can be crippled by a bit of misfortune, impulsiveness, or bad decision-making.

Arguing with someone like French would be like laying out all the factual reasons why a mountain is in the wrong pace, not to mention it sounds like he has the intellectual rigor of an inanimate piece of rock. But I ruminated on other aspects of why French is wrong (beyond the obvious), and came up with a few clear examples from my own life.

David French's personal heroes, the Dukes.

In most aspects of my life, I’ve been pretty fortunate. My parents are physicians who put a lot of emphasis on education. I spent most of my high school years grounded due to some harmless hijinks, and took a lot of AP classes because my parents pushed my brother and I to excel in school. I went to a good university, where I was surrounded by smart people and educational resources that I wish I could still access. After I graduated, I went to work for a company in Boston under smart people with graduate degrees from Harvard and MIT. At Kiva and Technoserve, my friends and coworkers came from diverse backgrounds, and had the resources (financial and otherwise) to volunteer for a few months. Now, in Nairobi, I live with a group of tech entrepreneurs and interact on a daily basis with some of the smartest people I’ve ever met.

All this is meant to stress the impact people have in your life. From the start, I was on a track that, at every turn, placed me in the midst of mentors who have shaped my intellectual and personal growth. My teachers in high school and college were committed and enthusiastic. My bosses and mentors are skilled and talented. I spoke with one of my old managers tonight after about two years to get some career and school advice. I’m grateful to have opportunities like that, but I hold no illusions about the role my own favorable circumstances played in providing them.

Conversely, without those role models, you need to have a superhuman combination of motivation, maturity, and intelligence at a very young age to see the benefits of education and hard work. And even if you do, there is no guarantee that an education is going to make your situation that much better (and in today’s America, with income inequality at its highest levels in 70 years, that is increasingly true). One of the great paradoxes of education in countries with chronic high unemployment is that the economic returns to schooling are marginal when there are no jobs to absorb all the graduates. Does that make people who pull their kids from school “depraved”? Of course not. As Masket says, they are a victim of circumstances. In fact, from an economic and financial perspective, they are thinking rationally, which, as someone who believes that the God and the Free Market are the only paths to salvation, should appreciate. Of course French is one of a great many thinkers today who have cobbled together all of the

People like French don’t actually really understand their own principles, and would probably be surprised to hear that the two most influential figures in developing their worldview – Ayn Rand and Jesus – would both strongly disagree with their stance on just about everything. Take the last two paragraphs of French’s article on the National Review blog:

Earlier this week, Walter Russell Mead highlighted disturbing research showing that the poor — far more than the rich — are disconnected from church and religion. While church attendance is dropping among all social classes, it’s falling off a cliff for the poorest and least-educated Americans. In other words, the deeper a person slides into poverty, the more they’re disconnected from the very values that can save them and their families.

The bottom line is that we need more free enterprise, and we need more virtue. Sadly, the Great Society and the sexual revolution have deprived us of both.

The key to ending poverty, despite the growing concentration of wealth at the top, is God and the markets. Of course, Ayn Rand, the intellectual figurehead of the kind of laissez-faire economics advocated by French, was a devout Atheist. I’ve read Atlas Shrugged and The Fountainhead, my “Introduction to Philosophy” professor was the editor of the Ayn Rand Reader, and my father would like to think himself an objectivist, but he cares about people too much to truly commit. These, I think, are enough to establish my bona fides. In her own words:

There has never been a philosophy, a theory or a doctrine, that attacked (or ‘limited’) reason, which did not preach submission to the power of some authority.

So now that we have kicked out one of French’s legs, let’s go for the other one: religion. I did a quick Google search for “Jesus poverty quotes” and it returned 7.3 million views. This one from Deuteronomy 15:7, 11 makes my point sufficiently:

If there is a poor man among your brothers in any of the towns of the land that the LORD your God is giving you, do not be hardhearted or tightfisted toward your poor brother. There will always be poor people in the land. Therefore I command you to be openhanded toward your brothers and toward the poor and needy in your land.

Were Jesus to return to earth today and come face-to-face with David French, do you think he would say, “You’re absolutely right, Dave – the poor are depraved.” I supposed that French would say that the Levites weren’t welfare queens.

David French is either an ostrich clinging to a romanticized version of the American dream, an idiot, or both. In this country more than many others around the world, if you work hard, you can be successful. But to posit that everyone in this world is dealt the same hand and the ones currently earning less than $40K a year to provide for a family of four have simply chosen a life of “depravity” is ludicrous. Remember Dave – that kind of thinking will get you left behind.

DEVELOP ECONOMIES’ MUSIC RECOMMENDATION

Thoughts on Rugged Altruism

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One sign that the U.S. political scene has reached rock bottom is David Brooks writing one of his weekly columns about development workers in Nairobi. In “The Rugged Altruists,” Brooks discusses the virtues possessed by three smart, young development workers in the course of doing this work.

The first is courage – a willingness to move to a place foreign in all senses of the world. They go to learn about what they don’t understand, and put themselves in situations for which they have no paradigm. Through this process of immersion, the come out stronger on the other side, more well-rounded and knowledgeable about a new culture.

The second virtue is deference, which Brooks describes as “the willingness to listen and learn from the moral and intellectual storehouses of the people you are trying to help.” People often come in thinking they know the answers to the problems they’ve come to try to solve. Quickly they realize how little they actually know – a multitude of cultural nuances and specific, sometimes heartbreaking fundamental barriers they never could have imagined exist. The adaptable ones step back and take a moment re-calibrate their expectations, before approaching the situation from a different angle. They accept what they don’t understand – context – and seek out teachers to show them the way.

The last and, in Brooks’ opinion, most important virtue is thanklessness. When there are no prizes for first place, nor much recognition at all for a job well done, the work becomes a labor of love, driven by passion more than anything else. Sometimes the problems are so great that incremental improvement becomes the barometer for success. Will it change the world? Probably not. But it will make a big difference for a few people – maybe even a whole community – and that is laudable.

These virtues exist everywhere I’ve been. The IT manager at the MFI I worked for in the Philippines used to tell his team of programmers that they should strive for anonymity. No one acknowledges the IT department unless something goes wrong. Yet, without their work, the organization could not function as well as it does. Leaving a legacy in the form of perfection, where no one realizes the importance of your work, is the ultimate goal.

In Ghana, my Ghanaian coworkers would stress about how it was a travesty that the rice farmers they worked with had no market for their paddy, or that the largest juice processor rejected an entire harvest of pineapples because they’d mismanaged the finances at the company. My closest friends worked for Engineers Without Borders Canada, an admirably driven group committed to making agriculture more competitive in Africa. On one memorable occasion, over a few Stars, a few of them were talking about how much shit pigs could eat. “Back in the village when I had typhoid, I was shitting outside my hut every ten minutes. Every time I went outside, it was gone.” Another day, another dollar.

Now, in Kenya, the mixture of talent and principles on display is unlike anything I’ve ever seen. On a daily basis, I meet people who, within the development community, are legendary for changing the paradigm altogether. It is an easy place to feel inspired.

A farmer with One Acre Fund

I think Brooks nails the virtues. But these virtues are not necessarily elemental. People are always looking to challenge themselves in different ways, and putting yourself in an unfamiliar situation where you have to rely on your wits and judgment to figure out the right moves is not uncommon for any young person I think. Showing deference to people more knowledgeable is certainly a virtue learned through experience, but it is also common sense. And thanklessness, to me, comes with the territory. In the beginning of the article, he segments development workers into the ones making a difference and those just taking up space. I have my own opinions about what works and what doesn’t, but I think it is unfair to make judgments about the latter. Everyone is out here for different reasons, but a common denominator is the belief that you can make things better, which is a noble motive. Some people are doing a better job than others, but everyone is trying.

The broader goal of achieving perspective is important. Escaping the bubble that influences the way you see the world and surrounding yourself with people who bring to bear a set of life experiences completely different from your own expands your own worldview. Being somewhere different from where you were formed influences your political and religious views. Basic fundamental values, concepts of right and wrong, should be malleable in the face of new information. Pursuit of different perspectives – which are often radically different in places where the value system is defined by forces you’ve never encountered – offers the chance to truly empathize with people, based on tangible experience rather than abstract ideas.

I see the virtues Brooks highlights in his column everywhere I go. Everyone shares these virtues, but probably doesn’t ever actulaly think about them (with the exception of deference). There also people hungry for perspective, trying to understand how everyone else thinks and learn how the world works. That is probably what makes people on the road so interesting.

The Myths and Realities of Impact Investing

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“[Africa] is a wonderful place to really make money. We have one billion people hungry for everything.” Mo Ibrahim

A friend posted an article on his Facebook wall titled “Why Social Impact Investing is a Crock,” leaving much to the imagination. Here is an excerpt:

Over the last decade the world of do-gooding has seemingly been taken over by MBAs. Social entrepreneurship, a field encompassing both mission-driven businesses and entrepreneurial nonprofits, professes to bring the efficiency, rigor, and cold, hard metrics of business to the most important causes on the planet. Does it really? Not so much, says Dean Karlan, author of the recent book More Than Good Intentions. “The social entrepreneurship world is in a weird spot, to be honest with you. It’s a world full of rhetoric about impact investing, yet I have very rarely seen an investor actually take that seriously. When you look at the actual analysis it lacks rigor.” He distinguishes between the type of scientific research done by his lab, Innovations for Poverty Action, with trials complete with control groups, and the type of data collection done in the vast majority of the nonprofit world, which is nothing more than a “monitoring exercise.”

I think both Karlan and the author have the right idea, but for the wrong reasons. Later in the article, Karlan explains why the cost of doing a rigorous impact analysis is cost prohibitive for an investor who is focused on financial returns, with impact studies accounting for as much as a third of the investment. I think the title of the article is excessive and meant to be provocative, but the argument is defensible.

The other day I listened to a presentation from Kentaro Toyama, one of the eminent thinkers in ICT (information, communication, and technology) for development (ICT4D, for short), a school of thought that sees technology as the silver bullet in ending poverty. His talk was titled “ICT or Development: Why it’s so hard to get rich and help the poor simultaneously.” It was also meant to be provocative, but for a different reason. Toyama’s point is not that the absence of verifiable impact makes impact investing a crock. Rather, he contends that it is difficult, if not impossible, to get rich by providing socially-beneficial goods and services to the base of the economic pyramid. You can get rich selling products to the poor, but they won’t necessarily be good (alcohol, tobacco, soda, etc.). Conversely, you can sell products that will address a social need (solar lanterns, cookstoves, etc.), but you won’t get rich doing it. He challenged the audience to come up with an example, and explained why his thesis holds in each case.

There is a myth of a fortune at the bottom of the pyramid, according to Toyama. At least, that fortune is purely measured in market size and raw purchasing power. It should not be confused with an opportunity to offer products that alleviate poverty and make a bundle to boot. The rural and even urban poor are difficult markets to serve profitably. A disparate and sometimes non-existent supply chain makes getting products in the hands of consumers a challenge even for the biggest multinationals. Branding products for the poor, or subsidizing them, makes them less appealing to the middle class, who might pay more and create cross-subsidization opportunities (on this point, I think he is wrong, having seen the same solar lanterns we were selling to microfinance clients in the Philippines being sold in malls in Manila for twice the price). Not to mention, selling products to the poor is not going to help them out of poverty. Employment, in the form of manufacturing and labor-intensive work, is the key to growth. In short, it is possible to serve a social cause, and it is possible to make lots of money selling products to the poor. But to do both simultaneously? Very difficult.

My friends and I discussed the talk over lunch. Most felt that the talk was good, but thought Toyama oversimplified a complex topic, creating a dichotomy that practitioners don’t really subscribe to. Anyone who honestly thinks that you can make serious money – young-rich Silicon Valley money – by selling socially-conscious products and services to the poorest segments of the world population is clearly dreaming. So that conversation should be a non-starter. You can make money, sure, and you do a lot of good, but if you’re goal is to get rich, then you are in the wrong business. For that reason, we all concluded that the talk wasn’t meant for people like us. It was meant for the people in Silicon Valley who have become a little too excited envisioning that Venn diagram.

During the talk, I asked Toyama what he thought of social impact investing. Basically, he thought it went through a period of irrational exuberance, where people thought they could make high returns and serve a social good, before dipping once people realized that was not the case. It has made a slight resurgence, as people have checked their expectations and come to sacrifice financial returns for social impact. What Dean Karlan and Kentaro Toyama have in common is that they both believe that it is very difficult to both make good money and help the poor. Karlan thinks the social impact of many investments is unproven, while Toyama thinks the social impacts are fine, but making money is a challenge.

The legacy of Mo Ibrahim

I happen to disagree with both. Ten years ago, a telecom industry in Africa barely existed. Today, most of the population, regardless of whether they are living in poverty, owns a cell phone. When I brought up this point, Toyama says that the telecoms are entirely profit-oriented, and could care less about helping the poor. Someone earning a dollar a day, for example, will think nothing of spending a quarter on a ringtone. But to say that the development of a mobile network that connects the most remote parts of Africa to the rest of the world has not helped the poor by several orders of magnitude is crazy. It is ironic to me that people interested in this developing products for the poor always leverage the cell phone revolution in Africa, but never seem to give it any credit for laying the groundwork for real, substantive change and improvement – moving the needle over generations, rather the 2-3 year time periods for the randomized control trials being used to measure impact. (My intention here isn’t to write off RCTs – rather to say that maybe there is a broader way of looking at impact).

There is often a paternalistic attitude (not necessarily among people like Toyama or Karlan, but others less in the know) toward serving the poor. People try to engineer outcomes, and are dismayed when someone spends the extra income from the dairy cow they bought with help from a microfinance loan on booze, cigarettes, and fast women. Judge not, I say, lest ye be judged. After all, in the words of Devin the Dude, “you only get one ticket, might as well enjoy the ride.”

Creating more opportunities should be the barometer of success in serving the poor. Microfinance was about providing access to financial services, which it did. It has given poor people a place to save their money and borrow money to smooth their irregular consumption. It created opportunities that did not exist. In a much less outwardly altruistic example, connecting Africa to the world and putting a cheap cell phone in the hands of every African is helping the poor and making a killing. If the poor then spend the school fees on ringtones, that is their discretion. But creating opportunity – in the form of infrastructure or technology – is what moves the needle.

That is why, in my opinion, social impact investors need to move in one of two different directions. They can either expand the definition of social impact beyond the “directly reach a million poor people” definition that exists today, and accept the fact that there is highly profitable companies that serve a social cause and are specifically targeted at the poor are few and far between. Or, they can accept the fact that the returns will be marginal, but the intangible social value created by the product will significantly exceed the financial opportunity cost. Either way, the current narrative that you can make lots of money and serve the poor at the same time (rather than serially, like Bill Gates, as Toyama suggests) is dangerous.

But where's the impact?

It is dangerous because it breeds unrealistic expectations and creates resentment when they fall short (“Impact investing is a crock! Those assholes lied to us!”). Social entrepreneurs shouldn’t feel like they have to be 100% financial sustainable to be successful. That is a nice-to-have, but there are billions of dollars being spent very poorly on development projects right now. Money is not an issue (Kiva, for example gets money with 0% returns) – impact is the problem. Similarly, investors shouldn’t measure success by the direct impact on the lives a certain number of poor people, or hitting specific targets in living standard improvement. They should invest in Africa, but do it responsibly. Stay away from oil, cigarettes, alcohol, or any other product that has a net-negative social impact, and focus on telecommunications, manufacturing, or even natural resources (so long as workers are treating well). Investment will generate employment, which, as Toyama says, is the real engine of poverty alleviation.

Until people recalibrate what it means to a) make money, and b) have an impact, and convey these goals honestly, I’m afraid social impact investing will continue to fall short of the expectations and face the same circular firing squad that has plagued other “silver bullets”, like microfinance. I think real social entrepreneurs and impact investors understand this push-and-pull. But Toyama’s intended audience is probably less informed about the realities on the ground, which is why he was giving the talk in the first place.

How to Deal with Al-Shabab and a Failed State in Somalia

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One of Somalia's many problems. (AFP Photo/Mohamed Dahir)

I’ve been reading a lot of opinions lately about the decline of the empire of the United States, where experts try to pinpoint the exact moment where we planted our flag atop the hill of global dominance and then began our descent down the other side (somewhere around the early 1990’s, according to the consensus). In every calculation, the war in Afghanistan is either emblematic of a state in decline (they don’t call it the “graveyard of empires” for nothing) or something that actually precipitated the fall. We defeated the communists at the end of the 1980’s – the high-water mark in our global position. And one of the great ironies of that victory is that we secretly funded the mujahedeen in Afghanistan to fight the Soviet Union and, in doing so, kept the Russians mired in the same position we have found ourselves over the last ten years. One of those mujahedeen was Osama Bin Laden, son of a Saudi billionaire who, with the help of the CIA, bankrolled the insurgency against the Soviets. Bin Laden quickly turned against the United States (not that he was ever with the U.S.) and became the figurehead of the global jihadist movement until a few months ago when Barack Obama killed him.

People love to point out the fact that we funded the very people who have tried to kill us over the last two decades. How could we do that, they ask? The answer is relatively simple. When a country doesn’t seem like a threat, no one really pays cares if we are potentially nurturing our future enemies, so long as we are able to channel them in support of our cause at the time. And then, when the snake is all grown up, he bites. And, in an ironic twist that would make George Santyana roll over in his grave we are doing it again. Only this time, we are doing it in Somalia, the last truly failed state.

Ever-present Somalia.

It makes sense at this point to give some context about Somalia. With a score of 113.6, it is consistently ranked number one on Foreign Policy magazine’s Failed States Index year after year. Here is how it is described in the most recent ranking:

Relatively speaking, the first months of 2011 have been full of good news for Somalia, the world’s closest approximation of anarchy. For two full decades, the majority of the territory in this crescent-shaped country on the Horn of Africa has gone essentially ungoverned; an internationally recognized transitional government is fighting tooth and nail to control the capital. Yet after months of stalemate with Islamist insurgents, the momentum finally seems to be turning. Block by block, the national troops — with the considerable help of an African Union-U.N. joint peacekeeping mission — have made significant territorial gains in Mogadishu.

Yet Somalia is still in tatters. Out of a population of nearly 10 million, as many as 3 million are thought to need humanitarian assistance. Another 2 million have been uprooted in the conflict, and political infighting has paralyzed the nascent government. Neighboring Uganda has warned that the fractures stand to make matters worse, offering Islamist insurgent groups a chance to reorganize.

Perhaps the greatest fear looming over Somalia today is that it will become the next haven for al Qaeda fleeing Afghanistan. Somalia’s Islamist rebels, who call themselves al-Shabab, have already pledged their allegiance to the global terrorist network.

Here, demonstrators in Mogadishu denounce the United Nations mission in the country, accusing it of spending too much on flying diplomats in and out of Nairobi and not enough on fixing what’s broken in Somalia.

This was written prior to the recent famine, which has left over 30,000 children dead and is the localized food crisis in 20 years. How to deal with the “basketcase” of Somalia has eluded successive U.S. governments for the last several decades. Now, as the U.S. is faced with the prospect of Somalia becoming the next Afghanistan – a hub for global jihadist groups like Al-Qaeda – the issue has suddenly become much more pressing. Jeffrey Gettlemen, the failed-state beat reporter for the New York Times, reports on the latest use of military contractors to fight Al-Shabab, the Islamic Fundamentalist group that only a mother could love:

The Pentagon has recently told Congress that it plans to send nearly $45 million worth of military equipment to bolster the Ugandan and Burundian troops. The arms package includes transport trucks, body armor, night vision goggles and even four small drone aircraft that the African troops can use to spy on Shabab positions.

Unlike regular Somali government troops, the C.I.A.-trained Somali commandos are outfitted with new weapons and flak jackets, and are given sunglasses and ski masks to conceal their identities. They are part of the Somali National Security Agency — an intelligence organization financed largely by the C.I.A. — which answers to Somalia’s Transitional Federal Government. Many in Mogadishu, though, believe that the Somali intelligence service is building a power base independent of the weak government.

One Somali official, speaking only on the condition of anonymity, said that the spy service was becoming a “government within a government.”

“No one, not even the president, knows what the N.S.A. is doing,” he said. “The Americans are creating a monster.”

The future of global jihad.

I have a great respect for the complexities of foreign policy, containment, defense, and dealing with a king cobra like Somalia. But the African Union should be dealing with Somalia and taking responsibility of policing its own region. Having a major presence there creates resentment in the same way that it has done Afghanistan. It is a dangerous country and to allow it to effectively fall apart is not really an option either. So I understand why these measures might need to be taken. Still, I suppose this is how it starts.

Towards the end of the article there is another nugget of insight into the different ways of approaching a failed state with an Islamic fundamentalist problem:

In Washington, American officials said debates were under way about just how much the United States should rely on clandestine militia training and armed drone strikes to fight the Shabab. Over the past year, the American Embassy in Nairobi, according to one American official, has become a hive of military and intelligence operatives who are “chomping at the bit” to escalate operations in Somalia. But Mr. Carson, the State Department official, has opposed the drone strikes because of the risk of turning more Somalis toward the Shabab, according to several officials.

Johnnie Carson is the highest state department official in Africa. He is a career foreign service officer, and has cut his diplomatic teeth dealing with African governments since the 1970s. By all accounts, he understands the cultural nuances that affect diplomacy in sub-Saharan Africa. Reading this, I appreciate that someone like Carson is running the show.

I think that this sort of measured approach to dealing with a volatile and complex situation is reflective of Obama’s deliberative foreign policy. Brute military force that rains collateral damage on civilians makes for fertile recruiting grounds for Jihadist groups. It needs to be smartly applied, in combination with diplomacy and development. But, as I wrote the other day, the latter two could end up on the receiving end of cuts at the end of 2012. If that happens, the counterforce pushing back on the military operatives itching to put boots on the ground in Somalia will be marginalized. And history may be free to repeat itself.

Trust and the Invisible Hand in Agriculture

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The following is a guest post from Mark Brown, an agriculture value chains specialist with Engineers Without Borders Canada working in Ghana. The post originally appeared on EWB’s blog, Untapped Markets.

Market Facilitation is about fostering new relationships between businesses in agriculture. In sub-Saharan Africa much of the business that takes place happens “informally”. Informal business is any business activity that it is not overseen by the government. These activities are not taxed or regulated. They are also not legally binding. As the businessplace in Africa becomes more productive, the flow of goods will increase and require a higher degree of predictability. Farmers need to know how many tonnes of produce their markets will consume before a given season begins; processors need to make sure that they have an appropriate supply of incoming product that will not overwhelm their storage or production capacity or undersupply their output markets. As businesses in agriculture forge new formal relationships, it is of paramount importance that they know that their business partners are committed to buy or sell increasingly predictable volumes. A memorandum of understanding (MOU) is the typical guarantee that businesses make with each other to ensure that they can know in advance where produce will flow. Since market facilitators are constantly linking up agricultural business actors and facilitating their agreements to increase production, they often find themselves facilitating the signing of MOUs. MOUs are useful, but they need to be used carefully, because at the end of the day, any business relationship is ultimately about trust.

An important attribute to MOUs is the fact that they are not forged in stone. They are not always honoured. It can be extremely hazardous to a business relationship if MOUs are recklessly ignored. It is also hazardous if fears of the repercussions of default keep a business from sharing their challenges with their partners. Both of these pitfalls can happen if an MOU is introduced to a business relationship that lacks trust between the partners.

Lacking Trust, Ignoring Responsibilities and the realities of legal recourse

In one instance in my experience, a market facilitator helped an aggregator arrange for pre-financing of her outgrowers to help them boost their yields. It seemed like both sides were going to benefit immensely. The aggregator required a loan and it would be extremely easy to pay back the loan with the amount of increased yield that she was about to purchase. The farmers were going to have new interest free access to inputs for their farms. The aggregator was not well acquainted with many of the new outgrowers who she pre-financed but they did sign an MOU with her. At harvest time many of the farmers “side-sold” to another buyer who was paying a higher price. The aggregator lost a lot of prefinanced money and had to delay payment for the product from the farmers who did supply her. In reality, the legal cost – both in actual legal fees as well as time lost from work – of taking several different farmers to court is debilitating to a business and proved to not be cost effective for her. The MOU was there, the farmers defaulted and it was not worth it for her to take legal action. In the next season, she will have to focus more on engaging outgrowers that she knows that she can trust.

Fearing Repercussions and Hiding Difficult Realities

In another example, a newly opened fruit factory contracted its outgrowers to supply fruits according to a schedule in higher volumes than the year before, their business was growing. The MOUs went out to the farmers for their specific volume and the season looked promising. What the factory had not accounted for was some logistical barriers in their production. When these came into effect, fruits started piling up and soon their storage facilities were overwhelmed. When this happened, the agreement had to be breached. The problem was, the factory was intimidated by what was going to happen if all of their outgrowers decided to take legal action against them through their legally binding MOU. Instead of informing the outgrowers and having them leave the fruits on the trees and encouraging them to seek alternative markets, they kept quiet. Trucks full of fruit began arriving at the factory and the factory workers began issuing bogus excuses why the fruits had to be rejected, citing poor fruit quality. Farmers were furious and with the fruits already harvested, it was not easy to find a ready market. Many of the farmers lost vast amounts of fruit and even more farmers lost their trust in the company. Only two farmers took legal action, but this was a case where honesty and a warning that the MOU had to be broken would have been more constructive. If there was more trust between the farmers and the factory, this probably would have happened.

MOUs vs. Trust

In the first case, dishonest business behavior went unpunished because legal costs were too high. In the second case, fear of legal action actually caused the dishonest business behavior. In both cases, there was a business actor that did not trust their business partner – they trusted an MOU. MOUs are useful for agreeing to transact predictable produce volumes. They are capable of specifying what an agreement is between two business partners that trust each other, but it is not capable of formulating the trust between two partners.