Kenya, exogenous governance shocks edition

From the BBC:

The Kenyan president said Tullow would drill more wells to establish the commercial viability of the oil.

“It is… the beginning of a long journey to make our country an oil producer, which typically takes in excess of three years. We shall be giving the nation more information as the oil exploration process continues,” he said

Cha-ching. Here we go again.

CSAE conference, FTW

If you notice the frequency of blogs has abated somewhat, it’s due to preparations for the CSAE Conference, which begins tomorrow – one of the largest annual development conferences out there. I’ll be presenting, as well as several development bloggers of note.

If you’re coming to the conference and want to meet up for a beer – shoot me an e-mail (I’m not one for Twitter) or just look for the tall, red-headed chap who looks confused.

Invisible Children, Michael Jackson edition

 

Remember that for every successful viral video, there are millions of ones which somehow fail to capture catch on. This dance-laden attempt by the Invisible Children is one of them. Make sure you at least watch until the 2 minute mark:

http://www.youtube.com/watch?v=QWACLKaOC08&amp

I think I need to lie down – but before I do, I felt I should inflict this on the rest of you.

Hat tip to Boing Boing.

For all debts public and private

"You see, THIS is what happens when we lose our credit line to the Hutts"

Odious debt is a fairly simple legal concept: public debt accrued by illegitimate regimes should not be passed on to successive governments. As described by the folks at the Center for Global Development, one of the best ways to make sure this happens is for the institutions responsible for enforcing international contracts to declare that all future loans to the current regime are unenforceable. Faced with the prospect of a higher chance of default by the current government  (and an automatic default by the next), potential lenders would be dissuaded from doing business, thus preventing excessive debt.

In response to the growing violence in Syria, CGD’s Kim Elliot and Owen Barder have revived the idea (here and here), not just as a method for preventing excessive debt, but as a way of putting more pressure on the current regime – if Assad’s remaining lines of credit are dropped, then we might expect his position to crumble even faster.

Let’s break the idea down a little further. There seems to be an implicit model working in the background here, and I think it looks something like this: a rational investor knows the best deal it can get from the Galactic Empire is a rate of return of r on a loan. Based on this, the investor decides how much to loan, conditional on its outside options. The investor knows that, even if the Empire falls to the Rebel Alliance, it is still guaranteed its return r.

Now, assume that an outside party has declared all future debt incurred by the Empire as unenforceable. If the Rebel Alliance wins (with probability P), then the investor won’t receive any return at all, and now there is also a smaller chance the Empire will pay them back even if it remains in power (this probability of repayment E). The investor’s expected rate of return is now significantly lower [(1-P)Er < r], so it will disinclined to lend as much – and might even choose to disengage completely.

This is all pretty intuitive and sensible – although there a few reasons why it might not be that straight forward. These should be thought more as possible (general) caveats rather than criticisms:

 

  • Expectations over the value of P are important here – we can expect the impact of an odious debt declaration to be stronger as it looks more and more likely the Rebels will win. Fortunately, the Syrian army might already be signalling its views on P.
  • It’s very likely that the probability the Empire stays in power is a function of the amount of money lent to it – that is, potential investors know that they can directly affect P when choosing how much to lend. While most assumptions over the functional form of P would lead us to the same conclusion, I’m still a bit worried that there could be identifiable thresholds here (if we lend them enough for a Death Star, the probability of winning converges to 1). This is why it is really important that odious debt declarations only affect future contracts (as the CGD suggests) – we don’t want investors given the incentive to prop up bad governments so they can avoid sunk costs.
  • Another assumption is that there is symmetry in the way contracts are enforced: in reality, the financial and legal institutions responsible for international; contract enforcement are much more likely to be binding when a legitimate government takes over and wants to rid itself of odious debt, but the same is not necessarily true if the illegitimate government wins. When dodgy governments (or firms) trade with others of the same ilk, different, more informal mechanisms are likely underlying enforcement. These types of governments are inherently riskier anyway, so potential investors might already be relying on these alternative mechanisms. Again, these wouldn’t reverse the expected results, but they might dampen it.
  • Related to this point – we assume that countries that do business with awful regimes are only interested in profit. Once you add in preferences for that regime staying in power (democratic governments don’t usually buy as many weapons + it’s good to have another evil dictator in the neighborhood), the picture gets even murkier.

Caveats aside, I’m excited that this idea is finally getting the attention it deserves.

UNESCO and evil dictators

In response to complaints about our Emperor Palpatine Award, Aid Thoughts has relabeled it the Death Star Award for Research in the Life Sciences

A few years ago there was a kerfuffle over UNESCO’s plan to create a Life Sciences award named after (and funded by) Equatorial Guinean dictator and all-around-evil-person Teodoro Obiang. Many were worried that the award would undermine UNESCO’s credibility make Obiang’s position more legitimate. At the time, I felt that denying him an award like this was peanuts compared to the many other ways the world routinely legitimizes his never-ending grip on the country. It seems that UNESCO has finally decided to move forward with the award:

After almost two years of debate and hand-wringing, the executive board of Unesco approved a scientific award on Thursday sponsored by a repressive West African dictator, despite the pleadings of Western nations and a finding by the organization’s lawyers that the prize would violate internal bylaws.

But there was one notable change. While the prize originally bore the name of the sponsor, Teodoro Obiang Nguema Mbasogo, who has ruled over oil-rich Equatorial Guinea since 1979, the award will now be called the Unesco-Equatorial Guinea International Prize for Research in the Life Sciences.

In the same NYT article, there are hints that the debate hasn’t yet ended. I wish it would – if the Western world wants to show it doesn’t much care for Obiang’s rule, then we need to hit him where it hurts: his oil revenue.

Bono meet Russell

Perhaps a little too soon, Baobob/The Economist asserts that the Live Aid mentality has finally died:

 But those days of poverty porn at rock concerts (slo-mo famine on giant screens to accompany the music) have also drawn to a close. The thinking about poverty reduction in Africa is less weepy, with greater emphasis on transparency and technology. Innovative new players come from unexpected places, like BRAC, a Bangladeshi organisation. Win or lose, Mr Sach’s bid for the World Bank marks the end of the Live Aid era.

As we’re all aware, the weepiness has returned in full force in the form of Kony 2012.

I don’t have much new to add on this. However, I’m astonished by how strong and well-covered the push-back has been, with most major news outlets taking the time to describe the problems with Invisible Children’s approach.

It might even be possible that the net impact of this whole thing is positive – while we’re always going to be wary about the unchecked desire to do good, the push back might have been enough to inform at least some of the previously-ignorant. We might reach a moment where we all are secretly happy this thing happened, even though we’ll still need to condemn it in order to keep the ignorance in check.

Never gonna give you up

Liz Alden Wily notes that land grabbing in sub-Saharan African is enabled partly by the lack of formal, private land ownership:

For all the commentary on how the great buy-up of African lands might impact on the rural poor, they are rarely the legal landowners. Their governments are. For a century African land laws have protected private property, but have largely limited this protection to lands with registered titles. Up to 90% of sub-Saharan Africa’s land area is currently untitled. Without legal owners, these lands fall to the state.

A couple thoughts on this – Wily goes on to (correctly) point out that the real problem is with bad governments which hastily sell off land on the cheap for easy revenue today at the expense of the next generation. Still, while transferring de jure ownership to the people through extensive land titling would guarantee that they would at least benefit somewhat from these massive land sales, it wouldn’t necessarily stop the transfer from happening, for a couple of reasons.

For one, while many African governments seem to be willing to part with land for relatively paltry sums, we never witness the counter-factual. Without the rural farmer being the initial holder of that land title, we can’t really infer anything about his minimum price to let go of that land. It could be higher, lower or equal to that of the government – we really don’t know. So while, in an ideal setting, transferring that property right from the government to the population will at least guarantee they benefit from land deals, it won’t necessarily stop them from happening – buying land directly from rural farmers might still be a good deal for foreign investors.

Furthermore, while we might still believe that land titles convey some sort of protection from the government, remember that governments themselves are the ones that create, issue and enforce property rights. Truly awful governments will not be interested in effectively expanding these rights in the first place, so pointing out how useful they are doesn’t always get us very far.

One example from Tanzania: following legislation which paved the way for private land rights, the government set out to pilot titling programs in several districts. After demarcation and registration had finished in one of these districts, land officials quickly realized they had made a mistake – the titles they issued comprised every inch of land in, with nothing left that the government could use. The government learned its lesson: since then, any major demarcation efforts are preceded by a `scheme of regularization’, a plan which lays out all the space the state might want to use (usually for infrastructure improvements).

So the government can essentially thwart any large-scale attempt to solidify property rights by grabbing what it deems is necessary. Of course, this doesn’t mean land titling is useless (if I thought it was, I might as well give up now on my research work) – but these programs are probably not going to act as immediate solutions to land grabs.

 

Malawi’s president and the art of diplomacy

From the BBC:

Mr Mutharika said he has intelligence reports that some Western donor nations were working with local non-governmental groups (NGOs) to hold street demonstrations and vigils against his rule.

“I will not accept this nonsense any more,” Mr Mutharika said as he opened a road in his home tea-growing district of Thyolo in southern Malawi.

“If donors say this is not democracy, to hell with you… yes, I’m using that word, tell them to go to hell,” he said on Sunday.

In all seriousness, the media and donors often fail to acknowledge that local NGOs are often headed by members of the opposition or those with close ties to it. While Mutharika’s response is absurdly vitriolic, if outside forces are supporting these NGOs then his concerns aren’t entirely unfounded.