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SGR by the numbers – some unpleasant arithmetic

In the beginning was a fiction – that the Chinese railway would freight 22 million tonnes a year, and in so doing, replace the trucking business. Turns out – and this from the government’s own internal assessments – that the maximum amount of annual freight on the SGR is 8.76 million tonnes, almost a third of what was promised. Interest alone on the $3 billion debt is in US$200 million (KSh 20 billion) per year, which works out to KSh 45,000 – KSh 60,000 per container. Contrary to official assurances, explains DAVID NDII, the railway will require both State coercion and a massive public subsidy to stay in business.

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What is the economic rationale of establishing a subsidized public monopoly to replace a competitive industry?

“Unpleasant arithmetic” is a popular economists phrase coined by Thomas Sargent, the 2011 economics Nobel Prize laureate and Neil Wallace in an influential 1981 paper simply titled “Some unpleasant monetarist arithmetic” that sought to demonstrate that monetary policy is a useless anti-inflation tool. The deadpan title had a double meaning, the truly horrendous math and the unsettling policy implications. The good news is that Kenya’s standard gauge railway (SGR) arithmetic turns out to be unpleasant only in one dimension. The bad news is that it is the money end of the business, not the math.

It is helpful to start by putting the scale of the project in perspective.

UK’s Crossrail project, an expansion of the London commuter rail system has been billed as Europe’s most expensive infrastructure project, with a price tag of US$ 23 billion, five times the cost of the Mombasa-Naivasha SGR. But the project amounts to less than one percent of UK’s $2.6 trillion dollar economy (37 times Kenya’s), and 3.5 percent of government revenue. The UK borrows long term domestically at between 1.5—2.5 percent per year. If we take the higher figure, the interest cost of financing the Crossrail project is about 0.1 percent of government revenue. The most expensive infrastructure project in Europe increases the UK’s public debt by less than one percent of GDP and puts no pressure on the government budget.

When it was starting in 2014, the $3 billion outlay for the Mombasa-Nairobi segment amounted to 5.4 percent of GDP and 11 percent of government revenue. The cost to completion (Mombasa to Malaba), estimated at US$8 billion at the time, was in the order of 15 percent of GDP and 73 percent of government revenue. If we were to finance it from floating international bonds, the interest cost on the $4.5 billion dollars we’ve borrowed already would translate to 2.5 percent of government revenue, 28 times the cost of Crossrail’s debt burden on UK’s taxpayers.

But the Chinese bank loans have a higher revenue burden than bonds since we have to pay both interest and principal. We now know that the cost is in the order of KSh 50 billion per year currently, equivalent to four percent of revenue. That translates to 45 times CrossRail’s debt burden on UK taxpayers. Moreover, as noted, the UK borrows domestically, with no currency risk. The shilling has depreciated 18 percent since we borrowed, raising the interest cost by KSh 3 billion a year.

When it was starting in 2014, the $3 billion outlay for the Mombasa-Nairobi segment amounted to 5.4 percent of GDP and 11 percent of government revenue. The cost to completion (Mombasa to Malaba), estimated at US$8 billion at the time, was in the order of 15 percent of GDP and 73 percent of government revenue.

To contemplate a project of that scale, you need a very high degree of certainty of its viability. It is otherwise reckless.

The key selling point of the SGR project is that it would get the huge trucks off the road. It would also be cheaper and faster. The public was told that it would haul 22 million tonnes of freight a year. As this column pointed out then, this was always doubtful.

A typical locomotive hauls of between 3000 and 4000 tonnes of freight. We now know that the SGR locomotives’ capacity is 3000 tonnes. The 22-million ton target works out to 20 trains a day, a train every 80 minutes. But the government has also marketed passenger services, which brings you down to a train an hour. It matters that over 90 percent of the freight is imports. If it was equally divided between imports and exports, you would need half the departures. But with virtually all freight going one way, a departure every hour both ways on a single track is a stretch.

We now know courtesy of a study by government policy think tank, KIPPRA, that the operational capacity of the railway in terms of the rolling stock already acquired and configuration of the line (e.g. provisions for trains to pass each other), is twelve trains a day, with provision for four passenger and eight freight trains a day, with a capacity of 8.7 million tonnes a year.

Besides falling far short of the so called design capacity, this raises a serious question about the viability of extending the railway to Uganda. Currently, the volume of transit cargo coming through the port of Mombasa is close to eight million tons, just about the same capacity as the railway. Thus, the current operational capacity cannot serve both the domestic and transit cargo—it is one or the other. To serve both will require expanding the capacity on the completed section to at least double what it is, escalating the already exorbitant cost even further. In a decade or so, it will still come down to a question of domestic or transit freight. If the railway will have been extended, it will only make business sense to carry transit cargo, begging the question why Kenya would have borrowed so much money to build a railway for other countries.

The railway has been sold as a commercially viable project, that is, it would pay for itself. This column challenged this claim from the outset. In the first of many columns, I maintained that the railway could not pay, and that the debt would be paid from the public purse. This has now come to pass.

Currently, the volume of transit cargo coming through the port of Mombasa is close to eight million tons, just about the same capacity as the railway. Thus, the current operational capacity cannot serve both the domestic and transit cargo—it is one or the other. To serve both will require expanding the capacity on the completed section to at least double what it is, escalating the already exorbitant cost even further. In a decade or so, it will still come down to a question of domestic or transit freight. If the railway will have been extended, it will only make business sense to carry transit cargo, begging the question why Kenya would have borrowed so much money to build a railway for other countries.

The only feasibility study I have seen was done by the contractor China Road and Bridge Corporation (CRBC). It is possible that the lenders could have conducted their own feasibility studies as other development financial institutions do, but if such exist, they are a closely guarded secret.

The CRBC feasibility study has a chapter titled economic evaluation, though it is unlike any investment appraisal I have come across. It asserts that the project has “high profitability” and “financial accumulation ability”, but there are no cash flow projections to back this up. It presents Net Present Value (NPV) of three different configurations of US$ 2.0, 2.4 and 2.6 billion as evidence of viability, leaving one at a loss to understand how this justifies borrowing US$3.2 billion for the project. NPV is the current value of the future earnings of a project and should be higher than the cost of the project.

Be that as it may, the railway’s economic justification turns on cheap freight. The study asserts that the railway would turn a profit with a tariff of US$ 0.083 a ton per kilometre (8 US cents). Containers weigh between 20 and 30 tons, hence the study’s tariff at the time translated to between US$ 830 and US$ 1245 (Ksh. 70,000 to Ksh. 100,000) to freight containers from Mombasa to Nairobi. It puts road haulage cost at US$ 0.10 to US$ 0.12 (10 to 12 US cents), hence the proposed SGR tariff would have been 20 to 45 percent cheaper than trucking.

The only feasibility study I have seen was done by the contractor China Road and Bridge Corporation (CRBC)…It has a chapter titled economic evaluation, though it is unlike any investment appraisal I have come across. It asserts that the project has “high profitability” and “financial accumulation ability”, but there are no cash flow projections to back this up. It presents Net Present Value (NPV) of three different configurations of US$ 2.0, 2.4 and 2.6 billion as evidence of viability, leaving one at a loss to understand how this justifies borrowing US$3.2 billion for the project.

According to the Economic Survey, the source of official statistics, in 2012, when the feasibility study is dated, railway freight revenue was Ksh. 4.40 a ton per kilometre, which works out to $0.052 cents. In effect, the SGR claimed that it would make freight cheaper, while in fact its break-even tariff was higher than the railway tariff prevailing at the time. Even the postulated tariff advantage over trucks is flawed because it covers freighting to the inland container depot (ICD) and does not include the additional cost of moving the containers from the ICD to the owners’ premises.

If the tariff advantage over road could be defended, the correct way to measure its economic benefits would be the cost savings, the difference between the “with and without” scenarios. We now know, courtesy of the KIPPRA study, that the actual operational capacity of the railway is 8.76 million tonnes. If we assume, heroically, trains operating at full capacity for the 25 years used in CRBC’s feasibility study and the maximum cost saving ($0.037 a ton per kilometre) we obtain an Internal Rate of Return of 2.4 percent, against a standard benchmark opportunity cost of capital for development projects of 12 percent.

More importantly, the returns are highly sensitive to the railway’s cost advantage over trucking. If we use the lower-bound trucking cost of $0.10 which reduces the cost advantage to $0.017, the project’s Internal Rate of Return (IRR) falls close to zero, the NPV drops to $580 million and the benefit cost ratio (BCR) to 0.2. The IRR is the discount rate at which the NPV of a project is zero and is used to compare a project’s return to the cost of capital. The BCR is simply the benefits over costs and should exceed one for a viable project. A BCR below one means that the project is an economic liability.

The parameters of the feasibility study have already been blown out of the water by exchange rate movements. The 12 US cents trucking tariff used in the study was KSh10.15 in 2012 (at Ksh 84.50 to the dollar). Today KSh 10.15 translates to 10 US cents which as we saw, makes the railway an economic liability. The problem with the SGR is that the bulk of its costs are in foreign currency— indeed, its approved tariffs are dollar-denominated. Trucking has less foreign currency exposure and it is indirect. If the shilling depreciates, the railway loses cost advantage. This is exactly what has happened. As of mid last year, trucks were charging between KSh 70,000 and 90,000 to transport a 40-foot container from Mombasa to Nairobi, which works out to between $0.05 and 0.07 a ton per kilometre compared to the feasibility study’s break-even rate of US$ 0.083.

Over the long haul, currencies adjust to the inflation difference between a country and its trading partners, which for the Kenya shilling translates to depreciating by five percent per year on average. So far the government is relying on coercion to put cargo on the train, even though it is charging what it is calling a discounted tariff. Raising prices is going to be a difficult proposition. We can also expect the prices and operational efficiency of trucks to continue improving, while the railway is stuck with its current locomotives for decades. The price advantage will continue moving in favour of trucking.

With the installed operational capacity of 8.76 million tonnes, interest on its debt which is in the order of US$200 million (KSh 20 billion) translates to 4.6 US cents a ton per kilometre which works out to KSh 45,000 – KSh 60,000 per container. Add operational costs, and it is readily apparent that there is no competitive tariff that would enable the railway to service its debt. Moreover, it is difficult for the railway to operate at full capacity all the time. In effect, the railway will require both coercion and a massive subsidy to stay in business.

We are now compelled to confront the question: what is the economic rationale of establishing a subsidized public monopoly to replace a competitive industry? With cost advantage more or less out of the question, we are left with two arguments. One, that road haulage does not factor in the public costs of building and maintaining roads— including the disproportionate damage that heavy trucks inflict on the roads. The second is that road haulage cannot cope with the projected freight growth, in effect, that the railway line is a necessity, regardless of the cost. Let’s look at each in turn.

The contention that road haulage is implicitly subsidized is simply untrue. Freight trucks do exact a heavy wear and tear toll on the highway, but they also pay their fair share for it. The government is presently collecting KSh 18 per litre of fuel, which translates to Ksh 3,200 per Mombasa-Nairobi trip for a prime mover consuming 180 litres of diesel. Current freight container traffic on the road is at 1.2 million twenty-foot equivalent (TEUs), we are talking fuel levy revenues in the order of KSh 3.5 billion a year. When you add other users, the Mombasa-Nairobi section is generating upwards of KSh 5 billion in fuel levy funds – KSh 10 million per kilometre. It is enough to maintain it. In fact, if the government were to leverage it (i.e. float a bond and pay interest from it), it would be able to finance a phased expansion into a dual carriageway.

What is the economic rationale of establishing a subsidized public monopoly to replace a competitive industry?

The other is that the road would not be able to cope with the growing freight volume and a railway. International evidence suggests otherwise. In the EU for instance, the rail’s share of freight has fallen from 60 percent in the 70s, to just under 20 percent today, despite determined efforts by governments to reverse it. Railways have struggled to offer the flexible logistical requirements of the distributed just-in-time supply chains of a globalized information age. It is, after all, a nineteenth-century technology. Which is why I get rather amused when I hear the building of the “standard gauge” rail (a “standard” established in 1886) being characterized as a giant technological leap into the future.

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David Ndii

David Ndii is one of Kenya's leading economists and public intellectuals.

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KENYA AND ZIMBABWE: The mirrored histories of settler occupation and autocracy that produced electoral criminality

Consider Mama Sylvia Maphosa, 56, avoiding trouble the day after Zimbabwe’s election, shot in the back by a sniper – one more victim of a culture of electoral violence stretching from Harare to Nairobi, where Baby Pendo’s killers are still abroad. But the remarkable inability to manage democratic elections in Zimbabwe and Kenya, both former settler colonies with turbulent legacies of violence, land dispossession and its vexed post-colonial aftermaths, are only partly explained by their histories. For that, cue the role of Big Man politics and Big Power interests. By MIRIAM ABRAHAM

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KENYA AND ZIMBABWE: The mirrored histories of settler occupation and autocracy that produced electoral criminality

Mama Sylvia Maphosa, was on her way home on 1 August, having been released early from work by her employer of over 15 years, the Zimbabwe National Water Authority in Harare. Although this was the first presidential election without Robert Mugabe on the ballot since 1980, the 56-year-old mother of two did not care much for them or for politics in general. She just wanted to get home to her husband Robert Maphosa, who she had discouraged from his routine of picking her up from work for fear that he may be caught up in protests in the city.

Little did she know that it was her own life that was at risk. The bullet that lodged in her back was administered with the accuracy of a sniper targeting a heavily armed enemy. Yet, this was a woman fleeing the violence meted by the State in its alleged bid to quell opposition protests following the announcement by the Zimbabwe Electoral Commission (ZEC) that President Emmerson Mnangagwa and the ruling ZANU-PF party had won the July 30 election, with 50.8 percent of the vote and the Movement for Democratic Change candidate Nelson Chamisa receiving 44.3 percent.

The murder of Mama Sylvia Maphosa and those of five other Zimbabweans in the immediate aftermath of a disputed election are no different than that of Baby Samantha Pendo, Stephanie Moraa Nyarangi, Jeremiah Maranga, Thomas Odhiambo Okul, Bernard Okoth Odoyo, Raphael Ayieko, Victor Okoth Obondo, Privel Ochieng Ameso, Shady Omondi Juma to cite the most prominent victims. They, along with scores of others were murdered a year ago in Kenya’s electoral violence. The histories and trajectories of Kenya and Zimbabwe often mirror each other. As I often tease my friends from Zimbabwe, since elections in Kenya are often a year after theirs, we provide a good playbook in mediocrity for them to perfect.

The murder of Mama Sylvia Maphosa and those of five other Zimbabweans in the immediate aftermath of a disputed election are no different than that of Baby Samantha Pendo, Stephanie Moraa Nyarangi, Jeremiah Maranga, Thomas Odhiambo Okul, Bernard Okoth Odoyo, Raphael Ayieko, Victor Okoth Obondo, Privel Ochieng Ameso, Shady Omondi Juma to cite the most prominent victims. They, along with scores of others were murdered a year ago in Kenya’s electoral violence.

Kenya and Zimbabwe share a spectacular inability to conduct uncontested presidential elections. We could of course blame our common colonial masters, and this may not be far-fetched. Both countries became colonies of the British Empire after the infamous Berlin conference on the partition of Africa with colonial rule taking root in 1890 in Zimbabwe and 1895 in Kenya. The methods colonialists deployed to suppress the local communities were marked with violence, coercion, bribery and dispossession. Their priority was to take over the fertile highlands in both countries, which they dubbed the ‘white highlands’ in Kenya, and minerals especially in Zimbabwe. The divide and rule tactics used between the Shona and the Ndebele were not any different from those used in Kenya to divide its numerous communities. The enduring aftermath in both countries, however, has been the ethnicisation of politics and the land question, which both countries have managed differently in the post-colonial era.

The colonial administration in both countries instituted racial stratification through the expropriation and allocation of land to settlers. In Kenya, the 1902 Crown Lands Ordinance declared the British Crown responsible for the administration of all land in Kenya, displacing millions who were then placed in ‘reserves’ as forced labour in the farms. The still-to-be implemented Ndung’u Commission report comprehensively details this history including the post-colonial political patronage using public land. By independence in 1963 in Kenya, over eight million acres of land, representing nearly 75 per cent of Kenya’s arable land had been transferred to the settlers.

In Zimbabwe, informal alienation of land began with the arrival of the European settlers who began to claim large tracts of land. Exactly the same year that the Land Ordinance was declared in Kenya in 1902, the colonialists in Zimbabwe established ‘indigenous reserves’. In their edited book, Becoming Zimbabwe, Brian Raftopoulos and Alois Mlambo, grapple with the colonial land history and track the various political and socio-economic developments until 2009. They show how millions of Zimbabweans were rendered landless with a few white commercial farmers controlling approximately 18 million hectares (50 percent) of agricultural land.

However, unlike Kenya, post-independent Zimbabwe’s approach to land redistribution has been remarkably different. As renowned author and academic, Mahmood Mamdani, notes Zimbabwe’s fast track land reform of 2000-2003 saw “ the greatest transfer of property in southern Africa since colonization. Unlike in Kenya where former colonial families and a few political heavyweights own the majority of the fertile land, in Zimbabwe 80 percent of land owned by white farmers was expropriated and redistributed, albeit in some cases to political operatives. Nonetheless, this resulted in more than a hundred thousand smallholder owners. Despite the unacceptable violence used during the land distribution, the harsh economic sanctions from the West, the contracted economic growth, hyperinflation, unemployment, among other ills, the fast track land reform has not turned out to be as disastrous as it was prophesied.

Parallels between Zimbabwe and Kenya go beyond the shared colonial history and the attendant land issues. The political parties that ushered in both countries to independence shared a history and almost the same name – Kenya African National Union (KANU) and the Zimbabwe African National Union (ZANU). The tactics that President Robert Mugabe used to ensure the dominance of ZANU are not any different from those used by President Jomo Kenyatta and his successor President Daniel Toroitich arap Moi. The 1980s and 90s saw the most repressive period in the history of both countries, economic hardships partly arising from corruption and the structural adjustment programmes imposed by the international financial institutions. There was remarkable brain-drain from both countries during this period, with an educated professional elite heading mostly to South Africa, Europe and the United States.

There are striking similarities when one considers events surrounding the 2007 elections in Kenya and that of Zimbabwe in 2008. Raila Odinga’s Orange Democratic Movement (ODM) and Morgan Tsvangirai’s Movement for Democratic Change (MDC-T) gained parliamentary majorities against President Mwai Kibaki and President Robert Mugabe’s parties, respectively. Early results from polling stations pointed to the incumbents losing the presidency to the opposition. It was therefore not surprising for protests and violence to erupt in both countries once they stubbornly refused to hand over power. International mediation initiatives led to power-sharing arrangements, creating the post of prime minister under the Grand Coalition government in Kenya and the Global Political Agreement (GPA) in Zimbabwe. The power-sharing arrangements were fraught with wrangling, with ODM urging its leadership to withdraw from the power-sharing government in early 2009 due to deep perceptions of marginalization, and Tsvangirai’s MDC-T ‘disengaging’ from government. However, despite the dysfunctionality and machinations, the power-sharing arrangement in both countries remained intact until the 2013 General Elections.

There are striking similarities when one considers events surrounding the 2007 elections in Kenya and that of Zimbabwe in 2008. Raila Odinga’s Orange Democratic Movement (ODM) and Morgan Tsvangirai’s Movement for Democratic Change (MDC-T) gained parliamentary majorities…Early results from polling stations pointed to the incumbents losing the presidency to the opposition. It was therefore not surprising for protests and violence to erupt in both countries once the incumbents refused to hand over power. International mediation initiatives led to power-sharing arrangements, creating the post of prime minister under the Grand Coalition government in Kenya and the Global Political Agreement (GPA) in Zimbabwe.

Despite the reforms that took place in both countries following the signing of the internationally-mediated agreements in 2008, Zimbabwe and Kenya did not seem to have changed much on the electoral front. The same scenario of contested elections was repeated in 2013 albeit with ingenuity. This time, parliamentary seats were also targeted to maintain the popularity or “tyranny of numbers” narrative. They had learned from the fiasco of 2007/8 where the opposition had more parliamentary seats than the ruling party.

There is ample evidence that the stunning margin of 61.09% victory for President Mugabe against Morgan Tsvangirai’s 33.94% was anything but a free, fair and credible election. Two Commissioners of ZEC resigned with one saying, “I do not wish to enumerate the many reasons for my resignation, but they all have to do with the manner the Zimbabwe 2013 Harmonized Elections were proclaimed and conducted”. Numerous other anomalies were noted including the existence of 65 non-gazetted polling stations, astronomically high numbers of ‘assisted voters’ despite the fact that Zimbabwe ranks first in Africa with its 90 percent literacy rate. Thousands of persons were turned away from voting in opposition strongholds, among other irregularities.

Meanwhile in Kenya, the General Election in 2013 suffered the same fate. Although conducted in a peaceful manner, there were complaints raised regarding the register of voters, intimidation of voters, technological failure among others. According to Kenyan Election Observation Group (ELOG), the process was marked by “botched procurement process that was dogged by allegations of impropriety, delays in timelines for voter registration, and widespread failure of biometric verification kits on Election Day. Indeed, the failure of the biometric voter registration system ranked amongst the most serious threats to the integrity of the 2013 elections, and contributed to public perceptions of incompetence, corruption and electoral fraud”.

In both cases, the 2013 presidential election was subjected to legal petitions with the Courts upholding the results as announced by the respective election management bodies. Curiously, the response in both countries was again stunningly similar. Rt. Hon. Raila Odinga accepted the ruling of the Supreme Court and “moved on”. Rt. Hon. Morgan Tsvangirai had withdrawn his case from the Constitutional Court shortly before its verdict was rendered noting that the Court was biased. He nevertheless did not appeal to his supporters to protest. These unsuccessful legal bids paved the way for Robert Mugabe to be sworn in for his 33rd year in office and for Uhuru Kenyatta to begin his first term as president of Kenya.

Given the trajectory of electoral processes in Kenya and Zimbabwe as noted above, it is unsurprising to see the parallels between the electoral process in Kenya in 2017 and that of Zimbabwe this year. Not to be outdone, Zimbabwe’s security apparatus has mounted a violent crackdown against the opposition, just as their counterparts in Kenya did in the aftermath of the 2017 election. In its conduct, ZEC has not acted any differently from the IEBC, making one wonder if they are cut from the same cloth. It is unsurprising that the opposition leader, Nelson Chamisa has done exactly what Rt. Hon. Raila Odinga did last year when faced with elections that he considered altered in favor of the incumbent. The MDC-T has filed a petition in the Constitutional Court.

In both cases, the 2013 presidential election was subjected to legal petitions with the Courts upholding the results as announced by the respective election management bodies. Curiously, the response in both countries was again stunningly similar. Rt. Hon. Raila Odinga accepted the ruling of the Supreme Court and “moved on”. Rt. Hon. Morgan Tsvangirai had withdrawn his case from the Constitutional Court shortly before its verdict was rendered noting that the Court was biased…These unsuccessful legal bids paved the way for Robert Mugabe to be sworn in for his 33rd year in office and for Uhuru Kenyatta to begin his first term as president of Kenya.

It is barely conceivable that Zimbabwe’s Constitutional Court will take the bold step that Kenya’s Supreme Court took last year of annulling the presidential vote, but the end result of the political game appears to be headed down the same path. The region and the international community, as it did in Kenya, has decided to cast it lot with the ZANU-PF. They have concluded that stability trumps electoral justice. Emerson Mnangagwa’s human rights record – he is commonly referred to as The Crocodile, and for good reason – is an open book, but he has recalibrated his approach to the West claiming that his country is “open for business” . The West is eager too. The international financial institutions are itching to return to Zimbabwe with the World Bank already having conducted a scoping mission to Harare in February, without waiting for the electoral process to play out.

It is barely conceivable that Zimbabwe’s Constitutional Court will take the bold step that Kenya’s Supreme Court took last year of annulling the presidential vote… The region and the international community, as it did in Kenya, has decided to cast it lot with the ZANU-PF. They have concluded that stability trumps electoral justice.

As was the case with Raila Odinga, it is expected that Nelson Chamisa will receive pressure from the US, the UK, the UN and neighboring countries and receive reminders that the unity and peace of the country would serve the country better than a long season of dispute and protest. He will be told that that is the way statesmen act: in the interest of the nation. He will be reminded that he is young and would not want to be sanctioned. He will be reminded of his legacy and how much political capital he still has ahead of him. Promises will be made to him and his party.

As was the case with Raila Odinga, it is expected that Nelson Chamisa will receive pressure from the US, the UK, the UN and neighboring countries and receive reminders that the unity and peace of the country would serve the country better than a long season of dispute and protest. He will be told that that is the way statesmen act: in the interest of the nation. He will be reminded that he is young and would not want to be sanctioned. He will be reminded of his legacy and how much political capital he still has ahead of him. Promises will be made to him and his party.

And at the appropriate time, Nelson Chamisa will have his handshake with the Crocodile, unless the powerful vice-president and minister of defence, Constantino Chiwenga, torpedoes it. We will then forget and move on until 2022/23. Sadly, the memories of 2018 will remain in the hearts of Sylvia Maphosa’s family and of those whose loved ones have been sacrificed in the pursuit of power.

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POWER, AID AND IMPUNITY: How the aid industry sexually exploited the world’s poor

When reports emerged that senior aid officials in OXFAM, the world’s biggest humanitarian charity, had routinely sexually exploited vulnerable young women in Haiti, it touched off a scandal that has left the Western humanitarian industry reeling. It was merely the tip of the iceberg, as a recent UK House of Commons report attests. Impunity is rife within the UN system and the NGOs associated with it. How to rein it in? By RASNA WARAH  

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POWER, AID AND IMPUNITY: How the aid industry sexually exploited the world’s poor

For decades, sun-drenched Haiti, with its beautiful beaches and Third World-type poverty, has attracted a vast array of aid and humanitarian workers who have set up camp in this Caribbean nation ostensibly to lift its people out of their miserable conditions. Because of the huge number of local and international NGOs in the country, Haiti is often described as “The Republic of NGOs”.

Despite the large presence of NGOs and aid agencies, however, Haiti remains one of the poorest countries in the world, and the most impoverished nation in the Western hemisphere. Both natural disasters and political unrest, combined with a culture of aid dependency, have contributed to this state of affairs. A Western journalist writing about Haiti has described the country as “a poster child for the inadequacies of aid”.

The presence of large numbers of mostly young, naïve and sexually active foreign and local aid workers has also created an environment where vulnerable women and children are being sexually exploited or abused by the very people who are supposed to be helping or protecting them, including United Nations peacekeepers. According to an internal United Nations report obtained by the Associated Press in 2017, at least 134 Sri Lankan UN peacekeepers exploited nine Haitian children in a sex ring from 2004 to 2007. One of the victims said that the soldiers would pass her number along to incoming contingents, who would then call her for sex. One boy claimed that he had had sex with more than 20 Sri Lankan soldiers. Another teenage boy claimed that he had been gang-raped by Uruguayan soldiers who even had the audacity to film the attack on a cellphone. Although 114 of these peacekeepers were sent home after the report came out, none of them was prosecuted or court martialed.

Despite the large presence of NGOs and aid agencies, however, Haiti remains one of the poorest countries in the world, and the most impoverished nation in the Western hemisphere. Natural disasters and political unrest, combined with a culture of aid dependency, have contributed to this state of affairs. A Western journalist writing about Haiti has described the country as “a poster child for the inadequacies of aid”.

These incidents are not confined to Haiti. A separate investigation published by the Associated Press last year revealed that nearly 2,000 allegations of sexual abuse and exploitation by UN peacekeepers have been made in other troubled parts of the world. However, this number could be a gross underestimation as the majority of victims of sexual exploitation or abuse do not report their cases.

“Sexual exploitation” is defined by the UN as “an actual or attempted abuse of a position of vulnerability, differential power, or trust, for sexual purposes, including, but not limited to, profiting monetarily, socially or politically from the sexual exploitation of another”. “Sexual abuse” is defined as “the actual or threatened physical intrusion of a sexual nature, whether by force or under unequal or coercive conditions”.

Stories of aid workers, UN peacekeepers and UN employees using their privileged positions to sexually exploit or abuse women and children in poor countries have been in the public domain for a long time but it is only now that the international development community has taken notice and decided to do something about it.

It all started in February this year, when the Times newspaper revealed that staff at Oxfam GB, one of Britain’s most respected charities, had paid local women for sex while carrying out humanitarian work in Haiti in the aftermath of the 2010 earthquake that devastated the country and which led to widespread internal displacement of the quake’s victims. This revelation, at a time when the #MeToo movement was gaining momentum, resulted in several similar exposés, the latest being of a senior UN gender advisor – an Indian male called Ravi Karkara – who is currently being investigated for sexually harassing young men in his office.

Stories of aid workers, UN peacekeepers and UN employees using their privileged positions to sexually exploit or abuse women and children in poor countries have been in the public domain for a long time but it is only now that the international development community has taken notice and decided to do something about it.

The Oxfam scandal also set in motion a series of events, including withdrawal of funding to Oxfam by its leading donors, including the UK’s Department of International Development (DfID), and calls for thorough investigations into allegations of sexual exploitation and abuse by those working in the aid sector globally.

This particular scandal prompted the UK’s House of Commons to carry out further investigations, not just on the conduct of Oxfam staff, but on the conduct of staff working for other charities and aid organisations as well. The House of Commons’ final report, released on 31 July this year, sent shockwaves across the aid sector, and has led to demands for stricter measures to be taken against those who commit sexual crimes against vulnerable populations. The report states that “sexual violence, exploitation and abuse against women and girls in endemic in many developing countries, especially where there is conflict and forced displacement.”

The UK legislators who drafted the report and carried out the investigations also found that the aid industry’s response to sexual misconduct had been “reactive, patchy and sluggish” and that very few organisations actually follow up on reports that have raised the red flag about sexual exploitation or abuse by their employees. For instance, no action was taken after the release of a 2002 assessment by the UN’s refugee agency UNHCR and the charity Save the Children of the effects of sexual violence on children in conflict areas. That assessment documented 67 cases of sexual exploitation and abuse of refugee children in Liberia, Guinea and Sierra Leone in which 40 aid agencies and 9 peacekeeping missions were implicated; the majority of the victims were aged between 13 and 18.

And, despite being warned three years ago that internally displaced and refugee Syrian women were being sexually exploited by men delivering aid on behalf of the UN, the UN did little to arrest the problem, even though the UN’s Population Fund had conducted a gender assessment last year that showed that Syrian women were being forced to engage in “food-for-sex” arrangements with aid workers. The House of Commons report, titled “”Sexual exploitation and abuse in the aid sector”, states that “sexual exploitation and abuse by aid workers, amongst others, is an entrenched feature of the life experience of women and girls in Syria in the eighth year of the conflict there” and that similar cases around world are merely “the tip of the iceberg”.

The UK legislators further found that a 2007 study for the Humanitarian Partnership conducted in Kenya, Namibia and Thailand found that although the beneficiaries of aid knew that sexual exploitation and abuse was going on, the majority said that they would not report these cases because they didn’t want to risk losing the aid. On their part, humanitarian aid workers were reluctant to report their fellow workers for fear of retaliation.

The House of Commons report does not spare any organisation, not even in the much-revered United Nations, for allowing such abuse to continue. “When it comes to investigating sexual exploitation and abuse allegations, the UN’s approach lacks coherence,” it states. “There is no single body taking an overall interest in the outcomes of investigations or driving them towards resolution…”

What the report failed to recognise is that although the UN has a stated “zero tolerance” for sexual abuse and exploitation, few, if any, of the perpetrators face justice – not only because the UN’s internal justice system is flawed but also because international UN staff enjoy immunity from prosecution, which means such cases are not likely to end up in court.

In addition, because the UN is more concerned about protecting its reputation than about bringing justice to victims, those who are perceived to be tainting the organisation (the people who come out and report such cases) are quickly sacrificed. In 2014, for example, Anders Kompass (who has since resigned as the director of field operations at the Office of the UN High Commissioner for Human Rights) was suspended after he sent an internal UN report to French authorities detailing cases of French peacekeepers sexually exploiting internally displaced boys in the Central African Republic. At that time the UN claimed that Kompass had put the victims at risk but it soon became evident that the UN had no intention to act on the report or to make its findings public. Kompass was only reinstated after there was an outcry in the media about the case, but by then he had already made the decision to resign. He said that his ordeal had left him “disappointed and full of sadness”.

The House of Commons report does not spare any organisation, not even in the much-revered United Nations, for allowing such abuse to continue…What the report failed to recognise is that although the UN has a stated “zero tolerance” for sexual abuse and exploitation, few, if any, of the perpetrators face justice – not only because the UN’s internal justice system is flawed but also because international UN staff enjoy immunity from prosecution, which means such cases are not likely to end up in court.

This is one of the problems afflicting all aid and humanitarian organisations. Because these organisations survive on donations, the whiff of sexual or other type of scandal could mean the drying up of donor funds, which could affect jobs and projects. So to keep the donor funds flowing, incidents of misconduct are quickly covered up or not investigated. In some cases, the perpetrators are allowed to resign quietly or are transferred to a remote duty station. Meanwhile those who report these cases often find themselves out of a job – the UN, in particular, is notorious for not renewing the contracts of whistleblowers.

However, things are likely to change. Aid and humanitarian organisations that fail to report or address the issue of sexual crimes or misconduct by their employees could find themselves having to close shop, especially if their biggest donors pull out. Since the Haiti scandal, for example, Oxfam has been struggling to survive. Bigger multilateral organisations like the UN, which are funded by member states are, however, unlikely to face such threats because “they are too big to fail”, which is a pity because levels of impunity at the UN are extremely high. Whereas small charities and international NGOs have to be accountable to their donors to survive, the UN can basically get away with all manner of wrongdoing because the UN is accountable only to itself. Few, if any, member states have threatened to pull out of the organisation because of its lack of accountability or because its employees are behaving badly.

Former UN employees who have suffered retaliation as a result of their reporting complain that the UN’s internal justice system is heavily biased in favour of the perpetrator, particularly if he or she is a senior manager. Experiences of UN whistleblowers indicate that those who file a complaint against a senior UN official are not tolerated within the organisation and that the majority of whistleblowers suffer severe retaliation, despite the UN’s whistleblower protection policy. For instance, recently the country director for UNAIDS in Ethiopia, who was a key witness in a sexual harassment and assault investigation involving the UNAIDS deputy director, was suspended from her job in March this year, an action that smacks both of a cover-up and retaliation. As a result, several African women activists called for the resignation of the UNAIDS Executive Director, Michel Sidibé, but he has consistently ignored this call, as has the UN Secretary-General Antonio Guterres.

Current and former UN employees have reported a flawed grievance system that is stacked against the victims. One woman told the UK’s Guardian newspaper that she was raped by a senior UN staff member while working in a remote location but did not obtain justice despite medical evidence and witness testimonies. Because UN staff members cannot take their cases to national courts, (because UN employees enjoy immunity from prosecution), they have to rely on the UN’s internal justice systems, which are deeply flawed and which rarely deliver justice. As I have argued in previous articles, the UN has to overhaul its internal justice system and put in place external independent mechanisms that are more transparent and accountable – and which do not victimise whistleblowers.

Now, finally, such an external independent mechanism might just see the light of day. The House of Commons report makes a recommendation that could radically transform how sexual exploitation and abuse cases are handled within the aid sector: the establishment of “an independent aid ombudsman to provide the right to appeal, an avenue through which those who have suffered can seek justice by other means”. This recommendation, which will be discussed at an International Safeguarding Conference in October this year, could drastically alter the way aid organisations operate and could be a game changer for victims of sexual abuse and exploitation. It is undoubtedly one of the best recommendations to be put on the table of an industry that has become a cesspit of impunity and which is more interested in self-preservation than actually doing good in this world.

However, my fear is that if this ombudsman lacks the power to investigate and prosecute, then it will merely become an entity that collects and documents complaints rather than one that carries out investigations and brings cases to trial, or one that has the authority to force aid organisations to dismiss or penalise employees who are implicated in sexual harassment, exploitation or abuse.

My hope is that this ombudsman will not just address the issues of sexual harassment, exploitation and abuse, but will also be receptive to receiving cases of other types of abuse within the aid sector, particularly the abuse of power and authority, which allows all manner of wrongdoing, including fraud, corruption, nepotism, and gross mismanagement, to continue.

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CHINA’S DEBT IMPERIALISM: The Art of War by Other Means?

The Belt and Road Initiative, China’s ambitious attempt to create a global infrastructure corridor spanning 65 countries and connecting 60 percent of the world’s population, is the biggest imperial coming-out party in modern history. Not by armed conquest but by a strategy of debt-financed diplomacy, from Sri Lanka to Montenegro, from Islamabad to Mombasa, China is deploying its $3.2 trillion credit surplus to establish a 21st century Oriental Empire, impoverishing entire continents through the allure of roads, railways and bridges. DAVID NDII conducts a global cost-benefit analysis.

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CHINA’S DEBT IMPERIALISM: The Art of War by Other Means?

Therefore the skillful leader subdues the enemy’s troops without fighting, captures their cities without laying siege, he overthrows their kingdom without lengthy operations in the field.” ~Sun Tzu

Colombo. On June 8, Fly Dubai’s last flight departed from Sri Lanka’s spanking new Mattala Rajapaska International Airport. It was the only airline flying there. Sri Lanka’s national airline stopped flying there in 2015. The “world’s emptiest airport” as its been known since it opened in 2013, is now officially a lily white elephant. The airport is a stone’s throw from Habantota, the world’s emptiest sea port that has made Sri Lanka the poster child of China’s predatory lending. The two are the largest of a slew of ill-fated mega-infrastructure projects that were supposed to transform Habantota, which happens to be the home town of former President Mahinda Rajapaska (for whom the airport is named, or rather, who named it for himself), into Sri Lanka’s second city.

It has not quite worked out that way. Rajapaska lost elections in 2015 in a cloud of corruption scandals, after a decade in power during which he buried Sri Lanka in a mountain of Chinese debt. After weighing its options the successor government ceded the Habantota port to China in exchange of a partial debt write-off. It has not helped. Sri Lanka is still caught in China’s debt trap. Last year, it turned to the IMF for a bailout. This year, Sri Lanka is looking to raise US$ 1.25 billion from China to keep up with its debt repayments.

Podgorica If you are an imperialist looking for a European client state, you could not do better than Montenegro. It is small (population: 620,000; GDP US$4 billion), vulnerable, and in a most strategic location on the Adriatic coast. Its hinterland includes Serbia and Hungary, both landlocked, as well as the Black Sea countries (Romania, Bulgaria and Ukraine) whose access to the sea, the Bosphorous, is controlled by Turkey.

Montenegro has been mulling a grand motorway from its port city of Bar to Boljare on the Serbian border for a long time, a distance of only 165 kilometres, but the country is extremely rugged, making the cost prohibitive. Two feasibility studies done in 2006 and 2012 for the Montenegro government and the European Investment Bank concluded that the highway was not economically viable. Then China came along.

The first 41 kilometres of the highway, built with an EUR 800 million Chinese loan, has nearly bankrupted Montenegro, forcing the government to raise taxes, freeze public wages and cut welfare spending. Borrowing close to 20 percent of GDP to build a quarter of a road is unwise. Unable to proceed, Montenegro has signed an MOU with the Chinese contractor to complete and operate it as a toll road on undisclosed terms. The fear now is that the Chinese have extracted onerous revenue guarantees. The contractor is none other than the state owned corruption scandal prone China Road and Bridge Company, the builder and operator of Kenya’s new standard gauge railway.

Montenegro has been mulling a grand motorway from its port city of Bar to Boljare on the Serbian border for a long time, a distance of only 165 kilometres…Two feasibility studies done in 2006 and 2012 for the Montenegro government and the European Investment Bank concluded that the highway was not economically viable. Then China came along. The first 41 kilometres of the highway, built with an EUR 800 million Chinese loan, has nearly bankrupted Montenegro, forcing the government to raise taxes, freeze public wages and cut welfare spending. Borrowing close to 20 percent of GDP to build a quarter of a road is unwise.

Islamabad. Pakistan sits between China and the Persian Gulf. When China buys oil from the Middle East and Africa, it has to be shipped 6000 kilometres round India, through the Straits of Malacca to the South China Sea. The Malacca Dilemma refers to China’s vulnerability to a potential trade blockade on this narrow sliver of ocean between Indonesia and Malaysia.

Enter CPEC. CPEC stands for the China Pakistan Economic Corridor. Billed as a crown jewel of the Belt and Road Initiative, CPEC is an ambitious and costly modernization of Pakistan’s infrastructure centred on a transport corridor linking China’s “landlocked” hinterland to Pakistan’s Arabian sea port of Gwadar. The corridor cuts the distance of China’s western border to the sea by half, from four to two thousand kilometres. China has already taken control of the Gwadar port on a 40-year lease and is building an airport and industrial parks— effectively making it a Chinese enclave inside Pakistan. Costed at US$40 billion when it was launched in 2013, CPEC’s price tag has escalated to US$ 62 billion.

Four years on, Pakistan is in deep financial trouble. The CPEC projects are bleeding the country and destabilizing the economy. In addition to CPEC debt, Pakistan is now living on a Chinese financial lifeline —US$5 billion so far — to stave off a foreign exchange crisis. A succession of devaluations have failed to stem the tide, and foreign reserves are now down to less than two months requirements. Pakistan is now caught between the proverbial devil and the deep blue sea: to go for an IMF bailout or to settle into becoming a Chinese client state. An IMF bailout would put pressure on Pakistan to scale down CPEC and expose the secretive financing to western scrutiny.

CPEC stands for the China Pakistan Economic Corridor. Billed as a crown jewel of the Belt and Road Initiative, CPEC is an ambitious and costly modernization of Pakistan’s infrastructure centred on a transport corridor linking China’s “landlocked” hinterland to Pakistan’s Arabian sea port of Gwadar, cutting the distance of China’s western border to the sea from four to two thousand kilometres. China has already taken control of the Gwadar port on a 40-year lease and is building an airport and industrial parks— effectively making it a Chinese enclave inside Pakistan. Costed at US$40 billion when it was launched in 2013, the price tag has escalated to US$ 62 billion. Four years on, Pakistan is in deep financial trouble.

What is China up to?

There are two readily apparent economic objectives that China could be pursuing, one immediate, and one longer term.

The immediate objective is investment diversification. China is sitting on US$ 3.2 trillion of foreign reserves accumulated from its trade surpluses with the rest of the world, more than those of the next four countries combined (Japan $1.27 billion, Switzerland $0.74 bn, Saudi Arabia $0.9 bn, Russia $0.46 bn). Most of this money is held in safe but low yielding American and European government securities, with just over a third (US$ 1.2 trillion) in US government securities. Analysts estimate that another one third is held in other US dollar-denominated securities.

The longer term objective is sustaining its economic rise. China’s economy may be the world’s biggest but it is still a middle-income country, with an average income of less than a fifth of Singapore. One of the big questions out there is whether China will escape the “middle income trap”. The middle income trap is the observation that while many countries easily transition from poor to middle income status, only a few managed to transition from middle to high income. Of 103 countries that were middle income in 1960, according to an analysis by the World Bank, only 13 had transitioned to high income status by 2008, almost fifty years later.

China is sitting on US$ 3.2 trillion of foreign reserves accumulated from its trade surpluses with the rest of the world, more than those of the next four countries combined. Most of this money is held in safe but low yielding American and European government securities…Returns on these have been pretty dismal since the global financial crisis. But outside these markets there aren’t many assets that can absorb money on this scale. The BRI can thus be seen as a strategy by China to create such assets.

China has followed the export-led industrialization model of Japan and the Asian Tiger economies. This model will soon run its course. China’s average manufacturing wage has increased three-fold in dollar terms over the last decade, and is now on a par with the poorer former communist eastern European countries. To make the transition will require China to move up the product value chain, or as a recent paper by investment bank UBS put it, from “made in” to “created in” China. This will entail moving its factories abroad, some closer to markets, some to low-wage locations. Some of the BRI initiatives do seem to be gearing up for this. CPEC is an obvious case. China’s Great Wall company has a manufacturing plant in Bulgaria, which is in the hinterland of the Montenegro motorway.

It still begs the question why it needs to roll out the biggest building project since the Great Wall of China. Japan and the other Asian Tigers did not have to. And the BRI’s scale and aggression defies these rational economic objectives. If it goes to plan, it will span 65 countries, accounting for 60 percent of the world’s population and 40 percent of global economic output, and cost between four and eight trillion dollars That is not economics. It is empire building. It is not inconceivable that China is operating on a nineteenth century imperialism blueprint. Indeed, the Belt and Road Initiative graphics that litter the internet conjure images of Chinese power men around a world map sticking pins on strategic targets.

It is off to a rough start. Mahathir Mohammed, Malaysia’s comeback prime minister has cancelled three big BRI projects worth $22 billion signed by his predecessor, who is now facing corruption charges. He says he is trying to save Malaysia from bankruptcy. Even Burma’s steely generals have got cold feet. They have cancelled a port project citing fears that it could end up like Sri Lanka’s Habantota. Earlier this week, the Prime Minister of Tonga, rallying fellow South Pacific Island nations to negotiate debt forgiveness with China, expressed his fears that China could seize strategic assets.“If it happens in Sri Lanka, it can happen in the Pacific.”

Habantota is turning out to be a strategic blunder.

Did China actually set out to trap countries into debt or has the Belt and Road Initiative gone awry? It is conceivable that China is unfazed by the political blowback. Folklore has it that the Chinese take a very long term view of things. But it is more likely that China did not anticipate the blowback.

China seems to have underrated the vulnerability of its would-be client states to the vagaries of global capitalism and overrated the grip of the regimes that it is corrupting on power. China will not be the first great power to do this. The USA has been muscling and blundering its way, wreaking havoc around the world by conflating its interests and political values for the better part of a century.

Did China actually set out to trap countries into debt or has the Belt and Road Initiative gone awry? […]China seems to have underrated the vulnerability of its would-be client states to the vagaries of global capitalism, and overrated the grip on power of the regimes that it is corrupting. China will not be the first great power to do this.

The real Achilles heel of the debt traps is that China has little recourse should any of its distressed debtors default. Western lenders can and often take concerted action on defaulters (a la Greece and “the troika”), but China is a lone ranger.

In China, economic illiteracy on this scale is not without precedent. Sixty years ago, Chairman Mao had the brilliant idea that industrialization could be drilled down to producing copious amounts of grain and steel. The government set a target of doubling steel production within a year and overtaking Britain’s production in 15 years. China’s peasant farmers were herded into communes. Villagers were forced to set up backyard furnaces. Pots, pans and other metal possessions were seized and melted up to meet production quotas. Trees were decimated and even furniture burned to fuel the furnaces. The Great Leap Forward, history’s most monumental political blunder, cost between 20 and 40 million lives.

It is noteworthy that Kenya is the BRI’s only touchpoint on the African continent.

Kenya’s SGR, Uhuru Kenyatta’s erstwhile legacy project, has turned out to be the bugbear that this columnist among others warned that it would be. Its freight capacity is a third of what was promised, and it cannot be competitive without a hefty public subsidy. Uhuru Kenyatta’s administration has increased Kenya’s foreign debt two and a half fold, from US$9 billion to US$25 billion. The railway alone accounts for a third of this increase; another third is by sovereign bonds for which the country has nothing to show.

Public debt is budgeted at KSh 860 billion (U$ 8.6bn), 72 percent of the last financial year’s tax revenue. The question that is frequently asked now is whether, if Kenya cannot pay, the Chinese will take over the port of Mombasa. Word on the streets of Mombasa is that the port was pledged as security for the railway loans. In a manner of speaking, they already have. The Chinese have a concession to run the railway until 2027. That includes a take-or-pay freight assignment contract, which is to say, the Kenya Ports Authority, the port operator, has to meet the railway’s freight target or pay the railway for the unused capacity. In effect, the port is working for the railway.

The question that is frequently asked now is whether, if Kenya cannot pay, the Chinese will take over the port of Mombasa. Word on the streets of Mombasa is that the port was pledged as security for the railway loans. In a manner of speaking, they already have.

“It is not uncommon for a country to create a railway, ” said Charles Elliot, the Kenya Protectorate commissioner who oversaw the construction of the Uganda railway. “But it is uncommon for a railway to create a country.” Almost 120 years later, after it emerged that Kenyan workers are routinely subjected to physical punishment by Chinese, following which the Chinese ambassador dismissed this as Chinese culture, Kenyans are wondering whether the railway heralds a new age of Oriental colonialism. On this, my take is that China and Kenya’s political class have bitten off more than they can chew.

Seeing senior public officials grovelling and making excuses for these Chinese excesses gives perspective to history, from the chiefs who sold their people into slavery to those who signed away their lands to European imperialists for blankets and booze. We get it.

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