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LEGALISE IT: The absurd ban on marijuana as a metaphor for maendeleo-development

Why marijuana remains illegal (in most of Africa) and tobacco legal speaks volumes about the contradictions of capitalism. Why native enterprises remain ‘informal’ while foreign investment is favoured and sought after by African governments is an old, insidious trick of imperialism. DAVID NDII pens an anti-development manifesto.

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A few weeks ago I made what I thought was an innocuous comment on a Twitter news post in response to a news post reporting that police had intercepted a 17 kg marijuana haul, to which I commented “legalize marijuana”, thereby unleashing a tweetstorm that went on for days.

Why is marijuana illegal? Consumption of marijuana is a victimless crime. It has proven therapeutic value, while tobacco is a proven carcinogen that harms both the smoker and third parties through second hand smoke, yet cigarette smoking is legal but marijuana is criminalized? Is it perhaps because, as I opined in the Twitter debate, tobacco is a big global capitalist enterprise, but everyone can roll their own joint?

This article is not about marijuana. It is a critical reflection on the phenomenon we call development. I will be arguing that the phenomenon we call development shares the same historical DNA as the criminalization of marijuana. The case for decriminalization of marijuana is a metaphor for the deconstruction of this thing we call development. This DNA consists of three things: colonialism, Christianity and capitalism. I will reflect on each in turn.

Why is marijuana illegal? Consumption of marijuana is a victimless crime. It has proven therapeutic value, while tobacco is a proven carcinogen that harms both the smoker and third parties through second hand smoke, yet cigarette smoking is legal but marijuana is criminalized? Is it perhaps because, as I opined in the Twitter debate, tobacco is a big global capitalist enterprise, but everyone can roll their own joint?

In her irreverent and hilarious novel, Red Strangers, Espelth Huxley subjects European superiority complex to Kikuyu customary law. When Karue sends his insolent young son to collect a long overdue bride-price debt that was the subject of a running feud, a fight breaks out and the young man is killed. The family sets about collecting the “blood money”, a hundred and seventeen goats, to compensate the Karue clan for the loss of their son. But the white man has already arrived and Matu is arrested for the murder of the young man and taken to Tetu to face the white man’s justice.

Karue testifies against Matu (though he was not at the scene) but to his great consternation, he learns that his clan will not be paid blood money. Even though it is Matu’s brother Muthengi’s sword which killed the young man, they agree that Matu will confess to the crime since they are brothers – it does not matter; it could as well have been Matu – only to learn that Matu will belong to the white man for six seasons:

The phenomenon we call development shares the same historical DNA as the criminalization of marijuana. The case for decriminalization of marijuana is a metaphor for the deconstruction of this thing we call development. This DNA consists of three things: colonialism, Christianity and capitalism.

Matu said nothing, for the words did not seem to make sense. He supposed that the interpreter had made a mistake. Muthengi however asked: “But why is Matu to stay here in Tetu? The affair of the young man’s death is between Karue and my father Waseru. What has the stranger to do with it?”

“That is the stranger’s law. Matu killed the evil man. Therefore he stays with stranger.”

“Does the stranger give him to Karue?” Muthengi persisted.

“No, he stays here.”

“Who gives him food?”

“The stranger gives him food.”

“Then what does Karue receive in compensation for his son, who is dead?”

“He does not receive anything.”

“That I cannot understand!” Muthengi exclaimed. “If a man loses his son, or a child his father, must not his family be given compensation for their loss? How else can justice be done?”

“Stranger’s justice is different,” the interpreter said. “Matu must stay here.”

“Then the stranger gets something for Karue’s loss, and Karue’s clan gets nothing at all,” Muthengi said. “This seems to me to be a very peculiar law, and one with no justice in it at all. Now I understand how these strangers have become so exceedingly rich; when they sit in judgement they award nothing to the injured person, but everything to themselves.”

“That is the law nonetheless.” The interpreter said.

A law with no justice at all. Law without justice is the essence of colonialism.

The Agikuyu also concluded that Gūtirī mūthūngū na mūbīa (the white man and the priest are one and the same), by which they meant that the church was part of the colonizing mission. I can attest to this.

I spent a considerable part of my childhood and youth at my grandparents’ home in Kijabe, a Christian mission hamlet sad to be the third largest missionary centre in the world, run by the African Inland Mission, the parent of the African Inland Church (AIC). It is, to the best of my knowledge, the only alcohol-free community in Kenya. There is not a single bar in the town, and the shops do not stock alcohol and cigarettes either.

The town belongs to the church. With the exception of public schools, all other formal institutions in the town are part of the church establishment. There’s the Kijabe Mission Hospital, a bible school, a radio station, printing press and the Rift Valley Academy, an international school. Formal wage jobs and business opportunities are given on the basis of religiosity.

Kijabe, a Christian mission hamlet sad to be the third largest missionary centre in the world, run by the African Inland Mission…the town belongs to the church…[and] the community is divided into two: the “saved” and the “unsaved.” My grandfather who was a rebel of sorts designated the Holy Joes as either “hinga” (hypocrites) or “njuhiga” (opportunists). The combination of the two he reserved for the clergy.

The community is divided into two: the “saved” and the “unsaved.” My grandfather who was a rebel of sorts (he was a school teacher far away and only came home on occasional weekends and school holidays) designated the Holy Joes as either “hinga” (hypocrites) or “njuhiga” (opportunists). The combination of the two he reserved for the clergy. Four decades on, not much has changed. It is still a place where drunkards are upright, honorable people, and obsequious sanctimonious scoundrels are the pillars of society. Kijabe is a microcosm of the damage that the Church has wrought in Africa.

The Oxford English Dictionary defines capitalism as “an economic system in which a country’s trade and industry are controlled by private owners for profit, rather than the state”. The Marriam-Webster is more elaborate. It defines capitalism as “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision and by prices, production and distribution of goods that are determined mainly by competition in a free market”.

According to these definitions we would be compelled to conclude that pre-colonial Africa was capitalist. Being largely stateless, trade was unregulated and the means of production privately owned by default. We would be wrong. These dictionary definitions are flawed. What they define are contemporary and mostly Western market economics. The juxtaposition of private and state ownership already points to the capitalism/socialism dichotomy, a 20th century phenomenon.

Capitalism as a distinct economic system was introduced in the political lexicon by Karl Marx. Marx refers to it variously as the “capitalist mode of production” or “capitalist system,” and it is thus defined in the Communist Manifesto co-authored by Marx and Friedrich Engels:

“The directing motive, the end and aim of capitalist production is to extract the greatest possible amount of surplus value, and consequently to exploit labour power to the greatest possible extent.”

Abraham Lincoln, in a speech to the US congress, weighed in on the presumption of capitalism as the default of market economy thus:

“It is not needed, nor fitting here that a general argument should be made in favor of popular institutions; but there is one point, with its connections, not so hackneyed as most others, to which I ask a brief attention. It is the effect to place capital on an equal footing with, if not above, labor, in the structure of government. It is assumed that labor is available only in connection with capital; that nobody labors unless somebody else, owning capital, somehow by the use of it induces him to labor. Now, there is no such relation between capital and labor as assumed, nor is there any such thing as a free man being fixed for life in the condition of a hired laborer. Both these assumptions are false, and all inferences from them are groundless. Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights. Nor is it denied that there is, and probably always will be, a relation between labor and capital, producing mutual benefits. The error is in assuming that the whole labor of community exists within that relation.”

Although Lincoln’s speech, given in 1861, predates his famed correspondence with Marx, Lincoln was very likely influenced by his ideas, since Marx was a prolific contributor to the US press in the 1850s.

The dictionary definition’s most dangerous flaw is that of conflating capitalism with a market economy. It gives the market economy a bad name. The defining feature of capitalism is one where capital employs wage labour. A market economy on the other hand, does not prescribe which factor of production employs the other. Capital can hire labour, or labour can hire capital. To illustrate, consider the boda boda industry. One will find riders (labour) who hire motorcycles (capital) at a fixed fee, owner-operators and even riders who have invested in motorcycles that they lease out.

The defining feature of capitalism is one where capital employs wage labour. A market economy on the other hand, does not prescribe which factor of production employs the other. Capital can hire labour, or labour can hire capital.

It is tempting to dismiss the boda boda industry as a jua kali anomaly, an exception rather than the rule. Here in Kenya we have cooperatives and other collective commercial enterprises operating in many sectors, including one of the largest and most successful financial cooperatives (SACCOs) sectors in the world. SACCOs operate in the market economy, for profit, but they really don’t compete with each other—the serve their members. The smallholder farmer-owned KTDA conglomerate is Kenya’s largest manufacturing concern, and the single largest exporter of black teas on the world. These enterprises operate in the market, they really do not compete with each other, they coexist and cooperate, as each seeks to serve their respective members.

Their objective is not to maximize profit but rather, to improve the welfare of their members. It is possible to conceive of a market economy consisting of a boda boda-style industrial organization, cooperatives and KTDA-type concerns. It is also readily apparent that such an economy would not have the malevolent character we associate with modern-day globalized capitalism.

In Marx and Engels’ day, capital meant industrial capital—machinery and equipment. When he talks of mutual benefits, Lincoln is talking about industrial capital. The malevolence of capitalism is rooted in the nature of finance capital — what Costas Lapavistas has termed “profiting without producing”. Financial capitalism separates profits from production and seeks only a return on money. The malevolence of finance capitalism was postulated most forcefully by Lenin in his 1917 essay Imperialism, the Highest Stage of Capitalism. E.K Hunt’s textbook History of Economic Thought provides a cogent and most pertinent summary of the thesis:

“When productive capacity grew faster than consumer demand, there was very soon an excess of this capacity and hence there were very few profitable domestic investment outlets. Foreign investment was the only answer. But in so far as the same problem existed in every industrialized capitalist country, such foreign investment was only possible if [the] non-capitalized could be “civilized”, “Christianized” and “uplifted” — that is, if their traditional institutions could be forcefully destroyed, and the people coercively brought under the domain of the “invisible hand” of market capitalism.”

“Uplifted.” Is this not the thing we now call development?

As regards destruction of traditional institutions, it is instructive that when colonialism introduced wage labour, the Agikuyu devised a name for it, guthukuma (verb), as distinct from wiira (work). Gūthūkūma which is most likely a corruption of the swahili word sukuma (to push) conveys involuntary toil. Work was not sold. Even destitute people were not subjected to wage labour. They were adopted as tenants (ahoi), and given an opportunity to work for themselves. When extra hands were needed, such as walling a hut (gūthinga), one invited community members to help (gūtūmana wiira meaning “invitation to work”). The only obligation was to feed the people generously. Even today, if you serve someone a large helping, they might exclaim kari ithinga? (is it for walling work). But over time the distinction disappeared, and wage labour appropriated wiira. People conscripted into servitude and undignified chores resigned themselves to the pragramism of wiira ni wiira, (“work is work”, kazi ni kazi in Kiswahili), which you still hear today. But hidden in the pragmatism is a psychology of resistance that makes Africans problematic wage labour. Deep down, we resent it.

When productive capacity grew faster than consumer demand, there was very soon an excess of this capacity and hence there were very few profitable domestic investment outlets. Foreign investment was the only answer. But in so far as the same problem existed in every industrialized capitalist country, such foreign investment was only possible if [the] non-capitalized could be “civilized”, “Christianized” and “uplifted” — that is, if their traditional institutions could be forcefully destroyed, and the people coercively brought under the domain of the “invisible hand” of market capitalism.

We need not revisit European imperialism to validate the thesis. With its US$ 3.2 trillion trade surplus and excess production capacity at home, China’s unfolding debt imperialism is as textbook a case of Lenin’s capitalist imperative as it can get. It is instructive that China’s imperial ambitions are propelled by the State, rather than private capital — the China Roads and Bridges Corporation is the new Imperial British East Africa Company. This is further repudiation of the dictionary definition of capitalism.

Not to be outdone, the whats-her-name-again Brexit-befuddled British premier was out here hawking “upliftment” aid and investment. The Iron Chancellor, Angela Merkel, is touring West Africa. Last year, Germany published a report proposing a Marshall Plan for Africa. It is a sloppy, callous offensive document, down to dredging up slavery and the 1884 Berlin Conference, as if we need a reminder. That aside, the big idea of the Marshal plan is surprise, surprise, to leverage aid to increase German private investment in Africa.

With its US$ 3.2 trillion trade surplus and excess production capacity at home, China’s unfolding debt imperialism is as textbook a case of Lenin’s capitalist imperative as it can get. It is instructive that China’s imperial ambitions are propelled by the State, rather than private capital — the China Roads and Bridges Corporation is the new Imperial British East Africa Company.

Development is but another name for imperialism.

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David Ndii

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

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Shopping Mall Economics: A note on the value of the Kenya shilling

What does a recent spat between the IMF and the Central Bank’s Prof Patrick Njoroge, himself a veteran of the Fund, tell us about the state of the Kenya shilling? By DAVID NDII.

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Shopping Mall Economics: A note on the value of the Kenya shilling

Is the Kenya shilling overvalued or not? According to the IMF it is currently overvalued by 17 percent. In an unusually combative response to his former employer the Central Bank governor says that is only off-kilter by 5 percent and accuses the IMF of making Kenya a “guinea pig in its new approach.” The offensive claim, contained in the IMF’s latest report on the country dated October 2018, states as follows:

“The EBA-lite methodology for the exchange rate suggests that the external position is weaker than fundamentals. The current account approach shows that the current account deficit (both actual and cyclically adjusted) are above the norm (the CA gap is -2.5 percent), suggesting an overvaluation of about 17.5 percent of the real exchange rate. This can only marginally be explained by the policy gap. The REER approach also shows a similar-size of overvaluation, equivalent to about 18.0 percent. Again, the policy gap is marginal. Given the continued appreciation of the real exchange rate, the external position is assessed to be weaker than fundamentals. Regarding the last approach, the external sustainability approach, it was not possible to use it as the international investment position data is not yet produced by the authorities.”

This needs a fair amount of disambiguation. EBA is a needless acronym that stands for external balance approach for exchange rate assessment. The methodology is described in an IMF paper published in 2013 as an update of a previous methodology known as CGER. CGER is another needless acronym for consultative group for exchange rate assessment. This EBA thing appears to be what the CBK governor is referring to as a new approach.

The methodological spat is a red herring. Economic models are tools, not oracles. What we have here is workmen quarrelling over tools. Our top three economic mandarins are former IMF staffers. Surely, they can sit together with their colleagues and their models and converge on an assessment as to whether the shilling is overvalued or not?

The IMF refers to three methodologies: the Real Effective Exchange Rate (REER), the current account and external sustainability approach. Of the three, the REER is the most intuitively understandable and also the one for which we have data. But what is this animal the REER?

The methodological spat is a red herring. Economic models are tools, not oracles. What we have here is workmen quarrelling over tools. Our top three economic mandarins are former IMF staffers. Surely, they can sit together with their colleagues and their models and converge on an assessment as to whether the shilling is overvalued or not?

Suppose bananas are retailing at KSh 100 shillings a bunch in Kenya. The Kenya/Uganda shilling exchange rate is one to ten. At this exchange rate and banana price, 20 percent of bananas are coming from Uganda. Suppose price of Kenyan bananas goes up to KSh 125 a bunch (e.g. because of increase in taxes), and exchange rate remains the same. Ugandans can continue to sell bananas in Kenya profitably at KSh 100 while many Kenyan producers cannot. In fact, Ugandans are likely to hike their price to let us say KSh.110 making Kenya an even more profitable market than their home market. Uganda bananas will flood the market and put Kenyan producers who are not profitable at Ksh. 110 out of the banana business. For the market to remain at the old equilibrium (i.e. 20/80 Uganda/Kenya market share) requires Kenya shilling to fetch USh. 8.00 so that to get USh. 1000 as before, the Ugandans will also have to sell their bananas at KSh125.

Its readily apparent that if our domestic prices go up faster than those of our trading partners, then foreign goods will keep becoming cheaper. But you cannot tell by just looking at the dollar shilling exchange rate. We need to factor in the price movements with every trading partner. The REER is an index that combines the relative exchange rate and price movements of all our trading partners.

If the REER is rising our goods are becoming more expensive. We can expect to import more and export less. If this happens our trade deficit will widen. If the trade deficit continues to widen, we run the risk of defaulting on our international obligations in particular debt service and repatriation of profits and capital. This is where the IMF comes in. The IMF’s mandate is to maintain international financial stability. The IMF is a financial cooperative whose job it is to ensure members do not run into external payments difficulties, and to bail them out when they do, in order to keep global finance and commerce going.

The spat between the IMF and the CBK is therefore about our external creditworthiness. The key indicator for this is the current account balance. The current account balance has two components: trade and income. The trade account I have already mentioned. The income account consists of payments for “factor services” such as interest (use of capital), payments for services of Kenyan troops abroad (labour services) and another component we call unrequited transfers (meaning money we have not earned) such as diaspora remittances and grants. The external account in turn, has a third component, the capital account where, as the name suggest, we record investment transactions.

The spat between the IMF and the CBK is…about our external creditworthiness. The key indicator for this is the current account balance.

This is how it works. Kenya Airways buys an aircraft using a foreign loan. The aircraft is entered in the trade account as an import and simultaneously in the capital account as a capital inflow. The following day it ferries passengers from Lagos to Dubai. The income is recorded in the trade account as a service export. At the end of the month it remits repayment on the loan. The interest is recorded in the income account as a factor service payment and the principal is in the capital account as a capital outflow.

The net of the current account and the capital account are added together to give the overall balance. An increasing overall deficit depletes foreign reserves, while a surplus leads to a build up of reserves. Current account surpluses mean that a country’s savings exceed its investment; it can, therefore, export capital, like China. A current account deficit means that a country is investing more than its savings, in other words, it is importing capital (either debt, FDI, remittances, grants etc).

Chart 1

The country’s creditworthiness thus depends not just on trade but also on other financial flows, that are determined by factors other than trade competitiveness, both economic and non-economic. Complicated stuff.

Both the IMF and CBK agree that the shilling has appreciated, but they disagree on the magnitude. The IMF also implies that the appreciation is a reflection of policy action while the CBK maintains that it is a reflection of market forces. The IMF view translates to accusing the CBK of misleading the public by espousing a monetary policy that claims to target inflation, while in practice it is actually targeting the exchange rate. The IMF’s “smoking gun” is the fact that the NEER has flatlined for the past six years (see Chart).

Recently the IMF re-classified the Kenya shilling from a “floating” (meaning market determined) to “other managed arrangement.” This means the IMF is convinced that the Central Bank is propping up the shilling. What reason would the Central Bank prop up the shilling especially if it undermines the country’s competitiveness and solvency?

Foreign currency debt exposure is one reason. The interest payments on the first Eurobonds issued in 2015 ($185 million a year) has increased by KSh 3 billion, KSh 16 billion to KSh 19 billion on account of the depreciation of the shilling. Translate that to the total interest payments this year which are in the order of $1.4 billion dollars. The shilling has weakened by about three shillings to the dollar since the beginning of the financial year. This translates to a KSh 4 billion squeeze on a government that is already living way beyond its means. The last thing the Treasury wants to hear is that the shilling should be trading at about 120 to the dollar.

Recently the IMF re-classified the Kenya shilling from a “floating” (meaning market determined) to “other managed arrangement.” This means the IMF is convinced that the Central Bank is propping up the shilling. What reason would the Central Bank prop up the shilling especially if it undermines the country’s competitiveness and solvency?

Another reason is pressure to keep low interest rates. Interest rate is the policy instrument in an inflation-targeting monetary policy regime such as we claim to have. Central Banks are given statutory independence to insulate them from such pressure so that they can raise interest rates when they need to, even when it is politically costly for the government. But that does not make Central Banks immune from the pressure to accommodate political objectives of the government of the day. Parliament’s capping of interest rates two years ago is ample demonstration that political pressure on Central Banks is real.

Keeping interest rates artificially low puts pressure on the exchange rate. A weakening currency creates inflationary pressures, which is what the Central Banks are mandated to control in the first place. The Central Banks end up trying to meet incompatible objectives, low interest rates, low inflation and a stable currency.

This is precisely what happened from mid-2009 to September 2011. The Central Bank bent over backwards to accommodate the government’s economic stimulus meant to respond to both the post-election violence and the global financial crisis. Interests rate were driven to the floor. From mid-2010 to mid-2011 the benchmark 90-day Treasury bill rate was kept below 3 percent. The IMF’s charts show how this ended— with a very hard landing. The shilling which had been propped up at about 80 to the dollar, started unravelling in April peaking at KSh100 to the dollar in September. The Central Bank was forced to jack up interest rates in a hurry. By the end of 2011, the T-bill rate was heading to 20 percent.

The IMF seems to believe that, left to market forces, the shilling will depreciate in real terms. The IMF’s REER chart covers eight years, from 2010 to 2017. A longer timespan does not necessarily support this contention (see Chart). My chart goes back to the beginning of the liberalized regime in 1994. What do we see? The shilling has been appreciating in real terms since it was liberalized. Overall it has appreciated 157 percent, by 9 percent per year on average. This could mean that the Government has been propping up the shilling all these years, or that market forces are not working the way the IMF expects.

Chart 2

Many Kenyans have observed that we have become an importing country. One also hears policymakers lamenting that we are losing our markets in the region and blaming all manner of things. There is no mystery to it.

My [assessment is that] the shilling has been appreciating in real terms since it was liberalized. Overall it has appreciated 157 percent – by 9 percent per year on average. This could mean that the Government has been propping up the shilling all these years, or that market forces are not working the way the IMF expects.

But is the Central Bank propping up the shilling? That we cannot be able to tell that easily. There are lots of moving parts. It can also be on account of some trading partners manipulating their currencies: China, for example, is regularly accused of maintaining an artificially weak currency. China has a big weight in our REER and it’s been growing over time.

The ultimate question is whether it is sustainable. There are two parts to this, financial and economic. The widening trade deficit has been plugged by remittances and portfolio inflows (money flowing into the stock exchange and government securities), not all of it honest money, and lately, government commercial borrowing, the ubiquitous eurobonds and syndicated loans. As long as these keep flowing, the show can go on.

Why are we told the economy is growing and yet we cannot feel it? This is the shopping mall economy. How long can we keep that going?

The economics is a different story. It is not good for employment and equity. It is part of the answer to the question that Kenyans keep asking: why they are told the economy is growing and they are not feeling it. This is the shopping mall economy. How long can we keep that going? Your guess is as good as mine. Governments are known to manipulate currencies and to distort financial markets generally. The IMF is known to (a) have more faith in market forces than warranted and (b) get the workings of those market forces wrong. What to do?

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70 Years After the UN’s Declaration on Human Rights, the Struggle Continues Against Poverty, War, Disease – and Whistleblowers

The UN’s internal benchmark of success is the amount of money raised, not the successful execution of a programme. War and poverty remain necessary for the functioning of a system of phantom projects characterised by waste, mismanagement and corruption. And since the Iraq Oil-for-Food scandal of the early 2000s, in which billions went missing and the perpetrators scot-free, senior management has waged a silent war against its own whistleblowers. Who will police the world’s watchdog? By RASNA WARAH

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70 Years After the Un’s Declaration on Human Rights, the Struggle Continues Against Poverty, War, Disease - and Whistleblowers

The resignation last month of the Executive Director of the United Nations Environment Programme (UNEP), Erik Solheim, after an internal audit found that he had misused funds from the organisation, has been construed as a sign that the UN is serious about tackling wrongdoing within its ranks. However, this high-profile case should not distract us from the fact that waste, fraud and corruption are rarely punished in the UN system, and that the majority of offenders get away scot-free.

Solheim is accused of spending nearly half a million dollars on unnecessary travel within a period of less than two years. The audit showed that between May 2016 and March 2018 he spent 529 days travelling and only stayed in Nairobi, where UNEP has its headquarters, for about 20 per cent of the time.

Much of this travel was wasteful. For instance, in July 2016, he travelled to Paris for a one-day official meeting but decided to stay on in the French capital for a whole month (at taxpayers’ expense). In the following two months, he travelled for 42 days to 24 destinations. One official trip to Addis Ababa was routed through Oslo in his home country Norway, even though the Ethiopian capital is just a two-hour flight from Nairobi. The audit report also showed that Solheim was not the only culprit – other senior managers at UNEP have been accused of spending a whopping $58.5 million on travel alone over a two-year period – and this, from an organisation that advocates for the reduction in the use of fossil fuels.

Solheim is accused of spending nearly half a million dollars on unnecessary travel in less than two years. Between May 2016 and March 2018 he spent 529 days travelling and only stayed in Nairobi, where UNEP has its headquarters, for 20 percent of the time.

This blatant abuse of taxpayers’ money is not new at the UN and Solheim’s conduct is hardly unique. The differences between Solheim’s case and others are: one, his case managed to reach the internal investigation stage, which only happens when there is political will to carry out such an investigation; two, the findings of the investigation were made public, which is usually not the case; the case against him was strong because the trail of misused funds could be traced through flight and hotel bookings, which is not normally the case when deceptive UN managers make UN money disappear without a trace.

One common way of diverting or stealing funds in the UN is to create phantom projects. Let me give you a personal example. Sometime in 2009, my boss at the United Nations Human Settlements Programme (UN-Habitat) called me into his office to tell me that he urgently needed to spend $100,000 of donor money before the end of the year because if he didn’t, he’d have to return the funds to the donor country. So he appointed me to manage a $100,000 project that would result in a book on cities for which he said he would hire consultants from abroad to research and write such a book. The consultants (some of whom were friends of the boss’s boss) were hired and a phantom book project was created.

Two months later, the book project was “closed” (without my knowledge, yet I was supposedly heading the project) even though no manuscript or book had materialised. When I realised that the project was fake and that money may have been diverted to a personal project, I reported the matter to the project/funds manager (a junior officer, essentially a bookkeeper, who had no say in how money in the organisation was spent and who only followed the instructions of her bosses). There was no response and within hours of my email, the process of eliminating me from the organisation began. I suffered retaliation, threats of non-renewal of contract and a whole range of psychological warfare tactics that eventually made me leave the organisation. I realised then that I had inadvertently become a “whistleblower”.

One common way of diverting or stealing funds in the UN is to create phantom projects. Millions of dollars have disappeared from the UN’s coffers through such opaque practices, the fiddling of books, and even downright theft, but few of the culprits are reprimanded, fired or even identified.

When I eventually took UN-Habitat to task through the UN Ethics Office – which was created in response to the Oil-for-Food debacle in Iraq, and which is mandated to look into whistleblower cases – I was enmeshed in a labyrinth of doublespeak and obfuscation that convinced me that the UN Ethics Office was created to muzzle and suppress whistleblowers so that the UN’s reputation would not be tarnished. I got no support from the office; on the contrary, I was told, both by the Ethics Office and UN-Habitat’s senior bosses, that the whole thing was a figment of my imagination. I have had to live with that “gaslighting” humiliation for the last nine years.

Millions of dollars have disappeared from the UN’s coffers through such opaque practices, the fiddling of books, and even downright theft, but few of the culprits are reprimanded, fired or even identified. (Even Solheim was allowed to quietly resign.) On the contrary, whistleblowers find themselves out of a job or demoted.

For instance, senior UN officials implicated in the scandalous UN Oil-for-Food Programme in Iraq are still walking around freely, enjoying their UN perks and benefits. A 2005 investigation led by Paul Volcker – who was appointed by the then UN Secretary-General Kofi Annan after a series of exposés about money being diverted from the programme appeared in the media – found that billions (yes, billions!) of dollars had been lost through a network that included Saddam Hussein, dubious foreign companies and individuals who paid bribes or received kickbacks to participate in the programme and UN employees who received bribes or chose to look the other way. Not one person identified as having fraudulently benefitted from the programme – it was supposed to help the Iraqi people cope with the sanctions imposed after Saddam invaded Kuwait – has been charged with this crime in any national court. (Saddam Hussein was eventually tried and executed by a kangaroo court, not for diverting funds from the programme, but for crimes he had committed against the Iraqi people.)

Meanwhile, the UN simply noted the findings of the Volcker investigation and UN member states continued with business as usual. Besides, by the time the findings of the Volcker investigation were made public, the United States and Britain, two of the five veto-holding powers in the UN Security Council, were embroiled in an illegal war in Iraq, which diverted the public’s attention from one of the biggest scams the world has ever witnessed.

The Oil-for-Food Programme put a huge dent in the UN’s reputation because of the scale of the theft, but this particular UN-managed initiative only got exposed because there were people within the organisation, such as Michael Soussan, author of Backstabbing for Beginners, and Rehan Mullick, a database manager, who were willing to blow the whistle on wrongdoing within the programme. Many smaller-scale thefts are taking place every day under the noses of UN bosses, and sometimes with their collusion.

The reason why such thefts and cover-ups are so common in the UN is that UN agencies are often deliberately vague about how they spend their money. A NORAD-commissioned investigation in 2011 found that most of the UN agencies surveyed had difficulty explaining where their money had gone or to which specific projects, and that information about expenditure was either limited or fragmented.

The Oil-for-Food Programme put a huge dent in the UN’s reputation because of the scale of the theft, but this particular UN-managed initiative only got exposed because there were people within the organisation, who were willing to blow the whistle on wrongdoing within the programme. Many smaller-scale thefts are taking place every day under the noses of UN bosses, and sometimes with their collusion.

When internal investigations are carried out, it usually means that things have gone out of hand (or that enough people in the organisation are pissed off and are complaining), which is what happened with Solheim at UNEP and also at the UN’s refugee agency in Uganda recently. An internal audit of UNHCR’s operations in Uganda found that the agency wasted tens of millions of dollars in 2017 by overpaying for goods and services, awarding major contracts improperly and failing to prevent fraud and waste. In addition, thousands of blankets, wheelbarrows and solar lamps meant for South Sudanese refugees went missing. The UN agency also entered into inappropriate arrangements with Ugandan government officials. For instance, it paid the Office of the Prime Minister $320,000, ostensibly to buy a plot of land to expand the government’s refugee-handling capacity; yet the Office of the Prime Minister could not produce a title deed to prove ownership and the land is now being used as a parking lot.

Part of the problem is that UN agencies are expected to monitor, evaluate and audit their own programmes and projects – the poacher as game-keeper. Donors to the UN expect the global body to report on the the projects they fund. This is problematic because it means that UN agencies can easily manipulate their monitoring and evaluation reports to suit their own agendas, needs and funding requirements. Besides, success is often measured by how much money was raised and spent, not on whether the project achieved its goals. There is, therefore, a desire to spend large amounts of money in the quickest way possible – even if it means travelling first class to a vague conference in a distant part of the world.

An internal audit of UNHCR’s operations in Uganda found that the agency wasted tens of millions of dollars in 2017…Thousands of blankets, wheelbarrows and solar lamps meant for South Sudanese refugees went missing. The UN agency paid the Office of the Prime Minister $320,000 to buy a plot of land to expand the government’s refugee-handling capacity. Yet the Prime Minister’s office could not produce the title deed to prove ownership. The plot is now a parking lot.

Moreover, a project is not “closed” because it was successful (which should be the ultimate aim of any project); rather, it remains “ongoing” even when the situation on the ground has changed (which explains why there are still UN peacekeepers in Haiti even though the civil conflict there ended years ago). No one wants to know how many people’s lives improved significantly as a result of the project or why the crisis that led to the project keeps recurring.

This explains why, year after year, the UN fabricates or exaggerates a humanitarian crisis in some part of the world. A few years ago it was Somalia; today it is Yemen. No one wonders why, if the UN has been so successful in stemming the scourge of war around the world the refugee crisis today is bigger than it was when the UN was established. To avert a humanitarian crisis in Yemen, would it not have been wiser to sanction Saudi Arabia for going to war with Yemen or to sanction the United States, the main supplier of arms to Saudi Arabia?

But these are the uncomfortable questions that UN bureaucrats – and the power wielders at the UN Security Council – do not worry too much about as they travel in luxury around the world to some god-forsaken country whose people will never be lifted out of misery because the UN will not have it any other way: too many UN jobs depend on people remaining poor, hungry and homeless.

What can be done to reverse this situation? Well, for starters, as the world celebrates the 70th anniversary of the Universal Declaration of Human rights on 10 December, there has to be an honest discussion about whether the UN has fulfilled its mandate of promoting peace, human rights and development around the world. A scorecard would indicate success in some areas (e.g. smallpox eradication and child vaccination programmes) but dismal failures in others (e.g. wars in Iraq, Syria and Yemen and genocides in Rwanda and Srebrenica). If the UN cannot prevent wars and suffering, then what is its purpose?

As the world celebrates the 70th anniversary of the Universal Declaration of Human rights on 10 December, there has to be an honest discussion about whether the UN has fulfilled its mandate of promoting peace, human rights and development around the world.

Secondly, we need to democratise the UN Security Council, which is currently the bastion of only five veto-holding countries – the United States, Britain, France, China and Russia – which also happen to be the world’s leading weapons manufacturers and suppliers and who, therefore, have a vested interest in conflicts outside their borders. These countries decide which countries can go to war and which can’t (which is why no sanctions were imposed on the United States and Britain when they went to war in Iraq). All permanent members of the UN Security Council should have an equal say in matters concerning global security, and should be working towards preventing wars, not starting them.

We need to democratise the UN Security Council, which is currently the bastion of only five veto-holding countries, which also happen to be the world’s leading weapons manufacturers and suppliers and who, therefore, have a vested interest in conflicts outside their borders.

Thirdly, the UN’s internal oversight system needs to be overhauled. The UN’s internal justice systems, including the UN Ethics Office, should be abolished in favour of an external, independent mechanism that can provide the checks and balances that the UN so desperately needs. This mechanism, possibly in the form of a tribunal, would also allow UN whistleblowers to present their cases without fear of retaliation. Such a mechanism would, hopefully, also permit perpetrators of crimes committed by UN personnel to be brought to justice in national courts, rather than the current system that gives immunity to UN employees implicated in crimes and wrongdoing (which means they cannot be tried in any court, not even in their own country).

The UN cannot – and should not be allowed to – police itself. Given all the scandals at the UN, I think it is time an independent entity be entrusted with the responsibility of watching the world’s watchdog.

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Fake It till You Make It Nations and Bling Bling Economics: Debt, Dictatorship and Underdevelopment

Once upon a time, financial recklessness was the preserve of resource-rich nations. Now, resource-poor African nations, their thoughtless leaders seduced into taking printed money circulated by the US Federal Reserve after the global financial crisis a decade ago, have become the new sultanates of debt distress. DAVID NDII ponders a different path.

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Fake It till You Make It Nations and Bling Bling Economics: Debt, Dictatorship and Underdevelopment

Not too long ago, Angola opened an embassy in Nairobi on a quite well-appointed address on Redhill Road in the diplomatic suburb of Gigiri, a road I use frequently. You couldn’t miss it. It had an outlandish gate and a black granite signboard with gold lettering. I was rather intrigued that Angola would need such a large embassy in Kenya. I have made a point of observing how much activity was going on there— very little. I passed there the other day and lo and behold, the outlandish gold lettered black granite signboard was gone, replaced by a more modest one announcing the Botswana High Commission. The Angolan foray would have cost no less than $10 million, and I would imagine that Kenya was not the only country that Angola had spread its diplomatic footprint. What has changed?

Angola has squandered the oil bonanza of the last decade. Angola is Africa’s second-biggest oil producer after Nigeria, with a daily output of 1.6 million barrels of crude and 18 million cubic metres of natural gas. There is an economic principle that windfall earnings should be saved. Angola did not save. Instead, it leveraged the oil boom to pile up debt. Angola is China’s biggest debtor in Africa, owing US$ 23 billion accounting for about a fifth of Africa’s debt to China.

If Angola had set a windfall benchmark at $50 per barrel, its nest egg for the five and a half year oil boom (April 2009 to May 2014) would have been in the order of $100 billion on crude oil alone ie. excluding natural gas. A conservative investment yielding 5 percent a year would be earning Angola $5 billion a year to invest in infrastructure or whatever else it chooses. This is how Norway got rich on oil. Norway’s sovereign wealth fund, the worlds largest, is now worth a trillion dollars. If Norway was to pay dividends from the fund to its 5.2 million citizens, each would get US$9,000 a year.

There is an economic principle that windfall earnings should be saved. Angola did not save. Instead it leveraged the oil boom to pile up debt. If Angola had set a benchmark of $50 per barrel of petroleum, its windfall for the five and a half year oil boom (April 2009 to May 2014) would have been in the order of $100 billion on crude oil alone… A conservative investment yielding 5 percent a year would be earning Angola $5 billion a year to invest in infrastructure or whatever else it chooses.

They say once bitten twice shy. Not Zambia. When I was a college student eons ago, Zambia was a case study on how not to manage an economy. Zambia rode the post independence commodity boom into middle income status by the early seventies. At $600, Zambia’s income per person was one-third higher than the Sub-sahara Africa average. In Nairobi, Zambia’s heydays are represented by its well-appointed embassy property on Nyerere Road, overlooking Uhuru Park. When commodity prices receded from the late seventies, Zambia plugged its finances by borrowing – and borrowed itself into poverty. Over the next decade, Zambia’s foreign debt increased seven-fold, from one to seven billion dollars. By the mid-90s when it got HIPC (Highly Indebted Poor Countries) debt relief, average income adjusted for inflation was half of the mid-1970s level.

Zambia rode the post independence commodity boom into middle income status by the early seventies. When commodity prices receded from the late 1970s, Zambia plugged its finances by borrowing – and borrowed itself into poverty.

Copper prices surged again in the 2000s peaking in 2011 at $4.60 a pound, about the same in inflation-adjusted terms, as at the 1970s peak. In 2012, against the backdrop of retreating copper prices, Zambia debuted in the Eurobond market, borrowing $750 million. It also borrowed heavily from China. Copper prices have fallen again and Zambia is in debt distress. The eurobonds are now trading at around15 percent yield, almost three times the debut bonds 5.6 percent yield at issue. What this means is that the bonds for which investors paid $94 are now trading at $34. It means that Zambia is now effectively locked out of any more borrowing in the sovereign bond market. Will Zambia turn around its finances before the bonds are due for re-financing? Doubtful.

Zambia is only slightly less dependent on copper now than it was in the 1970s. Copper still accounts for two-thirds of exports. Zambia has no shortage of low-hanging fruit in terms of diversification options: it has plenty of idle arable land and underexploited tourism potential. Chile was once as copper dependent as Zambia. In fact, copper still accounts for half of Chile’s exports. But Chile has diversified its economy and worked its way up to being the first Latin American country to be admitted to the OECD club of rich countries. Interestingly, Chile has become a wealthy country without following the Asian Tiger holy grail of export manufacturing, but rather by diversifying to services and agricultural exports. Its other key exports are agricultural including horticulture, wine and fish, especially farmed salmon.

Chile was once as copper dependent as Zambia. Copper still accounts for half of Chile’s exports. But Chile has diversified its economy and worked its way up to being the first Latin American country to be admitted to the OECD club of rich countries. Interestingly, Chile has become a wealthy country without following the Asian Tiger holy grail of export manufacturing, but rather by diversifying to services and agricultural exports.

Historically, financial recklessness on this scale was the preserve of resource-rich African countries. But the disease has spread all over the continent. Resource-poor countries such as Ethiopia and Kenya are now just as reckless as the resource-cursed. In the past, resource-poor countries simply did not have access to the money to steal or finance megalomania. When they tried to do so by domestic borrowing and printing money, the macroeconomic feedback loop quickly kicked in and wreaked financial havoc. Moi learned this lesson. Mugabe did not. He ended up with a hyperinflation for the ages, and the demise of the Zimbabwe dollar.

There are two reasons why resource-poor countries have also caught the disease: the 2008 global financial crisis, and China.

Since the global financial crisis, which began in 2007 and properly set in the next year, the financial markets have been awash with money churned out by the US Federal Reserve and other central banks, thereby depressing interest rates to near zero, prompting money managers to go looking for better returns in emerging markets in what is known in market lingo as “hunting for yield”. Aggressive salesmen were everywhere scouting for and massaging the egos of potential borrowers. When Kenya set out to debut in the Eurobond market it indicated that it would raise a $500m “benchmarking” bond whose proceeds were to retire a syndicated bank loan borrowed two years before, and which was the only foreign loan in Kenya’s books at the time. By the time the issue was going to the market, it had grown fourfold to $2 billion. By the time it closed, the government had borrowed $2.8 billion.

Within weeks of the successful debut, the treasury mandarins were talking of Sukuks (Islamic bonds) and Samurais (Japanese Yen denominated bonds), like children accidentally locked inside an ice cream parlour. Other than the syndicated loan repayment of $600 million there is no trace of anything financed with the money.

Since the global financial crisis, the financial markets have been awash with money churned out by the US Federal Reserve and other central banks, thereby depressing interest rates to near zero, prompting money managers to go looking for better returns in emerging markets. Aggressive salesmen were everywhere scouting for and massaging the egos of potential borrowers. Africa Rising.

China is getting more than its fair share of flak for Africa’s debt distress. The fear of the Dragon is over the top. Unlike the Western banks and markets which are embedded in the Western power structure, China will have little recourse when countries default. It cannot run them through the mill we saw “the troika” run Greece when it went into debt-distress in 2009. The head of China Export and Credit Insurance Corporation, known as Sinosure was recently quoted lamenting the poor quality of China’s infrastructure loans abroad. He went on to disclose that the agency is already a billion dollars out of pocket on Ethiopia’s new railway, whose preparation he termed “downright inadequate”. “Ethiopia’s planning capabilities are lacking, but even with the help of Sinosure and the lending Chinese bank it was still insufficient.”

It has also been reported that China may offload its infrastructure loans to the secondary market. The plan is to sell the loans to the Hong Kong Mortgage Corporation which will in turn repackage them, dice them up and sell them to investors, thereby releasing liquidity back to the primary lenders such as China Exim Bank to make more loans.   This is not funny. First, the lenders admit that they have made dud loans. Then they follow this with an announcement that they will sell the same to investors. It is a scheme such as this, which mixed up low risk and high risk (a.k.a sub-prime) mortgage loans into securities known as Collateralized Debt Obligations (CDOs) that precipitated the erstwhile mentioned global financial crisis. More poignantly, the Dragons debt trap diplomacy as it’s been called, begins to look uncannily like hunting for yield.

That is the supply side. On the demand side, you have African leaders who have no ideas of their own. From import substitution industrialization, to neoliberal orthodoxy in the 80s, to poverty reduction strategies and now infrastructure-led growth, they wander thoughtlessly from one aid paradigm to the next, all the while living up to Fanon’s prediction that they were destined to become “a transmission line between the nation and capitalism.”

The bigger problem is delusions of grandeur. Seemingly every one of these African big men has a Lee Kwan Yew complex. Even Uhuru Kenyatta, a man who couldn’t run an orderly kindergarten in a children’s park if his life depended on it, is prone to bouts of megalomania during which he comically dons military fatigues and goes around doing General Park Chung-hee skits.

On the demand side, you have African leaders who have no ideas of their own. From import substitution industrialization, to neoliberal orthodoxy in the 80s, to poverty reduction strategies and now infrastructure-led growth, they wander thoughtlessly from one aid paradigm to the next, all the while living up to Fanon’s prediction that they were destined to become “a transmission line between the nation and capitalism.

Africa has its economically successful nations: Botswana, Namibia, Mauritius, Cape Verde and the Seychelles. What do these successful African nations have in common? First, they are all small. Three of them are small island nations. Namibia is large geographically, but its population is only 2.5 million people. Second, they are also successful democracies. The five are consistently the highest ranked African countries in democracy league tables such as the Economist’s Democracy Index and the Freedom House Index.

Why are Africa’s small countries more politically and economically successful than the big ones?

Size matters. It is easier to build a small nation than a big one. Small islands are natural nations, hence it should not surprise that all the small island nations are successful. Madagascar is Africa’s sole big island nation, and it is not successful at all.

The big African countries are almost invariably very ethnically diverse. Recently, someone on social media asked me why benevolent dictatorship cannot work in Africa the way it worked in South Korea. My answer was a question: what tribe will the dictator be? He has not responded. Proponents of developmental autocracies fail to recognize that the East Asian countries are old nations, not the arbitrary colonial creations that African countries are. Korea is a culturally homogenous society with unified dynastic rule going back to 900 AD, and a political history, known as the Three Kingdoms, going back another millennium. The Thai Kingdom dates back 700 years.

Proponents of developmental autocracies fail to recognize that the East Asian countries are old nations, not the arbitrary colonial creations that African countries are. Korea is a culturally homogenous society with unified dynastic rule going back to 900 AD, and a political history, known as the Three Kingdoms, going back another millennium. The Thai Kingdom dates back 700 years.

Ethiopia is Africa’s oldest nation-state, and the only one that is not a colonial creation. It is also one of the largest and most diverse(100 million people, over 80 officially recognized ethnic groups). After the Derg’s reign of terror, Ethiopians adopted a constitution based on a loose ethnic federation. But Meles Zenawi could not resist the allure of the developmental autocrat. He borrowed and built like a man possessed but the economic miracle did not materialize, and Ethiopians, tired of autocracy without prosperity, took to the streets. The edifice has unravelled. The leadership is coming to terms with a historical fact that the rest will be reckoning with sooner or later: political development precedes prosperity.

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