Distorted markets and government guarantees

Individuals and firms engage in constant decision-making, weighing the potential benefits of actions against the potential costs of those actions.

All over the world, those individuals and firms lobby governments (through fair means and foul) to distort the markets so as to lower their risks and guaranteee their benefits. If the government does this for everybody, then by definition it has done it for nobody, so a scenario is created where risks are passed on to individuals and groups with less influence (in the immediate, ultra-short-term moment when a government interested in survival and self-perpetuation makes a decision) and where guaranteed benefits are created by sucking welfare from said less-influential groups and giving it on a silver platter to those with the requisite influence. The most popular governments are usually those who are able to externalize the negatives of distortion to individuals/groups outside their country (i.e. to foreigners), while keeping the benefits of distortion within their countries' borders.

It happens everywhere in the world.

The African variant is particularly insidious though.

There is a lot of talk about how "Africa" is "poor".

The thing is, the African economies do what they are supposed to do ... what they were designed to do. Its just that what they were designed to do has nothing to do with the overall economic progress of entire societies.

African economies are very good at producing the commodities the global market needs from Africa. Unfortunately those same economies are rubbish at producing commodities needed in the African internal market. If the world market needs flash-frozen, cut flowers (or tobacco or coffee or tea), agricultural producers in Kenya (for example) will churn the product out by the tonne .... even as people in the Eastern African sub-region starve and seek international "aid" because food production is insufficient.

Mind you, I don't have a problem with trade, except the commodities we trade are not valuable enough to bring back enough money to pay for food imports. Simple opportunity cost would suggest we direct our investment and production decisions elsewhere ....

.... except the people in charge of economic and political decision-making (some of whom are African, some of whom are not) make very big personal, corporate and other economic profits out of the system as it current exists, so they are under no particular economic pressure to change anything about the structure of our economies.

Some of the world's biggest rates of return on investment are earned in Africa, "the world's poorest continent". People and firms are making money. Lots of it. They control the political and economic levers, and from their perspective, there is nothing wrong with what is happening. Seriously, who wants to compete in a rational economic environment when you make money hand-over-fist in an irrational one?

The people who suffer the negative outcomes of Africa's economic structure are the people with the least power to influence economic decision-making and political policy-making. Frankly, foreign governments, foreign corporations, foreign media giants, foreign "experts" and foreign "multilateral agencies" have far more influence on policy-making and investment decisions in Africa than most actual Africans. And I am not talking about the organic, mutual influence that comes from interaction in a global system of trade; professional lobbyists only dream of the kind of influence on policy-making wielded over African governments by their foreign "development partners".

Within our countries, the Big Men and Women, captains of the commanding heights, lords and ladies of power and property, are more keen to work hand-in-hand with their foreign "development partners". They want good foreign publicity. They want to be seen as good friends by the world's superpowers and middle powers.

And they make profits too. "Poor" Africa has its fair share of wealthy plutocrats, many of whom have specialized in economic activities that are only relevant in an Africa with a dysfunctional economy and irrational patterns of production and trade. Change frightens them. "Stability" is their watchword.

Mind you, I don't blame any of them (local or foreign) and I am not angry at them. If we choose to sit down and watch while everyone makes decisions over our heads, then they are going to take advantage of free ride we are giving them.

Most of our countries are not "democratic" in any substantive sense; and if a democracy is a de facto one-party state, like South Africa and Botswana, where a ruling party (like the African National Congress or the Botswana Democratic Party) can never lose an election, the country becomes an oligarchy, where an elite within the ruling party make all the decisions and the people's only role is to robotically indicate their acquiescence every so often. There is no choice; just the continuation of yesterday into today and today into tomorrow, no anticipation, no expectation, no innovation and no rejuvenation of ideas. I don't care how good you think you are; eventually every light bulb goes out.

But all that is a long conversation we will save for another day.

Let me say though that I am always very wary of announcements of "incentives" for "investors". Nigeria (and Africa) have been giving these incentives for decades, and all we have managed to do is cement the dysfunctionality of our production and trading patterns. Our political leaders and economic plutocrats nevertheless welcome such deals; it adds more pie filling to their crust. Our foreign trading partners insist on these incentives too, sometimes directly, sometimes through the IMF and World Bank, and sometimes we hear it from the "intellectuals" and "academics" whose advice over the decades has spawned a new branch of scholastic inquiry viz: "What is wrong with Africa?" It never seems to occur to anyone that perhaps the "wise" advice they give Africa is the source of the "problem with Africa".

Before we start giving out fat incentives for people to do things, why don't we first come to some kind of conclusion as to what we want to (or have to) encourage, what we can (or should) do without. And I mean this in the sense of completely revamping and restructuring patterns of production and trade within in Africa first and foremost before then answering the question of how this transformed Africa will trade with the rest of the world.

The United States introduced a policy called the African Growth and Opportunity Act. To take advantage of the AGOA, Namibia and Uganda offered massive incentives (relative to their respective budgets) to foreign firms to produce textiles in their countries. The truth is, so long as Africa remained Africa (particularly in terms of infrastructure, but in other ways as well), while China remained China (complete with subsidies, undervalued currency, etc) these incentives were never going to change an underlying economic truth -- a truth that has seen Africa's own indigenous textile industry crushed under the weight of second-hand clothing from the West and cheap imports from China. Both countries lost enormous amounts of money they couldn't afford.

As for AGOA, like every other trade agreement African countries have ever signed, it simply facilitated the export of the same commodities that the global market would have bought from Africa even without AGOA. Indeed, the number one African export under AGOA has been crude oil, and the two biggest "beneficiaries" have been Nigeria and Angola. These agreements and deals never alter the fundamentally irrational nature of African production systems and trading patterns, and it would be stupid of us to continue to abdicate our own responsibilities while deceiving ourselves into thinking the rest of the world will somehow lead us out of the dark if we cede all decision-making power to local Big Men and their foreign "development partners".

While I am on the subject, do you realize that if we were actually in a position to take real advantage of the European Union's "Everything But Arms" initiative, they never would have offered the initiative? It is easy to make such magnanimous offers to people who are in no position to do anything except continue the old pseudo-colonial patterns of trade. In the meantime, China, the United States, Japan, Germany, Brazil and others continue to dominate the European markets that were supposedly opened to us by the initiative.

Understand this: The breakthrough African countries need is in their trade with each other! This trade should breakdown irrational systems of production and consumption, and replace them with something economically logical. These internal changes are what will affect and change our external trading patterns in the long-run.

I am not saying our many incentive programmes don't work. On the contrary, they mostly work very well, except "success" in this case generally means sustaining the irrational economy of the continent and stymieing the chances of transformational economic investment. You've heard that government crowds out the private sector? Well an irrational private sector crowds out rationality. Indeed, as long as Nigerian banks prefer cheap, unproductive ways of making quick money, the Nigerian economy will be unable to count on its financial sector to be as worthwhile a foundation as it can be.

You still think I exaggerate? Blame that on acculturation. There are still millions of Nigerians who think it was wise to give out a lump sum of $12 billion in exchange for "debt cancellation", rather than use that $12 billion to add 12,000 megawatts of electricity to the national grid. Actually, speaking of "incentives", with $12 billion in public funds you could leverage private sector funding to raise the overal electricity pot as much as $24 billion (50% government ownership) to $36 billion (33%) in total.

Electricity is not the only productive investment we could have made with that capital, nor would we have had to pump the entire $12 billion into a single infrastructural investment. You could use $6 billion to leverage $12 billion total for electricity, and use the other $6 billion to leverage investment in .... well, you make the call.

The gains of such investment to the economy, would more than offset the measly $1 billion in annual interest payments we supposedly saved ... supposedly because our public debt is back up again, and our interest payments have commensurately risen to wipe out the so-called "savings". Add to this the fact that the mini-Oil-Boom of the 2000s has dissipated, and that our three tiers of government are running deficits and running up debts, and that the Central Bank under Soludo first and then Sanusi have had to expend our foreign reserves to defend the Nigeria and bail out ailing banks, and the fact that ....

.... well, lets just say that the days of having a spare $12 billion which we could use for electricity (or some other productive endeavor) or choose to waste are now gone.

And we still have no conception of what an undistorted African economy would look like, no intellectual foundation from which to start to build the new economy, no framework to guide our decision-making so we know what are priorities and what are things we need to give up.