The Fate of AGOA

On May 18th, the US and 39 sub-Saharan African countries will celebrate the 17th anniversary of the African Growth and Opportunity Act (AGOA), the “cornerstone of the trade and investment relationship between the United States and sub-Saharan Africa”. This act has been subject to debate over the years. Is it effective? Should the requirements for African nations be more stringent? Does it invite too much investment in oil exports? This year, a new question has surfaced: Will it be favorable to the Trump administration? President Trump’s recent rejection of the Trans-Pacific Partnership (TPP) and broader platform favoring bilateral agreements have created uncertainty for existing partnerships, including AGOA.

Overview of AGOA  

AGOA was signed by President Clinton in 2000, with the objective of bolstering trade between the U.S. and sub-Saharan Africa. Since then it has been considered the “cornerstone of trade policy” between the U.S. and Africa. There are currently 38 beneficiaries of AGOA, which are able to import 6,500 different products into the U.S. duty-free. Each country benefits differently. Nigeria alone accounted for 32% of AGOA trade in 2013, but other smaller nations and industries are scaling up to tap into U.S. markets. Throughout its implementation, there have been multiple reviews of the program. A performance overview was completed by the US Trade Representative in 2014, before President Obama led the U.S.-Africa Business Summit. Overall, they report that both the U.S. and Africa (as an aggregation of all beneficiaries) have benefitted from the partnership. The highest years for trade were 2008 and 2009, before the global slowdown resulting from the 2008 recession. Over time, a trade deficit (for the U.S.) has resulted, as more African industries tap into the benefits of duty-free exports. This report, and subsequent statements by African leaders, also highlight the existing challenges in the agreement. Most prominent among these are the rules of origin and product list.

Existing Challenges of AGOA

The existing Rules of Origin for AGOA state that a country must add 35 percent value to a good in the benefitting country for that good to enter U.S. markets tariff-free. This is a very high standard for smaller countries that may be producing one item in a large, global supply chain. As a result, one of the major criticisms of AGOA is the indirect manner that it incentivizes petroleum exports. Petroleum products, unlike manufactures, easily qualify under the Rules of Origin. Policymakers in the U.S. and Africa have been developing methods to mitigate this issue. The African Union’s “AGOA Forum” began in 2002, for nations to share ideas and strategies to bolster their industries and benefit from more duty-free products. Some countries have developed individual-country strategies, and favor industries—like textiles—that could qualify for AGOA with the construction of factories.

The U.S. has been partnering on diversification projects to diminish the rules of origin barrier.  USAID’s “Trade and Investment Hubs” were created to assist countries in Africa to organize themselves around AGOA. In certain countries, such as Kenya, AGOA has inspired the development of “Export Processing Zones” (EPZ) that build-up infant industries. Richard Kamajugo of TradeMark East Africa underlines the importance of these endeavors: “Repealing the Act would wipe out the EPZ sub-sector that employs about 40,000 Kenyans, and greatly reduce trade as textile and apparel products account for about 80 per cent of Kenya’s total exports to the US.” When renewal was being discussed, scholars suggested the rules of origin be adapted to encourage regional integration. For example, by stating that products could benefit from duty-free entry if a region—like East Africa—contributed 35 percent value to a good collectively, private companies and governments in the region would direct supply chains to include regional counterparts. This suggestion was never operationalized, but remains a leading idea for the 2025 renewal.  

The product list has also been a point of contention, and alternative strategies are not as flexible. While AGOA offers 6,500 products, many agricultural products that are essential to countries such as Tanzania—whose agricultural sector accounts for 80 percent of GDP— do not qualify. Sugar and groundnuts are at the top of this list, and remained excluded even after the renewal of the act. U.S. agricultural subsidies are rumored to be the underlying cause for exclusion of “import sensitive products,” defined as U.S. products that are “susceptible to competition from imports from other country suppliers”. Trade ministers of many AGOA beneficiary countries have lamented the exclusion of these products, but the US has not conceded.

Politics of AGOA

U.S.-African economic policy has been uncharacteristically bipartisan. President Bush quadrupled aid to Africa during his administration, and Obama has introduced specific initiatives such as PEPFAR, Power Africa, and Trade Africa throughout his two terms. When the AGOA renewal act passed Congress, it was attached to a larger act– the Trade Preferences Extension Act of 2015–which included Trade Adjustment Assistance (TAA) to mitigate the costs to workers affected by trade policies. Democrats had initially disputed the TAA on a stand-alone act, but with AGOA included, the Trade Preferences Extension Act of 2015 passed in the House of Representatives, 387-32 and Senate, 97-1.

With its highly bipartisan nature and remaining 8-year lifespan before renewal, policy analysts had minimal apprehension that AGOA would be questioned by the new Administration. However The New York Times recently obtained a list of “Africa-related questions” that were sent to experts at the State Department. One of the many inquiries included AGOA. The Administration asked: “Most of AGOA imports are petroleum products, with the benefits going to national oil companies, why do we support that massive benefit to corrupt regimes?” Analysts, such as Witney Schneidman of Brookings Institute, are now apprehensive about AGOA’s future. Schneidman contends “AGOA could easily be the first [trade] casualty under Trump.” Analysts, investors, policy-makers, and trade ministers alike are conspiring—what would the U.S.-Africa trade partnership look like without AGOA?

Impact if Ended

The impact of AGOA has exceeded the statistics of trade balances. Many government programs, private initiatives, and factories have been constructed around AGOA’s existence, since it creates demand for African imports in the U.S.  One of the largest socio-economic contributions has been the inclusion of women. Women have been employed in regions where they had minimal involvement in the formalized economy. The existence of AGOA also increased investor confidence in Africa, which has led to both public-private partnerships with government enterprises and greater amounts of foreign-direct investment (FDI).

If tariffs toward AGOA-qualifying products are re-instated, these smaller-scale industries like clothing factories will not be able to compete with large corporations. Some analysts believe that investors, who have observed the market potential in Africa through AGOA programming, will fill in the gap. Others contend that China or the European Union will offer trade promotion programs in the absence of AGOA. Regardless of this speculation, the objective evaluations of AGOA have demonstrated the positive effects of its implementation. Economies in Africa would survive in the absence of AGOA, but trust between the benefitting nations and the U.S. would undoubtedly deteriorate.

Conclusion

Policy-makers and representatives on both sides of the political aisle should vocalize their support for AGOA preemptively, before the fears of AGOA revocation materialize. Those benefiting from AGOA in Africa and supporting its implementation in the US should specify the unique qualities of this U.S-African partnership, so it will be evaluated alone. Lumping AGOA together with other seemingly ineffective trade policies would be a mistake. While AGOA may not be the long-term policy prescription that underlines all U.S.-African trade policy, its benefits have incited the creation of many industries across the continent.  The U.S. has undoubtedly benefitted from this multilateral partnership, especially in terms of economic growth and strengthened relationships with African governments. As we look forward to a more fair, growing global economy, Africa must be included; AGOA has facilitated the beginning of what could be a mutually prosperous future for the U.S. and sub-Saharan Africa alike.

Authoritarianism in Sub-Saharan Africa: Is Aid to Blame?

When examining the effects of bilateral or NGO aid in Africa, Ethiopia is perhaps one of the most interesting cases. The East-African state was never formally colonized, yet aid enabled the same outcomes as it did in previously colonized states. The causal or correlational (depending on the author) link between colonization and authoritarianism is a well-established theory of African politics. However, Ethiopia’s un-colonized history presents a new avenue to analyze authoritarian durability in African regimes. Given Ethiopian politics’ unique past but unfortunately common illiberal present, it is not so much the direct legacy of colonialism that continues to enable dictatorial rule, but rather the characteristics of the colony and colonizer relationship, and their contemporary manifestation in the form of aid that purports these regimes. This type of relationship is necessary to keep in mind when considering why aid flows from the United States to so many different countries. Is it purely altruistic? Or does bilateral aid hold a more harsh practical interest in mind? Tracing the flows of aid from the United States to Ethiopia demonstrates that the latter should be considered over the former.

Theoretical Background: Selectorate Theory

Selectorate Theory is a theory of politics that attempts to ascertain a scientific way of comprehending political relations, insofar as it classifies groups of actors and defines how they interact. The theory is best applied to authoritarian regimes, which, when they are durable and resistant to political change, possess a great understanding of how dictatorial politics function. Individuals living in these systems are organized into three categories: Essentials, Influentials, and Interchangeables. Essentials, such as generals or those who possess a large persuasive or coercive capability, are those whose support is absolutely integral for the leader; influentials, or, individuals in the governing bureaucracy or party members, are those who posses the ability to influence politics but are not necessarily the most important actors; and interchangeables constitute the general population, whose enthusiastic support may not be required at all for tenable rule. For illiberal regimes, it is most important to purchase the loyalties of those in the essential class. In order to obtain the loyalties of the essentials in the long-term, a constant source of money is required. One sensible way to maintain sources of money is to receive aid from foreign governments.

Aid given to developing states typically fails to meet its supposed goal because of the way illiberal regimes organize their population. The demands of authoritarian rule mean that aid is typically earmarked for embezzlement rather than for altruism. Donor states cognizantly play the role of patron in this dynamic, and thus bilateral aid should be viewed through the neo-colonialist lens, in that the inter-state relationship adopts colonial notions without the traditional colonizer-colony dynamic. In the same way that the European colonizers installed illiberal regimes to maintain control over their colonies, foreign aid is utilized by donor states to secure certain policies deemed favorable. This relationship inhibits democratization at the expense of supporting dictatorial regimes, and should thus be viewed as a colonial endeavor under the paradigm of colonialism.

Selectorate Theory, however, is not the only method for comprehending authoritarian regime durability in sub-Saharan Africa. Mamdani contests that either the tribal identities or anti-imperialist leaders facilitate democratic breakdown in Africa, while Ekeh suggests that the legacies of colonialism created two “publics”, wherein a civic and primordial public prevent state unity and breed illiberal rule. Although the theories posited by Ekeh and Mamdani may explain how different states initially developed authoritarianism, they fail to explain the durability of these regimes and why they continue to avoid democratization. Furthermore, Ethiopia, which had never been colonized, also failed to democratize. Given the common discourse on African politics’ failings to provide a general theory for the propensity and durability authoritarian politics in the region, Selectorate Theory’s call for a more scientific mode of analysis, that is, viewing African politics based on the mechanisms of authoritarian governance rather than through the guise of culture or other political currents, presents a possibility to understand why the un-colonized Ethiopia is as undemocratic as the former African colonies.

Haile Selassie: The Durable Dictator

Ethiopia’s case can be understood in much the same way as that of myriad other states, the corrupting influence of power. Ethiopian rulers viewed that the path toward development lay in the emulation of other successful states who themselves had utilized power to develop. The Ethiopian polity, or political class, viewed Europe’s ability to colonize Africa as a direct product of their military and economic power, and intended to follow suit. Thus, the acquisition and preservation of power defined the parameters of Ethiopian politics. Power, however, was predicated on the ability to secure the allegiances of the Essentials.

Ethiopia’s last emperor, Haile Selassie, ruled from 1930 until 1974, with only a brief interruption due to Italy’s attempted invasion. The Selassie regime was the last in a long line of emperors. Recognizing that a dictator’s true power rested in the hands of the Essentials, crucial aid supposedly destined for those suffering in the drought and famine of 1972 was re-appropriated for the Ethiopian government unless aid organizations paid a tax called for by vague regulations. When confronted, Selassie invented an excuse, claiming that it was in “accordance with the laws of nature” for drought and famine to strike, and that governmental action was unnecessary.. These were not the ravings of a selfish dictator, but rather the shrewd navigation of illiberal politics.

Selassie understood that he needed to continue to reward his essential backers, the high-level bureaucrats and military personnel of his regime. Ethiopia, however, was not a wealthy country, and thus Selassie viewed incoming aid as an opportunity to gain funding to continue to allocate resources to his supporters. Rather than allocating aid or letting proper aid utilization occur untaxed, Selassie saw this disaster as an opportunity to reaffirm his relationship over his essential backers. Selassie’s response to the drought and subsequent famine demonstrates one part of why bilateral aid tends to fail: illiberal regimes need to maintain their support structures, and aid is an easy way for a poor country to secure the necessary funding to do so.

Neo-Colonialism and Bilateral Aid

The flows of aid between the United States and Ethiopia, as well as the Soviet Union and Ethiopia, highlight the neo-colonial characteristics of bilateral aid. Bilateral aid, or, aid from one country given directly to another, is allocated to “deliver policies” that donor states want and the recipient regime needs. Throughout World War II and the Cold War, the United States allocated aid to various governments in order to secure anti-communist positions. Pro-American dictators could afford to maintain the loyalty of their Essentials, while the United States prevented new communist states from materializing.

In 1943, at the height of the American Lend-Lease program, in which the United States provided aid to states combating Axis powers during World War II, conversations between Selassie and Roosevelt grew increasingly more common, as Roosevelt sought an African ally and Selassie solicited aid with which he could re-allocate to his Essentials. In addition to aid under the Lend-Lease program, a 1951 trade agreement between the United States and Ethiopia guaranteed economic benefits in exchange for “amity”. In essence, aid from the United States provided the Selassie regime with funding to maintain its network of essential backers in exchange for a pro-American stance.

The Selassie regime fell, however, due to mismanagement of the political field as a result of record levels of inflation that left the already poor country poorer. Recall that Ethiopian politics was based on the accumulation of power. Power generally manifested as military support, and thus the military constituted most of Selassie’s essential backers. Ethiopia’s patron in the United States did not provide enough resources for Selassie to reaffirm his authority, and when Selassie failed to reassure the military during the inflationary crisis of 1974, low to mid level military bureaucrats and enlisted men deposed him in a revolution. The United States’ failure to supply their client state with enough funding to maintain the status quo facilitated The Derg’s ascendance.

After the Selassie era, the new regime, called The Derg, or, Committee, was a military Junta with a communist ideology. Selassie’s pro-American leanings ensured him consistent access to bilateral aid because he was willing to implement policies amenable to American interests. The Derg, on the other hand, marked a switch in Ethiopia to communism, the United States’ ideological antithesis. One of the Derg’s worst policies was the forced land nationalization. This policy abolished tenancy and nationalized all land at the same time, leaving peasants to enforce the new project. This policy caused massive famines, and was in fact a complete disaster. While these scenarios were playing out, aid from the United States sharply fell. The United States no longer felt that they had an ally in Ethiopia, and thus bilateral aid between the two countries during The Derg’s tenure became almost nonexistent. The Derg’s ultimate downfall came about as a result of the Soviet Union’s retreat from funding proxies and the refrain from ideological foreign policy under Soviet leader Gorbachev’s Perestroika and Glasnost reforms. Without support from The Derg’s communist patron in the Soviet Union, Ethiopia’s dictator Mengistu Haile Mariam could no longer afford to maintain his own network of Essential backers, and was forced into exile in Zimbabwe.

Following The Derg’s downfall, Ethiopia still has not democratized. Currently, Freedomhouse, a well known aggregator of democracy, states that Ethiopia’s score on political rights is a 7, its freedom rating is a 6.5, and its civil liberties ranking is a 6, where , a 7 is the least democratic while a 1 is the most. To reiterate, maintenance of a small coalition regime, in which the Essential backers need to be kept content, requires a significant amount of money. After the fall of The Derg, Ethiopia adopted nominal democratic reforms, but never really pursued them or fully institutionalized democratic norms. To explain Ethiopia’s failure to democratize post-Derg, we must look to the flows of bilateral aid.

The United States continues to provide Ethiopia with substantial amounts of monetary aid as well as other forms, such as food and technological aid . In exchange for these contributions, Ethiopia provides the United States with intelligence on Somalia. Viewing Ethiopia as an integral ally in the Global War on Terror, the United States is content with providing assistance in exchange for anti-terrorist policies and intelligence sharing. Just as Ethiopia was a pawn for the United States against communism, a pawn for the Soviet Union against capitalism, it is now a useful “ally” for the United States (again) against terrorism. In exchange for these policies, Ethiopia receives aid, enabling the states illiberality and impeding democratization through purporting the current regime.

Conclusion

While colonialism derailed the tracks countless countries were following, it should not be viewed as the sole reason for authoritarianism in the developing world. The case of Ethiopia demonstrates that authoritarian durability is not a direct result of formal colonialism. Instead, a scientific view of the mechanisms of authoritarianism and the organization of individuals living in these systems provides us with a much better explanation. It is the need to secure the loyalties of essential backers that purports authoritarianism in sub-Saharan Africa. Colonialism explains why states that may initially have democratized failed to do so, but it does not explain why states in the developing world that had gone un-colonized, such as Ethiopia, failed the democratic project as well. The machinations of colonialism are indeed at play, but it is the subtleness of neo-colonial bilateral aid agreements, and how they enable authoritarian leaders to maintain their rule in exchange for policy concessions that explains the continual failure of robust democratization to take hold in sub-Saharan Africa.

Combatting the Dutch Disease: Learning from Botswana’s Success

Modern-day International Political Economy literature employs various theories to explain the rate of economic development in some countries versus others. A common quandary within these studies is the underdevelopment of nation-states with a large endowment of lucrative natural resources. The continent of Africa has received a lot of attention in this field. Why are living standards so low in many African countries when diamonds, oil, and other natural resources are abundant throughout the continent?

In 1977 The Economist named this dichotomous effect of natural resources on a nation’s economy the “Dutch Disease.”  Their case was named for the Netherlands, after its oil abundance was the causal mechanism to the decline in its manufacturing sector. The Dutch Disease (also called “the resource curse”) contends that if a nation-state is abundant in natural resources, its economy will center around that industry and not diversify in other sectors. As a result, the revenue from natural resources will be concentrated in a small portion of the population and stagnate other economic ventures, creating underdevelopment.

Social scholars have verified this theory using many case studies, but Botswana consistently acts as the exception to the Dutch Disease. Acemoglu, Johnson, and Robinson have even labeled Botswana an “African Success Story.”  Since its independence in 1966, Botswana has boasted peaceful, democratic institutions,high growth rates, decreasing child mortality and development of non-extractive sectors. Why has Botswana achieved this success while other resource-abundant nations have faced internal conflict and low growth rates? Acemoglu, Johnson, and Robinson report, “There is almost complete agreement that Botswana achieved this spectacular growth performance because it adopted good policies.”

Defining a ‘good’ versus ‘bad’ policy is a sub-debate within this literature that offers more insight for similarly-endowed African states. Jerven asserts that ‘good policy’ refers to the absence of bad policies, namely nationalizing the resource industry. After diamonds were discovered in 1987, DeBeers was created by Cecil Rhodes to manage diamond trading. Private investment developed the infrastructure in this sector, so public funds were not diverted in the process of diamond exploitation. While a small political elite often manages the revenues from resource extraction, DeBeer’s management prevented political leaders from having control of the diamond industry in Botswana. As a result, rent seeking and corruption were disincentivized and government revenues focused on national development.

Other exogenous factors led to Botswana’s growth success. Its regional trading partnerships, especially with South Africa, allowed the agricultural and manufacturing sectors to continue growing rather than being replaced by the diamond export industry. Inflation was avoided since the South African Rand backed Botswana’s currency.  Regardless of these other factors, Botswana’s government responded to their challenge of resource management with foundational policies for long-term growth.

Government Policies

While the Botswana government’s lack of involvement in diamond trading is beneficial from a free-trade perspective, policies have also been established by the government to maintain a high expectation of corporate social responsibility (CSR) with De Beers’ “Central Selling Association.” The Mines and Minerals Act of 1999 was established to ensure that the Botswana government ultimately manages the resources it was endowed with, and works in the interest of the people to act as oversight to diamond trading. As Robb points out in “A Diamond’s Wealth is Forever,” the Department of Mines, not the president, has jurisdiction over licensing. Additionally, the government revenues from diamond trading are fixed percentages of sales, rather than changing at the discretion of individual leaders. Robb also reports that the tax rate is moderately low to encourage investment, and royalties are tax-deductible. However, there is space for negotiation within these tax rates.

In terms of revenues, Hillborn writes that the government has a 50/50 deal with DeBeers, and has used this income to provide social programming and develop other industries. As mentioned previously, the private sector’s management of Botswana’s mines allows pubic capacity to be utilized in other endeavors.

Modern-Day Implications

The phrase “natural resources” often creates mental imagery of gold, copper, oil, and other lucrative luxury goods. However in our modern-day globalized supply chains, lesser-discussed natural resources have gained new attention.

In 2015, Newsweek revealed that the tantalum needed to produce iPhones often comes from the Democratic Republic of the Congo (DRC) in areas that may be managed by warlords. Tantalum could potentially provide large government revenues that, when managed effectively, would result in overall development per capita. However, the lack of governance in areas of DRC where Tantalum is abundant marks another missed opportunity for resource revenues. New technologies such as iPhones offer renewed opportunities for resource management. Minerals and gasses used in modern technologies have higher values and greater market revenues.

While these resources are finite, in many places deposits are still being discovered. These new discoveries give governments, especially in lesser-developed parts of Africa, incentives to change their policies. Botswana’s government approach of allowing private investment while offering oversight for its revenues is exemplary for modern-day cases.

In June, scientists in Tanzania discovered a large amount of helium below its surface.  While helium does not appear to be a luxury good, it is highly lucrative in today’s world. According to BBC’s report of this new discovery, helium is needed to operate MRI machines, rocket engines, and even laser scanners at grocery stores. Tanzania—a resource-rich country that still faces low living standards—has the opportunity to follow Botswana’s example and employ policies that will invite private investment, oversee the equity of these companies, and invest the revenue in sustainable development practices.

In combating the resource curse, Botswana does not have to be the “miracle” that social scientists idealize in development literature. Discoveries of natural resource deposits and the increasing value of minerals used in modern-day technologies offer two unique channels to combat the resource curse through responsible governance—for states and multinational corporations alike.

Mobile Money and Macroeconomic Development: Case Study on M-PESA

One of the many effects of globalization on lesser-developed countries (LDCs) has been the rise of cash payments in traditionally barter economies. However, with 70% of the world’s poor living in rural areas, accessibility to cash and the financial institutions that manage currency can be challenging. New innovations have emerged in areas where the formal banking sector has failed to provide financial services to low-income and rural populations. One of these new technologies arose in the years following the boom in mobile phone infrastructure: mobile money transfers. Mobile money transfers yield positive results in macro economies since low-income people are able to participate in their local financial markets and avoid bank corruption. However the fee structure of these transfers, along with the potentially corrupt deals of private phone companies require us to remain vigilant in our analysis and critical approach to this innovation in development economics.

According to the World Bank, the mobile banking platform M-PESA represents a classic case for mobile money transfer in an LDC. M-PESA was developed by Vodafone and launched in 2007 by its Kenyan affiliate Safaricom. Safaricom is the largest mobile provider in Kenya, and its M-PESA pilot program proved successful in its ability to deliver accessible mobile money transfer to low-income Kenyans. M-PESA is now ubiquitous in Kenya, and has spread all over the Global South, most notably in Tanzania, Afghanistan, and India. A survey-based study by William Jack and Tavneet Suri of MIT states that users deem it be “faster, cheaper, more reliable, and safer” than other financial institutions. But how did M-PESA initially become widely used among poor populations?

An article in the Economist attributes M-PESA’s success to two major factors: the “send money home” campaign and the political atmosphere in Kenya after M-PESA’s introduction. With a large rural population, strong family ties, and the high cost of travel, remittances given between family members living away from home is an important part of the domestic economy. M-PESA’s marketing strategy, called the Send Money Home campaign, was widely effective.  It encouraged Kenyans to employ M-PESA to pay remittances. In 2014, remittances in Kenya totaled $1,440,846,022 dollars, which was a $506,696,865 dollar increase since just 2011 The year M-PESA launched coincided with the famous 2007 election that resulted in severe post-election violence and Kenya’s temporary coalition government. This intense violence lasted for a number of months, and much of the nation’s poor population (especially those located in Nairobi slums) were unable to work or travel due to the danger. Those affected used M-PESA as the safest way to send money to family and lessen the economic pressures of those in isolation. As a result, there was a network effect that introduced many new users to M-PESA’s services.  

Numerous scholars have proclaimed mobile money such as M-PESA as an innovation that provides financial services to rural and low-income populations. But what are the development implications of more Kenyans using M-PESA accounts than debit cards? And what are the effects of M-PESA on Kenya’s macro economy?

Some economists fear that mobile money could reduce countries’ monetary policy autonomy since transactions can be made more readily than cash transfers. However a study by Isaac Mbiti and David Weil has found that, contrary to popular belief, the velocity of M-PESA transfers does not exceed the velocity of cash. They also found that previous estimates of M-PESA’s percentage control of GDP were inflated. Mobile money is still “small relative to other monetary aggregates,” and so yields minimal impact on monetary policy autonomy. This being said, a continued increase in users and rise in the maximum transfer cap could drastically challenge the study’s findings. It is also assumed that putting money into a company rather than a bank would result in a lower multiplier effect for the macro economy. However, Safaricom does not manage M-PESA funds. According to the Consultative Group to Assist the Poor, the “funds are held by a trust which is owned by Vodafone, deposited in several commercial banks, and cannot be accessed by Safaricom.”  M-PESA money then has the same multiplier effect as other currency held by banks. The interest earned on these accounts is also put into the “M-PESA Foundation,” which works on development projects all over Kenya. In consideration of its development implications, M-PESA appears to have a positive impact on Kenya’s macro economy.

Another implication of M-PESA for Kenya’s macro economy has been increased public trust in financial institutions. During the 2007 election, corruption was rampant in Kenyan banks. The emergence of M-PESA allowed citizens to put their money in a safer environment, while giving banks competition that would force them to abide by established laws. At the same time, Safaricom itself has been involved in a number of corruption scandals. In 2013, Safaricom adopted a strategy to report employee fraud in yearly reports. Financial crimes have since gone down by two-thirds, but corrupt practices are still present. In late February of this year, a prominent Nairobi lawyer revealed a $30 billion scandal between the Kenyan government and Safaricom deemed “Safaricomgate.” While investigations are still underway, rumors of these corrupt practices cloud M-PESA’s transparent reputation. In 2014, Safaricom allowed its vendors to simultaneously sell airtime for its rival, Airtel, before the Competition Authority of Kenya forced it to do so. The increase in competition of the mobile money market has helped to curb corruption, since customers can now switch companies if they are unsatisfied with Safaricom.

M-PESA has also contributed to structural changes in Kenya’s economic culture. For example, Hughes et al discuss Safaricom’s “Jipange KuSave” program, which allows low-income people to save money through their M-PESA accounts. Since lower-income people have less money to save, savings accounts are not feasible for them in formal banks, which have minimum deposit requirements. However, by putting aside small amounts through their M-PESA account, Jipange KuSave has the goal of “reinventing the microfinance market” by giving low-income users autonomy over their savings. Olga Morawczynski’s study also found that M-PESA has improved women’s rights since M-PESA “decreased the risk of the money being stolen by their husbands.” He also found that urban migrants have had more estranged relationships with their families, since M-PESA allows them to make fewer trips back to their villages. Menekse Gencer contends that mobile money has revolutionized food security, since lower-income families that use mobile money are less vulnerable to shocks that may prevent them from accessing food.

While M-PESA has not delegitimized formal banking structures, scholars do call for more action by governments and researchers. Isaac Mbiti and David Weil  call for a common regulation of all mobile money platforms at the East African Community (EAC) as the utilization of this financial tool continues to increase. Every company creates their own regulations, so having common laws to regulate the market would be beneficial. These laws would require all companies to play by the same rules while increasing governmental authority, since the state would regulate this market.  They also call for more research to be done on mobile money’s effect on money supply and inflation, especially as this method increases in popularity. The European Investment Bank also encourages banks to innovate and gain the capability to incorporate mobile money in with their formal banking operations.  

A number of economic development challenges still exist in regard to mobile money transfer programs such as M-PESA. Kenya’s 40,000 M-PESA agents are always at risk of theft, and Safaricom has attempted to implement security measures for these workers, but to little avail. M-PESA carries transaction fees with every transfer and, while relatively affordable, these fees are still inefficient from a macroeconomic perspective. Rather than gaining revenue from advertisements or only charging for certain transactions (such as, for example, Venmo does with credit cards), M-PESA charges for every transaction, depending on the size of the transfer. However these charges are disproportionately more expensive for low-income people, who tend to transfer small amounts at a time. For example, sending the minimum of 10 shillings would result in a 30% transfer fee (3 shillings), while sending the maximum of 25,000 shillings would result in a fee of less than half of a percent (75 shillings). This fee structure creates incentives for higher volume transfers, which is positive for the macro economy, but not conducive to low-income families.  While M-PESA offers financial inclusion for low-income people, the ethics of charging these rates for lower quantity transactions should be critically considered, especially in regard to M-PESA’s target population.

Mobile money like Kenya’s M-PESA has undoubtedly increased low-income people’s accessibility to financial institutions and currency markets. Developmental economists have rightly praised M-PESA as a new tool that includes Kenya’s poorer population in the country’s rapidly growing macro economy. However, like any new innovation, the excitement of the opportunity mobile money provides should not mask the potential downfalls it may present in the future. It is imperative that we continue to analyze mobile money’s impact on the macro economy and its implications for development.

Clean Air: Privilege, Not a Right in Mufulira, Zambia

While air cannot be seen, it can certainly be felt. A breeze on a hot day or the crisp smell of a new season can be felt through the air; but for the residents of Mufulira, Zambia, the air surrounding Mopani Copper Mine offers a different sensation: one citizen described it as “being cut up from the inside by razor blades.” Mopani began in 1933, and was privatized with the rest of Zambia’s Consolidated Copper Mines (ZCCM) in 2000. Mopani Copper Mine employs over 15,000 people, making it the largest private employer in Zambia. The mine has stimulated the economy, but has also resulted in negative externalities that have forced the local community to face the age-old development dilemma of economic growth versus environmental ealth. This is the story of how the resilient community of Mufulira has advocated its hrights within the structure of a foreign-owned enterprise, and how it is now trapped within that power structure.

On paper, Mopani Copper Mine is co-owned by Mopani Copper Mines PLC and Glencore International AG. However, according to Anne-Sophie Simpere of NGO Counter Balance, Mopani Copper Mines PLC is 73.1% owned by Glencore International. Glencore is a Swiss multi-national corporation (MNC) and self-reports that it controls 50 percent of the world’s copper. Mopani is the largest of Glencore’s two copper mines in Zambia, boasting the largest smelter plant in Africa.

However, neighbors consider this mine “the neighbor from hell” because of the toxic pollutants it releases, most notably sulfur dioxide. Sulfur dioxide causes the lower airways of its inhalants’ lungs to become inflamed, leading to serious respiratory problems for the civilians and workers around these mines that breathe in the chemical. As explained by Elisha Ncube, Clement Banda, and Jhonnah Mundike from Copperbelt University, sulfur dioxide is a subtractive chemical—once it is in the air, there is no technology to remove it. Glencore boasts that it has reduced sulfur dioxide emissions in Mufulira since it bought the mine, but as of 2013 they still released 70 times the amount advised by the World Health Organization in one year. The lasting impact has been rampant levels of heart and lung disease, as reported by the surrounding community. Unfortunately, a lack of case documentation allows Glencore to avoid legal responsibility.

As the Lusaka Times reports, the Mufulira community resisted the privatization of the Mopani Copper Mine from the beginning. Community leaders appealed to their district commissioner as well as to higher government agencies such as the Zambia Environmental Agency to prevent Glencore’s involvement. Numerous national institutions work together to prevent environmental hazards in Zambia, including the Zambia Environmental Management Authority, Zambian Ministry of the Environment, Environmental Council of Zambia, and the Ministry of Mines and Minerals Development. National laws have also been passed to protect the air, including a series of regulatory acts in 1997. However since its privatization, national institutions have not pressured Glencore to follow through with protecting Zambia’s air quality. In fact, rather than following WHO advised levels of sulfur dioxide, Glencore blames the SO2 emissions on the previous state management of the mine, stating “For 70 years, the plant has spewed out SO2 and over the course of the last 14 years [under Glencore ownership] sulphur capture has gone from 50 per cent to 97 per cent.”

Ethically, it was Glencore’s responsibility from initial ownership to invest in an efficient system that would reduce sulfur dioxide emissions as they permanently depleted Zambia’s natural resources. Instead, Glencore took advantage of weak Zambian institutions, knowing full well—according to the AfriTEST Network- that the Environmental Council of Zambia did not have the resources necessary to check contamination. Glencore refutes this argument, as they proudly spend millions of dollars per year on their seven clinics and five public health centers that are available to the citizens of Mufulira. However, in most cases the citizens of Mufulira cannot afford this healthcare, and end up living with the respiratory issues that are projected on them.

Regardless of who should have regulated the mine to avoid human harm, the lack of enforcement, along with Zambia’s investor-friendly Mines and Minerals Act of 1995 made it profitable for Glencore to avoid basic environmental standards. As these emissions have continued, citizens of Mufulira have organized themselves to protect their “commons” of clean, healthy air.

Numerous anti-mining campaigns were started, many with the help of foreigners. The Centre for Trade Policy and Development, a European NGO, spearheaded the “Pay Up, Clean Up, or Get Out!” initiative. As in the documentary Good Copper, Bad Copper, the residents of Mulufira, who had already been discussing the ways they could have their voices heard, partnered with this organization to file suit against Glencore. The lawsuit was paired with over 70 testimonies of citizens who experienced severe health issues from the mine. The settlement called for compensation for those harmed, as well as a shut-down of any harmful emissions systems, and an “environmental audit.”

Glencore temporarily lost this battle in 2012 when Zambia’s Environmental Agency heeded the complaints from nearby residents and “ordered the immediate closure” of the Mufulira branch until they implemented required safety measures. But because of this shutdown, many Mufuliran residents lost their jobs, most of them local people with few transferrable skills and no guarantee of rehire.

Glencore reopened Mopani Copper Mine with very few impactful changes made to their emissions issue, and the laid-off workers were not rehired. This controversy instigated by the community raised their hopes and awareness of a deep, shared issue, but the outcome only produced weak laws and laid off, low-income workers. Was this worth the minor improvements that were made to satisfy Zambia’s Environmental Agency? Maybe so, but this juxtaposition of sustainability and economic growth is precisely what is so challenging to navigate in development studies. Months of advocacy and deliberation ended in a short-term fix for a long-term problem.

There have been less large-scale complaints from the citizens of Mufulira since 2012, but sulfur dioxide emissions are still present and problematic. In 2014 the district commissioner Beatrice Mithi of Mufulira died on New Years Eve while she was giving a sermon and inhaled toxic sulfur dioxide. This event added to the tensions between the community and Glencore, which claimed that Mrs. Mithi’s death could not be directly linked to the Mopani mine.

Glencore’s tax avoidance adds a new dimension to this narrative, especially when multiple campaign groups filed a complaint against them with the OECD in 2011. In 2009, a leaked document revealed that Glencore has been avoiding taxes to the Zambian government for a $50 million project in 2005 through tax evasions. Glencore denied the claims, and the lending European Investment Bank (EIB) initiated an investigation in 2011. This investigation lasted three years before the EIB stated in 2014 they had no “contractual relation” with Mopani/Glencore since Glencore repaid their loan early. The bank proceeded to mysteriously freeze all new loans to Glencore, handing the responsibility of finding the lost tax money to the Zambian government. A leaked audit of Mopani reports that the Zambian government loses £76 million in Glencore’s tax avoidance every year—money they could be using to strengthen their own environmental protection institutions.

Local demands for better air quality resurfaced again in 2014, when seven people were hospitalized due to sulfur emissions. After breaking up the riot officials admitted they had found a “leak in the damper valve,” but there was “no records of hospitalization.” However the anger that resurfaced from this event was quickly overshadowed by a new challenge.

According to Bloomberg Business, this past September the Mopani Copper Mine announced that it will be closing for 18 months to “refurbish assets and lower production costs.” This $950 million project comes as a reaction to falling global metal prices, and the downward spiral of Glencore’s stock. As a result, at least 3,800 employees will be laid off, without the promise of rehire.

For me this case study is deeply personal. After just one month living in a town near this mine, I returned to the United States with asthma. A round of steroids and fresh Florida air cured my temporary condition, but the citizens living around Mufulira and other such production plants do not enjoy such luxuries. Like so many other marginalized communities, the citizens of Mufulira have had to wrestle with the question: is everyday livelihood more important than the long-term health of a community? If not, how can workers demand for Glencore to improve its environmental standards at major layoffs in sight?

Last month the Paris Agreement of 2015 included 200 countries that set challenging goals to reduce harmful emissions. While these globally standardized objectives are promising for future generations, communities like Mufulira offer a human narrative behind the bullet pointed desired outcomes, and beg for heightened accountability among the private sector—here, and now.

Trophy Hunting as a Conservation Tool

In January 2014, The Dallas Safari Club auctioned off a special hunting permit that would allow the holder to hunt a Black Rhinoceros in Namibia for $350,000. The species is endangered with only around 5,000 left in the world and the winner of that auction, Corey Knowlton, received death threats and widespread public condemnation for his pursuit of the endangered animal. Just over five months later, despite the strong criticism of his activity, Knowlton legally hunted and killed an endangered Black Rhinoceros. The hunt was deemed by the book, the trophy was brought back to the States, and the world continued as if nothing happened.

However, regardless of the legality of the practice, the whole ordeal begs the question: what is going on here? Why was Knowlton allowed to kill any endangered animal, with or without a permit?

The answer, according to Mr. Knowlton, is that by creating a market for these endangered species--where hunters like him can demonstrate their willingness to pay for the endangered animal--an economic incentive is born for locals to keep these animals alive. This creates a counter balance to the economic incentive of poachers to hunt and harvest the animal without regard the long term survival of the species. Legal and controlled hunting of endangered species for sport, or trophy hunting, offers a “realistic” tool for conservation, one that uses the power of individual self-interest to realize a conservation goal, rather than relying on a population’s altruistic qualities. This favourable position towards trophy hunting is shared by such organizations as The National Wildlife Federation, American Forests, and the Wildlife Management Institute.

And, according to general economic theory, he’s correct. In the status quo, endangered animals such as African lions, rhinoceroses, or elephants have a neutral, or sometimes even negative, value to local villages and farmers. At best these animals are of no real use to locals, and at worst they are obstacles in everyday life, as elephants compete for the same food as cattle and goats, lions represent a threat to livestock, and rhinoceroses are known to be unpredictably aggressive, particularly as they age. In this model, there is no incentive to put forth any extra effort in keeping these animals alive and away from poaching operations, and a direct incentive to eliminate them if they pose the slightest of threats. 

The introduction of trophy hunting changes these incentives. Now, with the willingness of hunters to pay big money for the "right" to a particular animal, these species have unambiguously positive value. Whereas before, a local lion may have represented no more than a threat to one's livestock, it is now worth a huge sum of money—if one can keep it alive. Theoretically, this game changing shift in incentives would direct the actions of local populations to more altruistic aims of conservation and active protection against poaching operations, as they would benefit privately from doing so. Hence, in this “positive value” model, trophy hunting acts as a legitimate tool for successful conservation of endangered species.

And according to a considerable amount of empirical evidence, the positive value model is sound. Leader-Williams et. Al (2005) found that sustainable hunting license allocation “played a key role” in accelerating the recovery of the southern white rhinoceros in South Africa, where populations have recovered to a threatened, but not endangered, level. Similarly, Packer et. Al (2011) noted that “trophy hunting has been considered essential for providing economic incentives to conserve large carnivores”, so long as “hunting harvests not exceed sustainable levels”, with reference to Tanzania’s legal trophy hunting practices and steadying population of lions. Lindsey et. Al (2006) adds that economic incentives created by trophy hunting “effectively more than double the land area that is used for wildlife conservation” compared to that of state parks alone.

Even so, the model does possess a few major flaws. For one, the trophy hunting market is quite small, never claiming more than 0.27% of an African country’s GDP (Namibia). In addition, the growth potential of the trophy hunting market, if it is to remain sustainable and contribute to an overall increase in the population of endangered animals, is limited to the population growth of a given species, which is obviously quite low for endangered species. While not challenging the theory directly, this observation does undermine the ability for trophy hunting to claim to be a tool for dramatic population surges of endangered species, or even to grow populations quickly enough to outpace periodic losses as a result of natural disasters.

In addition, while regulation of this market may be key in limiting its growth to sustainable kill rates, regulators are subject to economic pressures as well. A 2013 report noted that “hunting companies contribute only 3% of their revenue to communities living in hunting areas” and that the vast majority of their expenditure accrues “to firms, government agencies, and individuals located internationally or in national capitals”.

While not particularly surprising or inherently immoral, this observation changes the game. While the farmer will likely be a farmer for the foreseeable future and thus theoretically cares about future revenue realized from trophy hunting, the regulator cannot know how long they will hold their position, meaning that logically they will prioritize present rewards over future ones to a much higher degree than the farmer. This undermines the idea that regulators will, on their own, sell a sustainable number of hunting permits per year, which threatens to unravel the "trophy hunting for conservation's sake" narrative.

However, even if we assume benevolent regulators and long term focused firms, the positive value theory still holds a fundamental oversight: the biological externalities associated with a given hunt. With some endangered species there are externalities involved in the trophy hunt, as the loss of that animal can damage the evolutionary and biological processes that contribute to an endangered animal's long term conservation.

For instance, the removal of elder male elephants from herds has documented effects on the psychology of younger males. Though not as a result of trophy hunting explicitly, when young males were removed from the elder bulls in Kruger national park in South Africa in 1992 and placed in a new park, they turned extremely aggressive and violent, chasing down and stomping more than 40 local White Rhinoceroses to death over 5 years for seemingly no apparent reason. After a time of confusion, it was proposed that the lack of elder role models present to curb violent behavior in adolescent males was to blame, a hypothesis that was confirmed when the introduction of 6 elder bulls coincided with an abrupt halt to elephant violence in the park.

As in the case of these elephants (as well as similar issues with externalities concerning pride takeover dynamics among lions), the true impact of trophy hunting cannot always be tied up in the direct implications of a given hunt, and that sustainable trophy hunting cannot be expressed via a simple accounting model in which the number of permits sold is less than the number of newborn animals. This, again, undermines the theoretic model of trophy hunting, which makes no reference to any incentive toward maintaining a balanced biological makeup of a species.

In fact, we see again and again in this analysis that the nuances of trophy hunting as played out in the real world undermine the theoretical model at multiple turns, suggesting that the model either incorrect, or severely over-simplified and reliant on untrue assumptions. And yet, the evidence suggests that the model, or at least the basic inputs and outputs of the model, is correct. What's happening?

One theory is that the special comeback stories commonly attributed to trophy hunting are actually simply due to covariation with other newer conservation practices. By far the widest reaching of these, and most certainly to be the main culprit of any covariation that may be occurring, is the development of ecotourism as a business model. Like trophy hunting, ecotourism places positive value on endangered species, as tourists will pay considerable sums of money to witness rare animals in the wild. This offers an economic incentive to keep these animals alive in the wild in order for them to be available to "sell" to tourists. In short, ecotourism follows the same positive value model as trophy hunting, capturing a similar effect in overall conservation, but while also addressing many of its key weaknesses.

In addition, ecotourism is a much larger market than trophy hunting, as the same animal can be "sold" multiple times, and its comparatively lower price point is better positioned to take advantage of such a highly elastic market such as tourism. This opens up the market to more buyers, and allows firms and individuals to profit off of the existence of an endangered animal more than once, tying the growth potential of the market to the longevity of the animal’s life. Indeed, Sims-Castley et. Al (2004) found that “non-lethal” ecotourism in private preserves yielded “more than 15 times the income of…overseas hunting”, meaning simply that, as it stands, ecotourism is a far more lucrative business than trophy hunting.

However, the downside of the large growth potential of the ecotourism model is that it brings animals in direct contact with humans at a constant, perhaps even daily, rate. While this does succeed in providing an incentive to keep the animal alive, it also can desensitize them to the presence of humans, changing their behaviour and potential turning thoroughly wild animals into pseudo protected animals. This desensitization to presence of humans can theoretically also leave animals more vulnerable to poaching, suggesting that ecotourism may have a negative impact on conservation if handled improperly. In addition, large scale operations threaten to degrade local habitats over time, even in protected areas and national parks.

Of course, despite these weaknesses affiliated with ecotourism specifically, at the very least it does appear that a combination of lethal and non-lethal positive value conservation strategies has contributed to the overall increase in the numbers of some endangered species. This indicates that the positive value model is sound, in both lethal and non-lethal forms.

And in retrospect, the diametric strengths and weaknesses of trophy hunting and ecotourism based conservation strategies complement each other quite well. Where the limited market size and adverse effects of adult male removal limit trophy hunting’s conservation ability, ecotourism offers a larger market size and lack of animal death. Similarly, where environmental degradation and  the desensitizing of animals to the presence of humans hampers ecotourism, trophy hunting offers limited animal-human interaction.

Unfortunately, this potentially complementary relationship is rather under researched. While there is a good amount of research concerning the economic and environmental impacts of trophy hunting and ecotourism respectively, there is very little academic comment on the comparative merits of the two strategies concerning conservation. What’s more, the possible covariant nature of the two strategies concerning their mutual effect on endangered wildlife conservation has attracted almost no academic attention, leaving it unclear as to which strategy is doing the heavy lifting in reference to recent conservation successes.

As it stands, Corey Knowlton and the various wildlife and hunting institutions that support his positive value model of conservation are likely correct. Trophy hunting is a useful tool for the effective conservation of endangered species, and deserves a space in that effort. However, that space is quite small, and may be better thought of as a supplemental tactic to a bigger, non-lethal strategy such as ecotourism, which is ultimately more profitable and offers the protection of endangered species without harming them on a larger scale. The question that remains however is whether the effectiveness of trophy hunting is worth the moral ambiguities inherent to the practice, and it is a question that I will leave to the careful consideration of the reader.