Cocoa prices hit a 'record high' - or do they?

The Financial Times reports a sudden increase in the cocoa price, as bad weather and black pod disease lead to lower-than-expected deliveries to ports in Cote d'Ivoire. Good news for cocoa farmers, if the price spike is passed onto them. My concern is, it won't be - the traders will take a profit and the underlying conditions that led to the price spike will return. In the medium term, prices are likely to fall anyway, as global demand for chocolate (and especially high-quality chocolate, such as that coming from Latin America and Ghana) flattens after years of steady increases. (See this from the same paper).

Viewed over the last 15 years, the current price of £1,820 per tonne certainly looks impressive:

















However, the current price may be less impressive than it looks, for two reasons. First, this chart reveals a similar spike in 2002 (presumably a result of the civil war in Côte d'Ivoire) that was followed by a 50% drop in prices and a 5-year slump. That would now equate to a price of around £900. Second, cocoa futures are priced in pounds, but the biggest cocoa producers and consumers use euros. Since the pound's value has declined from around €1.40 a year ago to €1.10 today, a cocoa price of £1,800 today is equivalent to around £1,400 a year ago - namely €2,000. The effective export price in Côte d'Ivoire, whose currency is tied to the euro, is some 10%-15% lower now than in July, when cocoa prices peaked at £1,700 (then €2,200 or $3,000).

In the meantime, what might be the effect of cocoa prices on the second round of Ghana's presidential elections, scheduled for 28 December? Probably very little, since the Cocobod fixed its annual price in August. But with only a percentage point between the two candidates, small psychological factors could make the difference. To all friends in Ghana and friends of Ghana, I wish you a peaceful Christmas and an even more peaceful election.

What to do about Rwanda?

Right now, if you're in development in Britain or America, Rwanda is a good place to be. Please note I'm not talking about economic growth or political stability (though it has both of those), but things like NGO presence, media attention, politicians visiting to show they care. If you have ever read accounts of the Rwandan genocide, or remember those dark days in 1994, Rwanda's peaceful reconstruction is surely something to celebrate. It even has the ultimate capitalist accolade: a business-school case study.

Unfortunately, there is a dark side to Rwanda: its role in the never-ending conflict in Eastern Congo. This disturbing account comes from the New York Times. Notice that the Rwandan officials do not deny that Rwandan citizens are crossing into DRC to fight, merely that their government is encouraging or paying them. But then who needs pay when mineral riches await?

I know very little about Congo and would not dare to take sides or argue that Rwanda's fears about Hutu extremists hiting in the jungle are unjustified. But I still feel wary about a country celebrated as a model of enlightended leadership in a troubled region intervening in its neighbour's affairs militarily. Yes, Congo is a threat to regional stability; yes, the Congolese government has failed to gain control of Eastern Congo or disarm the Hutu militia; but that is still not a pretext for unilateral military intervention, even by proxy. (As this guy, or this one, could tell their Rwandan friends).

It may suit Western governments to continue supporting President Kagame's regime (except for France); it may well be the best regime for Rwandans as well. But let's not allow the West's failure to prevent the Rwandan genocide become a pretext for inaction in the Congo, or get caught up in some stupid neo-colonial rivalry. We need a united approach and we need it now.

Rich countries buy up agricultural land: who benefits?

I'm back from an exhilirating few weeks on the Obama campaign and haven't thought, talked or read about much else for the last month or so. But as the President-elect's team takes shape and the economic news has settled into a consistently - but predictably - gloomy pattern, I'm trying to find out what happened to some of the big issues from earlier in the year.

One problem that hasn't gone away is the global food crisis. The prices of key commodities may have begun falling, but the structural factors that led to their sustained increase over the last few years haven't gone away. A timely article from the Guardian sheds light on the practice of small, rich countries buying land in large, poor ones to safeguard their future supply of food.

The Guardian journalists do not hide their distaste for the deals, in which cash-hungry governments from Laos to Malaysia to Ukraine sell land to investors from Korea, Abu Dhabi, China and Saudi Arabia to grow food on a large scale. For smallholders who are turfed off their land, or don't have access to the advanced technology of the commercial farms, it's certainly a raw deal. But could there be a benefit to these deals that goes beyond food security for a few small countries?

In principle, there could be. Here is where the land is being bought. If the effect of introducing commercial agriculture to Sudan and Madagascar is a dramatic increase in productivity, the global supply of staple crops like rice and maize will increase and their price will fall. (The rice grown in Madagascar may go straight to South Korea, but South Korea will be able to reduce its imports from other countries commensurately). This could be good news for urban Malagasies, though not for the rural (rice-growing) majority.

A second benefit might come from technological spillovers. Small farmers in Africa and South-East Asia aren't an attractive market for new seed varieties or fertilizer, but large commercial farmers could be. I realize these spillovers are difficult to capture in practice, but surely having more commercial agridealers would be of benefit to everyone.

I don't want to suggest that these deals are good for everyone: some poor people will probably lose their land, the productivity gains may not be spectacular and the global price effect will be too small to notice. I just think we should look at each deal on its merits. Like the Chinese infrastructure deals, some are better than others. Like the Chinese infrastructure deals, we need more research into which ones.

Off to Ohio

I'm taking a few weeks off to volunteer with the Obama campaign. I expect little or no time for blogging, but I do want to celebrate the dedication of people like Jesse, my friend and campaign organizer in Toledo, Ohio, who has got me over there. (See here for a report on a campaign rally in Toledo - Obama even thanked Jesse personally! What cool people I know).

If you have a few days or even just a weekend, the campaign needs people to knock on doors and make calls - the more face-to-face contact the better. This has got to be one of the biggest mass social movements in history.

Deaton on the randomistas

Last night, Angus Deaton gave the British Academy’s annual Keynes lecture on ‘Instruments of Development?’. I expected it to be enlightening; it turned out to be witty as well.

Some questions recur in economic research again and again, without ever seeming to get closer to a resolution. “Does aid work?” is one. “Do children learn better in small classes?” is another. Frustrated by years of trying to identify ever smaller effects in ever more complicated regressions, we have resorted to two clever techniques: instrumental variables (in macro) and randomized controlled trials (in micro). Angus Deaton suggested that these apparently different techniques are closely linked and similarly flawed.

Economics, like any social science, has a problem with experiments. You can’t work out the effect of aid on development by randomly selecting one country to receive aid and another not to: even if it were moral, it wouldn’t be practical because there’s so much else going on. Instrumental variables are a clever technique to overcome this (see ‘Freakonomics’): basically, you have to find a factor that could contribute to the effect you care about (latitude helps determine prosperity) without any possibility of reverse causation (because the prosperity of a country has no effect on its latitude). Deaton argued, in short, that instrumental variables are no panacea, because they are not statistically exogenous and in any case countries differ in ways we cannot control. If economists set instrumental variables up as a gold standard, we doom ourselves to eternal methodological debates amongst ourselves and ridicule from everyone else.

Randomized controlled trials are even more popular in the micro development world. Want to know by how much a vaccination programme improves public health? Easy: just pick the counties you vaccinate at random and compare the outcomes. Leaving aside the ethical difficulties with this (who deserves to come first?), the technique only tells us the mean treatment effect; it doesn’t tell us whether the effect was distributed widely or limited to a few very special cases. Moreover, some of the randomizations are less random than they seem. Supposed you picked schoolchildren with surnames starting with A to take part in an experiment: would they really do better because of the experiment, or because they have always sat in the front row and got more attention from their teachers? Maybe, maybe not: we don’t know.

Deaton poked fun at the ‘randomistas’ (Banerjee, Duflo, Kremer and others) but was sympathetic to their quest for identification, as long as it has a theoretical foundation. He also argued we should avoid randomization to test very obvious propositions (“Do parachutes help keep people who fall out of planes alive?”) or those that pose grave ethical problems (“do HIV-positive people receiving anti-retroviral drugs live longer than those who don’t?”). Rather as with evidence-based medicine, the statistical evidence is only as good as its interpretation by the doctor, or the economist, who applies it to the patient’s condition. Randomized controlled trials, in this view, should take their place in the economist’s toolkit, as one useful tool among many rather than as the knockout argument.

I agreed with all of his points as far as economists are concerned. My worry is what the non-economists (and that’s most of us) are supposed to do. Are we really supposed to wade through umpteen regression models and meta-analysis papers? Are we supposed to get excited about some tiny coefficient that is significant at the 95% level? I fear that policymakers and donors, who might understand the finding of a random evaluation, will turn off as soon as regressions rear their head. Surely it’s better for decision-makers to have some scientific evidence than none at all. Let the economists work out the 95% answer; meanwhile the rest of us will make do with 80%.

Nicholas Stern on a global deal on climate change

The publication of the Stern review two years ago helped shift the climate change debate from science to economics. Climate change sceptics can no longer argue that global warming is a myth or within natural variation: instead, their argument is that it is too expensive to do anything about it right now. Not exactly "wait and see", more "wait until it's cheaper".

Nicholas (now Lord) Stern addressed some of these issues yesterday in a public lecture at the London School of Economics. His timely message was that the current financial crisis is small compared to the havoc that serious climate change will wreak. What havoc? Many things, but the main effects are "all about water". A 5 degree warming (quite possible by 2100 under a 'business as usual scenario') is in the same order of magnitude as the difference between the middle of the last Ice Age and now. The combined effects of rising sea levels and retreating glaciers could force half the world's population to move. Apparently, India is already building a border fence around Bangladesh.

The main focus of the speech was on what a 'global deal' looks like and how we might get there. Stern suggested six components:

1. To stabilise carbon dioxide concentrations at a reasonably 'safe' level of 500ppm, a 50% reduction in greenhouse gas emissions (compared to 1990 levels) by 2050. This probably means an 80% reduction in developed countries and more in the USA.

2. By 2050, 8 billion of the world's 9 billion people will live in developing countries. So developing countries must lead the deal, because it will be their world. We cannot force them to cut emissions: they should be forcing us to show them how.

3. Markets and carbon trading will be essential to get reductions at the lowest possible cuts. There will be some exceptions at first to bring people on board (steel? aviation?) but we should aim to phase them out.

4. Whatever targets we set for emissions reduction, we need to stop deforestation quickly. There are lots of ancillary benefits to this (flood control, biodiversity) but it will have to be combined with development. "Climate change and development are deeply linked - if we fail on one, we fail on the other".

5. Technology: nothing should be ruled out, including carbon capture and storage (CCS) and nuclear power. This was controversial with the audience at LSE, but Stern held his ground: we need to try everything, fast, to figure out what works.

6. Adaptation: poor countries will be hit first and hardest. We urgently need to work out how to get low-carbon development in an increasingly hostile natural environment.

The rest of the speech concerned how to put together this global deal and the research programme needed to support it (this is a university, after all). "Surely the global financial crisis shows us what happens if we become aware of a serious risk and don't deal with it".

Some of Lord Stern's targets are being adopted by politicians. Barack Obama has spoken of an 80% reduction in greenhouse gas emissions by 2050; Gordon Brown has committed the UK to doing the same (though he's trying to wriggle out by excluding aviation - see here). What about the developing world? "Attitudes in China and India have changed a lot in the last 2 years, though there is still justified anger at the hypocrisy of the 'rich countries'."

It seems it always requires a disaster (Katrina? Lehman Brothers?) to shake politicians into action. Sadly, at the current rate we are going to need a few more disasters before the key players, China or the USA, take serious action on climate change.

Liberian cassava farmers profiled on the BBC

I love this stuff . . . and there isn't a single man to be seen, except for a motorcycle taxi driver in slide 8.

In fact, in three months spent in Liberia, I never saw a man farming cassava. Rubber, yes and sometimes rice, but cassava farming is "women's work". Notice how the men in the picture below are 'supervising' (i.e., sitting around) while the women are busy.

Sometimes I imagine that the gender division of employment in agriculture will change as countries become more developed. But maybe not. I have been walking around rural Yorkshire in the last week, where there are a lot of sheep farms. Without exception, the farmers riding around the hills in Land Rovers and quad bikes are men. Maybe men only get involved when there are machines to play with?

Emily is back in Liberia

The excellent Emily Stanger has gone to work for the Ministry of Gender in Liberia. Emily, please make sure you post regularly - your fans around the world will appreciate it!

Emily is working as a Scott Fellow (with support from the Nike Foundation), part of a scheme to bring young professionals (many of them Liberian) to work in the government there for a year, sometimes more. This seems to me is the right kind of technical assistance - not just a few months of consulting (something I have done in the past, but I have decided to steer clear of for a while!), but serious engagement, for a serious period of time. I wish her and the other Scott Fellows the best of luck.

With or without the US

I've been enjoying reading Bono and Jeff Sachs' FT column from New York. Bono's ramblings might work better as rock lyrics, but he comes across as well-informed and genuine at least. Sachs, meanwhile, is passionate and provocative as ever:

"The UN meetings were abuzz that the US could find $700 billion for a bailout of its corrupt and errant banks but couldn’t find a small fraction of that for the world’s poor and dying. It didn’t make sense to the world community. The puzzlement was all the greater since the very banks being bailed out so generously had awarded themselves more than $30 billion in bonuses early this year, roughly the world’s entire aid budget for 800 million people in sub-Saharan Africa."

Amen. I wouldn't blame the financial crisis, entirely on the banks, but that's not the point. What is sad is how serious development issues drop off the news agenda as soon as there is a recession or 'crisis'. The same happened at the Gleneagles summit in 2005, when a terrorist attack send the TV crews scurrying to London. If we want to advance the development agenda at an international level, we need to work out a way of doing so even when the world's attention is elsewhere.

For the time being, a global financial crash is bad for emerging markets, as interest rates shoot up and 'risky' loans are called in. In the longer term, I wonder if it might be a good thing, for three reasons.

First, the USA and Europe no longer look like safe havens (OK, maybe Switzerland). A Brazilian, Russian or Chinese investor might therefore be keener to invest at home in the future.

Second, US banks and the US government are coming to depend increasingly on sovereign wealth funds, Japanese pensioners and so on for their capital. The result: the US will no longer be able to dictate terms to everyone else. The Washington consensus becomes the Dubai discussion.

Third, the reduction in US influence means we are no longer entirely dependent on US leadership in international economic matters. Not a bad thing when the world's largest economy is distracted by the election, bank bailouts and the like.

Indeed, Sachs praises Gordon Brown for continuing to push the MDG agenda at the United Nations. Brown doesn't have Bono's talent for PR, but if all world leaders took development as seriously as he does, we might make some progress - with or without the US.

What I miss about West Africa - and what I don't

I'm spending a few weeks in northern England, preparing for a move to London. After a few days I am used to the weather again; but in other respects the UK feels quite alien. Here are a few things I have found myself missing about life in Ghana:

1. The way people dress. Wearing clean, colourful and well-tailored clothes seems to be a source of pride for Ghanaians everywhere; I am shocked at how little many Britons seem to care about their appearance, wandering around in dirty T-shirts and ill-fitting tracksuits.

2. Courtesy to strangers. In Accra, it's quite usual to greet other passengers in a share taxi or minibus with a low-key "good morning". Anyone doing so in a London bus would get embarassed looks in return and quite possibly a torrent of verbal abuse.

3. A nod and a smile. Walking down a street in Accra at night, I know I stick out. But if I walked past a group of young men, my instinct would be to nod at them, smile and maybe say hello in passing. I would expect them to reciprocate, even more so in rural areas.

Walking around parts of north London a few days ago, my instinct was quite different. I averted my gaze from passers-by and walked fast so as to indicate that I was "minding my own business". There aren't many young people hanging around on street corners, but those who are there exude an air of menace (they are usually harmless, of course - but perceptions matter).

There are other things I don't miss:

1. Tropical fruit - mangoes and papaya especially. This surprised me, because I love all tropical fruit and devour it in large quantities. But the apples and blackberries which are all over rural England in September are equally delicious.

2. Uneven streets and pavements. Walking along a typical street in Accra is an obstacle course of open drains, potholes and cracked slabs. It's worse for pedestrians than for motorists. I used to think UK pavements were shockingly uneven, but maybe they have got better, or else my standards have slipped.

3. The humidity. I'm a dry kind of guy. I like mountains and deserts. The UK isn't exactly dry, but at least I don't wake up in the morning drenched in sweat.

How long does it take to adjust? The plane from Accra to Heathrow was a mix of British, Ghanaians and British-born-but-still-partly-Ghanaians. Almost all spoke with 100% London accents. At least, they sounded a lot more authentically London than I ever will.

What's in a national motto?

To the best of my knowledge, only Brazil and Saudi Arabia have a national motto (or whatever you want to call it) on their national flag. Many more have a motto on their official coat of arms, though and from there, it frequently gets onto passports, official documents and the currency.

So how does the motto get chosen? And what does that choice say about a country?

I suppose most mottos are chosen at independence, so the leaders of the nationalist or revolutionary movements are probably important. But can we learn about a country's history from a motto? Or, especially in Africa, the personality of its first President or 'founding father'?

Compare these two, for example:
"Unité-discipline-travail" (unity-discipline-work)
"Unité-progres-justice" (unity-progress-justice)

The first is Côte d'Ivoire: serious, conservative, in keeping with President Houphoët's non-revolutionary ideology. The second is its neighbour Burkina Faso: superficially similar (and following France's lead by doing things in threes) but more progressive-sounding, more socialist maybe, with a revolutionary tinge. Coincidence?

I don't think so. When Burkina Faso was Upper Volta, its motto was actually "Unité-discipline-justice". When Thomas Sankara renamed it 'The Land of Upright People' in 1984, he changed the flag, national anthem and motto as well. Out with discipline, in with progress. A subtle change, but a symbolic one.


Or how about these two in East Africa? Kenya has 'Harambee' ('Together') while Tanzania has 'Uhuru na umoja' (Freedom and unity'). Almost identical, you might think. But 'Harambee' wasn't just a slogan for Jomo Kenyatta, it became a defining ideology for Kenya: nationalism, economic development and the uniquely Kenyan institution of the 'harambee meeting', community fundraising events in which local dignitaries donate to worthy causes and politicians (pardon my cynicism) return some of the cash they have looted to the people. Meanwhile, Tanzania - then as now a lopsided federation - stresses unity. The word 'Uhuru' is important too: Tanzania's president Julius Nyerere published two collections of speeches with 'Uhuru' in the title ('Freedom and Socialism' and 'Freedom and Development')

As to why Kenya has lions on its coat of arms and Tanzania has a man and a woman, I am afraid to speculate, but the symbolic contrast is striking.

Some slogans are unintentionally ironic. Liberia's fine emblem (left) fails to mention is that only 2% or so of its population where brought there by "the love of liberty". The rest of them were probably as bewildered by the beautiful ship with the white sails as I would be if a bunch of white Baptist Americans showed up in northern England and announced they had come to settle there.

How about the choice of language? Do you choose a colonial language, or do you pick a local one (and thereby risk offending minority ethnic groups?). Most countries in West Africa seem to go with English or French, whereas Swahili rules in East Africa, maybe because it's a regional rather than a local language so there's less chance of offending someone. The British and the Dutch royal families both have French mottos, but nobody seems to care.

Sometimes national mottos resonate in unintended ways. Mali's motto is a super-idealistic "Un peuple, un but, une foi" ("One people, one goal, one faith"). At first I thought it sounded like a song by U2. Then I remembered where I had come across 'one people' before. The motto of Hitler's Germany was "Ein Volk, ein Reich, ein Führer". Thankfully, a motto does not always a people make.

The market versus the mall

Whenever I travel out of Accra towards Ghana's central or west coast, I pass through Kaneshie station - which is really a large market with a bus station attached. It looks chaotic, but is actually very well structured: if you can bear the noise and the smell, you will be on a minibus to almost anywhere within a minute or two. The market sellers are organized too: all the plastic-sandal-merchants are in one corner, all the beef-and-goat-meat-choppers in another.

A few miles away is the Accra Mall: a new, air-conditioned shopping emporium as clean and bland as any other in the world. Between the stressed-out SUV drivers and lost-looking backpackers, upper-class local kids 'hang out' in the food court, because that's what kids do in malls.

Where is the future of African retail? For now, my money is on Kaneshie market. Their local produce is cheaper and better (never mind the cold chain: it was picked this morning) and their imported Chinese crap is as cheap and as crap as anyone else's. The problem is, there are no economies of scale and virtually no product differentiation. 500 people selling the same pile of onions equals 500 tiny profit margins. Fine if you are content for people to just survive. Not fine if you want some of these businesses to grow, employ others, maybe move into a proper shop so I don't have to trip over goat heads on my way to the beach.

So far, so much anecdotal speculation. Fortunately, when I got back from the beach I found this new paper by Rafael La Porta and Andrei Shleifer. (Thank you Dani Rodrik for pointing it out). Their question is: does a large informal economy help or hinder economic development? Their answer is: neither.

According to La Porta and Shleifer, there are three ways of viewing the informal economy. The first is the 'romantic view', associated with Hernando de Soto and a thousand microfinance outfits. According to this view, the sellers at Kaneshie market are all budding entrepreneurs. Give them secure property rights and some microloans and presto, within a few years we'll have a Kaneshie Mall with a plastic sandal supermarket and value-added goat head products.

Not much evidence for that, unfortunately: it turns out that almost all small businesses stay small even when you pump them up with microloans. So how about the 'parasite view', exemplified by this article from the McKinsey Global Institute? These guys say informal firms have a cost advantage in spite of their low productivity, because they pay lower taxes and rent than the formal ones. This prevents more productive formal-sector firms from getting off the ground. The solution: cut taxes on the formal sector and enforce them in the informal one. Then watch the Accra Mall outcompete the street markets, just like Wal-Mart does in Mexico.

This is a controversial view: who likes Wal-Mart? There's not much evidence for it either. Many city governments have cracked down on street vendors and markets, only to find them creep back months or years later. Zimbabwe's Operation Murambatsvina ('Drive Out the Rubbish') in 2005 destroyed the informal economy in Harare, but did nothing to alleviate food shortages. Rather than the informal entrepreneurs rushing to register their businesses, most just stop trading and are forced to find another livelihood.

The most interesting finding of the paper is that the formal sector does not grow out the informal sector, it replaces it. Most formal firms started off that way: they registered and paid tax from the beginning, using seed capital from friends, family or foreign investment (rarely banks). That lends credence to the third view of the informal economy, the 'duality view'. This view explains the productivity differences between formal and informal firms in the skills of their owners and managers. Skilled managers (usually those with a college education) go to work in the formal sector, where their productivity is rewarded with high wages. Less educated managers stay in the informal sector, whose meagre returns are commensurate with their skills. The formal and informal sector are different people selling different things in different markets. The South African running the Nike store in the Accra Mall would no more think of competing with the Hausa shoe trader at Kaneshie than she would of buying her biltong from him.

A good friend recently came to Accra to research the same topic and he described the informal sector as facing a 'mesh ceiling': there is no insurmountable obstacle to small businesses growing large, it just almost never happens. He found that even when market-traders and shopkeepers were selling the same product, their perceptions of the challenges and opportunities of the business were completely different. In particular, the shopkeepers, who usually have some access to credit, complained bitterly about high interest rates and stingy banks; the market traders, who have none at all, didn't even mention it.

The informal economy doesn't formalize when an economy develops, therefore: it just gradually becomes less important. In the USA, 95% of food is sold in supermarkets; in Latin America it's close to 50-50 and in China their share is growing fast. Shoprite won't put my local fruit seller out of business. But her grandson might get a job there.

Limits to aid: yes please, but not a cap

Earlier this week I wondered about how to engineer a 'negotiated withdrawn' of aid to avoid fast-growing countries getting trapped in aid dependency.

Then I came across an interesting article in the Financial Times by Adrian Wood, Chief Economist of DFID. Wood argues that we should limit aid to a certain proportion of a country's budget - say 50%, or maybe 10% of GDP. Bill Easterly and Robert Wade provide trenchant commentary. (Nothing new here, says Easterly, but it won't work - the incentives for donors are to continue putting out aid come what may).

The debate continues at the Center for Global Development, with contributions from Nancy Birdsall, Jeff Sachs and Michael Lipton, amongst others. (Surely the problem is not too much aid, but too little? says Sachs - particularly when we have promised it and then not delivered, as is happening now).

I'm all for setting a limit to aid: but please let's make it a time limit, not a quantity limit. As Jeff Sachs points out, 10% of GDP for a country with a GDP per capita of $200 is $20 per person per year. That might be the upper limit of what a capacity-strapped or corrupt government can spend, but in post-war or desperately poor countries, much more will have to be directed at (re)building infrastructure, if necessary bypassing the government. To give an example off the top of my head, Liberia's annual budget is about $200m (itself the highest for 15 years), rebuilding their old hydropower station would cost at least $200m. I'd be curious to know what proportion of German or Japanese GDP was spent on rebuilding in the period 1945-50.

Rather than limiting expenditure per year, I'd like to see an aid agenda that says "We will work with you to achieve these targets and build capacity - but after 2015 we will begin cutting aid - and by 2025 we will have shut up shop, sold our Land Cruisers and our country economists will be out of a job. Over to you." Call it a surge, then a staged withdrawal.

"Aid is good, business is better"

Last week's International Herald Tribune carried an article by two most unusual co-authors: the world's largest diamond miner and Africa's first woman president.

President Johnson-Sirleaf of Liberia and Nicky Oppenheimer of De Beers write: "Countries must be willing to make a change in mind-set from the idea that foreign programs and plans will lift countries out of poverty to a belief in their own vision for their future. Foreign aid should only temporarily support countries while they implement difficult reforms and get on their feet."

Fantastic. I wonder how long 'temporary' means, though? Ghana has had billions pumped into it over 50 years and there is no sign of it stopping anytime soon. In fact, Ghana is getting more aid than ever - partly because its government has the capacity to spend it. Even more deservedly, Liberia is (at last) getting the huge inflows it will need to build up its infrastructure and public services. Not much of it is channeled through the government yet, but that is beginning to change.

In the longer term, though, I wonder if it might be wise to plan ahead for when the aid money will stop? Cutting off aid from one year to the next is hugely damaging, but pretending that it will continue for ever is a recipe for continued stagnation and dependency. I'd favour a negotiated drawdown - somewhere between Obama's 2 years and McCain's 100 years.

Some countries will need help for longer than others. Post-war countries are a special case and so are small islands or landlocked countries without natural resources. But I'd argue the chances of, say, Kenya or Ghana becoming middle-income countries by 2020 would actually be enhanced if we could agree a plan for aid drawdown now. (It has been done: look at Botswana, South Korea, Taiwan, Mauritius, even India is now a net donor).

So, Madam President, will you be brave enough to announce the date when Liberia will be independent from aid?

Belated benefit from slave castles

Last year a trip to Senegal opened my eyes to the evils of the slave trade in West Africa. More recently, I went to visit two of the 'slave castles' on the coast of Ghana. Both are carefully preserved and profoundly moving. I was impressed, as I have been throughout Ghana, with the knowledge and professionalism of the guides. They provided telling details of the greed and hypocrisy of the mostly British and Dutch traders. At Elmina (below), the governors used to have women they had captured parade in the courtyard and select one by leaning over their balcony. She was then dressed, washed and brought to the governor's quarters. If, at close quarters, she was found wanting, she was sent straight back to the dungeons.

The guides reminded us that these people operated with the connivance and support of European governments and many African rulers as well. Very few people are blameless in this sorry saga. So credit goes to the government, local authorities and Africans from the diaspora for helping to keep the memories alive.

In one respect, though, I felt that the slave castles were sadly unable to break from the past. Both the towns of Elmina and Cape Coast seemed extremely poor and unable to profit from their main attractions. I had expected to find legions of small hotels, restaurants and souvenir stalls, which might bring the people of these towns some belated benefit from their sorry history.

Instead, the dominant mode seemed to be "bus in, bus out". There are tourist hotels along the beaches, but virtually none in the towns. At Elmina, I only found one hotel catering to visitors; at Cape Coast, just a few budget backpacker places. Where there should be a bustling restaurant-and-souvenir complex, there is a ruin with a faded sign promising a 'visitor centre'. What went wrong? Where did the money go? Even the postcard and wood carving sellers, who are ubiquitous on Accra's beaches, were absent.

I would never suggest turning these lively fishing towns into slave coast Disneyworld. But fishing is a risky business and in decline, thanks to the European fishing fleets offshore. If big projects have failed, how about promoting small businesses? There are lots of little chop bars that no visitors go to: you could find a few ambitious ones and help them print English menus, maybe hire a kitchen help, put up some coloured umbrellas, then double prices. Or maybe set a fruit seller up with microloans to buy a juicer - I'd rather pay $1 for a glass of orange juice than try to peel my own for 10 cents. Or organize a fisherman's cooperative to offer canoe rides in the afternoon, for $5 per person? Set a fixed price, post it on a few notice boards and anyone shy of bargaining will jump at the opportunity.

Of course, if it were so easy, someone would have done it already. Would they?

The Great Illusion: Part One

Paul Krugman has a thought-provoking piece in the New York Times. He compares the international situation now with 1914, when the last great wave of globalization ended and the world turned in on itself for more than a generation.

I am substantially less well informed to comment than Krugman or many others, but it seems to me he is right to highlight the end of Pax Americana (but didn't that end in 2001, if it ever existed?). He is also right to point out how quickly national selfishness and protectionism reared their heads in the food price crisis - with export bans and the like.

There are three crucial differences between 2008 and 1914, however, which make me hopeful that we are not about to see an end to globalization.

The first is that international institutions are enormously stronger now than in 1914. The UN Security Council may have been powerless to do much about Russia and Georgia fighting, but that's because Russia is a member of it. The League of Nations would have issued a nice condemnation, but that institution was useless precisely because the USA, USSR, Germany and Japan were not a partof it. Besides the powerful military and economic bodies, there are countless talking shops where even sworn enemies without diplomatic ties can talk to each other in private, with a mediator if necessary. Europe depends on Russian gas; but Russia depends on Europe's continuing custom: you can't re-route a pipeline.

Second, unlike the Great Depression, the food price crisis contains the seeds of its resolution. 'Crisis' is often taken to mean a disaster, when really it means a turning point: this crisis is also an opportunity, by giving farmers in food-importing countries the incentive they need to grow more food. Here in West Africa, the price of imported rice and cooking oil has gone through the roof; but local food and oil production are starting to rise. Behind the crisis talk on the World Bank's website, a press release celebrates the halving of rice imports in countries as diverse as Guinea, Nigeria and Uganda, thanks to high-yielding rice varieties!

Third, there are large areas of the world that are as stable now as they ever have been. Krugman reminds us that war is now unthinkable in Western Europe; I would argue this extends to all 27 EU member states. The Americas and most of Asia are not islands of stability, they are oceans.

Rather than the end of globalization, I am much more concerned about another great illusion: the idea that we can deal with climate change by burying our heads in the sand. More uninformed ramblings on that to follow . . .

Togo's first Olympic medal

To be successful at the Olympics, it helps to be big, communist or preferably both. No surprises, then, that China is topping the medal table, followed by the USA. Meanwhile, North Korea and Cuba are 11th and 24th in the medal table respectively (as of Wednesday morning). Peninsular rivalry probably helps in the Korean case: the South Koreans are third overall. Just imagine how good a unified Korean squad would be. Or not: the unified German team is now further down the rankings than either of the two Germanies used to be.

So how can a small country without a well-resourced sports academy gain Olympic glory? One option is to find one sport you're good at and stick to it. 3 out of Ghana's 4 medals (mostly achieved in the 1960s) were in boxing. Kenya and Ethiopia excel at medium- and long-distance running. This is generally easier to pull off in the Winter Olympics, however, where Austria, Norway and Ukraine turn their climate to their advantage.

The final option, therefore: go random. Find someone who is good at a sport nobody else knows about. This seems to have worked for Togo, where Benjamin Boukpeti has become a national hero overnight for winning bronze in kayaking.

I wondered what led him to take up kayaking. Did he pick up a paddle to navigate the rushing mountain streams of south-west Togo? Did he pilot a pirogue around the mangrove swamps of his country's coast? Does Togo have a national kayaking academy, the relic of an unusually random far-sighted development project or an eccentric colonial administrator?

A little research revealed that Boukpeti's mother is French and he started off training with the French kayak squad, but switched to Togo in 2003. The competition was tougher in France, he said and they were worried I was getting too old. In fact, in spite of his dual nationality, he has spent the last 8 years training in Toulouse and only visited Togo once, as a small boy.

In my view, this shouldn't stop Togo from celebrating him as a hero: after all, they have the benefits of winning a medal without the costs of training him. It's the perfect technology transfer. With any luck, his success will inspire other young Togolese to take up the paddle (or find another little-known sport to excel at). I'm planning a hiking weekend in Togo's Kpalimé region next month; maybe I'll be able to fit in some watersports at the same time.

Doha and Firestone

Two pieces caught my eye yesterday:

First, my old Professor Dani Rodrik's offers a characteristically acerbic critique of the Doha Round. A waste of time, he says; most of the benefits would go to rich country taxpayers. And why is it published in an English-language Egyptian newspaper? Maybe Egyptian cotton farmers were hoping to benefit from Doha?

Second, the Firestone Company has signed an agreement with workers in Liberia. For the first time in the 82-year history of the world's rubber plantation, the company has done a deal with elected workers' representatives. (The ILRF has a self-congratulatory press release, but I would give more credit to the workers' union, Liberian government and media for keeping up the pressure). I wouldn't expect the miserable working conditions in the plantation to change immediately, but higher wages, more schools and buses to take tappers to work and their children to school are certainly steps in the right direction. As ever, the difficulty will be in implementing the deal: after all, workers are already supposed to be limited to an 8-hour working day when in fact it takes more like 12 hours to reach the daily quota (see picture).

At first glance, these two items are entirely unrelated. But I began to wonder why we never hear about rubber in the global trade talks? Or, for that matter, cocoa, coffee or oil palm?

Probably because none of the commodities above are grown in the USA or Europe. The most egregious trade restrictions, the ones that protect a few rich-country farmers at the expense of millions of Africans, are in cotton and sugar. Even Rodrik agrees that farmers in West Africa would benefit from a more liberal trade regime in cotton - but the US blocks it because of a few thousand swing voters in Florida. Meanwhile, in Europe we still make sugar out of beet. Maybe we're afraid that pirates will cut off our supplies of cane from the Caribbean.

I certainly hope that global trade negotiators will find a way to salvage some useful parts from the wreckage of Doha. But let's not pretend that selling a bit more cotton or sugar will end poverty in Benin or Burkina Faso. Low productivity means poverty, whether your crop is freely traded or not.

Microfinance for the armchair investor

I have been a big fan of Kiva since I stumbled across their website nearly two years ago (just before a NY Times article got them widely noticed). Late-night visitors to the Kennedy School of Government's computer lab found me perched on the edge of my stool, pondering the relative merits of investing in chickens in Kenya, a bookstore in Bulgaria and cassava-grinding in Colombia. It's strangely addictive, or would be if I could remember my PayPal password.

Lately, though, I've begun to wish there were more Kivas out there, for two reasons. One, Kiva doesn't pay interest. That's fine if you only have $100 invested, but put $1,000 in and you start to notice. Two, a lot of the businesses I lend to are very small, doing very similar things. I'm all in favour of food retailers, but there is a limit to the number of them a street or market can support. I have at least 5 vegetable sellers within a 5-minute walk of my house in Accra. (That's 5 times more than I did in Cambridge, unless you count WholeFoods). Any new one would probably compress the margins of the others.

So I was excited to discover MyC4 yesterday, Denmark's answer to Kiva (with loans in euros!). MyC4 is set up for bigger loans: they pay interest, usually around 10%. This cost is passed onto borrowers, but if the loans are bigger, the operating costs fall to compensate. Best of all, the interest rate is set by auction, so the borrower gets to borrow from whichever lender offers the lowest interest rate. It's a slightly different model - more wealth creation than poverty reduction perhaps - but a welcome one, in my opinion.

I bought €100 of credit and jumped straight in. So far, MyC4 only has partners in three countries, but one of them is Côte d'Ivoire, which is exciting because they don't get a lot of microfinance. Right now I am invested in 2 Ivoirien businesses and am waiting to hear if my bid to invest in one in Uganda has been accepted.

Even with the prospect of larger loan sizes, though, the most common business model on MyC4 is "X buys Y wholesale and sells it retail. The loan will enable her/him to buy more stock." Sure, but food and clothing retail is highly competitive in most developing world cities I know, so the potential for additional profit is small.

What am I looking for, then? Three things. One, rural lending. Microfinance seems to be as scarce in rural areas as it is common in the cities (how many Ugandan microfinanciers operate outside Kampala? maybe this Kiva fellow can tell me). Small loans for fertiliser and seeds would make a huge difference to many farmers. Two, product differentiation. Three, businesses that add value to commodity items. I can get delicious mangoes and pineapples all over Ghana, but no fresh mango juice. I'll bet if you wheeled a juicer around Accra you could make some good money and undercut Coca-Cola at the same time. Good for you, good for Ghana and great for my teeth.

Colleagues' blogs in Liberia

While visiting Liberia last week, I was lucky enough to stay with three blogging colleagues: Laura Bacon, Diane Mak and Preya Sharma.

All three are working in various government departments and doing their best to understand and contribute, in some small way, to this small but important country.

Most people seem to be keen on the work they are doing or that we did last year; but of course it's not entirely costless and our impact is highly variable (my biggest impact seems to have been not my main project, but IT skills training I did in my spare time!). So I am wondering: what, if anything, have other governments got out of short-term technical assistance and internships? Are there any lessons that would be useful for Liberia? What can be done to bring in people from the diaspora, who can usually get up to speed quicker than well-meaning foreigners?

Liberia: the process is on

Every time I visit Liberia, there are a few new buildings going up, a few more roads resurfaced, more private cars on the roads (and fewer UN LandCruisers, it seems) and another airline that has just started flights to Robertsfield.

It's slow progress, but it's progress. The atmosphere in Monrovia still feels tense, thanks to rising food and gas prices and continued problems with violent crime; but Liberia has so far been spared the 'rice riots' that have rocked Côte d'Ivoire this year or Liberia itself in 1979. Indeed, my former boss Minister Toe was instrumental in getting the World Bank to cough up $10m in response, including $3m to increase domestic food production.

Most positive accounts of Liberia begin with the government and that is my usual starting point too - but on this trip I tried hard to look for signs of life in the private sector.
On a road trip to Bong County, the graded roads and repainted schools are obvious - but also building materials stores sprouting everywhere. For now, this is mostly a reconstruction boom; but the service sector is growing too. More and better snacks available at the side of the road; more and better telephone, internet and printing services (though there are still no landlines); and best of all, insurance.

Why am I excited about insurance? I'm not, really: I have never worked in insurance and I hope I never have to. But my friend James, an old colleague at the Ministry of Agriculture, had just left his job to become a manager for an insurance company. I went to visit him and he introduced me to a colleague, who launched into a 20-minute sales pitch for their products. "Home and contents? We have it! Life? We have it! Automobile theft, collision damage, goods in transit, goods landed but not cleared, we have it! Liberians have grown to expect theft, flood damage, even losing their homes - no more!"

When he paused to catch his breath, I patiently explained that I was only visiting for a few days and my travel insurance policy was adequate to cover my few possessions. I wished them all the best in their quest to sell Liberians insurance and hoped that their brand-new office and freshly tiled floor would soon be ringing with the footsteps of risk-conscious clients.

Somehow, the very mundanity of this exchange encouraged me. Insurers may thrive on risk, but are naturally a risk-averse bunch. If African multinationals are investing in Liberia, they must believe the risk is manageable. If people buy their policies, they must believe that their claims will be taken seriously.

Over-eager insurance salespeople are tedious company. They are also an encouraging, a vital sign of capitalism. On my next trip, I hope I will be pestered by telemarketers and double-glazing salespeople. Now the post office is open, direct mail could be next. Liberians beware . . .

A really cool way to reduce fuel prices

I'm generally in favour of letting the price mechanism operate. Fuel prices are rising because demand exceeds supply, so the rising prices are a necessary signal to help us adjust to using less fuel. Subsidising fuel will just lead to shortages and postpone the inevitable; it's generally a waste of taxpayers' money.

Still, when governments jack up fuel prices by 40% over the weekend, it blows a hole in commuters' budgets (and hurts anyone who needs kerosene for cooking or heating). This happened in Côte d'Ivoire two weeks ago and I saw how bus and taxi fares immediately jumped to reflect the higher costs. Still, transport operators staged a strike: they claimed the government wasn't letting them raise fares by enough to cover the cost of fuel.

The government's response was to cut ministers' salaries in half and curtail foreign travel for government officials. The money saved will pay for a reduction in fuel tax. Fuel will still cost more than before, but only by 30%, not 40%.

Cynics might call this an election-time gimmick, but I think it's fantastic. I doubt the ministers will be thrown into poverty by the cut and it probably won't last long, but it sets a great precedent.

Who should be next? Maybe Kenya, where the government had to raise taxes to pay for their hair-raising 40 ministers (that's power sharing for you). But I would start with the European Parliament, whose members receive probably the most ludicrous travel allowances of any organization in the world. They can fly to Brussels on Ryanair for €99 but charge the round-trip business fare on, say, Air France (€500? €1,000?) and pocket the difference. The EU has already imposed a travel ban on President Mugabe and his entourage; wouldn't it be nice if we imposed it on EU parliamentarians too?

A lower-case capital

It’s not uncommon for countries to relocate their capital city: sometimes to an existing town or city, sometimes to a greenfield site. The cities thus created are as diverse as the reasons for creating them. At best, a new capital combines the vitality of any big city with a certain spacious self-confidence. Some of the world’s greatest cities (St Petersburg, Beijing) were designed as capitals, fully formed in the central planner’s (or emperor’s) mind. Washington DC may not have the lively churn of New York or Chicago, but its neoclassical grandeur sets it apart from other US cities. I have not visited Brasilia or Abuja: but whether you see these cities as bold visions of the future or a colossal waste of money, they are undoubtedly fully functioning capitals.

Other capital cities are still-born, capitals in name only. Tanzania’s parliament meets in Dodoma from time to time, but no ministries or embassies do. Burma’s junta recently relocated from chaotic, coastal Yangon (Rangoon) to a mountain village called Napyidaw, apparently at the suggestion of a fortune-teller. Strangest of all, perhaps, is Yamoussoukro, nominal capital of the Ivory Coast. 20 years after its designation, this bizarre city-village is a living monument to its creator and not much else.

Félix Houphouët-Boigny was certainly a master statesman. From the mid-1940s to his death in 1993, he was synonymous with Côte d’Ivoire, piloting his country from palm-fringed obscurity to the economic powerhouse of West Africa. The first African ever to sit in a French cabinet, Houphoët’s genius was to simultaneously convince the Ivoiriens that they were independent and the French that they were not. While Algeria, Kenya and Zimbabwe had to fight for their independence, Côte d’Ivoire was born without bloodshed. When neighbouring Ghana was convulsed by coups and economic collapse, the Ivorians took over as number one in cocoa. The national motto is hard-nosed: ‘Unité, discipline, travail.’

Houphouët ruled supreme for 33 years, buying off his opponents with cocoa farms and contracts. After he died, the falling price of cocoa and ever-growing corruption brought the Ivory Coast economic stagnation, political turmoil and eventually, tragically, civil war. But one aspect of ‘Le Vieux’s’ legacy is preserved: the largest cathedral in Africa and perhaps the world, rising out of the African bush in the middle of nowhere.


Yamoussoukro is a small village 200km north-west of Abidjan. It’s centrally located, on a main road, running through rolling hills with a pleasant climate. Houphouët was born near here in 1905 and that was why he designated this place to be capital. Nominally, it still is: the current government has no interest in the place but doesn’t want to touch his legacy. My bus from Abidjan suddenly burst onto a six-lane highway, completely empty apart from an army checkpoint, streetlights guarding both sides like silent sentinels. Outside the bus station, children and chickens played on a road as wide as the Champs-Elysées. Trucks laden with teak rumbled through on their way to the coast, lost in a vast expanse of concrete. Vast boulevards stretched in all directions, a few concrete bungalows stranded on the sides.

I saw a vast dome rising a mile away. My host, a local student and cousin of a friend in Abidjan, led me down the deserted avenue, past a mosque and a swampy lake where a teenage boy shook a single wriggling fish out of his net. As we crested the hill, the basilica loomed in front of us like a neo-Renaissance visitor from outer space. The guards were most welcoming: tour’s about to begin, they said.

The Basilique de Notre Dame de la Paix is the largest building in Africa and one of the hugest in the world. Its pews can accommodate 7,000 people, another 7,000 fit in standing. It has been full to capacity twice. The first was in 1989, when Pope John Paul II came to bless it. (At his request, the dome was made a few feet shorter than that of St Peter’s). The second was in 1993, at the funeral of its creator. On that occasion, over 200,000 people stood patiently in the grounds, which are beautifully maintained to this day. Only the Vatican and maybe Maracana stadium can compare.

The mind boggles at the megalomania that inspired this basilica in the bush and the sang-froid that permitted its financing. A simple plaque in the front pew commemorates President Houphoët ‘who gave this building to the nation’. God only knows what the nation gave him to build it. Our guide proudly recounted the details of its design (by a Lebanese) and construction (in three years, by French engineers). He did not tell us the price tag. In the past, I have marvelled at how much of Tibet’s GDP is tied up in temples or mediaeval France spent on cathedrals. But those monuments are alive: they are still at the heart of their cities, visited by the faithful as well as tourists. Save for a few weekenders from Abidjan, two young Germans (aid-workers?) and a French priest, the Basilique was empty. My friend had been a number of times; but he was Catholic. Most local people, he told me, ignored it completely.

And yet it’s staggeringly beautiful. Some dictators build mass graves or châteaux in France. This one at least gave the country something it can be proud of. Indeed, though Yamoussoukro was at the front line of Côte d’Ivoire’s ‘crise’ for 5 years, it was spared the shelling, rioting and looting. A battalion of Bangladeshi blue helmets live opposite; they didn’t look busy. Buses and trucks are running to the north again. The Hotel Président, a vast concrete pile on the edge of town, had a scattering of SUVs parked outside it. The market in the city centre was full of students eating at roadside stands. When I glanced up from my fried chicken and chips, the dome of the basilica stood in vast relief against the greying sky.

While the building may be unique, the ‘Big Man’ spirit that inspired it is not. When Houphouët died, his funeral was delayed by President Mitterrand, who reportedly had his Concorde circle above the airport for hours to make sure he was the last to arrive. Last week, President Kofuor hosted a sparkling awards ceremony for Ghana’s National Day, creating a brand-new ‘Medal of the Star of Ghana’. The first recipient: himself. As I write this in my hotel, Radio Télévision Ivoire has just devoted 30 minutes to what President Gbagbo did this weekend.

On the way back to Abidjan, my bus suddenly lurched to the side of the road. As we ground to a halt, I heard a wail of sirens and seconds later, a series of police cars flashed by at incredible speed, followed by three or four black S-Class Mercedes and a bunch of SUVs, indicators flashing. His Excellency on a visit to the North, or maybe his Prime Minister, the former rebel chief? The TV news confirmed it was the President on a 200km/h ‘peace-building’ tour. I wonder if he stopped at Yamoussoukro to pay his respects to Houphouët, who is buried in his palace, surrounded by a perimeter wall and moat. Once a day, a palace guard throws some fresh meat to the crocodiles who live in the moat. The Big Men continue eating, even after they die.

Cocoa processing in West Africa: addendum

Thank you to readers for commenting on the question of cocoa processing - I stand corrected! In fact, Côte d'Ivoire isn't just the world's largest cocoa producer, but the third-largest processor (only just behind the Netherlands and the USA). Ghana, though much smaller with less than 100,000 tonnes of capacity right now, is catching up - ADM and Cargill have gleaming new factories under construction.

It seems that tax incentives do the trick, along with the comparatively cheap energy and transport out of the coastal ports - great news for anyone working there. I'd be interested to know what the CID folks make of this. Are the tax incentives a good use of resources? Presumably yes, if two conditions are met: (1) cocoa processing has positive externalities that give it a social benefit over and above the direct jobs/profits and (2) the processing wouldn't have happened without the tax incentives. I can see lots of good spillovers from cocoa processing, so this is probably a good deal for the governments concerned.

Why cocoa-growing countries shouldn't make chocolate

It's an obvious economic development strategy: add value to your natural resources. After all, why should coffee growers only get a few cents when a cup of coffee sells for $3? Why should Liberians export their rubber raw to Ohio when they could earn more by making tyres? And why should Ghana and Côte d'Ivoire send most of their cocoa to Europe for processing? Isn't this just the legacy of colonial exploitation and underdevelopment?

Of course, adding value in the source country doesn't pay for multinationals, otherwise they'd be doing it. Now a team at the Center for International Development at Harvard show that it doesn't pay for the country either.

West African countries have lots of rain, cheap labour and an ideal soil for growing tree crops: in other words, a comparative advantage in growing cocoa. Processing cocoa requires entirely different factors: cheap power, semi-skilled labour, a stable environment for big capital projects and cheap transport links. Making chocolate out of cocoa butter is a different business again, calling for more specialized equipment and skills. There is one company making chocolate in Ghana, but it doesn't sell well even here. In fact it's highly unlikely that any country could have comparative advantage in such completely different activities. We shouldn't expect Ghana to specialize in chocolate any more than we would expect Belgian or Swiss chocolatiers to source their cocoa from European greenhouses.

Hausmann, Klinger and Lawrence conclude their paper as follows: "Policies to promote greater downstream processing as an export promotion policy are misguided. Structural transformation favors sectors with similar technological requirements, factor intensities, and other requisite capabilities, not products connected in production chains." (Policy brief here)

Now if only I could figure out what that actually meant in Ghana . . .

The cocoa story: part 1

I have come to Ghana to work on a project to raise the incomes of cocoa growers - already the motor of the rural economy here and in several neighbouring countries.

Ghana is the world's second-largest cocoa producer and three-quarters of a million farmers make a living from it. Unfortunately, their productivity levels are well below what is possible, even before you think about replacing the trees. Better crop management and judicious use of fertilizer can double yields in one or two years. So why hasn't it happened?

The biggest problem seems to be that most farmers can't get credit. Banks are unwilling to lend to farmers, for good reasons: repayment rates are low and there is little chance of seizing the farms to use as collateral, since most farmers don't have formal title to it. Microcredit isn't much help: the interest rates are too high and loan periods too short for agriculture.

West Africa still dominates the world market for cocoa, but Asian producers are making inroads with newer trees and much higher yields. Could cocoa go the way of coffee and oil palm, in which prices are set by cheap, high-volume production in Vietnam and Indonesia? The solution seems to be, at least in Ghana, in a flight to quality. The best soil and climate conditions, apparently. I predict that in 10 or 20 years, chocolate buyers will pay as much attention to questions of origin as wine and coffee buyers do now.

Would a green revolution in Africa be bad for women?

Most people would probably say 'no'. After all, most African women are farmers and so a green revolution should raise their incomes.

But what if improvements in farming technology shift control over food production (and hence income) from women to men?

The much-maligned Food and Agriculture Organization has a focus piece on this, which concludes that the Green Revolution in Asia benefited richer farmers more than poorer farmers and men more than women. Richer farmers, because not everyone could afford high-yielding seeds and fertiliser. Men, because
women lost the income they used to get from threshing and pounding grain when they were replaced by male-operated mills.

This is an important lesson for me, because I've been keen to see rice mills and other low-tech devices spread throughout Africa. I suspect the conclusion is less applicable to Africa, because wage labour is already rare among rural women and rice mills like the one in the picture employ women too. But it's a salutary reminder that we ignore the gender dimension of development at our peril.

Overall, I feel that any kind of agricultural development would be better for women than, say, a rural economy based around mining. My colleagues Emily Stanger and Molly Kinder just won an award for a paper that makes this point in the Liberian context.

Two even better articles on the food situation

The Financial Times has two great articles on why we should have been talking about food ten years ago. (Thanks to Joost Bonsen for alerting me to them).

The first is by Javier Blas: 'The end of abundance.'

The second by Alan Beattie on Africa: 'Seeds of change'.

They note that: "Farmers, agronomists and development experts say that new technology alone, particularly in the short term, will bring no radical transformation. Quicker gains can be made improving markets and transport, which will help expand existing, under-used technologies."

Exactly. Roads and rice mills, then . . .

Rice is back

The price of rice has stopped rising, for now, but the scramble to grow more rice has only just begun.

Agriculture ministers and scientists have been calling for a 'Green Revolution for Africa' for years. The Gates Foundation wants to fund it. Belatedly, the World Bank has agreed. The central focus seems to be on improved seed varieties, bred or modified for African conditions. A blog in the New York Times describes 'The Hunt for Super-Rice', a distributed computing project wherein unused time on personal computers is used to model genetic variations of rice. (This is the same technique as used to search for extraterrestrial intelligence and protein folding combinations).

By contrast, a friend has pointed out a low-tech approach to raising yields in today's edition of the same newspaper. Professor Norman Uthoff at Cornell University has developed a 'System of Rice Intensification' which relies on early and less dense planting. It may seem counterintuitive, but apparently yield can be raised without recourse to the flooded paddy fields or chemical fertiliser familiar from Asia. At a time when the cost of fuel (and hence fertiliser) has risen even faster than the price of the crop, this is welcome news.

As so often, however, the article skirts around the question of implementation. There may be isolated incidents of doubling or tripling yields, but techniques are even more difficult to disseminate than seeds or fertiliser: they need trained extension workers. Even if the System of Rice Intensification raises yields more cheaply or reliably than a 'Green Revolution', it will need a new army of extension agents to make it work. Unless it's so good that it can be spread by word of mouth. Maybe the best agricultural technology is the mobile phone . . .

Madam President wows Harvard

Last week we celebrated our graduation from Harvard in style, with speeches from two female Presidents who have made history.

Harvard's President Drew Faust certainly has the most money at her disposal, but it was Liberia's President Ellen Johnson-Sirleaf who drew the most rousing applause.


Some fellow students found her speech a bit dry (what did they expect?), but I loved it for the telling detail that characterizes Madam President's approach to leadership. I particularly liked this line from her speech: “To be successful you will need to be prepared to go that extra mile to spend time to improve the structures and systems with which you will be called to work." I sometimes feel we put too much emphasis on charismatic leadership and not enough on the slow, difficult task of institution building.

Meanwhile, a new host of interns have begun working in those same institutions in Monrovia. Among them are two fellow Brits, Preya Sharma and Diane Mak. Both, I am happy to report, at the Ministry of Finance, which is probably the most exciting place to be in Liberia right now. Unless the Lone Stars manage to qualify for the next World Cup . . .

The impact of food price rises on trade balances

As world leaders, UN officials and thousands of hangers-on gather in Rome to talk about food, the US Department of Agriculture has released a fascinating map showing how food price increases affect trade balances.

On the face of it, this looks like bad news for developing countries, especially in Africa. A few traditional food exporters, mostly temperate-zone countries like the USA and Argentina, stand to improve their trade position, while densely populated Asia and Africa will see their trade balances move towards deficit.

However, we should beware the mercantilist fallacy that a trade surplus is somehow a sign of virtue: in fact, it could be a sign of excess saving (Japan, after all, ran a trade surplus throughout the recession years of the 1990s). So maybe a slide towards deficit in countries like Nigeria or Peru, where high commodity prices have created trade surpluses and risks of 'Dutch disease', isn't such a bad thing.

The problem with this graph is that it doesn't tell us anything about the terms of trade between countries. Trade in food, like anything else, is determined by relative prices: so the real question is which countries stand to improve their terms of trade as a result of food price changes. After all, if your terms of trade improve, you can afford more imports for the same quantity of exports. You could conceivably increase your import volume while the value of your imports falls. That's a real welfare gain. A trade surplus is nothing of the sort.

Sushi

The Washington Post reports that a new sushi bar has opened in Liberia.

So now there are two of them. If only the sushi were made from local fish (fresh and delicious), I wouldn't mind. But importing tuna and salmon to serve to aid workers, when the rest of the population can barely get enough rice (let alone fish), seems a little absurd.

Inspiring student leadership from Venezuela

I suspect I am not the only person who is cycnical about student politics. My parents' generation demonstrated for free love and against Vietnam, but when the 1968 generation came to power, they were self-indulgent and spineless (Bill Clinton and Gerhard Schröder come to mind). The student union 'leaders' during my time Oxford spent 90% of their time debating arcane matters of student politics. The only two substantial protests they organized were against student tuition fees (a bad cause) and against the Iraq war (which the government ignored).

How refreshing, then, to hear from the leaders of a Venezuelan student movement who have, in the space of only a year, built a non-partisan coalition that is changing the face of Venezuelan politics. The students began by protesting against the closure of Venezuela's oldest TV channel, RCTV, in 2007. They moved on to President Chavez's attempts to abolish presidential term limits in a constitutional referendum in December 2007, which Chavez lost narrowly - his first electoral defeat since 1998.

There seem to be two reasons for the students' success. One, they avoid the sterile pro-Chavez/anti-Chavez debate by recognizing that "Chavez is a product of historic forces". In other words, he's the government, like it or not, and the questions is how to make life better for Venezuelans and safeguard freedom and democracy. Two, their non-violent tactics stand in contrast to their (initially) harsh treatment at the hand of security forces and 'Chavistas'.

The representatives from the student movement who spoke at the Kennedy School were impressively articulate, both in Spanish and English and deeply sincere. I was inspired by their example and hope they manage to avoid the cynicism and careerism that affects student 'movements' elsewhere. Two reservations, though. One, they still looked and sounded like members of the elite (not surprisingly, perhaps, given the high cost of tuition at good universities). Two, they were in the USA to accept the 'Milton Friedman prize for liberty' from the Cato Institute. One can't begrudge them the money, but doesn't this increase the risk that Chavez and others will denounce them as imperialist stooges?

Let them eat spaghetti

When I last visited Liberia in January, there was much talk of higher rice prices and their impact on people's eating habits. After all, the Kennedy School's Nolan Miller has shown that rice consumers sometimes exhibit Giffen behaviour - that is, they consume more when the price rises, because they have had to cut back spending on vegetables, meat or other foods. (His paper is due to be published in the American Economic Review).

I had been hoping that Liberians would respond to the rising price of imported rice by switching to home-grown country rice, which tastes just as good but often has rocks in it and is difficult to find in the capital.

People often told me that "people in Monrovia won't eat country rice". But the Liberian palate may be more flexible than that! The BBC's Katie Price reports that restaurants in Monrovia have started serving spaghetti. A plate costs $1 - half that of a plate of rice. Could be good with a hot chilli sauce. I have eaten spaghetti in Somali restaurants, where the Italian influence on cooking lingers, but this is the first time I have seen or read about it being served in West Africa. Sadly, I doubt this will be a lasting response to the food crisis, because most Liberians don't eat in restaurants and the price of wheat has been going up too.

Now, how about making spaghetti from cassava flour?

Robert Zoellick visits the Kennedy School

Last week, the World Bank's President Zoellick made a brief stop at the Kennedy School to address the Harvard International Development Conference. A few of us were also lucky enough to attend a small group meeting with him beforehand.

Zoellick is probably the most impressive Republican official I have ever encountered: smart, engaging and thoughtful. He spent an hour and a half asking each of us where we came from and what we were working on. In the picture above, he is quizzing my friend Carlos on the effects of the Colombia Free Trade Agreement (which Zoellick helped negotiate) on Carlos' native Ecuador.

It was left to Professor Dani Rodrik, sitting opposite Zoellick in the picture, to point out the inconsistency in the World Bank's attitude towards trade. (He did so in a different meeting, as we didn't let the professors say anything in the first one!). Essentially, Zoellick wants to conclude the Doha Round at the same time as increasing the supply of basic foods. But the Doha Round entails reducing the subsidies the USA and EU pay to farmers to grow these foods, which will raise their price in the short run, just when the world is facing record shortages of rice and other staples.

Is this a real contradiction, or will it disappear over time? I'm inclined to think that the supply response of farmers in Africa and Asia will ultimately outweigh the decline in US and European production. After all, the subsidies are most distorting in crops like cotton, which is not a food crop and not in short supply. The Bank's own research suggests that eliminating subsidies will increase global rice prices by 4.2% and wheat by 5%. That's much less than the current spike in prices. So what is the elasticity of rice supply over 3-5 years?

Driving up food prices

The BBC reports that Cote d'Ivoire's president has reduced taxes and customs duties on food in response to rioting. As the prices of wheat, rice and other staples continue to rise, I wonder if we are seeing a new kind of 'beggar-thy-neighbour' trade policy emerging?

In the last few months, export taxes have been imposed in Argentina and export restrictions imposed in Thailand and Vietnam. A few months ago, I noticed the same thing in Ecuador. These measures may work to contain the price rise in food exporting countries, for a while; but they will drive prices even higher for everyone else. This hasn't had much effect in Cambridge, Massachusetts, where food makes up maybe 10% of our expenditure, but most of the poorest countries in the world are food importers and poor people spend over two-thirds of their income on food.

I teach a course on globalization and the parallel with the 1930s is alarming: at that time, the Smoot-Hawley tariff provoked retaliatory tariff increases by Europeans, South Americans and others. A tariff may be optimal for one country is detrimental to the world. Only this time, we are talking about restrictions on exports, not imports.

What are the options for dealing with this? Maybe the World Food Programme or FAO should convene an emergency food summit to try to persuade food exporters not to starve everyone else.