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The challenge of development
Monday, 04 May 2009 05:53

Many developing countries are missing the globalisation train.  While five million of the world’s population live in prosperity or moving towards prosperity, the bottom billion (mainly in Africa) have been moving backwards.  Western governments have made many promises to provide increased assistance to these countries, promises which are rarely fulfilled.  Should we be worried?  Perhaps not, as official development assistance has too often done more harm than good, by supporting and facilitating corrupt regimes.  We should however be worried about the bottom billion from a humanitarian point of view, and from security and health risks that they can generate.  This means that we have to stop doing harm, and provide real help not just cash handouts.

We are used to thinking that, apart from the one billion of us living in developed OECD countries, the other 5 1/2 billion people on this planet are living in poverty.  However, it is not as simple as that.  In fact, most of these people in developing countries are progressing, moving out of poverty.

According to Paul Collier, it is really "The Bottom Billion" of the world's population that represents the world's development challenge.  This group has been moving backwards, and there is no sign of them progressing.

The bottom billion are in some 58 countries, with 70 per cent living in sub-Saharan Africa, while others live in places like Bolivia, Myanmar, Haiti, Laos, North Korea and Central Asia.

These countries have fallen into traps which define their challenges.  Collier identifies four traps, being: conflicts; dependence on natural resources like diamonds or oil; land-locked geography, which makes them dependent on their neighbours transport system; and bad governance.  While aid can help tackle these traps, other policies are necessary, like laws and charters for good governance, opening of markets by developed countries, and sometimes even military intervention.

For Collier, the most important trap is resource riches -- sometimes called the curse of natural resources. Resources should provide a path to prosperity.  And for countries with good governance like Norway, that has certainly been the case.

For the typical African exporter, the impact of natural resources is more complex.  In the first instance, commodity price booms increase national income.  But after a couple of decades, national income falls back well below (perhaps 25%) the starting point as corruption, conflict and bad governance take over.  

While that has been the pattern in the past, surely the progressive democratisation of Africa should help?  No, is the answer from Collier's research.  Resource revenues in fact corrupt the functioning of democratic processes.

What can we do?  In fact, most of these bottom billion societies are characterised by internal struggles between those against the abuse of power by government, and the forces for inertia.  We need to help the forces for progress.  Collier proposes the use of instruments of governance, international rules, standards and codes.  

Pie in the sky?  No, progress is indeed being made.  There is the Kimberly process which is about transparency in diamonds and seeks to keep diamond revenues out of the hands of extra-government forces. Every diamond producing country has now decided to sign up.  Then there is the Extractive Industry Transparency Initiative to which a dozen countries have signed up.  It requires signatory governments to report to their own citizens the revenues they are earning from natural resources.   

What else?  In exploiting resources under the ground, there are five key decisions which governments should take for which we need voluntary international standards.  First, selling the rights to extraction -- this should be done by open auctions, not behind closed doors.  Resource profits should be taxed.  A proportion of those taxes should be saved, not spent.  These moneys should be invested honestly through competitive tendering, not a jamboree of corruption.  And lastly, they should be invested efficiently, not in white elephants.

This is all very well.  But these challenges of development will only become greater in the future.  The last few years saw a massive resources boom, and Africa benefited handsomely.  While resource prices have now fallen back, they will certainly take off again after the crisis.  And it is far from clear that enough successful efforts have been made to guard against the return of the curse of natural resources.

One positive note could be the role of China as a resource investor and developer in Africa.  China is also developing much infrastructure, selling consumer goods and providing social services.  Also the many Chinese workers who are in Africa usually live like locals, rather than staying in 5-star hotels.

Much of Africa's problems come the history western aid which has been mostly ineffectual and corrupting of local governments.  It is difficult to see that the Chinese could do worse. 


The Bottom Billion: Why the Poorest Countries Are Falling and What Can Be Done About It, by Paul Collier. 


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