IDE-JETRO/JICA Meeting on Development in Africa – Past ... · 30/10/2006 · IDE-JETRO/JICA...

IDE-JETRO/JICA Joint Meeting on “Development in Africa - Past, Present and Future”

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IDE-JETRO/JICA Meeting on

Development in Africa – Past, Present and Future

February 26, 2008

Moderator: KATSUMI HIRANO

Director in Charge, Area Studies Center IDE-JETRO (Institute of Developing Economies, Japan External Trade Organization)

Presenter: PAUL COLLIER

Director, Center for the Study of African Economics

Oxford University

Attendee (main table): IDE-JETRO (Institute of Developing Economies, Japan External Trade Organization)

TAKAHIRO FUKUNISHI, African Studies Group, Area Studies Center

YUKA KODAMA, African Studies Group, Area Studies Center

SHINICHI TAKEUCHI, Director / Senior Research Fellow, African Studies Group, Area

Studies Center

TATSUFUMI YAMAGATA, Director, Development Strategies Studies Group,

Development Studies Center / Professor, IDE Advanced School (IDEAS)


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The University of Tokyo

MITSUGI ENDO, Professor, Department of Advanced Social and International Studies,

Graduate School of Art and Sciences

YASUYUKI SAWADA, Associate Professor, Faculty of Economics / Graduate School of

Economics

KEIICHI TSUNEKAWA, Professor, Department of Area Studies, Graduate School of

Arts and Sciences

Kobe University

MOTOKI TAKAHASHI, Dean / Professor, Graduate School of International

Cooperation Studies

GRIPS (National Graduate Research Institute for Policy Studies)

IZUMI OHNO, Professor

KEIJIRO OTSUKA, Professor / Director, FASID Graduate Program

Ministry of Foreign Affairs

MASAHIKO KIYA, Director, International Peace Cooperation Division, Foreign Policy

Bureau

MAKIKO UEMOTO, Deputy Director, Second Country Assistance Planning Division,

International Cooperation Bureau

JBIC (Japan Bank for International Cooperation)

MEGUMI MUTO, Senior Researcher, JBIC Institute (JBIC)

JICA (Japan International Cooperation Agency)

MASAFUMI KUROKI, Vice President

HIROSHI KATO, Director General, Institute for International Cooperation（IFIC）

ATSUSHI HANATANI, Senior Advisor

HIROYUKI HINO, Senior Advisor


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PROCEEDINGS

DR.HIRANO: Good morning, ladies and gentlemen. Today's quite exciting occasion, we

are happy to receive Professor Paul Collier. All of you should know him well. We learned a

lot about his works and his institute in Oxford University, and we’ll make the best use of this

opportunity, so I would like to ask Mr. Kuroki, Vice-President of JICA to the opening speech.

MR KUROKI: I will not make a long speech, just a few words. First of all, I would

like to extend our deep appreciation to Professor Paul Collier to have come to this

meeting. I think that you have a very busy schedule in Tokyo this time, and we are

very honored to be able to organize this meeting to have exchange of views,

especially on African development. I think that most of us have read your latest

book, The Bottom Billion, and I was personally impressed by your very

comprehensive approach to development from economic, political, military, and

social aspects.

Japan is deeply involved in African development. Our development aid covers

capacity development, MDG related to sectors, infrastructures, post-conflict

countries, etc.. Particularly this year, Japanese government organizes an

important international conference on African development, what we call TICAD

meeting, in May, and also G-8 summit meeting will be organized in July in Japan. I

think that African development will be one of the priority issues, main issues, of that

coming G-8 Summit meeting as well.

As for the research activities, actually JICA and JBIC have been conducting a

study on the Asian development experiences for African development, especially

industrial development experiences and the role of government for that. JICA has

been also conducting another study on the conflict prevention and development to

understand what kind of role development and aid can play for conflict prevention,

particularly in Africa. So, I think African development or Africa in general is quite a

hot issue in Japan as well as in JICA. Today, we have researchers on Africa and

development in general, both political and economic science fields, in addition to


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the representative of the Ministry of Foreign Affairs, JBIC and JICA. So, I hope

that we can have an interesting and very useful discussion at the meeting for the

African development. Thank you very much.

DR.HIRANO: Thank you, Mr. Kuroki. Before starting Professor's lecture, I think

it's better for us to understand the nature of this opportunity. Now, we have sitting

together with our academic colleagues in the relationship in African study and

development study. I myself, Katsumi Hirano, am from the Institute of Developing

Economies, and from the Institute, several staff are also sitting here, and also JICA

experts, the University of Tokyo, Kobe University, the Ministry of Economic and

Trade and Industry, and the Ministry of Foreign Affairs. Professor Collier will

deliver another lecture in the afternoon for the public. Before that, I would like this

meeting will be more frank one, so that you are quite welcome to say something.

This opportunity is quite valuable for us, especially the academician who major in

African study and development study. So, let us start. We would like to ask

Professor Collier to make a very frank basis speech. Please.

PROF.COLLIER: Well, thank you very much for inviting me. It's a good

opportunity for me to meet Japanese experts, and the timing -- you mentioned two

aspects in which Japan is very important at the moment; the TICAD event and the

G-8 Summit. There’s actually a third which is that you are the chair of the

Peacebuilding Commission. So, you've actually got three important positions,

each of which has a strong bearing on Africa's prospects. So, it's important that

you use that opportunity to the maximum effect.

Let me just spend half-an-hour on what I think the opportunities and issues are

in Africa at the moment. Of course, Africa is a big place as you all know, and so

there is no one magic answer. The problem with Africa is X. No. So, we need

to disaggregate a little bit, and I now find it helpful to disaggregate by economic

geography and political geography, so I am going to just sketch using that


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disaggregation what I think the key issues are at the moment.

And I'll start with economic geography. It seems to me that the single most

important event for Africa at the moment is the commodity booms. They don't

affect all of Africa. They affect perhaps about half of Africa. But the amount of

money that is flowing in is enormous from the exports of commodities. Angola

alone is getting something like $50 billion a year in oil revenues. The entire aid

flow to the “bottom billion” last year was $35 billion. So, the revenues coming in

from natural resource exports are very much bigger than aid and very much more

important, because in the past, these commodity revenues have not been used well

-- not just by Africa, but globally. I've looked globally at the experience between an

increase in commodity prices and the growth that that produces -- I’ve looked for the

last 40 years -- and it's a story of, in the short-run, the commodity booms produce

faster growth. So, you can't help but grow faster in the first few years of a

commodity boom. And that's the phase that we are in now in Africa; that the

continent is growing faster. We just can't tell whether that growth is sustainable or

not, because looking at the last 40 years, always commodity booms produce a

phase of faster growth. But then, normally, that growth turns negative. This is not

a forecast about the prices. It's the consequences of higher prices. So, a phase

of faster growth, but then a phase of decline. I've tried to simulate the commodity

booms in Africa on the past 40 years of global experience, and for the first five or

seven years, you get significantly faster growth. So, if you start GDP at 100, five or

seven years after, it's up to 110, so it's 10% up relative to counterfactual. And then

if you come back 15 years later, it's 25% down. So, it's up and down.

Now is the up. That happens for every country. The down doesn't happen for

every country. It depends. Norway, Australia -- they went up and then they went

up more. And it turns out that the critical aspect which determines whether you go

up and further up, or up and then down is governance. And there's a threshold

level of governance above which all countries that have these booms continued up,

and below which you go up in the short run, and down in the long run. And where


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is that threshold level of governance? Well, to take a little country far away -- this

has nothing to do with Africa -- it's Portugal in the mid-1980s was about at the

threshold level of governance. Now, Portugal in the mid-1980s was about the

worst governed country in Europe. But you’ve got ask yourself, was it better or

worse than the typical governance in the “bottom billion?” And of course, the

answer is that it was rather better. So, the prospect is that unless governance is

improved or unless history fails to repeat itself for whatever reason, these

commodity booms will turn sour; up in the short term, down in the long run.

One reason why history might not repeat itself is that in the 1970s, which was

the last big experience of booms, most of these countries were dictatorships and

now they are mostly democracies. So I looked to see that how democracy affect the

performance of the commodity booms. Unfortunately, what I find is that

democracy makes things worse. Not inevitably. It depends what sort of

democracy is. What I found was that electoral competition makes things much

worse, checks and balances make things better, and a mature democracy has both;

it has electoral competition and it has checks and balances. But of course, the

democracies of the “bottom billion” in Africa are generally not mature democracies;

they’re very unbalanced democracies. They’ve got electoral competition, but there

are no checks and balances. So, that is a recipe for, if anything, a political

economy that is even worse than the previous dictatorships. So, if I was an African

living in one of these countries, I would be desperate to try and improve economic

governance as fast as possible.

And the question then becomes, can we do anything that could help? In all of

these countries, there are reformers trying to win struggles for change, and how can

we help them? We can't do it for them, but we can help them. One idea that I've

been trying to encourage, and I think suitable both for TICAD and for the G-8

Summit, is the idea of some voluntary international standards which would guide the

key decision points that are important in harnessing the booms for sustained growth.

In other words, what do we mean specifically by good economic governance in the


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context of a commodity boom? If you’ve got a commodity boom, yes, we want

good economic governance, amen, but what do we mean by good economic

governance? And there seemed to me to be five key decision points, which I'll run

through very quickly. One is how the rights to resource extraction, the legal rights,

are actually sold. Now, we know how they are being sold at the moment. The

Chinese fly in and do a deal with the minister, and it's a very nice deal for the

minister and it's a very nice deal for the Chinese. How can we do better than that?

Auctions, internationally verified auctions would be the best way, I think, in general,

of getting honesty into the system. And auctions also level the playing field in

terms of information. The government doesn't need to know what the rights are

worth, because competition through the auction will reveal the true value. So, step

one is selling the rights. Step two is then taxing the revenues. Most revenue

comes from tax, not from the initial sale of the rights. And the tax regimes in Africa

are pretty chaotic. The Democratic Republic of Congo last year got royalty

payments of $86,000 from mineral rights -- $86,000! It exported several hundred

million, and revenue was $86,000. So, there are some basic features of taxation

of these resource rents which I think should have been in followed. Zambia -- $2

billion worth of exports of copper; tax revenue, $36 million. If they had the tax

regime of Chile, it would have been closer, I think, to about $800 million. So, there

are just basic errors in taxation. So, we've sold the rights through auctions.

We've taxed the revenues. The third stage is to save the revenues, at least a

sensible proportion of them. The fourth and fifth stages concern investment out of

those savings, and the investment should be honest, and it should be efficient, and

they are very different things. Honesty, --that requires competitive tendering in

public procurement. And efficiency, it requires some assessment of the likely rate of

return prior to approval of the project. So, those are the decision points and the

processes which seem to me important for economic governance of a resource

boom. If you get all those stages right, you'll probably grow. And if you get enough

of them wrong, you probably won't.


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Just before I leave the resource booms, the key transmission mechanism onto

the rest of the economy, I think, is through the construction sector, and I think the

issues around the construction sector are rather neglected. Always when you get

commodity booms, you get construction booms. Now, typically what happens is

that in the construction booms, there's a huge increase in demand, and that pushes

up prices more than quantity. In other words, the supply curve of the construction

sector is rather steep, and price booms produce big rents for politicians, they

produce a lot of waste, a lot of increasing cost. And the policy issue is really to try

and flatten that supply curve in the construction sector, so that we get a bigger

expansion of quantity for a smaller increase in price. If we can get big quantity

expansion in construction, that will generate jobs and that then becomes the

transmission from the primary boom onto the incomes of ordinary people. So

much for the resource booms.

Let me move on quickly to the countries that are not experiencing the resource

booms -- what about them -- and there I distinguish between the coastal and the

landlocked. In the coastal countries, I think the big failure in Africa has been the

failure to break into global light manufactures markets. That is the Asian model,

and that’s what produces explosive growth, because the peculiarity of manufactures

is once one firm is profitable, other firms are also profitable, and as the cluster of

firms expands, costs fall. So, all other activities, supply curves slope upwards. In

manufacturing, supply curves slope downwards. So that once you’ve got started,

you can expand very fast. That creates threshold problems of how do you get

started, because the first firm is going to have higher costs than the tenth firm or the

hundredth firm, and because of that, the first firm never starts. And that's the

problem which Africa faces at the moment. It's a problem of a chicken and an egg.

If there were clusters of exporting firms, costs would be a lot lower and they might

well be viable, but until there are clusters, it's not sensible for any individual firm to

start. And so what Africa needs -- coastal Africa needs -- is to create these

clusters of exporting firms, and those clusters would be concentrated in just a few


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coastal cities. That is the nature of export manufacturing.

One of my favorite figures is that 60% of the world's buttons are made in one

Chinese city. It's amazing. The power of clustering. And it's not that there’s one

big button manufacturer in that city. There are just lots of little firms making

buttons, but by concentrating together in that city, they all have lower costs. So,

there's no chance of a button manufacturer setting up in Africa.

Now, fortunately in garments, garments are not quite as powerful clustering

economies, and so Africa can break in in garments. You can you imagine a few

coastal cities -- Mombasa, Dar es Salaam, Maputo, Accra, Dakar -- where you get

clusters of exporting; something like that. Four or five coastal cities. In order for

that to happen, we need to prime the pump. And the way to prime the pump is I

think to give Africa temporary privileged access to our markets. I don't see any

point in Africa protecting its own markets. Its own markets are too small and too

stagnant, so it needs privileged access to our markets for a few years. And we

know that would work, because America is already doing it. America has AGOA,

the African Growth and Opportunity Act, which has been pretty successful. African

garment exports to America have increased seven-fold as a result of AGOA in just a

few years. Europe has a scheme, Everything But Arms, which is completely

useless. It doesn't work, because always with trade deals, the devil is in the detail,

God is in the design, right? The key issue with the trade preferences is what's

called rules of origin which determine what imports you can use as inputs and the

goods still be eligible for export. With AGOA -- there's only one part of AGOA

which works, and that's for garments, and there, there is a thing called a special

waver which allows more generous rules of origin. Europe doesn't have that, so its

scheme is useless. Over the same period that African garment exports to America

have increased seven-fold, they’ve actually declined to Europe. So, the European

scheme is a waste of time. Japan doesn't have a scheme. And what would be

nice, very simple, would be to have a common scheme across the OECD, modeled

on the American scheme -- America, a bit better, America plus -- but a common


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scheme, and the G-8 Summit is an obvious forum to try and discuss that.

Who would lose from this? Is Africa a big threat to Japan? No. I doubt

whether a single Japanese job will be threatened, right? I mean it's incredible to

think that you're frightened of African imports into Japan of manufactures. No,

right? Who would be threatened? Well, the only country that would be at all

affected would be China. It's China that is the competitor for very cheap African

exports. It's a tiny effect on China. China is growing so fast that it could afford to

lose a little bit of market share to Africa without worrying. And of course, China is

so concerned to get on good terms with Africa so that it can extract resources that

China is not going to object. So, that’s to my mind the important thing that we can

do to help coastal Africa break into these manufactured exports. I think it's very

important for Africa, because at the moment with rapid population growth and

deteriorating climate, African agriculture is going to be very stressed. I don't

believe that African agriculture is the solution to Africa's problems. I think there’s

been a desperate struggle for African agriculture to keep pace with the growth of

population and the deteriorating climate, so it's very important that some other

sector starts to grow fast, to start pulling the labor force out of African agriculture.

I haven't mentioned the landlocked, the landlocked resource-scarce, and that's

because I think they are the most difficult intractable problem, and their best hope is

that their neighbors do better. If the resource-rich countries and the coastal

countries start to grow, then that growth can spill over to the landlocked. But that

means the sequence is really, let’s do what we can for the coastal and for the

resource boomers. That's where we can make a big difference. The landlocked

resource-scarce, unless the rest of the continent grows, there are real limits to what

is possible, I think.

In my last few minutes, let me talk about two aspects of political geography.

One is post-conflict. There are a lot of post-conflict situations in Africa now,

because the last few years, there's been a lot of peace settlements, and they are

pretty fragile. Southern Sudan could easily go back to conflict. What can we do


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to make these post-conflict situations more secure? Well, I think, economic

development is enormously important in these contexts. I've recently done

statistical work on the post-conflict risks, and economic development significantly

and substantially brings risks down. I can find no political magic which does bring

the risks down. Democracy in post-conflict settings does not bring risks down on

average. Elections in post-conflict don't bring risks down. In fact, elections shift

the risk. The year before the election, the risks go down a lot, and the year after

the election, the risks go up even more. So, post-conflict elections are not a good

milestone for the withdrawal of peacekeeping troops. Quite the opposite. In the

Democratic Republic of Congo, the international strategy, if you remember, was

elections, October 29, 2006; date for withdrawal of peacekeepers October 30, 2006.

It was madness. Instead we had to fly troops in, fly them out. So, economic

recovery is vital to bring risks down, but it takes time. It takes a decade. There is

no quick economic recovery. What do we do during that decade? Well, that's the

role for international peacekeeping. We need to think of a package of

peacekeeping combined with economic development over the course of a decade,

where peacekeeping helps economic development because it provides a secure

environment, and economic development is the exit strategy for the peacekeepers.

And what I'm trying to encourage is to think in terms of a sort of global compact

between the key players in post-conflict. There are usually three key players.

There are the donors that provide the money for post-conflict recovery. There's

the Security Council that provides the peacekeepers. And there's the post-conflict

government that sets the policy framework. And all three of them need to

recognize their mutual responsibilities over the course of that decade, and I would

like to see those responsibilities spelled out in something like a global compact,

because they are interdependent. If there's no long-term commitment to

peacekeeping, economic development is much more difficult. Without sustained

aid, the economic growth that's needed as the exit strategy for the peacekeepers

doesn't happen. And without a commitment by the government to adopt economic


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reforms and to avoid provocative political actions, the peacekeeping and the

economic recovery won’t actually build the peace. So, there are these mutual

obligations.

One other thing is about post-conflict. These are typically environments in

which the civil service has collapsed, and so it's a very difficult environment in which

to spend a lot of public money, and think we've not really faced up to them properly.

The needs are enormous, but the capacity of the government ministries to spend a

lot of money well is extremely limited. A good example of this was Liberia where

once we got a good president and good finance minister. If you remember their very

first act was to sack the entire Ministry of Finance, which was very necessary, but

then what? I think the international community has been unrealistic here in not

facing up to the fact that trying to recreate something that looks like Europe in the

1950s -- these monopoly ministries that spend public money -- that's not going to

happen in a short time frame in these environments. It’s just not a realistic model.

We need a different institutional architecture for spending public money in these

environments. The model that I have proposed is to split the functions of these

monopoly ministries into three blocks. One block which is the policy block, so

policy formation would stay with the ministry. That's what Ministry of Education or

the Ministry of Health would do; set policy. At the other end, the actual retail

delivery of health services, educational services, would be down competitively by

whatever delivery channels worked, multiple delivery channels. This might be

NGOs, it might be churches, it might be local governments, civil society; whatever

worked. So, multiple channels of service delivery. And in between would be an

agency which I call an Independent Service Authority, which would channel money

to retail providers, and the agency would be analogous to an independent central

bank. It would be a public agency but outside the civil service, and the board of

that agency would include donors. So, it would be an alliance between

government and donors and probably some representatives of civil society within

the country, so that there would be a board scrutinizing the agency, and then,


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donors could channel their money through this agency. The agency would work to

the policy framework set by the ministry, but it, not the ministry, would be

responsible for spending the money. And that I think is a more realistic framework

for scaling up aid money fast in the delivery of basic services. Trying to rebuild

these monopoly ministries is just, to my mind, a fantasy.

Let me close with some remarks on the situations such as Kenya at the moment,

because anybody working on Africa, the Kenya crisis is something that we not only

cannot ignore, but we have to solve. We have to say how this sort of situation can

be avoided. I think what Kenya crisis illustrates is the failure of the model of

democracy promoted over the last 15 years, so I think it's a very serious issue.

Let's think what has been promoted over the last 15 years. With a lot of pressure

from the international community, especially from the Americans and to an extent

from the Europeans, I think less so from Japan -- but that pressure was essentially

to hold elections, and the image in especially American and European minds was

the fall of the Soviet Union. It was the model of Eastern Europe applied to Africa;

the idea that, if only you could get elections, then everything will be all right. We

now know that was wrong, and it seems to me to be wrong for two reasons in Africa.

One is that it goes back to what I said earlier about the lack of checks and balances.

So, it's electoral competition without any rules. There are no rules either limiting

the use of government power once somebody's won, nor any rules about the

conduct of the elections. So, the stakes are very high, the winner wins everything,

and there are no rules of conduct for how you win, so of course, governments have

learned how to win by illegitimate methods. And the standard methods are bribery,

ballet fraud -- so vote miscounting -- and voter intimidation. Those are the three

standard ways of winning an election. Being a good accountable government

doesn't feature in the top few strategies. So that's one problem.

That's bad enough, but it's made a lot worse, because in most of Africa, political

leaders have never built the nation. The sense of nationhood is weak relative to

the sense of tribal identity. East Africa provides a very good contrast between


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Tanzania and Kenya. Tanzania, where President Nyerere got his economic

policies absolutely wrong, he got his political policies absolutely right, and he built a

sense of nationhood, and played down tribal identity. And he used very

straightforward techniques to build a sense of nationhood. In Asia, the model

would be Sukarno who was very like Nyerere; terrible economic policies, but a good

strategy for building a sense of nationhood in a nation that was just a collection of

very different societies. You remember Sukarno introduced a common language,

Nyerere introduced a common language, KiSwahili. Nyrere focused education

policy on building a sense of common identity. In Kenya, you have exactly the

opposite strategy. You have 40 years in which political leaders have played upon

ethnicity. Kenyatta got his economic policies much better than Nyerere, and his

political strategy much worse. Kenyatta favored the Kikuyu, and then Moi favored

the Kalenjin. And then Kibaki has favored the Kikuyu again. And so Kenya is

now this disaster where there is a weak sense of nationhood, strong electoral

competition, no rules on the use of power, no rules on the conduct of elections.

How can we get out of that mess?

Well, I’m going to close with one suggestion, which is for a voluntary set of

international standards on the conduct of elections. This wouldn't solve everything,

but it would help. I am a very strong believer in voluntary international standards.

I've already given you that idea for the management of the resource booms, for the

idea of a compact for post-conflict peacekeeping, and now for the conduct of

elections. Let me sketch how it would work. The neat thing about this proposal is

there is a carrot which turns into a stick. So, governments could sign up to a

voluntary set of standards on how to conduct an election, which would include

international monitoring of the election. If they signed up, what would be the

carrot? Not aid. Aid is not a credible carrot. After 40 years of aid being given by

agencies for all sorts of reasons, that's not a credible carrot. So, the carrot would

be protection against a coup d'etat. A coup d'etat is a much bigger threat to a

government than is the risk of losing an election. There've been over 80


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successful coups d'etat in Africa, and several hundred failed coup d'etat.

Governments are frightened of their own armies. And democracy does not provide

protection against a coup d'etat. It would be nice if it did, but it doesn't.

Statistically, I've looked at these things. But African armies are very weak, so it's

very feasible to provide a security guarantee. So that's the carrot. Now in fact, if

a compact like that or a charter had existed five years ago, President Kibaki would, I

think, have signed up for it even before he became president, because if you

remember, he was fighting a closely contested election, and I think he would have

used it. His whole campaign was based on the argument that if we win, we will be

the honest party. So, it would have been very convenient for him to say, if we win,

we will sign the democracy charter.

And now, the real advantage of this proposal is that the carrot turns into a stick,

because we now come to the elections of December, and President Kibaki, you

must imagine, has signed this charter, so there are monitors there monitoring the

election. Now, if President Kibaki decides to steal the election, and the monitors

then say, sorry, but this is not a free and fair election, what then happens? What

happens is that that guarantee against a coup d'etat is removed. The guarantee is

only provided as long as the elections are free and fair. Now, why would the

international community remove the guarantee? There's a very powerful reason

for it to remove the guarantee publicly. That is because suppose Kibaki steals the

election and then in January the Kenyan army moves in to depose Kibaki saying,

that election wasn't free and fair, we are going to rerun the election. We don't want

to find ourselves as the international community required to go in and remove the

Kenyan army and bring back President Kibaki despite the fact that he's stolen the

election. And so to protect ourselves, we would have to say, I’m sorry, our

monitors have said this is not a free and fair election, therefore, the guarantee

against the coup is removed. But of course removing the guarantee is actually an

invitation to the army to do a coup.

Now knowing that, what would President Kibaki have done in December? You


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see, we don't even get to the business of a coup and international intervention.

President Kibaki is then suddenly faced with a very different scenario in which if he

tries to steal the election, he risks a coup. That was in fact what happened in

Senegal, one of the very, very few African democratic elections in which a president

was defeated and stood down -- and why he stood down was that the army told him,

if you don't stand down, there's going to be a coup. And the reason that threat was

credible was because there had just been a coup in Cote d’Ivoire. The French has

temporarily lifted their guarantee against coups. So, I'll close with that. By having

an international voluntary standard on the conduct of elections supported by a

minimal amount of security provision, in this case a guarantee against coup d'etat,

we could I think have made these elections much cleaner.

So, I’ll close there. I've tried to give you some ideas on the current economic

geography issues, and some ideas on the current political economy issues. But

let’s open it up.

DR.HIRANO: Thank you very much, Professor. I believe that this lecture is

ample of the idea, and the implications are very stimulating. Before starting

forward, I forgot to mention the name of the organization is Japan Bank of

International Cooperation also together with us today. And also the National

Graduate Research Institute of the Policy Study is also together with us. At first,

let me allow to ask Professor Sawada, because both of us was in Brisbane in the

seminar of Professor Collier, and Professor Sawada is also coming the tutoring

under Professor Marcel Fafchamps, who is one of Professor Collier’s deputy at the

Centre for Study of African Economies. So please.

DR.SAWADA: Thank you very much. Actually I have to leave earlier and I have

to give a lecture on suicide to French people during a lunch meeting, so please

allow me to ask you questions first. My name is Yasuyuki Sawada. I was an

advisee of Marcel Fafchamps, your fellow colleague at Oxford, so I may identify


17

myself as your grandson or nephew.

I think I have four or five short questions and comments. First question is about

governance, economic governance. I was wondering what is the -- we are now at

the JICA as one of the largest donors in the world, so I wonder what kind of aid can

be designed? How can you design foreign aid as an instrument to improve

governance of recipient? As I know, your colleague at World Bank, David Dollar

has a paper (with Jacob Svensson) in Economic Journal, saying that structural

adjustment lending was not quite effective to improve governance or governance of

the recipient countries was independent of the way foreign aid was provided. So, I

wonder what kind of aid can be -- how aid can be designed to improve the

governance. So, this is the first question.

And second question is related to your information in your presentation. I was

really interested in the fact of the quite steep supply curve of construction sector in

Africa that generates the rents to the politicians. I wonder what kind of policy

device we can design to make the supply curve flatter. Can we think about some

flexible migration policy within the region so that supply curve of the construction

sector can be changed? I wonder what kind of a policy device you can you

elaborate on.

Third question is about policy externalities in the landlocked resource-scarce

countries. I have read your writings and papers. Admittedly you regard the

foreign aid has relatively little role to improve the externality for these landlocked

resource-scarce countries, and aid is not an effective instrument to improve

neighborhood growth spillovers nor neighbors externality arising from neighbors

economic policies, but I wonder there is a way to design aid policy so that donors

can somehow enhance the externality arising from the neighbor countries.

Then, fourth comment is about Asian type model. I agree that we need some

sort of jump-start device to start the positive feedback process of manufacturing

sector and export. I have one paper which I like very well, which is Paul

Krugman’s paper entitled “History versus expectation,” and which was published in


18

QJE (Quarterly Journal of Economics) in 1991. He said there are two ways to start

up this positive feedback process. One is the “history”--some slight increase in

history can automatically generate the cumulative process. The other one is the

“expectation”--government can set up indicative planning policy or some

coordination-type policy so that the people's expectation is coordinated. So,

through the self-fulfilling expectation, whole cumulative process can be started.

These kinds of stories are quite natural for us living in East Asia. Economic

Planning Agency, now a cabinet office, has been setting 5-year plans that

generated coordination. And also from the donor's viewpoint, for example, the

Eastern Seaboard project in Thailand. I think most of the government officials here

in Japan regard this as one of the most successful cases where ODA generated

strong spillover and complementarily with foreign direct investment and also exports.

We call it “aid trinity” of ODA, FDI (Foreign Direct Investment) and export. And that

kind of project has been nested into the national economic planning. So, I wonder

whether this kind of Asian type of model is really feasible, say in Kenya or Mombasa.

I knew that Mauritius is sort of consistent with Asian-type export oriented policy but I

wonder.

And then finally, I have a little bit different type of question. I myself have been

working on micro-development economics, so I worked on a lot of micro data.

Recently, MIT and Harvard, people on the East Coast in the US has been working

on the randomized program evaluation. I think they are academically quite

successful, so they are pushing this small scale social sector program, very, very

carefully designed and carefully evaluated, and then, they intended to scale it up.

So, I wonder what is your view on this type of scientific program evaluation as an

instrument to identify effective aid policy at the grassroots level and the scaling it

up? MIT is Poverty Action Lab has been working on. I think this is also relevant

for Japanese government policies and new JICA. How should we adopt these

kinds of randomization into the operation? I think I will stop there. Thank you.


19

PROF.COLLIER: Let me respond to those. They’re all good questions. So,

question one was aid design for governance; how do you use aid to improve

governance?

DR.SAWADA: Yes, and also I’d like to follow-up. You know China as a

non-OECD member. I think China is providing aid money without any careful

conditionality, so this mitigates the role of aid as a policy device. So, can you also

include that?

PROF. COLLIER: I think the scope for sort of policy conditionality is very limited,

very limited. I've for a long time been a critic of policy conditionality. I think

there's more hope for what I call governance conditionality. Policy conditionality is

trying to insist that the government adopts particular policies. Governance

conditionality is trying to insist that the government be accountable to its own

citizens. And that seems to me a lot more legitimate. Now, how can we do it?

How can we do governance conditionality? Two things, really. One is, where we

do budget support, we need, I think, to have much higher standards of the process

of the budget, and that probably needs a lot of technical assistance. It needs two

things. It needs technical assistance to improve budget processes, and it needs

verification processes to judge whether standards have been met. The budget

support is only as good as budget processes, and at the moment, in a lot of Africa,

budget processes -- they’re just not satisfactory. So that money can appear to be

-- even in Uganda, which is one of the better budget processes, they manage to

increase military spending and put it under the heading of education, and they could

do that because budget processes were so weak. And then there's the famous

example of the tracking surveys in Uganda showing how very much money leaked

in the spending chain. So, there needs to be a lot of technical support for

improving these budget processes, and then quite separate from that technical

support, a verification process which judges whether budget procedures are


20

sufficiently good to justify budget support.

At the moment, there's a very big gulf between the American position at one

extreme and the European position at the other extreme, where the Americans are

basically saying, we will never put money into budget support under any

circumstances, and the British at the other extreme are very keen on budget

support, and the European communities for that matter. I think both are wrong. If

we push budget support into budget processes which are too weak, it's not just that

the money is wasted. It's much worse than that. It's that the money gets

captured by exactly the political forces that we want to oppose. All these societies

have struggles between reformers and crooks, and if we push money into leaky

systems, we are empowering the crooks, and therefore, weakening the reformers.

So, we’ve got an absolute responsibility only to use budget support where we’ve

verified that budget processes are sound. In some environments, we know they

are not sound, and we know that realistically they are not going to be made sound.

And in those environments, I would favor this model of the independent service

authority which provides within the broad framework of government, a system for

much tighter scrutiny of spending processes, because the essence of what an

independent service authority would do is monitor the retail providers, compare one

with another, and always move money from the less cost effective to the more cost

effective channels. So, you’d have yardstick competition between different

spending channels.

So, in answer to your question, one approach is to just strengthen budget

processes, another is to just say, that's not realistic in these environments, we’re

going to introduce a new architecture for public spending. So, I think both of those

are sort of sensible approaches. As you say, with the introduction of China has

really set back and all of this.

DR.SAWADA: Can I ask a quick follow-up question?


21

PROF.COLLIER: Yes.

DR.SAWADA: Do you, for example, recommend conducting a public expenditure

tracking survey (PETS) at the very initial stage so that all the budget flows can be

properly monitored by donors?

PROF.COLLIER: Yes, I think those tracking surveys -- Ritva Reinikka, who

pioneered these things, was one of my students -- yes, she pioneered all these

tracking surveys of expenditure, and they’re just very revealing.

Now, all this will cost money. And this will be my final comment that we often

make a big mistake in trying to judge the efficiency of our aid agencies in terms of

how much money they disperse relative to their administrative costs, and that's the

wrong way of judging an aid agency. We keep squeezing the administrative

budget relative to the amount they disperse, thinking that that makes them more

efficient when actually we are quite rightly encouraging our aid agencies to go into

more and more difficult environments, and the cost of operating effectively in these

environment is very high, and we should just face that. It is much better to have

very high administrative costs but to spend money well than to have low

administrative costs and let the money be captured by our enemies. And there is

this very dysfunctional discourse on greater efficiency in the aid agencies which we

need to counter. We’re in a position to counter that. Of course, ordinary citizens

are not in a position. It's an easy language for them to understand; more

administrative efficiency. But we're in a position to provide a counterargument to

ordinary citizens, and we need to do that.

I should say -- this is just an aside -- the reason why I wrote The Bottom Billion

was that I recognized that it's enormously important for ordinary citizens to

understand the key issues about African development, because until ordinary

citizens understand, politicians will not deliver sensible policies. They'll deliver

gesture politics. The Bottom Billion is shortly coming out in Japanese translation,


22

but you are all the experts here. It's part of your job to get a message out to the

Japanese society, not necessarily the message of the “bottom billion,” but a

message of how Japanese policies towards Africa can be as effective as possible.

Let me turn to the question of flattening supply curve in the construction sector.

Quite a good model here is Botswana. Botswana had a rolling five-year

development plan that within that five-year development plan, they had an annual

plan for the construction sector because they knew that part of what they were

doing was placing big demands on their construction sector. So every year, they

would call in all the construction firms, explain what they are trying to do, and said,

is this feasible, and if not, how can we make it feasible? And they discovered

simple things, like the size of the contracts they were trying to award didn't match

with the size of the firms they’ve got. They were too big. Especially in

post-conflict settings, the construction sector has withered away because

throughout a civil war, there is no construction. The society is in destruction mode.

So, you inherit a situation in which there were very few firms and huge demand.

Skills have withered away. So, one of the bottlenecks is the ordinary skills of the

construction sector. So, there is a sequence here that you need to establish

simple colleges of technology for building. Train brick layers, plumbers, welders.

That's a simple thing to do, but it's just not usually done. So, there's a skills

bottleneck, there's a firms bottleneck, short of firms, and the firms we’ve got are

very small. There’s sometimes the bottleneck on land, urban land. Although

there's plenty of urban land, there's not a legal framework in which to put that land

on the market, and so there's an urgent task of getting an urban land market going

with properly defined land rights. And then sometimes there are bottlenecks in

terms of key inputs into the construction sector, such as cement. In Southern

Sudan at the moment, there's no cement. There are only two companies

supplying, both in Uganda, and they are making a fortune. So, there are

bottleneck inputs like that. These are big issues. In Liberia, the cost of building a

school has doubled in the last year, so the aid budget is buying half the schools that


23

they thought they could buy. And if you could flatten that supply curve, you’d get

more schools. But nobody's looked at these issues as far as I can see, so it's very

much a sort of cutting area, cutting edge of research.

Your third question was what can aid do for the landlocked? I think there is an

important role for aid, especially in improving transporting things to the coast. Very

simple reason, which is that the coastal countries don't have a very strong incentive

to spend their own money to do this, because there are externalities, and so the

coastal links are very poor, and it's a proper use of aid to provide these things where

they are powerful externalities.

Your fourth question was about expectations and coordination in industrialization.

I very much like the ODA-FDI-exports trinity, and I think Mauritius is quite a good

model, actually. That's why you've now got a success in Madagascar, because the

Mauritian firms have moved south to Madagascar. Most African governments

don't really understand the coordination role, and of course, they’ve got very low

credibility even if they tried to play it. But the right institution is the export

processing zone. But they misuse that. A good example would be Kenya. The

Kenyan government decided that it would be a good idea to have export processing

zones. Now, realistically, you need one -- in Mombasa. It's very obvious. You

just have to look at a map. You need a cluster of export manufacturing at the port.

In fact, Kenya's got 42 export processing zones. The total number of firms in all

the zones put together is only 73. So, the typical zone has one-and-a-half firms,

and most of those 42 zones are hundreds of miles from the coast, because the

Kenyan government used export processing zones as a patronage device. It was

a tax break. So, if I was particularly friendly with you for the obvious reasons, then

you became an export processing zone wherever you were. So, the government

has just not understood what the opportunity is really about. It's about creating

these clusters.

The final question was about the randomized experiments. We're doing quite a

lot of the randomized experiments at Oxford as well. We're doing randomized


24

experiments on education strategies in Kenya. We've even done a randomized

experiment on trying to reduce voter intimidation in elections in Nigeria. So,

randomized experiments are obviously a good approach. I think what are they

good for? They are good for -- really they need to be internalized by government

ministries as devices for learning about public expenditure. I think my criticism of

the sort of MIT approach at the moment is that it's a great device for getting articles

published but it's not necessarily a great device for getting policy changed, because

in order to get policy changed, policymakers actually have to do the evaluations

themselves. So, my center in Oxford is working with the Kenyan Ministry of

Education. They are devising the experiments that they want, and we're just

working with them to do the randomization and the quantitative analysis. But it's

their choices of what policies they want. And we're working with them over five

years so that they will themselves build a capacity to do that learning internally in

the ministry. Now, if you can do that, that's good for improving the quality of public

spending, and that's fundamentally what randomization can do.

Now, how important is that? Well, it's useful, but of itself it's not a development

strategy. I mean, Esther Duflo is very clear about this. She says, oh, I've no idea

about development strategy; just let's find out what interventions work to reduce

poverty. And I think that's too limiting, that we’ve actually as economists got

responsibilities to think about and advise about development strategies and not just

focus on this rather limited function. But clearly, randomization is a good scientific

way of getting information, so I've no problem with it. We're doing it.

DR.SAWADAS: Thank you very much.

DR.HIRANO: Okay. Next, I would like to ask Mr. Hino.

DR.HINO: Thank you, Paul. Your presentation was, as usual, very lucid and

interesting, but you know that there are some parts of it that I must confess that I


25

was feeling a bit uncomfortable. That has to do with your proposals to basically

solve problems with introducing additional international voluntary codes of conduct.

That is the part I was feeling a bit uncomfortable, both with regard to managing

natural resources and also managing elections. I feel that there are already too

many of those international codes. When African governments do procurements,

they have to comply with the procurement procedures that the World Bank and

others have set up. African governments have to go through the PRSP process in

formulating their economic policies. They have to go through the donor coordination

processes in setting budget allocations. African governments have to go through all

sorts of international procedures and processes in managing their affairs. There

are already too many in my view. To me, rather than sort of “imposing” those codes

from outside, the emphasis should be to build institutions within the country and

incentives within the country, so those good conducts would come naturally out of it.

Let me first talk about your proposal on the elections and then go back and talk

about your proposal on natural resources. First, elections. Your proposal is to

sort of give a carrot for not rigging elections by extending a guarantee against the

coup, and also a stick by promising to remove the guarantee if the lections were

rigged. This is difficult in my view, because in a way you would be legitimizing the

coup. You might also be, in a way, encouraging a coup. In Nigeria, where both you

and I know well, after the last elections, the people talked about coup but it did not

happen. It didn’t occur. Instead, a legal process is taking place. The court is

verifying which election results were right, which elections results were wrong, and

many of the elections were nullified. If I have to bet, I would bet that there will be

new elections--presidential elections--in July because the court would likely judge

that the elections were wrong in December. And that, I think, is a healthy process.

Now, in Kenya, what transpired after the elections were, of course, tragedy and sad,

but again, Kenyans are trying to find some political solutions. Such a solution may

come, may not come, but I think that this is a healthy process of finding a lasting

solution.


26

In my view, your remark on the democracy in Kenya is, generally speaking, right

in the sense that the international community was too simpleminded in “imposing”

the multi-party system and presidential election. In a way, I was a part of it. No, I

was not a part of it, sorry. Kenya is, as far as I know, only one example where the

donors collectively decided to withdraw aid until the multi-party elections were held.

To me, in Kenya and others in Africa, a presidential system is in a way a problem,

because the presidential system means winner-take-all, right? If you win the

election, you get everything. If you lose, you lose everything. So, that brings the

ethnic conflicts into a sharper focus. I think that this is the problem of the political

system that Kenya has now. So, what they need and what they are working on

now is a constitutional reform; more devolution of powers, perhaps parliamentary

system, not the presidential system, more devolution of powers to local

governments, so that powers may be shared amongst different ethnicities. Finding

such a political system could take time, but that is what I think we need to

encourage, that is, to help build institutions that will solve the problems for a long

time to come. Not a quick fix, not like guaranteeing against a coup. To me,

seeking a quick fix is not quite right.

Now, let me talk about your proposal on introducing an international code of

conduct for managing natural resources. In my view, in Nigeria and others, the

real solution to natural resource management lies in giving the monies back to the

people, rather than giving all the oil monies to central governments. If you look at

Niger Delta in Nigeria, you would know that this international code of conduct would

not solve the fundamental problems that oil monies are causing. Niger Delta is the

place where the oil is produced, and where the conflicts have persisted for a long

time. These conflicts are one of the reasons why the oil prices have been very

high. Those conflicts would not be resolved unless the people in Niger Delta feel

that they have their shares of oil monies with them. If there is a way to give oil

monies directly to the people, and then if the government has to tax it to get its

revenue– just like any other incomes --then the people would naturally ask for


27

accountability. They would ask how the government to account for the monies that it

spent. I know that you dismiss this idea simply because it is not politically feasible.

I know that it's not politically easy, and perhaps not so feasible, but I don't think one

should dismiss an otherwise good idea simply on the ground of political infeasibility.

What Nigeria and others need is an institution, to build institutions that would

safeguard the use of their own oil monies.

We would like Africans to be able to safeguard the use of their oil monies, not

because they have to comply with those codes, but because there is a process or

an institution within a country that provides checks and balances from – and for--

their own people. Again, this takes time. But to me, generally speaking, the way

forward is less codes and rules that are required from outside, and more of own

institutions that regulate from within. In my view, the problem of aid dependency is

not so much financial dependency, but that of intellectual dependency. In a way,

the international community may wish to push back to Africans many of the

challenges and issues so they deliberate and decide how best to meet those

challenges. That, I think, will lead to a lasting solution in the long run. Thank you.

PROF.COLLIER: Okay. Let me come straight back at that. I think you are

wrong. The main reason that I think you're wrong is that -- what are institutions?

They are a form of public good. They are a sophisticated form of public good.

Institutions have to be created by collective action. The typical African country has

characteristics which make collective action for the creation of public goods very,

very difficult. That's why Africa is so short of public goods. And by the time we

get to institutions which bind the state, these are very difficult public goods to supply.

African governments can't even supply primary education or health, and these are

far simpler public goods to provide than institutions that constrain the actions of the

state. So it's completely, I think, romantic to believe that these societies are

capable of generating internally these very sophisticated public goods which took

the developed world centuries to develop, centuries. So, like many public goods,


28

Africa has chosen to structure its policies in such a way that it’s fundamentally

ill-suited to generate the public goods which it needs internally. So, a lot of these

public goods need to be supplied, for a phase, internationally. I've just given you

one example earlier of the landlocked countries which need good roads to the coast,

but the internal poverty of Africa is such that for 40 years, those roads have not

being produced. And they won’t be produced in the next 40 years unless they’re

provided internationally, because there are no institutions to internalize the

externalities. So, the aid donors are in a position to internalize those externalities

in their own decisions.

If I come down from that general position that it's entirely legitimate for the public

goods that Africa needs to be supplied outside the continent, let's take a

non-controversial example, which is a vaccine against malaria. A vaccine against

malaria would be a public good for Africa. It's quite clearly not a public good which

Africa is capable of supplying, and so it will be supplied outside Africa, but benefit

Africa. The institutions which bind and limit and constrain the state are far harder

to supply than a vaccine against malaria. And so the same is needed. They are

going to have to be supplied initially internationally. Once you’ve got them

supplied internationally, then the societies can climb up to a position where they can

build institutions which make those external supplies redundant. So it's a phase,

it's a sequence.

Now, if we go from the general to the specific, in the case of resource riches,

Nigeria itself promptly picked up on the one international code we have in this area,

which is the extractive industries transparency initiative. The Nigerian reformers

immediately adopted it, and it had a big impact. It produced transparency and a

degree of accountability within Nigeria. If there hadn’t been an extractive

industries transparency initiative, the EITI, the Nigerian reformers wouldn't have

been able to use it. As it is, our friend, Ngozi, then moved on to the issue of a

sensible savings rate out of the revenues, which is one of the things I believe there

should be an international voluntary standard on, and she introduced her own


29

attempt at a standard, which was the fiscal responsibility bill which she and the

president were unable to get enacted, and so at the moment, it's stuck as a bill

which didn't get past the Senate, and Ngozi’s gone. Let's hope the Ngozi’s law

survives, but it would have a better chance of surviving, if it were actually reflecting

an international standard, just as the Nigerian EITI (Extractive Industries

Transparency Initiative) reflects the international EITI.

The model of distributing oil money to citizens -- yes, I mean, if they did that, it

would change the political economy, but that's why they are not going to do it. It's

not that they don't understand. It's that they understand only too well. And this is

the chicken and egg, that there's the solution, very straightforward solution, and

they are not going to adopt it because it's not in the interest of the governing elite to

adopt it. So, one has to have external assistance to the reformers to improve the

chances of change.

If we go back to where we started, which was the guarantee against coups, you

said the danger is that this legitimizes a role for coups. Precisely. That's what we

should be doing. The coup threat is a reality in Africa. There are hundreds of

these coup attempts. At the moment, we're adopting the romantic position of

saying, let's abolish coups. And a much more sensible position is to say, let's

harness the power of the coup, which at the moment is an unguided missile; let's

provide a guidance system for it. Is this something that’s unique to Africa? Is this

unheard of, the military as a discipline on civilian governments? There’s no Asian

country that has done anything like this? What's been going on in Thailand?

What's been going on in Turkey for years? These are transitional societies in

which the military has actually played rather a stabilizing role in limiting the

excesses of democratic governments. And that's a phase. It's not something that

we would want to make permanent. And it’s something that sometimes happens in

Africa. Mauritania -- recently, there was a coup. The army removed the

government and then said we are going to have free elections, and we’ll step back,

and they did just that. The problem in Africa has been that often well-motivated


30

coups have then turned badly. A classic one will be Ethiopia, where Emperor Haile

Selassie, by the time he was replaced, he was a senile autocrat. He was a

complete disaster. And he was replaced by a very respected general of the army,

General Andom, and what should have happened then was elections and

democracy, and instead what happened was another coup, and we got Mengistu

who was even worse then Haile Selassie. So, providing some sort of guidance

system for coups. And of course, once you’ve got the guidance system, the coups

wouldn't happen, because governments would not put themselves in a position

which exposed them to the risk of a legitimate coup. By defining circumstances in

which coups are legitimate -- and we can all think of circumstances in which coups

would be legitimate -- by defining circumstances in which they are legitimate, those

circumstances are never going to happen, because governments want to avoid

them. That's a more realistic world than the romance of a coupless democracy in

which the government obeys all the rules. Look what's happening.

DR.YAMAGATA: Shall we discuss that issue of coup because this is focal point in

his speech, I guess. Now, let me ask a question. My name is Yamagata of the

Institute of Developing Economies. I’m an economist and I’m not that familiar with

that particular issue but still interested in how that system works. For example, it

seems to me, it's not easy to define the coup. Actually for example in the case of

Thailand, some people might argue that Thaksin voluntarily stepped down. Then

that's not the coup. And in the case of Bangladesh, actually there was an interim

government for election and the military backed the government. Then some

people might argue that is a kind of coup. Obviously, the government doesn't say

that. So, that's my question.

PROF.COLLIER: First it’s a matter of realism. I mean, let's think what the French

have been doing for years. The French have just put down a rebellion, just two,

three weeks ago in Chad, right? If you remember the rebels got to the palace, and


31

the French said, no, go away, and they went away, because the French have got a

huge military base in Chad, and basically the French initially didn't know what to do.

The first pronouncements from the French were, oh, it has nothing to do with us,

and then they thought better of it and decided they better put the rebellion down.

And then they said, we'll do what it takes to put this rebellion down. And then, the

rebels ran away. Right? Now, that's how not to do it, if you think about it. It's the

French being stupid. It's the French never having recovered from the mistake they

made in Cote d’Ivoire, which was President Chirac’s mistake; a disastrous --

allowing a coup to happen. For years, until 1995, if there had been a coup d'etat in

Cote d’Ivoire, it would have been put down. After Rwanda, the French got nervous

about intervention. So, when the coup in Cote d‘Ivoire happened in 1999, the

French elite around Chirac said, we’ve got put this down, and Chirac said, no, it

would look bad, we'll just let it happen. And that was a disaster. Look what

happened in Cote d’Ivoire. The coup led to a civil war, and they are still not really

out of it. What should the French have done? And they’ve got Chad wrong, that

if they had some clear rules about when they would and wouldn't have intervened,

they wouldn't have needed to intervene. So, getting explicit rules about

intervention radically reduces the actual need to intervene. And making it up as

things happen maximizes the confusion, and maximizes the need to actually

intervene. So, some clear rules that say, you’re guaranteed against the coup as

long as you conduct democracy in a reasonable fashion -- it doesn't have to be very

demanding. And of course, we’ve monitor the elections for years, so there's

nothing unusual about monitoring elections and declaring whether they are free and

fair or not. We've been doing that for years, right? This is just trying to link the

security provision that we are doing already with the monitoring that we're doing

already. And it's trying to make Africa look a little bit more like the situations in

Thailand, which might be messy but are more satisfactory than what we've typically

got in Africa, I would suggest.


32

DR.HIRANO: I invited Mr. Takeuchi. He is engaged in the conflict study in Africa.

DR.TAKEUCHI: Thank you very much. My name is Takeuchi. I am studying on

Africa, especially French speaking Africa, and I am interested in conflict problem in

Africa. I learned a lot from your works, and I am very happy to be here.

I would like to tell you my impression when listening to your discussion. I have

studied post-conflict issues in Africa, and my main research field is the DRC

(Democratic Republic of Congo). Observing especially the situation in the DRC

and even in Chad, I think that there is a tendency for international community to

backup the incumbent government. Everybody knows that actual Kabila

government have many, many problems. And the international community had even

established a special institution called CIAT (International Committee for Supporting

the Transition). CIAT is an international organization, which was embedded in the

peace accord in Pretoria and supervised the peace process in DRC. P5 in UN and

important countries were involved in that organization. In fact, they monitored the

DRC peace process very closely. But as you know, there are many problems in

DRC peace process, and especially the conflict is continuing in eastern part.

Surprisingly, in eastern part, MONUC (the Mission de l’organisation des Nations

Unies au Congo), as the peacekeepers, are fighting along with DRC armies.

Actually they are involved in government side. There are structural causes that the

international community tends to back up the incumbent government. The

important reason of that is the criteria of judgment are very ambiguous. It is often

difficult in the peace process to judge which is right and which is wrong. And clearly

incumbent profits the situation. So, listening to your proposal which is very

interesting for me, I also felt that it involves similar weak points. How can the

international community judges, for example, whether an election is credible or not?

This is the point I want to ask.

PROF.COLLIER: Yes, sure. Just to take up the specific question at the end first


33

as to how we judge elections, we've been doing this for 15 years. We have

election monitors who just declare, who base a judgment that the elections are free

and fair or they’re not. These have been official judgments. So, the European

Commission, for example, officially pronounces on a lot of African elections, that

they either meet standards or they don't. So, there's nothing new about monitoring

elections and judging whether they meet satisfactory standards or not. That's

been done for years. So, we know how to do that

DR.TAKEUCHI: In that case, I think the criteria should be extended. Maybe you

remember the election in Rwanda in 2003 in which Kagame, actual president was

elected. the European Commission sent a monitoring team, and they judged that

the election itself was clean and fair. But before the election, the Rwandan

government ordered to dissolve the rival parties, and suppressed the rival candidate.

So, even if the election itself might be fair, it was difficult to say that the way of

election was fair. This is the reason that I argue that the criteria of election

monitoring should be extended.

PROF.COLLIER: I agree with that. One very standard ploy is to debar

candidates. This reached its sublime limit with President Abache of Nigeria, who

you remember died just before he was able to contest a multi-party election in which

he had five parties, all of which nominated President Abache as their candidate.

And so the election he was going to propose -- it's a pity that he died before having

a multi-party dictatorship election. So clearly, there are a range of issues, not just

about the conduct of the election, but about who is eligible to stand.

But I think the deeper issues are not about the conduct of elections, they are

about the uses of power. What's gone wrong in the DRC was not just the conduct

of the election, it was about the uses of power. And I think the same sort of story

occurred in Sierra Leone where in effect, the British government got captured by the

government of Sierra Leone who put enormous amounts of money in. It hasn't


34

prevented Sierra Leone falling to the very bottom of the human development index.

This year, it's just come out as bottom despite this huge amount of money, and

despite peace. So, it was a very, very poor government performance.

What I would like to see, especially in the post-conflict settings -- I think the

post-conflict settings are unusual in that donors or the international community has

a lot of power. It's providing the peacekeepers. It's providing the money. And it

should be setting some clear standards, some clear limits, on what governments

should be doing. And by setting those out clearly in advance, you get much more

chance that governments will obey them. At the moment, we are not setting out

clear standards in advance, and so we blunder into confusion in which governments

do terrible things, and then the donors either over-react or under-react. I think we

do have to favor the incumbent because it's much better to have somebody in

undisputed power rather than a civil war. Civil wars are hugely costly, so we need

to favor the situation in which power is not so disputed that there’s a civil war. But

the price we should impose for favoring the incumbent is saying, that is conditional

upon some aspects of governance, and they can be fairly minimal, but they should

be clear. If they are clear, they are much less likely to be breached. And that's

been our failure in Sierra Leone, it's been our failure in DRC.

DR.TAKEUCHI: So you think that the criteria is not clear now, so it should be

more clear.

PROF.COLLIER: Yes. If you have 50 points, they’re not credible. So, they’ve

got be few enough and clear enough that they’re credible. So, a few major points.

And then if they’re breached, then there's a real pullback, a coordinated pullback

across the security and the money. The costs of these things going wrong is so

enormous, and a lot of the costs accrue to neighbors -- about half the costs of failing

states accrue to neighbors -- and so the neighborhood has a legitimate interest.

Now, one possible model would be to say the neighborhood should share


35

sovereignty. But that isn't in the end viable because the neighbors also have

illegitimate interests. So, the international community needs to represent the

legitimate interests of the neighborhood on behalf of the neighborhood. And that

doesn't seem to me a breach of sovereignty. It's recognition of the very high costs

that failure inflicts on a neighborhood. So, very much less intervention is then the

right to protect. The right to protect says, if you mistreat your citizens, I've got the

right to intervene. What I'm suggesting is that neighbors have the right to protect

their own citizens from the costs that you inflict if you do particular things, and the

international community then has a right to represent the legitimate interests of

those neighbors. So, it's a much more limited questioning of sovereignty than the

right to protect.

DR.HIRANO: Mr. Kiya.

MR.KIYA: Thank you for enlightening presentation. I am Kiya Masahiko from the

International Peace Cooperation Division of the Ministry of Foreign Affairs. I

studied in the United Kingdom and worked at the Embassies of Japan in Nigeria,

the United States and Bangladesh. When I was in Washington, DC, I was in charge

of development issues including the World Bank. I am now in charge of Japan’s

policy on UN peacekeeping operations. I feel I am fit for today’s discussion.

Regarding external guidelines and rules, I think that they are important and

necessary. The United Nations Security Council and many other UN organs are

setting rules. Such activities of the international community are quite legitimate.

They will foster leadership with ownership in those conflict-affected countries in the

long-term. I would like to ask two questions. One is about the three blocks you

mentioned: policy ministries, and the public agencies, and the service providers --

three layers. In my experience, for example in Bangladesh in education sector, a

different framework seemed to have been working: the Ministry of Primary

Education chaired the donor-government meeting, where the World Bank funds


36

were allowed to be channeled to NGOs. I think that this framework giving more

ownership to the government could work better than using public agencies like in

Britain or New Zealand. The challenge is how to ensure fostering medium and

long-term ownership through good TA, technical assistance.

Then the second point is the potential for South-South collaboration, which

Japan has long been working on. There are a number of projects that are led by

JICA between Asian and African countries. Fosterering leadership and nurturing a

group of future leaders in developing countries in post-conflict affected countries are

quite important. It would be very meaningful to inspire those leaders by showing

good leaders in other regions, other countries in Africa or in Asia. Studies in such

areas are critical in realizing ownership-driven healthy political and economic

development in African countries. Japan has been taking this approach. I hope

that you could emphasize the potential and importance of South-South

collaboration, regional collaboration as well as inter-regional collaboration. I'd like

to hear your opinion about those two points.

PROF.COLLIER: I think the first point on leadership is, in economic terms,

leadership is often endogenous, that is to say the sort of leaders you get reflects the

political processes you’ve got, so that if you have an environment in which the

surest way to win an election or to win power is to be very corrupt, amass a lot of

money, and then run a patronage system, if that's the best way to power, you won't

get good leaders, because the sort of leaders that are produced by that system are

going to be pretty awful. So, the quality of leadership that you get depends upon

the roots to power that are most viable. That's one reason why we’ve got to clean

up the flows of money, the flows of aid money. My friend Ngozi Okonjo-Iweala, the

former finance minister of Nigeria, after her experience said, in Nigeria, until we

clean up campaign finance, we'll never get good politicians. So, that was her sort

of considered assessment of Nigerian politics, that the weak point was campaign

finance. But I don't know.


37

The ownership point that you are making in particular contexts -- let me give

specific examples. I think there are opportunities both in Liberia and in Sierra

Leone at the moment. Liberia has very good leadership. In fact, Liberia is a

classic case of good political leadership, and a completely broken civil service.

Now, how can leaders lead when the civil service they command is just part of the

problem? So, that's a classic case. Sierra Leone is a little bit like that. We’ve

got a new government, and again, a broken civil service. So, there are two

opportunities for, as it were, a new architecture that the leadership can use to

achieve its objectives.

In Liberia at the moment, we start from the opposite of ownership. We start

from a system called GMAP (Governance Economic Management Action Program).

GMAP is really, is back to colonialism. It's an act of despair on the part of the

donors, because what GMAP requires is a dual signature on government

expenditure, so the donors have to sign off literally on Ministry of Finance spending.

So, that is not a sustainable root, GMAP.

And the sort of model I was trying to sketch of these independent service

authorities is quite attractive to these governments -- I've talked about it with them --

in two senses. One is it moves on from GMAP, so it creates institutions that look

much more government ownership and much more permanent. The other is it

brings NGOs inside the perspective of government. At the moment, governments

are very worried that NGOs are completely outside their line of sight. For example,

donors are giving money directly to NGOs, which are then providing services

completely without reference to the government. And that's a ridiculous structure;

uncoordinated funding of individual NGOs by individual donors. And the concept

of the independent service authority provides a device where the money is

coordinated, NGOs have to compete for that money, demonstrating that they are

more effective than other NGOs so there’s an element of accountability coming into

NGOs, and the government is part of the supervisory structure, and the whole

authority is meeting standards set by the ministries that lay down the policies for


38

education, or health, or whatever. So, it's a model which I think offers much more

ownership than what's going on at the moment, and it offers the prospect of

long-term institutions that are appropriate for the context.

Finally, you discussed the South-South model of leadership, and I think that is a

good model. Leaders learn from other leaders. Now mostly, they learn from

neighboring leaders. And that's of course what happened in Asia, was that you got

some countries that they got ahead, and they provided role models and challenges

for other leaders in the region. And that what needs to happen in Africa. In a way

we need to invest in a few stars. Africa has too many countries for them all to

move at the same pace. That's just not realistically what's going to happen.

What's going to happen is three or four are going to make real progress, and then

the rest will start to follow.

DR.YAMAGATA: Mauritius?

PROF.COLLIER: Well, Mauritius is indeed ahead, and Madagascar is learning

from Mauritius. The problem is Mauritius is a little island in the middle of the Indian

Ocean, and so if one had to pick one African country to be the role model, it wouldn't

have been Mauritius.

DR.YAMAGATA: Hopefully Madagascar.

DR.HIRANO: Professor Otsuka.

DR.OTSUKA: I’m greatly handicapped because I went to IFIC this morning and I

missed your presentation. I am sorry I made a mistake. So, my comments may

not be directly related to your argument, but it has something to do with the role

model or success story. Indeed success story affects, or disciplines the policies of

neighboring countries. Taiwan and Korea learned a lot from Japan, China learned


39

a lot from Japan, and the Vietnamese are learning a lot from China now. The

flower industry developed in Kenya, and in Ethiopia now, flower industry is also

growing, and other countries are trying to catch up. So, I like your argument of

policy externality. Road construction in Kenya affects the welfare of the people in

Uganda, but similarly, this success story in certain industries can affect, I think,

would affect the policies in other countries. In this connection, I am particularly

interested in development of clusters. Actually I am working with JICA and JBIC to

some extent, and also with the World Bank to develop industrial clusters in Africa.

Tonight I am leaving for Ethiopia, Addis Ababa, where there are many industrial

clusters. Many people do not know them, because small enterprises are hiding.

You have to open doors three or four times to find out small workshops. But in the

case of shoe, there are more than 1,000 enterprises in Ethiopia. There are more

than 300 enterprises in garment industry in Addis, and there are more than 10,000

small enterprises engaged in car repair and metal processing in Kumasi in Ghana.

We have offered the training program to managers so that industrial clusters can

grow. Although I missed your presentation, I read your paper written a year ago,

and interestingly you pointed out the importance of technical assistance and

importance of importation of skills. You said that investment in skills has a high

pay off. What we found is that there are a lot of similarities in the patterns of

development of clusters between Asia and Africa up to a certain point, up to the

point where clusters have been formed. But in Asia, innovations take place, so

that clusters continue to grow. In Africa, the importation of skills or technical

assistance is missing. Therefore, there are a lot of industrial clusters, but many of

them continue to stagnate. So, my idea is to transfer knowledge from outside,

particularly from Asia. And also JICA has been interested in technical assistance.

It's a very good subject to discuss in JICA's meeting. So, I'd like to ask what you

think about the potential of developing industrial clusters in Africa.

PROF.COLLIER: I like where possible to link industrial clusters to exporting. I


40

think exporting gives you two big advantages. One is your market is infinite and so

you can expand without limit -- Africa is so small relative to the world market --

whereas producing to the domestic market, these markets are small, so you rapidly

hit a demand curve that is sloping downwards. The focus on the domestic market,

then, as it were, this was the model that Africa tried 40 years ago, and it didn't work

very well because what happened was that the very easy things were exhausted,

and then, the government tried to encourage things which where the market was

even smaller, and that required heavier protection. So, gradually you accumulate

the whole apparatus of a lot of protection and a lot of patronage, and then firms

learn that they succeed or fail not by being efficient, but by being cozy with the

government. So, that focus on the internal market, I think, is much less

satisfactory than being able to break into international markets.

I think the other advantage of breaking into international markets is that the

benchmark of efficiency is then sort of automatically there and keeps moving

upwards, and that, as it were, puts firms on a treadmill for productivity growth. I’ve

done some work which finds that African firms that are exporting are getting much

faster productivity growth than firms which are not.

DR.OTSUKA: I don't think that jump-start is possible. Look at the major Japanese

large enterprises like Toyota, Honda, and Panasonic. They started with the family

business. They were SMEs in the beginning. But they innovated, and they

improved the quality of products, and then they started the export. That has been

happening in China as well, and what I’m trying to do is to develop SMEs which

already exist in Africa to improve the technique and management know-how, so that

they can export. But I don't think it's possible to export from the beginning.

PROF.COLLIER: Well, the alternative way of doing it is to bring in some foreign

firms.


41

DR.OTSUKA: I don't think that works.

PROF.COLLIER: Well, I don't see why not? The advantage of foreign firms is

that they provide rapidly the two things Africa lacks, which is capital and

organization, and actually, a third thing which is market know-how. What Africa

desperately needs is jobs. If I have to choose between African-owned firms and

African jobs, I think African jobs are much more important than African ownership of

firms. A structure in which a lot of the manufacturing sector is foreign-owned, but

provides millions of jobs is much more satisfactory for ordinary people than a

structure in which most of African manufacturing is African-owned, but there aren't

many jobs.

MR.KIYA: Garment industries in Bangladesh started from Korean investment.

That could be a good example.

DR.OTSUKA: But Bangladeshi sent more than 100 people to Korea for two years

to take training.

DR.HIRANO: Mr. Fukunishi?

MR.FUKUNISHI: I just want to make a comment about the exports through the

FDI in Africa. I am studying garment industry in Africa, particularly Kenya and

Madagascar. There have been a lot of FDI spillovers to the local industry in Asian

countries, including Bangladesh and Vietnam, but there seems to be some

problems in FDI spillover in Africa. The one thing is the threshold problem as you

told. It seems to be that the threshold is high in Africa, according to my

investigation, because of the factor prices. In some African countries wages are

quite high, particularly in Kenya. So, their threshold is too high to penetrate in the

export market. It has been temporarily reduced because of the AGOA, but again it


42

got back to high because of the termination of the MFA (Multi-Fiber Agreement).

So, as you know, the export from the Kenya has reduced now. That’s one

problem.

The next problem occurs after the threshold problem. Madagascar has

succeeded in the penetrating to the export market. They are still increasing the

exports to European market and the US market. The problem is that there is no

spillover. I have been there two weeks ago and have investigated spillover in

Madagascar, but I have found only fifteen firms are working with EPZ firms. Only

fifteen, and they are mainly doing embroidery or printing, not sewing clothes. I

don’t know why they do not participate in export market despite that their wages are

much cheaper than Kenya’s, and so it is profitable. The fifteen firms are making a

profit. But the entrepreneur is not interested in that industry. I think that has to be

investigated soon. So, if you know something about that, I would like to know your

answer.

PROF.COLLIER: Certainly my information is the same as yours in terms of labor

markets, that Madagascar is one of the few countries in which basically the labor

market isn’t a problem. Kenya -- certainly labor market is a problem. South

Africa, of course, it’s an enormous problem -- labor regulation. One simple way

forward would be to create within export processing zones, deregulated labor

market zones, so you don’t have to deregulate across the whole country; you just

deregulate within the zones. And that I think is politically a lot easier.

The lack of spillovers. This partly reflects, as it were, the much unsophisticated

nature and small size of these economies, so you really lack the skill base for very

many linkages. That is why generous rules of origin actually become more

important, that I think trying to force integration may well be a mistake because in

forcing integration you’re more likely just to kill the activity. Where the world is

going in terms of manufacturing globalization is trade in tasks. By trade in tasks is

meant the very opposite of vertical integration, that trade in tasks means each stage


43

in the production process is done by a different country, so a different cluster will

specialize just in a particular task and the product might gradually accumulate

stages by being moved around many different clusters. That trade in tasks is

potentially very good news for Africa because it means you only have to learn one

task, whereas the integrated process, you need to learn many tasks together. If

you have to learn a lot of tasks all at the same time, what actually happens is

nothing. There’s always some missing task, and so these activities just don’t

develop. And so to my mind, Africa needs to, as it were, to embrace the idea of

trade in tasks. Just do a few stages and expand the quantity of production at those

stages rather than trying to get a lot of inter-linkages. So it’s a new world of big

quantities in narrowly defined tasks rather than integrated production structures.

But it’s a very suitable world if you start without any skills because then you only

have to get one.

DR.HIRANO: Time has come, but, Ms. Muto, please.

MS.MUTO: I come from JBIC and I have one question about landlocked countries,

the development strategies for such countries. I am very much involved in the

process of World Development Report 09 which deals with spatial development.

Last week I was in Washington attending some internal meetings at the World Bank.

One of the arguments there was whether to invest in education and health of these

landlocked countries so that people can choose the location to work, maybe

migration, or to improve the connectivity so that landlocked countries are integrated

in to the regional economy. This is a real budget allocation question. What would be

your reaction to this discussion?

PROF.COLLIER: Well, that’s awfully difficult, isn’t it? First of all, I think there are

no easy answers for these countries and they’d be far better off if they were parts of

other countries. And outside Africa, they usually are. Outside Africa, only 1% of


44

the developing world’s population lives in countries that are landlocked and

resource-scarce. In Africa it’s something more like 30%. Another way of saying

that is that outside Africa, places that are landlocked resource-scarce have not

become countries. Very sensibly. Too late. There they exist. What can we

do? To my mind, the sort of the emigration and remittances strategy is something

of a last resort that the model of connectivity depends upon who you are connecting

with and what they’re doing. Niger’s only hope is that Nigeria should harness oil

for development. So, if Nigeria is going through a phase where it’s growing, which

it now is, and then connectivity looks much more attractive than it did 15 years ago

when you were connecting to something that was stagnant. So, I think the answer

is that the connectivity strategies seem to me better where the neighborhood shows

some signs of growth.

And then, ideally, the model is that these countries become a sort of hub and a

haven. Lebanon, which is not landlocked, but Lebanon became a haven within the

Middle East, a regulatory haven. And that is a sort of model that I think is feasible

for the landlocked. Rwanda and Uganda are both in a way trying to do that. And

the reason why it’s feasible is that precisely because they’ve got so few

opportunities, it’s credible that they have to be better in terms of governance and

regulation. So, their very limited possibilities are the political underpinning to

superior governance. In fact, we tend to find that with the landlocked -- you know,

if you look at the better governance environments in Africa, they’re often the most

desperate situations. They are: Rwanda, Burkina Faso, Uganda, and Botswana.

If only we could have put those governance environments in the countries that had

the big economic opportunities, Africa would look a lot more prosperous. The

paradox is that the better governance has been matched with the weakest

opportunities.

DR.HIRANO: Okay. Always time is limited. I’m sorry, but I think we are still on

the process to exploit the Professor, and this afternoon Professor will make a


45

lecture for the public and Professor Takahashi and Professor Ono are going to

comment again. Please continue to exploit him. Okay, thank you very much.

＊＊＊＊＊

Japan International Cooperation Agency

Institute for International Cooperation

10-5, Ichigaya Honmura-cho, Shinjuku-ku Tokyo 162-8443

TEL: +81-3-3269-3374 FAX: +81-3-3269-2185

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