By Joel Burgess

Paul Collier, the director of the Centre for the Study of African Economies at Oxford University, has devoted three decades to the study of African Economics. He recently published The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It.

About 80% of the population of developing countries lives in countries whose populations are becoming better off. But almost a billion people – 70% of whom live in sub-Saharan Africa – are in economically stagnant or declining countries. 58 countries are in this desperate condition.

Collier argues that these countries have fallen into one or more of four traps from which it is virtually impossible to escape. These are:

1.) Conflict Trap – 70% of people in the bottom billion have been through civil war

2.) Natural Resources Trap – 29% are in countries dominated by the malign politics of natural resources

3.) Landlocked with Bad Neighbors Trap – 30% are in landlocked, resource-poor countries with bad neighbors

4.) Bad Governance in a Small Country Trap – 76% are in countries that have suffered long periods of bad governance and poor economic policies

Collier argues that trade, for all its potential benefits, will not help the bottom billion. These countries are uncompetitive exporters of labor-intensive goods and services, given the low costs and established positions of Asian producers. They cannot compete with China or Vietnam. Similarly, private capital does not flow to these countries except to exploit their natural resources. In fact, the problem is the reverse: huge capital flight. Collier estimates that almost 40% of Africa’s private wealth was held abroad in 1990.
Collier is also sceptical of the ability of aid to make much of a difference, at least on its own. He believes aid can and has helped. But it has been a holding operation, rather than the start of sustained growth. He is particularly sceptical of the view that unconditional budget support will work. We have, after all, already had an experiment with the consequences of unconditional finance: oil revenues. Debt relief – the darling of the aid lobbies – is the closest thing to oil revenues that the aid industry can provide, a point its proponents ignore.

Aid will not get countries out of the traps. It cannot stop conflict, though it can help after one is over. It can do nothing about the natural resources trap: indeed, having aid is similar to possessing just another natural resource. It may help landlocked countries with improved transport infrastructure, but cannot eliminate the catastrophe of having bad neighbors.

Collier makes three suggestions:

1.) Military intervention – The case for military intervention is most obvious, if controversial. Civil wars are so costly that well-timed military actions are quite likely (though not certain) to be cost-effective.

2.) Laws, statutes and charters for improved governance – ceasing to take money looted from the poorest countries is one such change; elimination of bribery by their companies is another. It also needs charters of better governance for countries in the bottom billion: transparent management of natural resources is among the most important. Also suggested are charters for democracy, budget transparency, post-conflict situations and investment.

3.) Trade preferences –unrestricted access to the markets of high-income countries for labor-intensive exports from the bottom billion. Only thus, suggests Collier, are the resource-poor countries ever likely to break into world markets for manufactured goods.

Source: Martin Wolf, Financial Times
Paul Collier, Oxford University