A Treatise on Inequality: Part Two

So London in some sense is very much like NYC…. I will focus on one aspect in particular: how both cities are in/famous for their massive income/wealth inequalities, but there are important differences I explain below and I welcome your opinions!
First, in some sense, London is even more unaffordable for the average Londoner than NYC is to the average New Yorker. Last post I discussed how incomes are about 1/3 lower in London compared to the same job in major American cities. And yet London has some of the most expensive properties in the world. The median housing price in London is 14.5X the median earning of a buyer household, whereas the median housing in NYC is between 5 and 7X the median earnings of a household.  While some parts of Manhattan are way above the 5-6x multiple, Bronx/Queens are much more affordable.  Similarly in London, places like Westminster, Chelsea and Kensington are much above the already ridiculous 14.5X whereas the outer boroughs are much cheaper.
London is famous for the fact that some of the wealthiest neighborhoods are playgrounds for Arabic, Russian and now Chinese oligarchs and their princelings. The Ferraris, Lamborghinis, and Maseratis are just nuisances ordinary Londoners get used to, and are themselves tourist attractions, especially in the summer when the Arabic princelings/princesses literally descend here to escape the heat.  One day as I was riding on the top deck of the iconic London red bus back home in the evening, which by the way is a great way of exploring London –  I was struck by the birds’ eye view of the startling fact that there was a homeless person (British call them rough sleepers) on exactly every block of a long long main street in one of these wealthy royal neighborhoods. Perhaps there is a reason why the British call these streets “high streets”.  And when paired with neighborhood names like “Knightsbridge”, “Royal Borough of Chelsea and Kensington” and “Belgravia”, it’s just totally a warp of humanity to see Lamborghinis racing through streets full of iconic luxury stores and yet predictably every block has a homeless person desperately asking a constant flow of wealthy passerby for a piece of bread… 
So this got me thinking about the situation in America, especially NYC (or San Fran/DC), and my conclusion is actually that the situation in America is even worse in terms of a moral perspective:
1) The correlation between homelessness and mental illness or drug addiction: While London’s homeless population may be comparable to major American cities, or even more in total population, there is less of a drug abuse epidemic here, and perhaps more noticeably, less mentally unstable homeless people.  In London it’s perfectly normal and widely observed to see people striking conversations with homeless people – in fact I’ve seen them providing directions to tourists on a few occasions. Most will thank you even if you just walk by.  In the US unfortunately increases in homelessness seems to go hand in hand with increases in the opioid crisis these days or just in general mental illness.
2) Perhaps the most outrageous thing in America is the correlation between homelessness or poverty in general with race: The London’s homeless population largely mirrors its ethnic composition, which means predominantly European/British (in fact whites have a higher rate of homelessness than British Asians or Blacks), whereas in major US cities this is exactly the opposite.  I feel like especially in the Eastern US like NYC, Philly or DC, there really is a race-based homelessness problem.  Yes, US is internationally famous for the high correlation between income/poverty levels and race.  While in the UK you  do have certain ethnic groups earning more than others, but really not as stark as the white/black divide in the US, whether measure of net worth or income or more egregiously, as some recent studies have shown, the race-based income/wealth disparity exists even controlling for level of education for whites vs blacks and Hispanics.  I just can’t emphasize how much US is an anomaly here – I really think more systemic recognition and research of the US white/black, white/Hispanic divide in terms of economics/opportunity is warranted because it really illustrates the dark chapters of American history and it’s just a total travesty that in the 21st century the racial inequalities still exist to this extent – really makes the US a total shameful outlier in the developed world. 
3) Ratio of minimum wage to average wage is way lower in US: Perhaps my British acquaintances have ingrained biases about America, but I often hear the talk about how Americans in low wage service jobs are just in general very nasty, look depressed, using examples of people serving at the counters at the airports (with NYC’s airports apparently particularly bad for being filled with depressed workers..).  Maybe that’s why Americans developed this exorbitant tipping culture, as tipping became the mechanism to ensure your waiter/waitress maintain afacade of happiness doing their jobs?
Perhaps a simpler explanation is just that America’s minimum wage is just too low, and pay for service jobs is just too low, compared to the average wage: in Western European countries including the UK, as well as Australia and Canada, the ratio of the minimum wage to average wage ranges from 40% to 50%.  In the US it’s apparently 25%, 5% worse than Mexico. Granted states have higher minimum wages, but that also reflects the higher cost of living in California or New York.  The difference is really staggering.  And if you believe in studies that have shown that a person’s psychological well-being is to some extent based on comparatively how well off he or she is in the society, not absolute income levels per se (which the US is one of the top countries), then this level of disparity in the US compared to other developed nations is worrisome.
Finally, apparently income inequality has decreased in the UK since the days of the financial crisis while in the US it has kept on increasing. Right, the US has seen a rise in the top 1% from all the VC/startup/tech boom, whereas the UK’s top income earners are mostly in the financial sector, and the financial industry has obviously suffered regulatory setbacks since the heyday of the 2000s.
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A Treatise on Inequality: Part One

Lately, I have been thinking a lot about economic inequality – income inequality and wealth inequality over the past few months since I moved to Britain – and also for years while still working in the government, but not as much as now.
Recently the UN investigated the US for extreme poverty, and made conclusions that many of us already know in the back of our minds – that there is a crisis of neglected extreme poverty in America – including in liberal bastions with homeless pandemics that many of you living in the tech hubs of California all know too well; Alabama has the worst poverty of any place in the developed world; in poor parts of American south even long -eradicated tropical diseases are making a come back; the obvious racial elements in the economic disparity that we all know etc….The Trump Tax Cuts of course will make inequality worse .
Rather than dwelling on the extreme wealth and inequality of the top 0.1% or even top 1%, I will focus on the class where almost all of us can relate to.  American inequality has much more benign structural roots – that is to say the so-called “upper middle class”, perhaps defined as college educated professional, high-skilled, managerial class, are arguably the best rewarded large group of professionals in the world, relatively to the rest of the economy. When I first came to Britain, I was shocked to learn that software engineers generally make 1/3 to 2/3 of the salaries of their US counterparts; doctors make far less than even half of the salaries of their US counterparts, with some private practitioners exceptions, and other professionals in the law/finance/economics/architecture/engineering/and other managerial professions all make at least 1/3 less than in America for the same job.
Even taking into account the generous healthcare here as well as vacation days it doesn’t come close, especially considering that taxes are higher here as well. And it’s not the UK is particularly poorly paid, the rest of Europe and developed world is the same (with Switzerland and some small European countries possible exceptions in very specific industries).  A friend of friend who recently moved to the UK on behalf of Google on a short term contract outright said “of course I’m not going to work in the UK long term because I don’t want to get paid shit like the locals here.”  (As if London is somehow like a developing country).  Even American bureaucrats make at least 30% more than their equivalents in Europe, and public sector pay in America is not anything to brag about.
So why are high-skilled professionals in the US paid so much? of course in medicine and some industries there are industry-group-induced entry barriers that artificially restrict the number of slots.  There is the theory that in America higher education is really extremely rewarded compared to the rest of the world. Higher education, especially at elite private schools, is very expensive whereas in Europe it can essentially be done for free. But why would a society place so much return on investments of higher education? Another theory is that higher education produces white collar professionals who are the controller of capital, and there is just more capital in America sloshing around, which increases the returns of labor for these professions.
But why is there so much capital being deployed and controlled by the professional class?  I support the view that there is as much structural reasons spurred by policy/regulations as much as pure economics in terms of returns of capital/labor.  Yes American firms may be more capital intensive and they have more advanced technology, and the people who benefit are the professional class (but this theory sort of breaks down when you consider how multinationals like Google pay a lot less in London than NYC).
Whether it is the creation of a chronic shortage of the supply of labor in the medical that benefit doctors, the proliferation of private schools that charge outrageous tuition that benefit professors, the comparatively lax regulatory environment for traders and speculators, the lax anti-trust regulatory environment that favor humongous mergers/acquisitions and creating massive companies in the technology/pharma/financial industries etc…these are all the work of the upper middle class professionals themselves who have arguably completely captured our politicians.  All lobbyists come from this professional class, as are all politicians.  Okay this is all good and wonderful, but why in America is this professional class political capture so extremely powerful compared to Europe and other developed nations?  It’s a puzzle that baffles me still.  The icing on the cake is that Trump clearly recognized this capture of the political class by the “coastal elites”, and yet a few months into his job, he predictably became even more entrenched in this “swamp” that he promised to drain.
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Real Immigration Anecdotes from Pakistan

After returning from Pakistan a little over a year ago, I have been observing with some alarm and exasperation the wave of populist uprisings – the conflation of economic insecurities, anti-trade/anti-globalization demagoguery with general insecurity and paranoia specifically targeting immigrants, refugees, Muslims, and all institutional forces serving as cornerstones of our post-war march towards greater global integration. All around the world.
I was personally struck by the horrendous San Bernardino attacks and the aftermath – now old news of course!  The male/husband was a Pakistan American and the wife was a Pakistani who legally immigrated to the U.S. on a K-1 “fiancé” visa.  At the time, this horrific news sent me shuddering for a few days.   While in Pakistan, I spent half of my days standing in front of consular windows interviewing visa applicants – meeting thousands of local Pakistanis; and vetting vigorously and rejecting lots of people by enforcing the tough U.S. immigration law.  Yes I made more than a few people cry in front of me.  Sadly, I probably broke the dreams of some aspiring students – who were unfortunately unqualified. More common rejections were aspiring economic migrants who were simply looking for better opportunities in the U.S.
More difficult emotionally however, were unqualified applicants who happened to be the elderly – grandmas looking to visit their grandchildren, or members of religious and ethnic minorities who were being persecuted inside Pakistan….or cases of unmarried/divorced/widowed adult women looking to escape cultural repression and thought America as the savior…all obviously looking to get out of Pakistan, sometimes quite desperately, using whatever means they could apparently.   Unfortunately there are no shortcuts around the tough US immigration law.
But those were just the non-immigrant applicants – nowhere as complex as adjudicating the hundreds of immigrant applicants.  Many of these legal immigrants have been waiting to see an American visa officer since they were a toddler (given the sometimes one decade plus waiting period for certain categories of relatives-based immigration).  The welcoming of hundreds of new immigrants to the U.S. was personal and emotional to me at times – how the faces of children lit up when I told them their visas were approved.  These children were sometimes separated from their parents at birth, and now years later reuniting with these American parents and starting new lives.  Other times, these were elderly parents who have waited years to see their sons and daughters and the grandmas would just totally break down…when was the last time your son visited you in Pakistan? yikes I’m sorry I shouldn’t have asked that question! …and these grandmas would bring photo albums of their children when they were 10 or 12 years old because that’s all they’ve got to prove their relationships.  Yikes…..or age 30+ sons and daughters of American citizen parents counting down to the day they can finally get married – yes lots of adult children delay their marriages by years simply because they have to according to US immigration law (once you are married you have to go to the back of the immigration queue for years to come).
The most ridiculous cases were the brother/sister cases where the wait time is the longest…in one extremely sad case, I had to tell a family of two adults and nine children that they were all disqualified because the principal applicant had died just a few weeks before, therefore severing all direct ties to the U.S. sibling relative according to our strict immigration law.  This was despite the years of waiting they endured and the thousands of dollars spent on all the health exams/certifications/vaccines etc to prepare for this big immigration move.  These children were literally born and grew up with the sense that they would leave Pakistan.  Now their father died and they can’t go to the US either. Probably the saddest thing I had to announce all my life…
Yes besides making people cry from rejection, people also cried out of joy – especially these immigrants who have been waiting a decade+ for this moment to be united with their families in the US.  Once again, this was Pakistan – ranked as a country with supposedly one of the highest unfavorable views of America – thousands upon thousands of people desperate to go to America.  This is the portrait of a typical legal immigrant, my friend.  The long and arduous process they have to go through to make this happen.   And yes, in Pakistan, we also processed lots of applicants from Afghanistan – millions of Afghan refugees live in Pakistan; I also vividly remember interviewing refugee/immigrant applicants from Sudan, Somalia and the Uyghur people from China.  Each case with its own anecdote.
That’s why all this talk from some quarters that the government is just letting in “thousands and thousands” of people into the country without vetting is just so enraging.  Not to mention the total and complete shutdown of all Muslims. Sigh.
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Defending the Constitution

As Foreign Service Officers and public servants, we all remember the day we were sworn into office.  Let me remind everyone the oath again:

“I ________, do solemnly swear that I will support and defend the Constitution of the United States against all enemies, foreign and domestic, that I will bear true faith and allegiance to the same, that I take this obligation freely, without any mental reservation or purpose of evasion, and I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God.”

Note we swore our oath of office to defend the Constitution of the United States against all enemies, foreign and domestic.  The distinction between defending against a particular individual, no matter how powerful he/she is, vs defending our Constitution, is significant. 

For all public servants – all who have sacrificed for the Constitution of the United States of America, all who are extremely concerned about what we can say or not say due to the Hatch Act, even in private; all who are concerned about showing preference for one candidate or another during this election season, even in private; all who are also very disturbed by the unconstitutional language coming out of this year’s Presidential Campaign – this oath of office is a solemn reminder that we are here to serve, to protect, and to defend the Constitution.  Moreover, we sworn an obligation to defend the Constitution against any enemies, foreign and domestic.  Yes. We are not only allowed, but are obligated to speak up to defend the Constitution against any actor who defiles the Constitution with unconstitutional speeches or actions, even if that person is a presidential candidate.

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Europe’s refugee crisis shenanigans – time for a reality check!

The world is encapsulated by the migrant or refugee crisis these days. While the western media is fixated on Europe’s internal squabbling spectacle involving thousands of refugees stuck at train stations in Hungary, washing onshore in Kos or Sicily, or piercing through barbed wires in Serbia and Macedonia, the real story of the migrant crisis is completely lost: Instead of making it seem like Europe is now the victim of this massive refugee influx, it should be put to shame when comparing how many refugees Europe has taken in with the millions of refugees living “under the western media radar” for years in Africa, Middle East and South Asia.

The western media somehow forgets that millions of refugees driven from wars in Syria, Afghanistan, Sudan or Somalia have sought asylum in neighboring countries, and only a small fraction are daring enough to make the extra hundred-mile journey under treacherous conditions to Europe. Just one statistics will throw all this European privileged problem into the trash bin: Pakistan, Turkey, Jordan, Lebanon and Iran alone have more than 8 times the number of refugees as compared to the top European refugee-intaking countries of Germany, France, UK, Sweden, Italy, the Netherlands, Serbia (and the rest of Europe is just negligible).

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Pakistan has 1.6 million Afghan refugees alone out of over 2.5 million refugees. Turkey now has 1.6 million refugees.  Lebanon, which has a population of only 4.2 million, now hosts more than 1.1 million refugees, or 1 refugee for every 4 residents. Jordan, which has a population of 6.3 million, hosted more than 2.5 million refugees in 2013 – more than 1 refugee for every 3 residents at the peak of the Syrian influx. Iran also has more than one million refugees.

In Africa, Kenya has more refugees form Somalia than all of refugees residing in Germany. Algeria, Ethiopia and Chad each hosts double the number of refugees as France or the UK. In Asia, China, Bangladesh and India each hosts as many refugees as France or the UK – the list goes on…

Moreover, this refugee problem is not new, and it has had a profound impact on the security of some of their host countries: For instance, Pakistan has been hosting over a million Afghan refugees for the better part of last decade. Their disputed settlements in Pakistan have contributed to Pakistan’s rising sectarian violence – and this is not even considering the lawless tribal region of Pakistan bordering Afghanistan where many Pakistanis blame Afghan militants of infiltrating the country and promoting terrorist attacks. Similarly, Kenya has hosted a large population of Somali refugees ever since the 90s – and needless to say, many Kenyans can only lament at the Somali influx when thinking about the hundreds of terrorist incidents since civil war broke out in its neighbor.  In other parts of Africa, millions of refugees from the conflict in Darfur, the Boko Haram insurgency and the Ivorian/Liberian civil wars of the past decades have settled in often already poverty-stricken countries of Chad, Cameroon, Uganda etc.  In Asia, millions of refugee from places like Myanmar or North Korea have constantly streamed into neighboring countries or similarly try to cross the ocean to Australia. Again, that story is often forgotten.

To many in the US or Europe, this refugee crisis is finally becoming something tangible, rather than an abstract concept from the distant wars of Africa or Middle East. But for the citizens of the majority of countries in the Middle East or Africa, dealing with refugees and seeing refugee camps is a normal everyday phenomenon. I have come across numerous Somali refugee camps in Kenya, Liberian/Ivorian refugee camps in Ghana, and Afghan refugee camps in Pakistan. Once you are in those countries seeing how they are able to adapt to this humanitarian/moral challenge, the Europe squabble seems very small and cowardly.

So yes the migrant/refugee issue is now a headache for the EU. But once again, the western media is playing catch-up on this critical international issue that has profoundly affected the geo-politics and national security of many world regions for the last couple of decades. Now the EU political wrangling is finally propelling this problem into the global spotlight…

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Remember the sacrifices of legal immigrants…and how they got here

In light of President Obama’s recent executive action announcement that will affect ~5 million undocumented immigrants inside the borders of the U.S., the voices of millions across the world, many of whom have been waiting patiently for years and sometimes decades to be reunited with their families, have not been heard in the US pundit circles.  Yes immigration is a political lightning rod for millions in the US, but the tens of millions living overseas who want to migrate to the US do not have a say in the US political process.  While the plight of millions of children or parents on the verge of getting deported, or the millions of youngsters facing discrimination in their homeland must be addressed, we must remember the sacrifices of tens of millions of people outside of America who, through simply following our legal immigration process, have already been separated from their parents, children or loved ones, sometimes for decades.

us-immigration-protest-1-2Given our current immigration law, people wanting to immigrate to the US (including the millions of immediately family members waiting to be reunited with their families) not only have to wait, but navigate the excruciatingly long and onerous bureaucratic process.  With all this hassle, thousands of dollars spent on obtaining identity documents (if you can even obtain them if you live in a war-torn country), financial sponsorships, medical exams, police certificates for every place you’ve ever lived (again, if you can actually obtaining them), and years of waiting just for a visa interview (and then if you are unlucky, more unknown years of waiting to get the visa approved), it is tempting to try to circumvent the system – be it illegally entering through land borders or from the ocean.  This is definitely not the intent of the executive action, which is why increased border security is part of the action plan. Fine. However, the more common way and tempting way to circumvent the law is overstaying a tourist visa, work visa, student visa or another non-immigrant visa.  Now, if deportations will be less stringently enforced, will this increase the temptation for overstays? To the millions who have already been deported and have waited 10+ years to come back to the US to see their families again, this will be a slap in the face (10 years is the minimum ban if you overstayed a tourist visa and now want to come back to the US).  Most importantly, if it is harder to deport those who overstay, wouldn’t it logically follow that in some quarters, there will be talks of tightening the issuance of regular tourist visas?  If that’s the case, then lots more families won’t be able to celebrate Christmas in the US together, parents won’t be able to see their children’s graduation in the US, and grandparents won’t be able to able to see their grandchildren in the US.  So could this executive action translate into collateral damage for millions more who will be more closely scrutinized and potentially refused if there is any indication that they will overstay their tourist, business, or student visas? Yes today there are millions of people around the world who want to go the US so badly, but they don’t qualify for any non-immigrant visa because they are clearly intending immigrants.  So legally, the only recourse they have is to apply for an immigrant petition and wait….

I want to illustrate just how long it can take to reunite with your family in the US with a “real-world” case – imagine you are from the Philippines and when you were 16, your older sister, at the age of 18, got into a reputable college and went to the US on a student visa.  She then found job in the US, got a work permit and adjusted status to become a permanent resident.  When you were 21, your sister had a baby boy, and your sister wanted your mother to move to the US to take care of the baby.  So your mother went to the US on a tourist visa and continued to stay in the US undocumented with your sister.  You and your father were left behind.   When your sister became eligible and naturalized to become a citizen when you were 26, she finally had the authority to petition for you to come to the US.  By this time, you had also married and a year later, you had your first child.  You knew you had to wait in this infamous “immigration queue”, but you didn’t know that this line would take exactly 23 years!

By the time your “priority date” became current, you are now 49 and have four children of your own.  You were elated to finally receive an invitation for a visa interview and in lightning speed, you and your family go all out to obtain all the passports, vaccinations, medical exams, and financial documents.  Your sister also paid thousands of dollars for a lawyer in the US to find you and your family a suitable American citizen financial sponsor because her income is not enough to support your family of six and her family of five.  And by the way, you also spent a couple thousand dollars on a couple trips to Dubai and Manama to obtain UAE and Bahraini police certificates since you worked for an international firm covering the Middle East.  Finally, you bring your entire family to the interview at the US Embassy, 600 miles away from the island you live, the interviewing officer tells you, “I’m very sorry sir, but your oldest son has aged out because he is over 21.”  Your wife breaks down right there and then, and you are seething but there is nothing you can do.  You have to leave your son behind.  You wonder to yourself if it is ever possible to reunite the whole family under US law?

This is just one example of the many iterations of heart-wrenching possibilities that could really happen for immigrant families under current US law.  All depending on your circumstances, any combinations of children left behind because of aging out, waiting 23 years+ as an adult as a brother or sister, children/young adults waiting 10+ years in their prime years and NOT being able to get married or they would be disqualified, or everybody disqualified because the petitioner or primary applicant died after 20+ years of waiting.  These are some of the struggles that you don’t see inside the US.

Just on the waiting part, here are some stats:

1) If you are the unmarried son or daughter of a US citizen and age 21+, if you received an invitation for a visa interview this year, then congratulations, you have been waiting for at least 7.5 years (20 years if you were born in Mexico)

2) If you are the married son or daughter of a US citizen, if you received an invitation for a visa interview this year, then congratulations, you have been waiting for at least 11 years (21.5 years if you were born in the Philippines, 21 years if you were born in Mexico).

3) If you are the sibling of a US citizen, if you received an invitation for a visa interview this year, then congratulations, you have been waiting for at least 12.5 years (23 years if you happen to be born in the Philippines, 17.5 years if you were born in Mexico)

So yes it may be very emotionally gratifying and the right thing to do for the millions of children and parents who have been living in their homeland under the shadows, it is equally emotional for millions of families with separated relatives overseas patiently standing in line.  Yes the problems inside US borders need to be fixed, and the executive action is a step in that direction.  But the whole immigration system affects not just those inside US borders, but millions more waiting already, and the tens millions more thinking about one day trying for the American Dream.  While we are now almost 15 years into the 21st century, U.S. immigration law is still largely based on the Immigration and Nationality Act of 1965.  Without a comprehensive immigration bill that can holistically address the deficiencies in the current immigration system, one just has to hope that there are no second order effects that will create even more agony for millions overseas who have so dutifully followed US immigration law.

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The national prestige case for reauthorizing the Export-Import Bank

Recently, politics in Washington has taken the little-known Export Import Bank of the United States (Ex-Im), the U.S. government’s official export credit agency, by storm.  The reauthorization of the Ex-Im should be a no-brainer for U.S. politicians concerned about rail-projects-africa01America’s standing in the world.  Although primarily an agency that helps foreign buyers secure “Made in the U.S.A.” products with insurance, loans and loan-guarantees, Ex-Im also finances critical infrastructure projects in developing countries.   Together with the Overseas Private Investment Corporation (OPIC), which provides political risk insurance, Ex-Im’s loans and loan guarantees are the muscles behind America’s soft power in the world.  Since 2007, Ex-Im has supported $1.1 trillion in exports from over 7,000 U.S. companies, including 4,700 categorized as small and medium enterprises. This translates to 5 million jobs across the country, from the rustbelt of the Midwest to the energy hub of the Gulf Coast. For every dollar that Ex-Im lends out, more than one dollar is returned to the U.S. Treasury over the lifetime of these projects. With a default rate of less than one quarter of one percent, Ex-Im’s portfolio seems less risky than many U.S. commercial banks.

Many critics see Ex-Im’s assistance as corporate welfare and believe that the private sector lending can fill the funding gap.   There are a few fundamental flaws with this argument. 

1) If the U.S. wants to increase exports to frontier markets and developing countries in Africa especially, it fundamentally needs a guarantee institution before commercial banks can accept the risk of providing credit for their clients located in countries with weak institutions and high political risks.   Without the support of an institution like Ex-Im, prudent U.S. based commercial banks will not be able to provide loans at affordable rates and terms to firms located in these high-risk countries.

2) Studies have shown that international experience is important for successes of both the firms that want to export and their bankers.  Thus, since the U.S. has a lot of room to grow in expanding trade with Africa, the only way for firms without prior experience to expand their products to a burgeoning African country like Nigeria is through risk mitigation measures such as guarantees or insurance.  Furthermore, Ex-Im’s working capital products also provide suppliers of U.S. exporters, many of whom also want to expand to risky markets, with such opportunities even if they do not sell directly to foreigners.

3) As the official U.S. government guarantee agency, Ex-Im is essentially a U.S. foreign affairs agency with convening power at high level policy tables with foreign government leaders, world bank, IMF and other institutions to potentially influence macroeconomic management  in developing countries.  Ex-Im’s support on a particular project puts that project on the radar of foreign governments.  This by itself makes Ex-Im backed loans less risky than pure commercial loans or even commercial loans backed by private insurers.  Moreover, Ex-Im’s involvement in one country will also benefit other forms of U.S. commercial engagements in that country, including Foreign Direct Investments.

4) With all the complaints about the ineffectiveness of U.S. foreign aid, the way Ex-Im loans can change our traditional aid and make it more effective cannot be ignored.   U.S. grants are mostly in foundational investments of health, education, capacity building and agriculture.  Yes these are very important investments in the long run, but they are neither enough nor sufficient to touch the lives of the majority of population, especially in countries that have a burgeoning entrepreneurial and middle class population.  After people are healthy and educated, they would need jobs, and private sector development is the most effective and sustainable way of producing jobs.  A prerequisite for catalyzing private sector growth is infrastructure – lack of reliability of power and transportation are fundamentally stifling business developing in these countries.  So Ex-Im loan totally complements U.S.’s existing foreign aid initiatives by catering towards the lower-middle income group and the entrepreneurial cohort, which will only grow bigger and more important. 

Another way to think of it: a modern steel bridge built by a U.S. loan will be remembered by thousands of locals crossing it everyday (people tend to not realize how in developing countries locals do consciously want to know which country built a piece of modern infrastructure that stands out against other dilapidated structures); yet some grant for capacity building in a government ministry, school or health institution will have no tangible structure that people can see, remember and appreciate.

5) Furthermore, there is no way the U.S. can give a country pure grant worth $1 billion for a natural gas processing plant in one country.  These multi-billion infrastructure projects can only be financed through loans that are also affordable for the host country.  Ex-Im’s ability to loan to sovereigns at OECD/concessional rates is extremely attractive for governments seeking cheap financing of capital infrastructure projects.  With a $93 billion infrastructure funding gap in Africa alone, cash-strapped developing countries desperately need cheap external financing beyond institutions like the World Bank to sustain their high rates of growth. These projects are characterized by high upfront costs, long payback periods, and lots of project, commercial, political and sovereign related risks throughout the duration – which makes commercial loans even less likely.

6) With all the complaints from U.S. congress about Chinese involvement in Africa, Asia, Latin America with mega projects, people may not realize that U.S. Ex-Im is the counterweight.  And that’s why every developed country in the world as well as emerging BRIC countries all have active export-import banks actively financing exports, infrastructure and securing goodwill abroad.  Countries like China, India and Brazil are actively courting frontier markets in Africa, Asia and Latin America with low-interest loans.   Between 2001 and 2010, China committed $20 billion in infrastructure financing for Sub-Saharan Africa alone, accounting for 34% of all infrastructure financing for the region. For the same period, Ex-Im supported transactions worth $4 billion in Sub-Saharan Africa, with lesser amounts still committed to infrastructure. Although small compared to China’s financing, the $4 billion, together with $5 billion more authorized since 2010, has put the U.S. on the map helping African countries construct hospitals, power plants, and water treatment facilities. With its terms of financing at times superior to Chinese financing, Ex-Im loans help U.S. companies maintain the competitive edge in the face of cheap financing from Chinese state-owned banks and state-owned companies. 

7) But by shutting down the Ex-Im’s line of credit, the U.S. risks not only commercial opportunities, goodwill abroad and create jobs at home, but threaten the values that the U.S. government cherishes. Since the U.S. is governed by OECD’s export financing guidelines, Ex-Im sponsored projects follow strict open-bidding, award of contracts, labor and environmental standards. These best practices, as represented by U.S. companies doing business abroad, could only be imparted to developing countries and fledgling democracies if U.S. has the financial muscle in those countries. Unless U.S. politicians want countries in Africa and other frontier markets gravitate toward the state-owned corporate governance models that will inevitably be the result if their lenders come from countries that export different corporate governance models, then the U.S. must step up its financial footprint in the nascent frontier markets.


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African Inequality from Space

Urban inequality is no stranger to large metropolises anywhere in the world, and it’s always fascinating to spot them crystal clearly from space.  It’s easy to put two images of a rich and a poor neighborhood side by side, but the fact that you can actually capture urban slums right nextdoor to mansions in one shot is pretty amazing.  I’ve found a few right here in my neighborhood in Accra, which while has its fair share of inequality, is nowhere near unequal as some other African cities.  Vegetation, or lack of thereof, seems to be a common thread that easily distinguishes rich neighborhoods from poorer ones from space.


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A Douse of China/America in Africa Comparison

n1-highway-18I came across this CNN segment on “is China buying up Africa?”  - it seems like this perennial topic has been beaten ad nauseam.  It’s fascinating how during John Kerry’s confirmation hearing, the only Africa related question was on China in Africa, very disappointing indeed.  Countless books have been devoted to this topic, and so many scholars have become famous for jumping on this bandwagon.  So the moral of the story is, why all the fuss on China in Africa? Doesn’t it seem a bit odd that American scholars, media pundits, think-tanks, and even policy-makers care more about China in Africa, than America in Africa?? If you polled a random sample of Americans who actually care about Africa, more of them would correctly state which mineral from Zambia is shipped to China, than what does the acronym AGOA stand for. So why don’t more Americans care more about what America is doing in Africa?  It can’t be because the US’s presence is that much smaller than China – US’s total trade with Sub-Saharan Africa is around $100 billion/year, compared to China’s $130 billion/year.  The US and EU remain the largest trading partner for many of the most economically vibrant and democratic African countries (Nigeria, Ghana, South Africa, Kenya).  China is unequivocally the leading partner for more authoritarian countries like Angola, Ethiopia and Sudan – here is where the “political string” theory can be applied – some of these countries are not eligible for the duty-free, tariff free AGOA provisions, which if applied, would probably make the US their leading partners. And just like China, there is a lot of growth in America’s commercial involvement in Africa.  US exports to Sub-Saharan Africa tripled in the last decade; Africa to US exports in 2011 was $52 billion, an increase of 34% over the previous year.  Many big US companies have recently setup offices here.  I think people have to remember that both US and China are “new entrants” into Africa, as compared to the colonial EU countries.  This whole argument on how China is like the new colonial power, whereas the US is somehow the old colonial power, is quite foolishly absurd. And most importantly, what about extracting commodities? About 95% of Africa’s exports to the US are primary commodities (just like China), and whereas China extracts more minerals, about 90% of the US’s AGOA eligible imports from Africa is crude oil.  Most of American private sector activity in Africa is also in the extractive sector – oil, gas, mining, and African countries import even more Caterpillar tractors and excavators for their mining operations than from the Chinese.  Even Chinese companies operating in Africa (building roads, bridges, pipelines, quarrying and mining) buy American heavy equipments.  The only difference is, yes the Chinese brand is carried by state-owned companies, whereas US brands are being upheld by giants like General Electric, Caterpillar, Chevron, Exxon/Mobil, Halliburton etc.  So yes the Americans are in Africa extracting commodities, lots and lots of it, but yet we don’t perceive it that way because they are done by private companies. The one glaring discrepancy between US and China’s involvement in Africa is a function of the relative importance of Africa in the two countries’ outward investment portfolios.  Whereas Africa accounts for only 1% of the US outward FDI, it accounts for 13% of China’s FDI.  Of course, total US FDI is much larger than China FDI – but that’s why there is this perception China is investing so much more in Africa (relatively), since the US has EVEN LARGER FDI parked in Europe, Asia and Latin America so its contribution in Africa looks minuscule in comparison. What about the US government’s role in Africa then?  Well it may be surprising to hear that just like China Export Import Bank or China Development Bank, the US’s export credit agencies also have billions in infrastructure projects in Africa.  This is on top of all the pure grants/assistance US provide, which are mainly in the health, agriculture, security and political governance arenas.  And of course people only focus on the things they can “see” – the roads, big glamorous public buildings and stadiums, and less so on the more US specialties of water treatment plants, power transmission lines, or port facilities. And lastly – the huge ramp-up of US assistance to Africa occurred during the Bush administration – so in Africa G.W. Bush maybe more popular than he is back home??

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Bad Air = NOT Just a China Problem

harmattan_from_spaceRecently I’ve seen all over the news Beijing’s “beyond the index” air quality.  So I tried to look for PM 2.5 measurements for African cities – but to no avail.  Apparently, international environmental organizations only care about PM measurements from the developed world and China (and maybe a tiny bit of India and Mexico).  And of course African governments don’t monitor their own air quality – I don’t even know if there is a single air quality measurement instrument in Ghana.  Hmm if there is zero data, how do you know there are no pockets of Africa that actually breathe worse miasma than Beijing?

So it would seem from the media and policy discourse that being worried about the air is the privilege of the exclusive few? Really? Only industrialized countries have bad air problems? True – many poor countries have other killers that are more deadly than the air they breathe, but it doesn’t mean that just because a country is “per-industrialized” that there is no bad air.  I’m going to list the following factors that contribute to bad air in African cities that may create more alarming air qualities than their levels of economic development may indicate:

1) Burning of biomass for fuel – which releases all kinds of yucky smoggy polluting soot, volatile organic compounds, dense by-products that penetrate the lungs.  As much as 95% of fuel comes from biomass – and unlike rich countries, poor nations don’t have clean stoves and appliances that burn efficiently.  Indoor air pollution from biomass burning is already one of the leading causes of death here.  And when you walk outside, you can always smell the signature leaves, grass, even tires being burned. People also burn large chunks of grassland seasonally to prevent real uncontrolled fires during the dry-season. The result – all this POLLUTION in the air, and yet no measurement, nobody realizing it as a problem!

2) Old vehicles – not just old, but SUPER OLD.  This is a no-brainer, but if you haven’t been to some African cities, you may have a hard time imagine that most of the public vehicles on the street are from the pre-independence era.  Those 1920s Mercedes Benz mini-vans that emit pure benzene type carcinogens have not yet been banned here as you would assume.

2) The climate – From November to March is the Harmattan season in West Africa. The dry, dusty wind carrying fine particles from the Sahara that obscures the sky for weeks at a time. This adds to the dry season grass burning that makes it very uncomfortable to breathe on some days.

4) That’s right – the exponential growth of cars is also NOT a China only problem.  This is especially true in Ghana, Nigeria, Kenya and other lower-middle income countries, where the number of cars on the street grows by double digits, not unlike that of China.

The moral of the story is, don’t be fooled to think air pollution is not Africa’s problem.  What makes it so sad is that we don’t even have any instruments to measure air quality here. I’m going to buy a PM 2.5 instrument….

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