Presentation to the Tana High Level Forum on Peace and Security in Africa
Bahir Dar, Ethiopia, 27 April 2014

Opening remarks

Let me open with a personal reflection. On 16 October 2010, I had the privilege of making a presentation at a small, informal seminar convened by the late Prime Minister Meles Zenawi, in his office. The topic of the seminar was the ‘democratic developmental state,’ and I had prepared and circulated a short paper on what I called the ‘rentier political marketplace,’ concerned with the rent-seeking behaviour of political elites in north-east Africa, and how this contributed to armed conflict. Meles commented:

Alex’s analysis is a powerful tool for the archetypical African state. It demystifies politics on the continent. It needs to be elaborated further. It mostly deals with the political elite, it should bring in the mass in the rural and urban areas, how are they affected? … We need to know which social forces generate deeper rent seeking, and which can assist us in finding a way out.

Meles challenged me to develop a framework that could bridge between the actual politics of rent-seeking in an unstable and conflict-ridden state, and peace and development. He warned that a peace agreement, if designed in a certain way, could actually intensify rent-seeking and sustain the cycle of conflict. We discussed the relationship between resources, financial flows (licit and illicit), peace, and the potential for a democratic developmentalism. Those are the themes that I would like to discuss briefly today.

That day was also significant for another reason. I was a messenger from Mulugeta Gebrehiwot at the Institute of Peace and Security to the Prime Minister. My message had two parts. The first was, if the Munich Security Forum were to extend an invitation to PM Meles to attend its session in early 2011, would he be minded to accept? Meles’s answer was yes, he would be delighted. The second was, Mulugeta and his staff had developed the concept for a similar forum on peace and security in Africa, and refined the details and secured a potential donor, and would he be interested to host and facilitate it? Meles’s answer was also, without hesitation, yes. I carried these messages just a few miles across Addis Ababa, but I am proud that I had a small role in the creation of this Forum.

A forum such as this, and its sponsor institution the Institute for Peace and Security Studies, constitutes an integral part of Ethiopia’s national security strategy, as well as Africa’s peace and security strategy. Meles Zenawi, in his 2001 White Paper on national security and foreign policy, decried what he called ‘jingoism with an empty stomach,’ namely the tendency of some Ethiopians to have been proud nationalists without attending to the challenges of developing the country so that it could stand on its own feet. He might similarly have decried ‘nationalism with an empty head.’ Political-military strategy was, for Meles, first and foremost an intellectual task, and he scorned the tendency of some to reflexively invoke national security concerns to shut down the kind of intellectual inquiry that is essential to national interest. If Meles’s legacy is to be honoured in the right spirit, the academic independence of this Forum and the IPSS are to be cherished by all who genuinely and farsightedly promote Ethiopia’s national security.

Peace and money

The theme of our conference this year is illicit financial flows. I would like to examine some of the links between natural resources, rent-seeking, financial flows, and peace.

My main points are that peace needs money. More particularly, the way in which peace is financed determines the nature of that peace. Sustainable peace requires the right kind of money. I am not talking about financing peace processes—which are invariably good value for money, even if the day-to-day expenses of hosting delegates in hotels might appear to be extravagant—but rather the financing of the post-peace dispensation.

There has been much attention to how natural resources can be a curse rather than a blessing, and can drive conflict. There is less attention on how rental revenues, including natural resources along with aid and security cooperation rents, shape the prospects for peace. Nonetheless, there is a certain model for peacemaking that has become dominant in Africa, and that model has built-in assumptions about the nature of how peace will be financed.

The standard formula for peacemaking consists of three parallel tracks in a negotiation. One is power-sharing, which consists of allocating senior government posts among the leaders of the contending parties, and perhaps also establishing new levels of government for some of these leaders. The second is wealth sharing, which consists of allocating the country’s resources, through budgetary mechanisms. The third is security arrangements, part of which is concerned with immediate ceasefire arrangements, with the remainder concerned with bringing rebel fighters onto the army payroll.

In short, a peace agreement resembles a rent allocation deal among the contesting elites. This is what Meles and I called ‘rental peace’ in our seminar in 2010.

There is an empirical relationship between budgets and peacemaking. It consists in the fact that most peace agreements happen when national budgets are expanding, and especially when the rental revenue to the government—for example from oil or international aid—is expanding.

Sudan is an excellent example. Historically, every peace agreement in Sudan’s history has been signed at a time of expanding budgets. Not a single one has been signed at a time of stagnant or declining budgets. Between 1989 and 1999, President Omar al Bashir’s government survived on a national budget that was less than a billion U.S. dollars per year. It is an extraordinary achievement to stay in power, under extremely adverse domestic and international circumstances, in a large and complicated country, with so little money. I would like to hear from Pres. Bashir how he managed it. As an example of political business management under adversity, it is a feat worthy of an international prize.

Then in 1999, Sudan began to export oil, and over the following seven years, the government budget expanded approximately tenfold. This expansion in resources coincided with the 2005 Comprehensive Peace Agreement that ended the war in southern Sudan, and brought the late Dr. John Garang and Pres. Salva Kiir into government. Similarly, Pres. Salva was able to make internal peace in southern Sudan, with the 2006 Juba Agreement, at a time of rapidly expanding budget for the Government of Southern Sudan.

These agreements deserve our congratulation. But we need to be alert to the limitations and drawbacks of this kind of rental peace. This kind of agreement is sustainable for only so long as the national budget continues to expand. Moreover, the cycle of rebellion leading to a peace agreement that rewards the rebels with access to more government rent, carries real risks. A rental peace can incentivize rebellion and is therefore inherently unsustainable. I fear that we are witnessing some of the consequences of that now.

I believe that we need to scrutinize more carefully the links between financial structures and peacemaking. This is especially relevant in countries that are rich in natural resources such as oil, and which are vulnerable to illicit financial flows. This is a research agenda, as yet largely unexplored. However, we can begin to chart the directions for inquiry.

Three elements can improve peacemaking: making better ‘rental peace,’ creating a framework for ‘democratic developmental peace,’ and focusing on values.

Making better rental peace.

Peace is more readily achievable when the money in a national budget is increasing. It would be worth further empirical research into this hypothesis.

If true, several steps can facilitate budgeting for peace. One is designing international post-conflict funding mechanisms so that they better meet the immediate financial needs of a country making peace. For example, international donors often rush to fund post-conflict DDR programmes, when the more immediate need is for increased funding to the security sector so that former rebels can be absorbed onto the payroll. Commonly, public service and security sector reform programmes are premised on the downsizing of these sectors, whereas the reality is that the numbers of people on the public sector payroll needs first to increase, before reform measures can be implemented.

Measures to reduce tax evasion, including transfer pricing and profit shifting, have the potential to increase government revenue enormously. This is the most important way in which the agenda of this year’s Tana Forum, on illicit financial flows, intersects with the potential for peacemaking.

Specific to Sudan is the need to lift financial sanctions on the country, so that it can obtain debt relief and concessional finance. The record of squeezing governments financially by outlawing legitimate financing, into peacemaking, is not good. We should not be surprised if governments, denied licit financial flows, turn to illicit means of financing themselves.

Better rental peace is enhanced by better money, in the sense that a greater reliance on domestic taxation is commonly associated with stronger and more accountable institutions. Part of peacebuilding is therefore improvements in tax collection. This includes fairer taxes on multinational companies and also enhanced domestic revenue collection institutions.

There is also a research and policy agenda relating to punitive financial measures. Currently, the design and implementation of financial sanctions is exclusively the privilege of western countries and almost entirely the United States. Following the terrorist attacks of September 11, the U.S. developed new and much more sophisticated mechanisms for tracking financial flows, which can be used for targeted sanctions aimed at individuals, whether they be suspected terrorists, criminals or politicians and their financiers. Because of the dominance of U.S. financial institutions and the fact that so much of world trade is denominated in U.S. dollars, the U.S. became the world’s financial policeman. No other country in the world, let alone in Africa, possesses comparable financial intelligence, combined with the ability to enforce financial sanctions and asset freezes. African countries and multilateral institutions will not be able to rival this.

However, if financial sanctions are to be utilized as part of the arsenal of peace making in Africa, it is important that they enjoy legitimacy in the region and the ready cooperation of African countries. For this to be possible, African institutions need to develop the necessary expertise, so that they can design and recommend the appropriate mechanisms. The enforcement of these measures will of course require international, and especially U.S., cooperation, but it is surely preferable for financial sanctions to be agreed multilaterally rather than imposed unilaterally.

Democratic developmental peace

In principle, a strong centralized state could exert sufficient control over national rents that it can reduce rent-seeking among the political elites, and establish peace agreements that promote democracy and development. In practice, this is very improbable, because armed conflicts that demand a negotiated peace are likely to occur precisely because political elites are competing intensely for rents, and therefore an agreement is likely to consist in sufficient allocation of rent—for example in control over a provincial government and its natural resource revenues—to satisfy the rebellious elites.

However, it is worth investigating the extent to which peace processes and agreements can be structured in such a way as to lay the foundations for value-creating development and democracy. There are several examples in Africa where, by circumstance as much as design, this has occurred.

One example is Somaliland, which established an unrecognized government based upon a peace agreement in 1993, and which has maintained democratic government and economic growth since then. Key elements of this success include the government’s reliance on domestic revenue, from livestock exports, telecoms and remittances, and its inability to monopolize a source of rental income that would allow it to centralize patronage. Somaliland’s peace process (notably the Boroma conference of January-May 1993) were inexpensive and were funded entirely by Somalilanders at home and in the diaspora, and its unrecognized government received modest external assistance. It might therefore appear to be a refutation of the argument that peace needs money. But I think not: rather it is an illustration that a sustainable, non-rental peace is also possible.

Somaliland could make and sustain peace because although it had small amounts of money, it had better money. The control over that money was distributed across a national business class, and business profits were not dependent upon governmental patronage. The bargaining between government and business, over taxation, regulation and the rule of law, had many similarities to the processes of state-making in 18th century north-west European early capitalist countries.

The livestock export business is significant because, first, no government has been able to exert central control over this trade, and secondly, because the viability of the trade depends on peace and stability. When the livestock traders extended credit to the government of Somaliland, they did so for the best reasons of enlightened self-interest.

The telecoms industry is also very interesting to research, in the context of this Forum, because it has an unusual system of payment through which telecoms companies around the world compensate one another for landing international calls on each other’s networks. The international accounting and settlement rates regime, means that calls from developed countries to Africa, entail a financial payment from the international telecoms company to the local company. Therefore, as there are more calls made from developed countries to Somalia and Somaliland than vice versa, Somali telecoms companies receive net payments from those developed countries. Also, the accounting rate negotiated between Somali telecoms companies and their European and American counterparts has been dropping but still remains well above the actual cost of landing a call, so that Somali telecoms companies still make large profits.

This is, I suggest, an illustration of a much fairer system for allocating profits across countries, that brings net benefits to Africa. It is a system that not only brings resources to Africa, rather than the other way around, but it does so in a way that helps construct a national middle class that has an interest in good governance, peace and stability.

Another illustrative case is Burundi. In many ways, the peace agreements for Burundi are classic instances of rental peace, sharing out posts and bringing large numbers of rebel fighters onto the army payroll. However, the Burundi peace process itself had an unusual element, in that it had high status chief mediators and a large number of contending parties, none of which could impose their dictat on the structure of the talks. As a result, Burundian civil society was closely engaged in the peace process, which came to resemble an exercise in national civic education as much as a bargain over the distribution of political office. Consequently, although Burundian politics remains riven by factionalism and patronage, as it was before, today the Burundian citizenry are far more assertive and confident in claiming their rights and restraining their political leadership.

A general point is that, the less that power and wealth can be allocated by political bargaining among armed elites in a peace conference, the better. Those elites have a vested interest in maintaining a political system that keeps them politically and economically dominant, with privileged access to the state, and a peace agreement typically functions as a mechanism for regulating their political competition, so that their activities are less destructive and more legitimate. Peace agreements typically include constitutional provisions for a transition to democracy, but the elections are rarely an advertisement for democracy and more often a fierce competition for executive office. Peace agreements rarely involve a sustained effort to build a developmental state, but it is development—especially equitable development based on agriculture, manufacturing and services—that lays the foundations for democracy and sustainable peace.

Values

As Meles mentioned, my framework of the ‘rentier political marketplace’ is a tool for analyzing the ‘archetypal African state.’ It is characterized by the monetized bargaining for political position that provides access to rent, using violence as a tool of bargaining. The nexus of money, rent and violence is powerful, and has the tendency of reducing human beings to commodities. In a war, especially a war fought for political position, the expenditure of human life can be reduced to an index of the seriousness of the leader’s intent.

Peacemaking should affirm the sanctity of human life. One way of doing this is through recognizing and respecting the dead. In this regard, let me make one point only. The new African Union headquarters is built on the site of the former central prison of Ethiopia, Alem Bekagn, where many thousands lost their lives. On the spot where, in November 1974, the military government summarily executed sixty ministers of the former Imperial government, there stands a small monument to honor those who perished in the prison, including in the Graziani massacre perpetrated by the Italian Fascists in 1937 and the Red Terror of 1976-78, the genocide in Rwanda, as well as the crimes of Apartheid and the slave trade, and all other victims of human rights violations on this continent.

I suggest that all visitors to the African Union Commission should spare a moment to reflect in silence on the significance of that place, and what happened there, and additionally that every peace process should have, at its centre, honour and respect for the dead.

I thank you.

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