The Truth About Foreign Aid

…That could be the title of a new 3-part BBC podcast, “The Truth About NGOs“. This documentary explores whether and how should NGOs be politically involved, as well as the consequences of having a large international NGO sector in a developing country. The first episode begins with a focus on Malawi, and how the LGBT rights movement has been buoyed by NGOs and their foreign donors. It’s an interesting piece, though this is not about “NGOs”, per se – it is also about the powerful influence of donors on their grantees, and even in this podcast, the politics of state-level aid are discussed. NGOs, the actors on the ground, are only one part of the puzzle.

The podcast is probably nothing new for NGO policy wonks – the discussion of whether organizations are influenced by or beholden to their funders and donors is an age old discussion. Same goes for failed, poorly designed and implemented development projects that never see the light of day and/or disappoint and anger communities. Or the notion that some NGOs only pay lip service to the notion of “participation” (the podcast actually defines “dragonfly skimming” and “helicopter consultancy.”)

In spite of going down some already well trodden paths, the podcast raises some interesting points concerning the role of NGOs in perpetuating the poverty they seek to alleviate. (I can already hear my aid/development colleagues’ feathers getting ruffled, but bear with me.) While this probably merits much more than a few sentences on this blog or a few minutes in a podcast, one of the more interesting notions explored by the podcast is the idea that international NGOs are “depoliticizing” poverty. ” I thought this line, by Firoze Manji, editor in chief of Pambazuka News, was spot on: “If the NGOs participate in the process of alleviating the nasty parts of becoming poor, they are actually colluding. It comes back to saying being brave enough to take on the “politics of impoverishement”. Either you fight that, or you’re part of the problem.”

The question posed at the end of the podcast is whether NGOs should focus on “on advocacy, on leverage, rather than delivery of aid.” What do you think? There are obviously circumstances where this might not make sense, in particular in emergency situations where NGOs provide life-saving aid. But beyond that, is advocacy, rather than aid delivery, the future of NGOs?

Listen to the podcast here.

Bananas from Jersey: How the world is losing trillions to tax havens

This post was originally published on UN Dispatch on November 30, 2011.

Since the economic collapse of 2008 and the ensuing recession, increasingly more attention is being paid to corporate accountability. Recently, the Occupy movement has brought into sharp relief some of the discontent with poor corporate citizenship. If you pay close enough attention, there have been many stories in the media exposing unfair – sometimes illegal – corporate practices and how they are affecting the overall health of the economy. We’ve learned, for example, how G.E. – America’s largest corporation – avoided paying any taxes in the United States in 2010 – thanks to the “clever use” of tax breaks and offshore accounting. While Republican presidential hopefuls will have you believe that reducing corporate tax rates is the best way to boost the economy, American corporate tax rates haven’t been this low (35%) since before the Second World War. Meanwhile, the United States is struggling to figure out how to cut a soaring budget deficit and continue financing key health care and welfare programs.

This situation, however, is not unique to the United States or the industrialized world. Indeed, a recent report by Eurodad (European Network on Debt & Development) finds that developing nations lose more than a trillion (yes, trillion) dollars of potential tax revenue every year because of corporate tax evasion.

The UK-based Tax Justice Network also recently published a report to highlight the negative effects of tax dodging by multinational corporations, and launched a new campaign “Tackle Tax Havens (By the way, their website, www.tackletaxhavens.com, offers myriad resources, information and data about tax evasion – I highly recommend checking it out.) Their reportshows that tax evasion costs 145 countries, representing over 98% of world GDP, more than US$3.1 trillion annually.

As noted in the executive summary of the Eurodad report, “the international community has repeatedly stressed the need to mobilise domestic resources in developing countries, as the most sustainable way of financing development and ending aid dependency […] The cross border nature of multinational companies’operations combined with the absence of adequate transparency regulations have very damaging implications for a country’s ability to mobilise domestic resources.” Mobilizing resources through taxation is not just critical for developing countries’ ability to finance development: it is, in fact, one of the most fundamental functions of modern, sovereign states – developing or industrialized. Drawing a parallel with the way in which the United States is weak on corporate tax enforcement allows us to see the depth of the problem of tax evasion.

While we continue to think about how developing nations can finance programs to support economic and social development, it’s clear that the issue of corporate tax evasion must be addressed. In the extractive industry, efforts such as the Extractive Industry Transparency Initiative, begin to deal with this issue, but the voluntary nature of the EITI, and the lack of enforcement mechanisms, make it an imperfect solution. Dealing with tax havens is a third rail issue. Similarly, attempting to close tax loopholes for multinational corporations is practically political suicide. The globalized nature of this problem suggests that bold, concerted action will need to take place – nothing less than the viability and sustainability of our economic and financial systems are at stake.

Can Inequality Fuel Revolutions?

This post was originally published on UN Dispatch. Many people shared comments and thoughts via Twitter and Google +, thank you very much for engaging. The title of this post has a question mark because I really think of this as a question – can inequality fuel revolutions? Let me know what you think in the comments!

Continue reading Can Inequality Fuel Revolutions?

Is EDUN a success?

In 2008, as part of a conference goodie-bag, I received an EDUN t-shirt. The shirt’s tags indicated my shirt was made in Peru, from organic Peruvian cotton. The small pamphlet attached to it noted that the company, started by Bono and his wife Ali Hewson, was focused on sustainable, ethical and eco-friendly fashions. I remember liking the shirt and the story behind it, especially because my job at the time had me focusing on economic development for small-holder farmers in rural Peru. I liked the idea that not only was the organic cotton produced in Peru, but instead of being exported as a raw material, the value-added product was created there in Peruvian factories, thus enhancing economic returns locally.

Me and my Peruvian-made EDUN shirt

EDUN’s mission though, according to Ali Hewson is to make a profit — not because the executive board needs the money but to demonstrate to other entrepreneurs that it’s possible to do so in developing countries, paying fair wages and relying on local raw material entirely processed and manufactured by local labor, from start to finish.

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An article entitled “Out of Africa, Into Asia” in Friday’s Wall Street Journal explains how the company decided to move a majority of the production to China because of various issues with the manufacturers in the developing world, particularly in Africa. Delivery delays and quality problems were affecting the clothing line to the point where the company hosted “a party in the dark, at the chic cabaret venue The Box, to draw attention away from the clothes.”

According to the WSJ:

After putting around $20 million of their own money into the still-unprofitable brand, Bono and Ms. Hewson sold 49% of the company last year to LVMH Moët Hennessy Louis Vuitton for about $7.8 million. LVMH, the world’s largest luxury conglomerate, helped the company recruit new management and a new designer (Mr. Gregory left in 2007), and then tried to convince the founders to expand their sourcing horizons.

Currently, 15% of EDUN’s products are manufactured in Africa; this particular point led to an interesting conversation on Twitter about whether this means that EDUN is succeeding in its mission, or if in fact it has failed to accomplish what it set out to do. Some argued that EDUN was proving that it was possible to run a for-profit enterprise with a strong commitment to fair and ethical practices. Others – myself included – questioned whether EDUN could be considered successful given how much it seems to be deviating from its original intent.

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I can relate to both sides of the argument here. Bono and his wife set out on a creative enterprise which they hope can become a model. As Hewson told the WSJ in 2009, EDUN is supposed to demonstrate that a for-profit business can be successful and ethical at the same time. This in turn can encourage other businesses to adopt new practices: sourcing products (and not just raw materials) from factories with strong labor and environmental standards in developing countries. These are obviously laudable goals that should be supported. However, my concern lies with the fact that Bono and Hewson didn’t actually prove that this was possible through EDUN, given all the issues they encountered in making their vision a reality.

In EDUN’s “mission” section of their website, it seems rather obvious that the focus is strongly on Africa. A rather tedious and unoriginal video of schoolchildren dancing in a school in the slum of Kibera and a slideshow of nameless organic cotton farmers adorn the webpage, along with a “Made in Africa”section, ominously subtitled “coming soon…”

The mission statement talks about about two partnerships: one with the aforementioned school in Kibera, and the Conservation Cotton Initiative in Northern Uganda with Invisible Children (everyone’s favorite advocacy organization) and the Wildlife Conservation Society. Leaving aside the merits of these two initiatives, they do speak to the rather small-scale scope of EDUN’s impact on African manufacturing. Which is precisely why I find it difficult to construe EDUN as a success: they have only very partially achieved their goal of having their fashion clothing line produced in African factories.

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In the WSJ article, Ali Hewson makes it clear where EDUN’s priorities lie: “we focused too much on the mission in the beginning. It’s the clothes, it’s the product. It’s a fashion company. That needs to be first and foremost.” Now this makes perfect business sense – a good company sells quality, in-demand products at the lowest possible cost in order to maximize revenues. What this suggests, though, is that the fair trade aspect of the mission – while still present – is not a priority. This is reflected in the decision to source a majority of products from China, with only a nominal portion coming from Africa. Furthermore, as EDUN’s website suggests, their efforts in Africa seem to be informed by somewhat vague principles and guidelines.

The problem is that EDUN, under these circumstances, is hardly demonstrating that “doing good while doing well” is a viable way to run a business. In fact, I’d argue quite the opposite. Their initial focus on product marketing (through celebrity ad campaigns and thanks to Bono’s superstar status) rather than on developing a viable, sustainable business model eventually forced them to rethink their model. This is particularly frustrating because EDUN could have easily sought to do its homework properly and anticipate the predictable problems they ran into. Saundra Schimmelpfennig wrote about this exact topic last year, and there are hundreds of entrepreneurs in the same space whose counsel could have been sought.

EDUN failed to learn the lessons of their predecessors’ mistakes in order to make their model succeed has they originally intended. Instead of proving that their business model was viable, they seem to have proved exactly the opposite. If it Bono hadn’t had the ability to throw $20mm of his own money into the company when it was suffering financially, if he didn’t have the kind of prestige that would make LVMH purchase the flailing, unprofitable company, I highly doubt EDUN would still exist today.

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I’m one to be supportive of daring entrepreneurship, both social and commercial, and I do have a lot of respect for people who have the courage to throw their energy into creating a successful enterprise. That said, when it comes to EDUN, I feel that the efforts were superficial, in more ways than one. Had EDUN done better research, they might have come up with a better model than what led them to be pretty much ashamed of the clothes that came from Africa (cf. the party in the dark to draw attention away from the clothes – for a fashion company!?) I don’t think anyone considering investing in African business would look to Bono and EDUN’s example as a model for success… In fact, I would imagine that looking at EDUN would discourage potential investors.

It seems that we don’t hold Bono to the same standards we hold non-rock star entrepreneurs. His mere trying to succeed appears to be enough to endear him to his supporters. Frankly, I feel Bono doesn’t deserve much praise here. If he was truly committed to supporting African cotton farmers, sellers and manufacturers, he could have invested in a few small or medium size clothing factories, for example. Industry in the developing world needs capital and improved operational standards, and there are several organizations which focus precisely on achieving this. The Grassroots Business Fund, for instance, makes equity, quasi-equity, and debt investments in the $250,000 – $1,000,000 range in agricultural and artisanal businesses, as well as access to finance and BoP services.

I understand: EDUN is a fashion clothes line, not an aid project. Fair enough. But then let’s see this for what it really is: one among many lines of clothing designed and marketed by a celebrity, with an ethical “twist.” To say that EDUN is a “game-changing” initiative is giving much too much credit to an enterprise which essentially failed to accomplish the mission it set out for itself.

on entrepreneurship and NGOs

This post is in response to – or rather, a disgression on – Tom’s post a couple of weeks ago on his blog A View from the Cave. These are my thoughts, unadulterated, on the topic of whether “one person can create change.” I’m sure there are plenty of contradicting, conflicting ideas you’ll read below. This is a topic I care about and think about a lot, and my thoughts are still evolving. Please, please do comment and challenge me where you think I’m wrong.

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Tom, over at A View From The Cave, recently wrote a post pondering why it seems (and sometimes is) so easy for aid industry outsiders to enter the aid world. This is part of a broader discussion which has been unfolding for a few months on Twitter (and elsewhere since forever), about the role of volunteers and non-professionals in humanitarian aid and development.

I generally agree with J. from Tales from the Hood that development and aid should be left to professionally trained and capable people. I also agree with nearly 100% of what is written on the superb “Good Intentions are Not Enough” blog. In Tom’s post, he wonders why it keeps happening – why do well-intentioned but untrained people think they can create change successfully?

It’s an excellent question, one worth asking in the age of E-Z charity. One thing that I find striking, though, when I peruse the reactions of aid professionals, is the general unwillingness to believe in the capacity of individuals to have not just good intentions, but also a valid framework for taking action.

As far as I’m concerned, the jury is still out on whether small-scale, grassroots initiatives and NGO entrepreneurs are qualified or able to make a positive impact. I’m always taken aback by how aid professionals so easily write off these efforts. Particularly given the huge diversity that this field represents, and given that they are often the same people who are the most powerful critics of their own industry. If change is so slow to occur within the industry itself, what’s so wrong with working on the periphery of it?

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There is a paradoxical aspect to aid workers criticizing outsiders, since they often are the first ones to pick apart faulty projects and obsolete mindsets in their own industry. Recent, select thoughts from industry insiders:

“INGOs may do many good things, but they are basically not structured to deliver effective aid to the poor. They are structured achieve and maintain their own existence. And while it is easy to want to point at the large household charities as examples, it is no less true of the smaller ones.”

“I don’t know of a major disaster where, six months later, commitments had been fulfilled and serious progress made. That alone should make it obvious that this is not a bug in the system, but a feature – and that feature is the persistent exclusion of affected communities even while the language of inclusion is spoken.”

Aid shares features with pretty much any other professional field of activity:

  • A powerful, resource-rich industrial complex exists at the center. It includes state actors (donor governments and development agencies) and non-state actors (large INGOs; the UN and its agencies). Together, they form the “establishment.”
  • The existence of a well-established industry inevitably give rise to reactionaries; people for who innovation and risk-taking outside the boundaries of their world are heresy because they threaten the status-quo.
  • People both within and outside the establishment are seeing cracks in the system’s architecture: whether it be ill-conceived projects, lack of transparency, mis-allocation of funds or outdated operating procedures. As a result, innovation (good and bad) occurs at the margins.
  • Interestingly, it is often the same people who are the harshest critics of their own industry who are also the ones who dismiss outsiders’ efforts to break free from the prevailing M.O.

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I should be clear that I do not – at all, ever – condone amateurish work. Whether it be in aid or any other field, it’s difficult to think of instances where dilettantes are better equipped than trained professionals. I think we need large, well-established professional NGOs with the resources (financial, human, institutional and otherwise) to do things that no single person or entrepreneur can accomplish on their own. So, with this caveat, let’s talk about why I think entrepreneurship in aid is important and why efforts in that space should be encouraged.

Sure, no single person can create long-lasting change, and successfully developing an aid project or organization takes a special kind of person and a real commitment. But if we stifle the creativity and wherewithal of entrepreneurs before they even have the opportunity to try – and potentially fail – then change isn’t going to happen, at all.

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I don’t know for sure, but I suspect that when a bunch of crazy French doctors decided to create Doctors without Borders during the Biafra war, everyone around them must have thought they were absolutely off their rockers.

What about Henri Dunant, the idealistic businessman whose disgust with the horrors of Napoleonic wars lead to the creation of the Red Cross? (Did you catch that? Henry Dunant was a businessman with no experience in anything remotely connected to humanitarian aid)

There are several types of aid entrepreneurs; a fact that sometimes seems to get lost on critics and supporters of NGO entrepreneurs alike. Not everyone is an Henri Dunant, Bernard Kouchner or Greg Mortenson, obviously – there are also the Jasons of this world, the soles4souls and and one of my personal favorites, little pillow dresses. These are the types of initiative that are, essentially, purely fueled with good intentions. No research or real thought has gone into creating these initiatives. I have yet to see an aid professional be involved with one of these initiatives, and whenever they do chime in, aid workers are scolded for being elitist and belittling the pure motives of said initiative.

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But then there are also many brilliant, creative, intelligent people who hail from various backgrounds and industries who have jumped into the fray. To name a few organizations who emerged from the efforts of non-aid workers but who distinguish themselves from the aforementioned amateurs by their quality:

  • Solar Sister: Founder Katherine Lucey was an investment banker for 20 years before starting to work on how to empower women through market based solutions
  • The GO Campaign: Founder Scott Fifer was a Hollywood TV and film screenwriter and former Wall Street attorney and U.S. Senate aide. The GO Campaign funds local, grassroots projects in Africa that have a direct impact in communities.
  • Forge: Founder Kjerstin Erickson started this NGO when she was a junior in Stanford. FORGE has implemented over 60 community development projects that have served more than 70,000 refugees in the four refugee camps in Zambia & Botwana. An official Operating Partner of the United Nations refugee agency (UNHCR), FORGE works in Zambia, hand-in-hand with refugees from the Democratic Republic of Congo, Angola, Rwanda, Burundi and Sudan.

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This question of the value of NGO/non-profit entrepreneurs is something I think about every day and affects me personally. About three and half years ago, towards the end of my masters program, I spent two months volunteering in a refugee camp in Ghana (gasp! horror! are you still going to read the rest of this blog, or have I been catalogued as a poser?)

In spite of the fact that I had no training in community health, I was asked to create a health education curriculum for children ages 5 through 18 who were students at the Carolyn A. Miller school, the only tuition-free school in a refugee settlement of 40,000. I remember feeling ill equipped to handle the task I had been assigned, and that’s a real understatement, trust me. Thankfully, by relying on the expertise of local doctors, nurses, health workers and community members, I was able to develop a basic health curriculum that the school I was assigned to was able to implement. After two months living and working with this community, when I left, I felt compelled to continue being engaged with them.

The Niapele office in Liberia

I never set out to create an NGO; it wasn’t part of my plans. I wanted to find a way to continue working with a community that really touched me and I felt close to. I didn’t want to just give money and hand-outs; I wanted to avoid creating the situations of dependency which I kept coming across, over and over again, during my time there. Along with my friend Celina Guich, we set out to develop a model that would allow us to work with the community we had grown close to.

Fast forward three years, and I’m the director of a small international NGO, The Niapele Project. We partner with community-based organizations and local leaders in Liberia to help them implement programs that seek to improve the livelihoods of war-affected youth. You can learn more about our work here, here or here.

[It’s always interesting to see how people react to Niapele. A majority of regular civilians (read: non-aid/development crowd) are very supportive, and generally “impressed.” This is something which has been written about in Tales from the Hood before, but this feeling makes me a bit uncomfortable: I don’t feel like I’m a saint or really all that amazing or creative for doing this. There are tons of other people out there whose creativity, passion and talent exceed my own and are involved in some truly impressive projects on the periphery of the aid/humanitarian industrial complex (see the few examples mentioned above).]

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What I’m asking for is that we, as the aid/development community, recognize that innovation outside or on the periphery of the established industry is a good thing. For every successful initiative, there will be ten really crappy ones. But that’s how it works – entrepreneurship is inherently risky, and it’s not because one thinks they have are a good entrepreneur that they actually are one. But we have to accept these negative dimensions to reap the benefits of change brought about by the entrepreneurs who know what they’re doing.

What’s the alternative?  Let it be known that even though the aid industry has profound flaws and is fundamentally unsustainable, innovation on the outside is discouraged?

Not every new idea is going to be a good idea, of course. There are plenty of duds out there, and stupid people with bad ideas aren’t going away any time soon. What’s apparent to me is that social entrepreneurship is a reflection of people’s desire to DO something, and do something more than write a check or send old shoes/blankets/books/etc. It’s also a product of (sometimes legitimate, but not always) frustration both within and outside the aid system. This is why we see ideas like 1 million shirts crop up. Well-intentioned people, but without the practical or theoretical knowledge needed to drive a successful initiative, will give it a go. This is inevitable.

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The real question, for me, is how do we support the kind of innovation that does create positive change, all the while weeding out all the useless and potentially harmful amateurish initiatives?

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I completely understand why aid amateurs irk the professionals. I’m lucky to have a vantage point at both the micro level, outside the humanitarian/aid/development industrial complex, and within it. I’m constantly surprised by how often I come across seriously flawed ideas, shoddy implementation and pure self-interest and aggrandizement. And let it be known that all this happens with large, established NGOs and the smallest initiatives.

Wonk love

‘Tis that time of the year again: long weekends and celebrations of national holidays, fireworks and hot-dogs. As I suspect many of you will be traveling this weekend (and throughout the summer), I thought I’d recommend one of my all time favorite podcasts: the Center for Global Development’s Global Prosperity Wonkcast. Usually hosted by Lawrence MacDonald, the podcasts usually last about 20 minutes and feature Center for Global Development (CGD) fellows, as well as other prominent guests. The themes discussed are always salient and topical, and the expertise is spot-on.

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Last week, the Wonkcast had an excellent episode on the Gulf of Mexico gusher and Africa’s oil boom (mostly about the latter topic, really), with Todd Moss and Vijaya Ramachandran. The New York Times reports that “as many as 546 million gallons of oil spilled into the Niger Delta over the last five decades, or nearly 11 million gallons a year.” Unlike the outrage sparked by the Deepwater Horizon catastrophy, the response to the relentless flow of oil into the Niger delta has generated little action. There are different factors affecting the situation: criminal activity by rebel groups, which illegally tap pipelines and fail to cap them, is one major issue. But one point which the experts in the Wonkcast insist on is the responsibility of corporations.

Nigeria has a weak regulatory environment, and many of the companies drilling for oil do so out of sight – literally. With offshore platforms left unmonitored by the government or other independent bodies, the safety and security precautions taken by companies are determined internally. This leads to several issues related to poor maintenance of facilities (corroding and unsecured pipelines), environmentally destructive practices (gas flares, which are the result of burning off natural gas recovered during the extraction of crude oil), and a general lack of accountability and responsibility for the social and environmental impact of natural resource extraction activities.

The Nigerian authorities – both federal and local – and natural resource companies share the responsibility for what is occurring in the Niger Delta. If they are not directly responsible, they are at the very least guilty of omission. Todd Moss speaks of the need to drastically improve the regulatory framework that governs natural resource extraction in Nigeria. I would add that companies also need to adopt much stricter standards, and embrace good corporate citizenship. As we are seeing with BP in the Gulf of Mexico, the practice of putting profits and the bottom line ahead of any other concerns has to change.

Efforts to promote the value of corporate social responsibility have been gaining in importance in recent years. The notion of “triple bottom line” (people/planet/profits), for instance, is becoming the dominant approach to full cost accounting, which takes into account the full economic, social and environmental cost of operating a business. The Dow Jones Sustainability Index “comprises the leading companies in terms of sustainability around the world. It captures the top 10% based on long-term economic, environmental and social criteria out of the biggest 2500 companies worldwide.” The Extractive Industries Transparency Initiative, as well at the Global Reporting Initiative, are other examples of new accountability systems that are changing the way in which companies report on their activities. What ties all these initiatives together is the move towards taking into account all of the dimensions – economic, social, environmental – which a business necessarily impacts.

Another initiative, this time led by executives in the natural resource sector, is the International Council on Mining and Metals (ICMM). The ICMM’s mission is to help its member companies make their social and environmental commitments in line with sustainable practices, and to increase the overall sustainability of their operations. Having worked with the ICMM in the past, I can attest to the quality of the organization’s work. As far as I know, there is no similar initiative for the oil and gas industry.

Because of the nature of the natural resource extraction business,  negative externalities caused by these activities are often not on people’s radars. It took a massive disaster in the Gulf of Mexico for the general public in the United States to question the practice of deep-water, offshore drilling. In our day to day lives, we are not exposed to the environmental and social consequences of natural resource extraction – out of sight, out of mind.

For the estimated 30 million people living in the Niger Delta, however, the effects of poorly regulated oil extraction have very tangible consequences: destroyed ecosystems, depletion of fish stocks and wildlife (impacting the livelihoods of local fishermen and farmers), hampered agricultural production, pollution (leading to many health issues), insecurity (due to the presence of armed criminal groups), etc. Amnesty International released a comprehensive report last year, where these issues are explored in depth.

One of the solutions discussed by Todd Moss to decrease poverty in the Niger Delta is the institution of direct cash transfers to the local population. Under this scheme, the Nigerian government would redistribute 10% of its annual dividends directly to individuals in the region. By by-passing state coffers, and thus the possibility of funds being misappropriate or mismanaged, direct cash transfers are seen as a way to beat the “oil curse”, which has plagued natural resource rich countries with poor governance. This method of redistributing revenue is being used in Alaska since 1982, and Moss has been advocating for this approach to be adopted by West African nations such as Ghana and Nigeria.

In the podcast, Moss notes that this direct cash transfer proposal is creating strange bedfellows: on the one hand, progressive liberals believe that this allows citizens to have a stake in the wealth of their country, and, on the other hand, libertarians love the idea of cutting out the government middle man. Moss points out that the dividends paid to citizens should still be taxed by the government, in an effort to keep accountability loops. Nevertheless, I wonder about the indirect effects of such a system.

For example, under this system, the incentives for government accountability in terms of natural resource wealth management are reduced. In other developing nations, the approach has been to strengthen both the regulatory framework and redistribution channels, and to build the capacity of government agencies to manage natural resource wealth. While direct cash transfers may be a good short term solution, in the long term, it does not help resolve the overarching challenge of poor governance.

In my mind, building the institutional capacity of resource-rich countries is the most critical element of turning the “resource curse” into a blessing. Chile and Peru are examples of countries that, not very long ago, were struggling with poverty. Both of these nations have instituted reforms and focused on attracting and managing foreign investors and natural resource companies. The government of Peru has a complex taxation and redistribution system in place, which seeks to ensure that the wealth generated by mining is shared based on principles of equality.

A study by the Fraser Institute supports this view (emphasis mine):

“The authors of the report, after considering new and existing data, come to the conclusion that whether a country benefits from natural resources depends largely on the integrity of its institutions and economic freedom — government bureaucracy, legal structure, property rights, monetary policies and international trade. Simply put, the higher the level of economic freedom a country enjoys, the greater the benefit from resources.”

For Nigeria, direct cash transfers can probably help alleviate poverty to some degree. Nevertheless, I don’t think the egregious violations of human rights, the environmental destruction and insecurity will subside unless: 1. the government of Nigeria improves governance and regulation, and 2. natural resource companies self-impose stricter standards for safety, security and work much harder on mitigating the negative social and environmental impact of their activities.

These aren’t short term projects, but they should accompany any initiative that seeks to diminish the negative impact of natural resource extraction in the region.