For our second episode of the Charter Cities Podcast, Mark is joined by Gyude Moore to discuss his experiences in and the history of Liberia, the challenges facing emerging markets and of charter cities. Gyude takes a brief look at the defining moments in Liberian history for this discussion, mentioning the population that arrived from America in the 1800s and the civil war he was born into at the end of the 20th century. We hear about his story of coming to the US for college and then returning to a governmental position thanks to the Scott Family Fellows program, working his way up the ranks to become the Minister of Public Works. From there, we move into Gyude’s passion, that paved roads make up the backbone of any economy, a technology that has become completely commonplace in most of the Western world and the dearth of which results in much of Africa’s economic stagnation. Gyude makes the connection between the US’ reliance on the road network for so much of their strong economy and then compares this with Africa’s road infrastructure, concluding that Africa can never progress without better, paved access between cities and hubs. The later part of our conversation moves into a discussion on Chinese involvement in Africa, the Belt and Roads Initiative and how Charter Cities might aid the propulsion of African economies in a way that other interventions might not. Links mentioned in this episode can be found below the transcript.
Transcript (edited for clarity):
Mark: Hello and welcome to the Charter Cities podcast. I’m your host, Mark Lutter, the founder and executive director of the Charter Cities Institute. On the Charter Cities podcast, we illuminate the various aspects of building a charter city from governance to urban planning, politics to finance, we hope listeners to the Charter Cities podcast will come away with a deep understanding of Charter Cities as well as the steps necessary to build them.
Thank you for listening.
Mark: Today our guest is Gyude Moore. He’s a visiting fellow at the Center for Global Development and the former minister of Public Works in Liberia.
Hi. Welcome to the show, Gyude.
Gyude: Hi, Mark. Thank you for having me.
Mark: To start, you come from Liberia, and Liberia has a relatively unique history that I’m not sure all of our listeners would be familiar with. Can you go into that history and sort of how it shaped the national character of Liberia today?
Gyude: Sure. By 1820s, there were over 200,000 free slaves in the American South and there had been a bunch of slave rebellions. Slave owners felt like the best way to be able to keep those down was to be able to get rid of the free slaves. If they were not around, then those who are still enslaved would not be tempted to run away.
Then there were a bunch of abolitionists who also felt like black people would never be accepted in the US. So abolitionists and slave owners came together and created something called the American Colonization Society to look for space in Africa to send free slaves back home and the place they found was called Liberia.
Mark: What influence has that had on Liberian culture? Does Liberian culture feel distinct from nearby African countries in a way because of that unique history?
Gyude: It is, just in terms of houses that were built, the architecture, plantation style, antebellum houses, the accent, the way people speak English in Liberia – people who’ve been in the deep south come to Liberia and there are things in Liberia that remind them of the deep south. There’s that.
Also, the entire civic culture of the country and the flag looks like the US flag. One star, but star and stripes, constitution, structure of government, everything. It’s very different from, say, other countries that were colonized by Europeans or that developed independently.
Mark: Okay. You grew up in Liberia during the civil war. What was that like?
Gyude: I think we’re beginning to see a little bit of it now here in DC with the coronavirus outbreak and people staying in sheltering place. I mean, in a lot of ways, it wasn’t as if there was fighting all the time, except in a few places. But there was some fighting and territory was repeatedly changing hands between different rebel groups, because there were different rebel groups, and lots of deaths.
A lot of the deaths were, again, not from bullets but from people dying of starvation or people eating things that they shouldn’t have eaten, people lacking access to hospital and stuff like that. Sickness is killing people, cholera and stuff like that. It was a hard time, and hopefully nobody ever has to go through that again.
Mark: Yeah, hopefully. Were you in Monrovia during the Civil War?
Gyude: No. I spent the last part, yeah, in Monrovia. But before then, I grew up in the south eastern part of Liberia. The south eastern most tip of Liberia. If you go any further, you’ll go into Côte d’Ivoire. That’s where I’m from. It took a while for the war to actually get to us, because we’re that far from the capital. But eventually – so the war started in ’89, and I think the rebels arrived toward end of ’90 or the beginning of the ’91.
Mark: You compared the feeling of the war to the current feeling of the corona virus. What I think of when you say that, is like there’s this feeling here of “First it’s in China. Oh, it’s not going to get to us.” Then it’s like, “Oh no! It’s in Italy.” And some people are screaming their heads off and everybody else is like, “Oh! You’re overreacting. Calm down. This is America.” Then eventually it’s like, “Okay. Now, we’re supposed to be social distancing. Now you can’t go see your grandparents, because you might give them the sickness.” Was it like a similar feeling?
Gyude: It was. If you think about it, there’s fighting in Connecticut. Then after a couple of days the fighting has reached New York City. Then it’s New Jersey, it’s Trenton. Then, oh man! It’s in Wilmington. Then, of course, it’s Baltimore. Then before you know it, it’s in Washington, D.C.
It was like that. That’s why it took a while, because Liberia has a very aggressive rainy season. During the rainy season, movement is not as heavy. But it was during the rainy season that the rebels attacked, because it meant – the government troops, the infantry soldiers, require heavy equipment to move around and rebels are really light. Sort of like the coronavirus. Pretty light and can move fast. Then states respond slowly. States are more lethargic in terms of the response.
Ultimately, a couple of things happened that are important for the charter city conversation. First, the West African organization, the region’s organization called ECOWAS, Economic Community of West African States, for the first time created a military force to move into Liberia to stabilize things. It was called ECOMOG. ECOMOG took over the capital, Monrovia. Monrovia became a safe haven.
Everybody outside the capital who could find a way into the capital did, because once you got to the capital, you were safe. Because of that, a city that was built for, at most, 350 to 400,000 people surged to about 800,000. Now it’s close to a third of the country’s population is there. The infrastructure that was built to accommodate 200,000, 300,000, 400,000 people how has to accommodate a third of the population of the country.
Mark: What was the administrative structure? Did the government invite ECOWAS in and say, “Hey, we can’t handle this. We’re going to fight the war. You govern the city,” or was it like, “You’re screwing this up. We’re going to come in and govern the city,” and the government didn’t have enough power to respond?
Gyude: By this point, the rebels have taken over half of the country. They’ve taken over more of the country than the government controlled. The government basically controlled the capital and it was only a matter of time because the rebels began amassing on the outskirts of the capital to be able to make an assault on the capital, and they did.
So then the government reached out – existing government reached out to the West African states, and West African states met and said, “Listen, we can’t allow this to happen.” They moved in and pushed — in fact, it was a Nigerian general who was in charge. He was replacing a Ghanaian general. The Nigerian general, while he was still in Nigeria, ordered the ECOMAG troops— “That by the time I get to Monrovia, I want the rebels 30 miles outside the city.” There was significant amount of fighting, but they pushed them back. So then the sit-in government basically controlled capital and the rebels controlled the rest of the country.
Mark: That’s interesting, because that’s somewhat analogous to what happened in Hong Kong after the Second World War. The Japanese occupied Hong Kong during the Second World War. . When they got kicked out, the population was about 600,000. Before the war, it was a little over a million. Then quickly in about 6 years, from 1945 to ’51, the population grew from 600,000 to 2.1 million, which was a combination of two things. It was, one, the former refugees who had fled returning. Then, two, is refugees from the Chinese Civil War who fled largely from Shanghai, China’s commercial capital, which is in part how Hong Kong got their start in textile manufacturing.
One of the really interesting things about this history is you can read accounts, and there isn’t a lot of civil strife. Usually you think if you have population that goes up from 600,000 to 2.1 million, it goes up by greater than a factor of 3 in a time of six years, you expect of degree of civil unrest, because how you deal with all these new comers. Can the infrastructure handle it? There are a lot of changes going on.
From what I can tell, there just isn’t that much of a history of that in Hong Kong. How did Monrovia deal with the rapid population increase? Was there civil unrest? Was there the effective provision of some infrastructure or was it just kind of “you’re not getting killed by rebels, so every man for himself?”
Gyude: Well, there wasn’t much civil unrest. A couple of things happened. One is people moving to the city, they moved into abandoned buildings. They moved into land that was unused and built makeshift structures. Initially, there wasn’t a lot of problems because most of the people who – people had also fled, I mean, the abandoned buildings. People who owned those buildings were no longer around. Those people trickled back in.
When they did, the courts worked. So people could evict IDPs, I guess it were called, internally displaced persons, from the property. Second thing is that aid organizations, NGOs in the country provided services to people who made it to Monrovia to be able to do that. Eventually what happened, though, is that as landowners and property owners returned, people began to spill out into places where houses and living structures should not have been built. People started to build in wetlands. People began to build in swamps and on public lands. Lands that were not owned by private citizens, but the state hadn’t done anything with, and people moved there. There was an island called Peace Island. Peace Island supposedly was owned by a number of families, but I don’t know if those families are ever going to regain the island, because Peace Island now is completely taken over by people who came into the capital.
Mark: How did you get to the US?
Gyude: Finished high school in refugee camp in Côte d’Ivoire. While I was there, I was visiting friends. I was in 11th grade and saw a brochure from a college in Kentucky called Berea College that provided full tuition scholarship to all of its students and took in about 25 to 30 international students a year. But I was in 11th grade. So I didn’t apply. After high school, I was returned to Monrovia because there was an election in ’97 and Charles Taylor, the biggest rebel leader, had won the election. So the country has settled down a bit. Again, everybody came to Monrovia because that’s where there was economic activity. I went to Monrovia and started going to a theology school, because I thought I’d be a preacher.
Mark: What happened?
Gyude: I don’t know. Where I stayed, the older brother in our family, family friends that I’ve known back home, and he was cleaning his room and had – there was a magazine subscription insert, it was from Berea College and I was like, “Whoa! I remember this college.” So I went online and the rest is history.
Mark: You told me a funny store once about when you flew into the Baltimore Airport.
Gyude: Yeah. It was Ghana Airways then. That’s before they became bankrupt. It was a one-way ticket, and they flew into Baltimore. I think they also flew into JFK. But I came into Baltimore, got off the plane and my sister is in New York, Staten Island, and I came out in Baltimore and knew nobody. Nobody knew me. There was no one there waiting for me. It was basically –
Mark So your plan was to get off the plane in Baltimore and go say hi to your sister in Staten Island?
Gyude: Basically. Well, no. I mean, to be honest, until today, I’m trying to figure out how I ended – I think what happened was my Ghana Airways flight got delayed and postponed and they went to New York on certain days and went to Baltimore on certain days. So then I just got up and left – because you just wanted to get out. I got on to flight that was coming to Baltimore and not the one that was going to New York. My sister was in New York waiting for me and I was in Baltimore.
But some Sierra Leoneans at the airport, they had come to pick someone else up, and I was dressed like someone who had just come from Africa. They saw me and I looked lost in my African fabric and I was wearing dress shoes and dress pants. Then the guy took me into the house. It was the summer. They were having those big barbecue, life was good. I had written down my sister’s number. He called her and said, “Listen, he’s in Baltimore.”
Mark: “I think I have somebody of yours.”
Gyude: “I’m going to put him on a bus, on a Greyhound bus, and he’s going to come to” – So, he put me in a bus. But it was pretty incredible, because I took the bus and you come through – I don’t remember which one it is. I think it’s the Holland Tunnel or the Lincoln Tunnel. You come out of New Jersey. You come through the tunnel and you turn on to 34th. Penn Station, and the lights, I’m like, “Yes! This is America!” Then I took a taxi from the city to Staten Island.
Mark: Cool. So then after you’re in the US, you do your undergrad, you get your master’s degree from Georgetown. Then you decided, “I’m going to go back to Liberia.”
Gyude: I didn’t want to go back to Liberia.
Mark: But you did.
Gyude: I went back to Liberia. That had been the best career decision I could have made. Well, a couple of things happened though. I think when I first left Liberia because of the war, because of the difficulty, the intention was not to go back. I was going to immerse myself as much as possible here and this is going to be home. But the longer I stayed here, the stronger the pull to return home.
I think this has happened to a lot of people, that there’s something about home that keeps – there was a program after the war and President Sirleaf, the government— Liberia beat the United States and elected the first female president. She needed help, because the supervisory class, bureaucratic class of the country either died or fled the war. They had a program from my current employerthe Center for Global Development, and it was called the Scott Fellows Program.
Ed Scott is the guy who put the money to create the Center for Global Development. He put up the first amount of money to be able to recruit Liberians and non-Liberians who would go back and be assigned with head of agencies, a sort of a special assistant to help them do memos, do meetings, do whatever it was required, and I was recruited into that program. I went back and I was fortunate, and I was placed in what was the called the Ministry of State for Presidential Affairs. That’s just the office of the president, and that’s what it’s called. I started off as an aid and they would just bring piles of reports to me to summarize. I don’t even know if the president read those.
Mark: You can ask her.
Gyude: But started off as an aid and just worked my way up through the process. I became deputy chief of staff and head of the President’s Delivery Unit. The President’s Delivery Unit was the President’s SWAT team.
Mark: If there’s a problem, they’ll figure it out.
Gyude: You fix it. It did two things. The first was to remove bottlenecks from priority projects for the country, but it also drove delivery and we briefed the president and vice president every two weeks. Which meant the president had a really good grasp on what was happening in the country and if there were an agency, a government ministry, that wasn’t working well, a project that wasn’t going forward, the head of that agency got invited to the briefing.
Mark: And you got to explain their failure with them sitting there. You’re what, like five years out of college? So you’re sitting there telling the president, “Hey! Hey, this ministry doesn’t have their stuff together.”
Gyude: No. I think this is like three years out of graduate school. The thing was initially when – I think it took a while for people to realize why we’re getting invited, because when they got invited to it, it felt like a prestigious thing, because you got invited to a briefing.
Mark: Like the president wants to talk to them. Yeah.
Gyude: You got invited to a briefing with the president and vice president and then you realize after we did the report. But it was pretty awesome because people hated us, obviously. When I became minister, I hated them. Because the head of the PDU was a deputy, the rank is at a deputy minister and you’re calling ministers. Ministers bristled that –
Mark: That’s not the hierarchy.
Gyude: Exactly. You’re beneath them in the hierarchy and you’re kind of young too. But you don’t care, because they can’t fire you. You work for the president and they have to answer your call because they don’t know if you’re calling on behalf of the president or calling on behalf of yourself.
I remember, the health minister, Dr. Gwenigale, very challenging. He’s a very, very hard worker, but he’s very, very straightforward. I’m sure some people would describe him as cantankerous. But I remember him once telling the president that these little boys came to his office, but that was our job, and it was pretty cool because, in fact, when I was first offered the position to become minister, I declined. I said –
Mark: This is too much fun.
Gyude: I kind of like working –
Mark: You get to tell the ministers what to do
Gyude: Exactly. By then I didn’t know all the perks that came with being a minister. I was in the PDU and then became head of the PDU, which meant I traveled with the president everywhere and you’re the president’s record book. You’re the president’s brain. You remember everything. You do everything. The way it worked also, when people came in to see the president about anything, after the meeting with the president, they would not see the president again. They’ll see you. It was kind of giving that up to be minister.
Mark: Hard choices.
Gyude: Yeah. Now, I will say that being a minister was an easier a job because you’re just responsible for one sector, in the president’s office. It was the entire country. So that’s where I was when we responded to Ebola.
Mark: The Scott Fellows program you brought up earlier is really interesting, because this is actually a problem that we’ve been thinking more seriously about recently. We’re working with a new city development called Enyimba Economic City. It’s being built in Nigeria for 1.5 million residents. We were thinking, “Okay, 1. 5 million people.” If you assume five percent of the population is working for the city, that’s 7,500 people, and ten percent of them need to be high skill. That’s 750 people.
Where do they come from? You don’t really want to hire them out of the Nigerian bureaucracy, because the Nigerian bureaucracy is not effective and you don’t want to bring those sort of ineffective cultural norms. You can probably take a small percentage of people from American, European, Chinese universities, whatever, but my guess is that’s relatively hard, because most people who are abroad probably want to stay abroad because the standard of living is relatively high. We’ve been thinking about what it actually means to effectively develop those training programs.
Gyude: Well, that’s not necessarily true. I mean, currently, I would say the standard of living in Nigeria is significantly higher than it was in Liberia right after the war, and a whole bunch of people went and the success of the Scott Fellows program was that everybody stayed after they finished. Some of us, for example, at the end of your two years, the government – if the government wanted to keep you to make you an offer, and the government’s offer was –
Gyude: Well, you got to be 43 percent of what you were paid before, right? But people stayed. The way it works is there are a ton of people in the diaspora who want to go home, who want to go and make a contribution of some sort. But if they were simply to return home today without any structure, within a few months, they would get discouraged. If they could, they would return.
The reason the Scott Fellows program worked was because it was a managed transition. You came into the country in a program for two years where you got paid regularly for two years. Because it was structured –
Mark: You could set up your social network. You could feel that you were adding value.
Gyude: Within two years, and the thing is not everybody, accepted the 57 percent pay cut, but people then moved on to other things. Other people started their own businesses and stuff like that. I think that’s the best way to be able to do it. I think a lot of diaspora programs have failed, because they lacked structure, and you can’t have a kid out of graduate school with student loans, without savings, to show up in an African country without any structure.
Some of these kids came here when they were five years old. Some of them were born here to immigrant parents who still feel connected to their home country and want to. They have very little real connections on social networks and to just take them and dump them back in this country is really, really difficult. That’s what the Scott Fellows program did really well. There was an office in country that’s sort of responsible for them. So by the time you came, they had worked that housing for you. It was a very, very easy transition and it worked really well for us.
This program ended up producing me. It produced a commercial court judge. One of the vice presidents now at the university. A bunch of deputy ministers. It actually helped increase the quality and skill level in the government, because the program was structured so well. The whole place at some point there’ll be some sort of support to be able to do this on a larger scale.
Mark: Yeah, that’s helpful, and I’ll probably follow up with you afterwards for more information, because we’re thinking about that. If you look at, for example, Shenzhen, a lot of Shenzhen’s success. It wasn’t a structured program, but for the first 17 years, from 1980 to 1997, 80 percent of the investment in Guangdong province, where Shenzhen is located, came from Hong Kong, because there were all of these family ties. Because families were split, like in East and West Germany, and then some people were sneaking across the border to work for a few months and then sneaking back.
So those personal relationships are really important, which is one of the things that we’re thinking about. How do you sort of establish those for charter cities? Because it’s not just – you look at a spreadsheet and then you invest, like you know a guy or like a guy’s cousin or brother or whatever that fosters those relationships.
You go back to Liberia. You first cut your teeth as the ‘do everything’. This brings up two interesting questions. First, how do you have that level of entrepreneurship in a government? Governments tend not to be known for being entrepreneurial. How do you sort of bring that problem-solving enthusiasm? Then second, you returned not in the immediate post-war, but medium post-war era of Liberia. This is somewhat analogous to a charter city, like building a new governing structure, somewhat from scratch. How did you tackle these problems of bringing this new governing structure and then doing it with this entrepreneurial problem-solving approach?
Gyude: In a way, I sort of missed out on the initial years, because she came to power in 2006, and I joined the team in 2009. I ended the first term and worked through the entire second term. I think it was hard because there’re very little resources, but it was easy because nothing was set. I mean, everything, it was basically starting from a subzero baseline. Because of that, you could really, really ramp up in a way that you want to.
The second thing I would say was that even as minister, there was a clear mandate on what the ministry does. But there was significant amount of room for the minister to be innovative. I don’t think that happens anywhere, where you get a list of “here are the exact things you’re supposed to do,” and every day the president comes and checks on you to see if you’re doing all of those exact things. You’re supposed to build and maintain public infrastructure. That’s what you do as the minister of public works. How you do that is left to you, which allowed you – it gives you significant amount of wiggle room to be able to be creative in terms of being able to do that.
I think the second thing is, we were forced to be creative simply because there was rarely ever the amount of resources you needed– for example, we had done what it would take to connect all of the county capitals, because instead of states, we have counties. It was about $2.1 billion. We calculated that for the next 20 years, we need to spend at least $100 million a year, just building roads. This doesn’t take into account the maintenance of the existing one. Just build up. That’s it.
My budget, I always like to talk about this. My budget, my last year in office was for all civil works. Not including salary and stuff, it was $16 million. This is a country that needs a $100 million every year. This is just transport infrastructure, roads. I always like to test people— of the $16 million that was budgeted, how much I got before I left office. Can you guess?
Mark: Of the $16 million that was budgeted? How much were you actually spending on infrastructure?
Gyude: How much did I actually get to spend? Yeah.
Gyude: No. Man, I got $13,000.
Gyude: Yeah. Because the way it works is – there’s a budget but –
Mark: Already accounted for? You basically –
Gyude: No. No. The budget is just a projection. If the Ministry of Finance doesn’t raise the money – basically what we did with the $13,000 was we bought a –
Mark: You paved like one square mile?
Gyude: No. No. We didn’t pave anything. We just got a lot of cement in places where there were potholes. We cut the asphalt and just patched it with cement. I mean, that’s what we did. Every night, my guys were out in the city. But this meant we could only work in a capital city. You got to remember, is that enough to even do stuff in a capital city and to be able to do that?
The significant, the huge infrastructure costs maintaining existing infrastructure or building new infrastructure and a government that is really, really hard-pressed for resources to be able to do anything. Which is why I’ve always been interested in the idea of charter cities, is how governments so stressed and just cash trapped. How can you give the private sector the incentive to build up the kind of infrastructure that’s needed?
Mark: Yeah. I was going to ask you how you set your priorities as minister. But if you’ve got $13,000 the priority list has to be somewhat small.
Gyude: No. I think there are a couple of things here. $16 million was going to be available to me from the government budget. With that $16 million, I would be doing rural roads. I would be doing maintenance of existing infrastructure and maybe one or two kilometers. I’ll also be paying existing projects, paying contractors. However, that wasn’t all I had. We also had projects that were financed through loans from the African Development Bank, through loans from World Bank. Those were ongoing. This is just annually what I’m doing to be able to add to that.
Because of that, I tried to be creative. The first thing I did was a lot of research on ways to be able to do maintenance. I ordered stuff from Hong Kong where it was basically asphalt in bags and it is cold. You just apply it and it works, and we applied it, but we applied it too close to the rainy season. So that didn’t work. When I first told the engineers to use Portland cement to patch an asphalt, they refused.. I told them, if something goes wrong, just say, “The minister is not an engineer. We told him not to do it. He’s an idiot, and he wouldn’t hand it in anyway.” It worked. It worked.
We had this idea. There are certain gravel roads in the country that were unpaved. Because of that, during the rainy season, sections of the road would become cutoff. The idea to them was, “Oh, let’s pave the sections of the road that got cutoff every –” We’re talking about 200 yards or less. Just pave that. Then the rest of the road will be – “Like, no. That’s a terrible idea, again.”
Then there was a really steep hill that was unpaved and USAID provided money to be able to pave the side of the hill that was unpaved that was really, really bad. I was like, I think there was a lot of room for people to be creative, but the creativity can only go so far if the infrastructure needs are so big.
Mark: I would like to return to roads in the future, because that’s one of your hobby horses. But responding to the last question, you brought up private provision of infrastructure, and one of the ways, for example, the US did it with railroads was giving these land grants. Where the railroads actually tended to lose money, but what happens is you build a railroad and you owned all the land around the railroad, and you build the railroad. Then even after factoring in the cost of shipping, you’re losing money, but you own the land.
Land rises in value, because now you have access to this transportation hub. This is a similar model that’s used in Hong Kong, the Hong Kong Metro. I don’t know exactly what the structure is, but they get some of the upsides. They opened a new metro station. All the land nearby rises in value and the Hong Kong Metro gains some of that rise in value, which is kind of the theory of charter cities. By allowing the private sector to take some of the benefit from some of the increases in economic activity and they’re going to be much more incentivized to provide some of this infrastructure.
One more question about your time as minister. One of the challenges in working in emerging markets is that there is a lot of corruption. How did you deal with that?
Gyude: I didn’t realize how different Liberia was from other places, but also just talking about how we did things. The first budget of the entire country was $80 million. As in eight-zero for an entire country. Because of how little resources the government had, the government had to depend on external donors for assistance, bilateral, US, EU, multilateral, World Bank, African Development Bank. Because of that, most of the rules on how the government conducted itself were written by those donors.
What happened is that for the level of development in Liberia, the system we had was way too advanced for – In fact, and we complained about that all the time, because it slowed things down. It was really, really cumbersome. Basically, that’s what happened. For example, most of the corruption occurs around procurement. It was really, really kind of hard.
Mark: Because you have people who are judging the procurement rules. Who don’t have a lot of education when it’s huge amounts of paperwork.
Gyude: I mean, no. The think about the corruption around procurement is just like a lot of collusion between the people procuring and the vendors. With programs that are financed by African Development Bank, World Bank or European Investment Bank, the procurement rules were their rules. Every step of the process required a no objection from them. Which meant every step of the process had to follow the way to be able to do that. I don’t think it was because of the lack of effort to steal or it was – I don’t think it was also because of the lack – there’s something just moral about people.
I mean, there were still cases of corruption, high cases of corruption, but I think because of the insistence on process, and this is one of the best ways to fight corruption, is actually reducing discretion. That’s why you have systems. I’ll give you an example with the passports. Getting passports in Liberia. It used to be crazy. You went in there and you have to give people extra money to get a passport. It was crazy.
This lady came from the diaspora who returns to Liberia and said, “Listen, this is really, really crazy. After today, we’re no longer collecting cash here. You go and pay for your passport at a bank and just bring the receipt from the bank and we’ll process it. In five working days, you’ll get your passport.” Just like that. In fact, the bank that we decided to use sent a teller to the passport office. The teller is not connected with the passport office. It’s just the bank, and that’s it. Then they restructured it. People who are paying for passports, who were getting passports were in completely different places.
People who would come to just pick up their passport in a completely different place. All of that crazy outdoor market stuff that used to be, was gone. This is what happens when you bring in an institution. I think there’s still a lot of corruption just simply because the systems aren’t as strong as they should be. But in places where significant amounts of money was being spent, there were stronger systems there, and that helped.
Mark: I said that was the last question I’d ask you kind of as a minister, but I lied. There’s one more question. You told an interesting story a while back. One of the challenges is changing culture. You’re coming from a – not immediate sort of post-war era, but semi-post-war era. How do you affect this culture change in the ministry and more broadly to get people to have this sort of longer-term mindset to embrace rules that would benefit them over the longer run? How did you do that?
Gyude: I like to tell this story about parking in Monrovia. It used to be crazy. You parked wherever you could and there was nothing orderly about it. Then one year the city decided that they were going to pay a private sector partner to be able to enforce parking and people would get tickets when you parked. You can park there for like an hour. And initially when it was announced I remember I was like, “No. I mean, nobody follows rules here. That’s stupid. It’s not going to happen.”
Now, if you visit Monrovia, it works. Same thing, on Mondays and Wednesdays at the ministry, we had our meetings, administrators and technical meetings to go over all of the projects that a country was going through. Infrastructure projects in the country where we have project managers come and give an update. Then administrative meetings with procurement issues. The meeting started at 8AM. Now, you’ve heard a story in Africa, black people time. Black people don’t show up on time for anything.
Mark: When we were in Zambia, we almost missed a flight because the waiters took so long getting us the bill.
Gyude: Yeah, exactly. Well, that didn’t happen when we were at the ministry. We came in at 8:10, the door was locked where the meeting was happening. That door was locked. When that door was locked, and then attendance was taken. Now, salaries were split between your regular salary and a performance allowance. The performance allowance was in US dollars. That’s what we cut.
Once we locked the door the first time you came in at 7:45 and the room was full, right? I think it’s just stick-to-itiveness on the part of the people enforcing the rules and then attaching costs and benefits to people’s adherence of the rules. Obviously after we left, I mean, the consistency of anything like this requires the leadership to continue to harp on this. So I think in a lot of places, we saw the emergence of a professional culture as long as it was enforced to a certain level.
Mark: I think that’s important, because culture is one of the challenges of a charter city. There’s a famous economics paper that looks at diplomats at the UN in New York and basically the Swedes, for example, never get parking tickets. When they get parking tickets, they pay them. The Nigerians frequently get parking tickets, but would never pay them, because they weren’t legally required. Then the law changed so they were then required to pay them and suddenly the Nigerians stopped getting a lot of parking tickets.
I think there tends to be sometimes a little bit of, I guess, like cultural pessimism that, “Okay, their culture isn’t great, therefore they’re condemned to poverty.” But in reality, if you sort of have effective leadership, like you mentioned, and if you are able to set up the proper incentive structure, then people change relatively quickly.
Gyude: I would just give an example. I mean, the Minister of Post and Telecoms during a cabinet meeting complained of getting his tires booted, parking. The Minister of State, this is the president’s chief of staff. His vehicle was doubled parked. He wasn’t in it. It was his driver. But you can see the plates and know that it’s a cabinet minister, because the color is different and the number is different. The guy was coming with the boot and the president’s chief of staff drove and fled.
I think this whole question of it’s an African country, it’s a country where I think once the rules are enforced without people bypassing the rules or people like— “Do you know who I am?” kind of thing. Eventually, everybody falls in line. Once that happened, you knew when you arrived, this is exactly what you’re supposed to do and to avoid. Initially, people will park and it wouldn’t do anything, because they felt like nothing would happen.
Mark: And after you get a ticket then.
Gyude: No. No ticket.
Gyude: You got booted, okay? The guy just stands there. You’re not going to leave until you pay. Then to avoid all of that because you have to go to a meeting, you have stuff to do, people stop doing that. Once people knew that there were consequences to their actions, people fell in line.
Mark: You see that even now with the whole COVID thing, over the last three weeks. There’s been a massive change in behavior in terms of people going out, in terms of how close people would get to each other.
You’ve described roads as the most fundamental technology. Why? Romans had roads. Everybody has roads. Why are they the most –
Gyude: Yeah. There’s an argument. I mean, some of my friends who focus on energy say it’s energy. I think it’s roads. I go back to say that most people when they think of roads, especially in the west, they have had a functioning road system for close to 60, 70 years and it’s faded into the background, that no one even notices it. They only talk about it if there’s a big pothole or if I75 between Lexington and Cincinnati — ever since I arrived in this country, they’ve been repairing that, right?
Paving roads is a technology. It allows the movement of people from one area to do it smoothly and do it swiftly. It is probably one of the most basic and fundamental pieces of technology that we have, because what it did, once we began to settle in cities, it allowed us to be able to have connection between settlements, but it also gave lords, kings, it gave them some sort of administrative cohesion over the area that they controlled. Those things, those functions, still apply today. But I always like to use an example of the most successful, the wealthiest country in the world, which is the United States, that 75, 76 percent of all freight in the United States is still carried on roads. One would think it’s actually trains. No. It’s roads.
I like to give also the example that the interstate system in the US is only 2.5 percent of the lane miles across the US that’s paved, but it carries over 25 percent of vehicular traffic. Without the interstate system, I’m not saying the Interstate commerce would collapse, but it would slow significantly. Across the EU, the average is around 75 percent in terms of freight that is transported on roads. For some countries, the UK, it’s 90 percent.
If you were to imagine then an African country where only 49 percent of the roads, not paved, are passable, because in Liberia it’s like 10 percent or less. Across the continent, it’s 43 percent of the roads that are paved. If the US, if China, if EU, require massive functioning road systems for the economies to function as they do, you can imagine then, how does Africa develop a modern economy without – I always refer to it, an infrastructure spine?
Look, everything else you carry on your body, the blood, the veins, the flesh, everything, is on the spine. Without that infrastructure spine, it’s almost impossible to imagine how one built a functioning modern economy.
Mark: I’d like to challenge roads as the fundamental technology. I’m an economist.
Gyude: It wouldn’t be the first time.
Mark: Why not governance?
Gyude: Governance is really, really important, because right now, who wants to build roads in Chad or Guinea-Bissau? I think governance is really, really important. The reason I like to focus on roads is that one has to take into account, take for granted, that if there isn’t a functioning government in place, why are we even talking about an economy? A modern economy requires some set of governance systems to be in place.
But in Liberia, and I’d like to use this as an example, we did an economic diagnostic of our country through the MCC. It’s a growth diagnostic. It’s a tool, and it was called a constraints analysis. It tries to answer the question: “What is the binding constraint or economic growth in the country?” It interrogates everything you can think of. Is it corruption? Is it the quality of governance? Is it red tape? Is it incompetence? Is it lack of infrastructure? What infrastructure? You go through these steps.
When we did the constraints analysis for Liberia, it came up with two things. It was the lack of a functioning road system and power. Those were the two binding constraints to economic growth. It doesn’t mean that weak governance isn’t an issue. It doesn’t mean that corruption isn’t an issue, but the binding constraint to economic growth was that. What MCC does then is it gives the country a big grant to remove one of those constraints.
That’s why I feel like roads – then a close second is energy and power. But the reason I think roads are important is because even for energy, even if you are building modular, meaning great systems, you have to get the material somewhere. How do you get them there? On your head walking? On a bicycle? You need some sort of path. You need some sort of road to be able to do it. That’s why I think it’s even more fundamental.
The final thing I will say is the Chinese were very kind to us. Built a $10 million referral hospital in the middle of the country, but six months out of the year, it was inaccessible because during the rainy system, there was no roads to be able to get there. You have an excellent hospital that can’t treat people because there’s no roads to be able to get there. During the Ebola crisis, I always said that it began as a health crisis and spiraled into an infrastructure crisis. Because it was taking us just getting blood specimens from suspected patients to get tested, the specimen will become invalid because of how long it took because it occurred in the peak of the rainy season.
I think infrastructure is really, really important. We’re getting to a place where it’s almost as if the lag and the gap is insurmountable because of how far back it is. Until we can find a way to be able to mobilize new forms of financing or new ways of being able to finance this, we might not be able to overcome that gap.
Mark: You’ve talked about prizes to incentive better roads. What would that look like?
Gyude: This is what animates me, right? There has been significant improvement and advances in material science. Artificial intelligence and machine learning has allowed us to run simulations. In the past, new materials were created by testing and running different iterations of the same thing. Now, you can actually get machines to run these simulations without you actually having to do it.
The first thing is when we crowd source answers, we get some of the smartest people in the world who currently are not thinking about these problems to give them an incentive to focus on those problems and eventually, “Oh, we find an answer.” A lot of governments and a lot of government agencies have run price challenges. My idea is that human beings first used tar, asphalt around 600 BC. The Babylonians did.
Since then, we haven’t changed, right? We’ve used the same material to pave our roads. In the places where the technology exists for people to discover new material, paving roads is no longer an issue. There’s no reason to expend an electrical power on something like that. In the places where roads remain an issue, like in Africa, you don’t have the research capabilities to be able to do that.
The idea of the price challenge is to put up a prize and invite materials engineers, especially road pavement engineers from around the world, to compete on creating a new material that is orders of magnitude cheaper than what we have without compromising the quality and at worst environmentally neutral. I’ve been trying to sell this idea. Everybody listens and they were like, “Yeah, it’s a really good idea. But no.”
Mark: No one wants to write the check.
Mark: I want to stay on roads just a tad bit longer. If you look at, for example, African per capita GDP. A lot of it isn’t that bad, and at least compared to, for example, East Asia until recently. Then if you go back, the classic example is 1960 Ghana was richer than 1960 South Korea.
Even go back further, Rome has roads that are still sometimes being used today. If you look at their per capita income, it was low. So you’ve got countries like Angola where per capita income, I think it’s $2500 a year, right? It’s not high, but it is high enough that they presumably have their resources to build roads. So then what is the binding constraint there? Is it political will? Is it corruption? Is it something else?”
Gyude: It’s a combination of all those things. I think, first – in terms of GDP numbers and per capita income numbers, the Afrobarometer has decided to stop measuring well-being just using pure GDP numbers. What they do then is to measure how many meals a family misses or how many times a family misses the meal? On pure per capita and GDP numbers, Gabon is one the best in Africa in terms of its economy. But when they did the survey in terms of how many meals a family misses, Gabon is one of the worst. In fact, countries with lower GDP do better than Gabon.
Part of this is that these – especially because a lot of economies depend on commodities, there’s significant fluctuation in the government. I think when governments can depend on rent from natural resources, there’s really no incentive to develop other parts of the economy. There’s really no incentive to –
Mark: There’s even a risk developing others parts, because they challenge your power monopoly.
Gyude: Exactly. Then there’s really no incentive to develop that kind of relationship with a private sector that you’re going to be taxing, because most of the taxes come from rents, right? What happens then is that dependence on rents corrupts the entire system, so much that, around procurement of even the most basic services.
I think the IMF did a study in Kenya that showed that over 500 projects, were just unfinished, costed the Kenyan government about $50 billion. If you were to do such a similar review in countries that depend on natural resource rents, you’ll probably find it’s all across the country. A bunch of projects that were started that just never finished.
There a number of reasons for that. One is, monies budgeted for these projects end up getting siphoned off by people who used the money for things other than what the projects were for, and because there are no mechanisms for accountability, they end up getting away with it. That’s one. Number two, we see very limited continuity between governments. Once a government changes power and a new government comes to power, most times they start new things. They start completely different things because they’re trying to differentiate themselves from the people who came before.
So you have unfinished projects that are there. Then finally, I think over time – this sounds terrible. I think people campaigning elections always say, “Oh, I’m going to build your infrastructure. I’m going to build your infrastructure.” They may not finish it on time. There’s some sort of perverse incentive not to finish it so that you can promise it next time or somebody else coming after you can be able to promise it.
I think the quality of governance is going to be really, really important here. The final thing I will say also is that in a lot of places, they did have infrastructure, but maintenance became an issue. You have a bunch of big projects, big buildings, steam mills that were built, never used properly and did just massive hulks of pervious infrastructure projects that just never finished. You have roads that were built 10, 20 years ago with little or no maintenance at all that just simply crumbled. I think there’s a combination of all of these things and hopefully—I keep thinking, I don’t know if it’s going to work, that if the global economy decarbonizes and all of a sudden –
Mark: Hey, we’re doing it now. We’re doing it now. (This is a covid joke)
Gyude: No. I mean, permanently decarbonized, and then we had all of these traded assets, especially for oil, that governments that are so dependent on that will be forced now to develop other portions of the economy. Maybe we’ll see kind of development that we’re looking for.
Mark: When talking about roads, you’ve been I guess focusing on the importance of them to create trade networks. With that framework, how do we judge Belt and Road?
Gyude: I think this is why it’s been really difficult for the US for convince countries not to accept Chinese investment or not. I think it was a study from CARI, China Africa Research Initiative with Johns Hopkins University that showed that about 56 percent of Chinese lending in Africa had gone to direct infrastructure. Around the same time, about 21 African countries have gone to international markets that issued Euro bonds and they crossed 100 billion threshold in terms of bonds and almost all of that money has gone to finance fiscal balances. It’s gone to out to repay existence debt or to just pay for the government budget. Consumption. None of it is going to capital expense.
If you had to choose then between the Chinese financing and just financing consumption, what would you do? Because of the Chinese financing, you have a rail between Mombasa and Nairobi. Obviously, we’ll need to know the terms of that rail, but it exists. It’s not as profitable as it should be or as it was projected to be, but it exists.
Mark: I mean, that doesn’t matter for the Kenyans. It matters for the Chinese.
Gyude: Exactly, right?
Mark: If you owe the bank a thousand dollars, you have a problem. If you owe the bank $100 million, the bank has a problem.
Gyude: Exactly. Well, the second thing also is that you have roads. I mean, thousands of kilometers of roads in places where roads wouldn’t be. You have water filtration plants providing clean water to places where it wasn’t. I think the Belt and Road Initiative, because it targets such a huge gap at infrastructure – I mean, we have giga watts of power plants that are built now providing electricity that would not exist if it didn’t happen.
I think because it targets something that is so fundamental to the growth of an economy, I think on that level, it’s been a success. I think the opaque, nontransparent terms remain an issue. But I just like to give this example: between 2001 and 2018 and the wars in Iraq, Afghanistan, the US has spent about $6 trillion.
Mark: Shut up.
Gyude: My thing is if just one-sixth of that, if the US had its own Belt and Road Initiative when it was financing infrastructure across the world for just one-sixth of what it spent in the 18 years –
Mark: In Iraq – they’re a modern vibrant democracy.
Gyude: Right. Exactly. I think there’s just something really, really perverse that such a great country with such significant resources. I think it’s J.P. Morgan that projects by 2027, if the Belt and Road Initiative continues to spend as it is, by 2027, it would have spent $1 trillion. It would take it from 2013 to 2027 to spend one-sixth of what the US has spent on wars. Come on! Priorities.
Yeah, I criticize the Belt and Road Initiative just sometimes because we don’t know the terms of those, and especially because they’re debt. Most likely, the government repaying the debt is going to be the government that signs it. The debt is still on people. I think it’s important for those loans to be. I think the second thing quickly on the Belt and Road Initiative is that all of those contracts have to go to a Chinese company, and rarely are there any subcontractors to even locals. There’s no way for them to develop expertise to be able to do it and no way for some of the money to be able to stay in the country. I think we need to see changes in that.
Mark: Yeah, I think that’s right and interesting. If you look at how China developed, one of the things they did, was for example, was encourage knowledge sharing. When they built their high-speed rails, I believe they took bids from four companies. I think it was three European, one Japanese. They said 40% of the engineers have to be Chinese.
For the first few years, they had a bunch of Chinese engineers and they’re all terrible, but they build the skills such that they actually developed the expertise, and China is able to do that because their market is so massive, and Africa has a massive market, but Africa is not a country. So the individual countries tend not to have that negotiating power.
Gyude: That is correct.
Mark: I’m actually a little bit less concerned to the terms of the deal and the individual deals with Belt and Road just because China has no power to enforce them. Even if the deals are quite onerous, I mean you’re basically seeing – I think this is in Sri Lanka— where they have the Chinese government try to take a 99 year lease on the port because the Sri Lankan government wasn’t making the payments and the Sri Lanka government is like, “No, just kidding.” What’s China going to do? Send gun boats? Maybe 10 years they do, but now they can’t.
Gyude: That’s the thing. I mean, even in the Sri Lanka case, I think the companies regrets that today in accepting that deal in Sri Lanka. I’ve always said this, what’s going to happen? What is the worst-case scenario? Are we going to see Chinese expeditionary forces arriving into a country to be able to take over? No. That’s not going to happen. What’s happening now? One of the things that –
Mark: The Chinese are taking haircuts.
Gyude: Well, one of the things that’s happening with the coronavirus is that we have a bunch of African countries that have Euro bond payments that are due beginning 2022. This thing is damaging the economies and the ability to be able to repay their loan. How does one resolve it if they’re forced to default? However, if that loan was owed to China, you could sit at the table and renegotiate the terms of the loan.
I think this focus on Chinese debt, this has brought it into focus that it is actually nontraditional lenders to Africa, especially at the private sector, that carry the most risk for African debt. Again, it doesn’t mean that Chinese debt and the terms are perfect. We definitely need to be able to see how these are done, right? But I’m not as worried about it as people especially because it’s providing – here’s the thing, there’s no likely replacement for China’s role in finance and infrastructure in low and mid-income countries.
If China were to withdraw today, there is no like for like replacement. The US is not going to fill that space. Germany isn’t going to fill that space. But most of the people making these decisions in these countries have done exactly what they should. They’ve ignored everybody else and continued to deal with China. Now, what we’re seeing with the coronavirus is China has basically replaced the West in terms of helping countries to respond to this. It’s going to be really, really difficult to imagine.
I think China itself, because of emerging problems at home, will have to spend more money at home and there’ll be less Chinese money available to be able to do the things they’ve been doing over the last two decades.
Mark: I think that’s right. One of the interesting ways I like to think about Belt and Road is it’s basically taking the Chinese growth model.t People think it’s centrally planned, but it’s actually not. China was having a lot of these major infrastructure investments before they even developed the term “Belt and Road.” They just basically came up with this branding for this thing that was already being done.
But the way the Chinese political system works is if you’re a province leader, you get promotions by hitting specific GDP targets. That was done internally through massive infrastructure investment which tended to pay for itself because Chinese growth was so high. Now they’ve basically exported that production model to other countries in Africa and Asia, some in Latin America, even Europe. But the thing is, the growth rates are very different there. So they tend to be very heavily overinvesting.
Gyude: And then it was just difficult to scale.
Gyude: But I think we have an opportunity now in Africa with this. In July, the Africa Continental Free Trade Area agreement is going to go into effect, and what it does, it creates a single market. Hopefully, if we can make that work, then we can scale in ways that – so one of the things that I’ve been suggesting about Chinese financing infrastructure is actually to do regional projects.
Instead of doing a single project in the country, one of the biggest things that we can do on the continent, this is again important for charter cities, is that for us to begin to look at Africa not so much as bunch of countries, but as a bunch of cities. Think of connecting Accra to Lagos. If we just first focus on connecting all of the African capitals that are near each other by some sort of link, then we can also focus on cities of 500,000 or above. Connect those.
I think the new forms of development, we’ll have to look at subnational development and looking at cities and the role that it played in development. That’s why, again, I keep coming back to this about the attractiveness of the charter city model, because today, you’re asking people to maintain social distancing. How do you do that in Kibera? How do you do that in a slum? I mean, where basically you walk through someone else’s bedroom to go to your bedroom. How do you maintain social distance there? There’s a huge gap in terms of the housing stock, in terms of the infrastructure stock.
Governments just don’t have the capacity to be able to do that. And everywhere else in the world, outside of Africa, they are at or below replacement levels in terms of population. Population is going to continue to grow. How do you build the infrastructure stock that’s needed? How do you give the private sector some sort of incentive for them to be able to put money at risk? I think this idea of an innovative way to do governance gives us an opportunity that hasn’t been done before, and we’re just looking now.
I think Rwanda has been very, very aggressive in terms of being innovative in terms of the way they do things. That’s why I’m happy that the Charter Cities Institute had this MOU with the Zambian government and we can begin to see something happen there. Because all we need is a single success, and with that, we can be able to solve a significant amount of problems.
When you look at the growth in global value chains, it’s connection between cities. Africa’s disengagement, disconnection with global value chains because of how unconnected African cities are. What is developing regional value chains? Our connectedness with regional value chains to global value change, the importance of cities cannot be underestimated.
Mark: I think that’s right. I mean, you brought up COVID and how low-income countries can react, especially with very tightly densely packed slums. One of the interesting examples from– I think it’s actually Liberia during Ebola— the Firestone plantation had 80,000 people that effectively managed to avoid any Ebola deaths. Why? It didn’t have special training in infectious diseases. They just Googled it, like, “Okay, what do we do in a handful of cases?” And they quarantined those cases and they made sure the doctors and nurses had a lot of protective equipment. “You don’t need to be a genius. You don’t need to have a PhD in epidemiology. You just need to be able to read through Google articles and then make sure that those standards are enforced extremely effectively.” So it is a challenge of capacity.
There is a video going around recently in Rwanda where they have set up hand washing booths. Before you go on a bus, you have to wash your hands. It’s quite possible even at lower levels of income. In Rwanda, their per income is under a thousand dollars a day, and you could have this capacity. It’s just that a lot of governments unfortunately don’t. Even the US is obviously struggling with this pretty severely right now.
Gyude: I think just having – During the Ebola crisis, there were times when the teams, the ambulance would get a call that there was a person who was sick and showing the symptoms. The ambulance would come to pick the person up, but the person lives in a slum. There’s no way for an ambulance to be able to get there. There are people who died simply because of the basic infrastructure that’s missing.
I think how we build cities going forward, and it’s not just in terms of building on the stock of the infrastructure and housing as needed in cities. What are the things– two of my colleagues at the Center for Center for Global Development and two coauthors wrote a book. They wrote a paper recently that noticed that the cost of industrial labor in Africa tends to be slightly more expensive than elsewhere. The reason is simply because cost of living tended to be really high.
In Ethiopia, the government has been building government housing. The government has been investing in reducing the cost of food with the intention of being able for Ethiopia to match Bangladesh in the cost of an industrial labor for a year. Bangladesh is around $800 a year and Ethiopia is $900.
All the African cities, in Senegal, like Nairobi, like Dakar, like Accra, their cost of industrial labor is about $1400, $1500. So because of that, we’re basically priced out of that low-level manufacturing that would create the number of jobs that are needed. So I think it’s hard to overemphasize the need for planned cities, not unplanned settlements. When I was Minister of Public Works in 2016, I got hit by a car and fractured my hip? Now I can’t run. I can’t jump. I can’t do anything. Why was that? Because I ran all my life.
When I was in college– I actually started running when I was in college because the college owned a forest. Where the cross-country team used to practice, I would run, and this became a thing. I went to Georgetown, I would run in Rock Creek Park. Went home, there are no parks because the city isn’t structured like that. I ran in the street and got hit by a car.
Just having open spaces, having spaces, but most of our cities aren’t designed to be able to accommodate life in that way. I think going forward, how we see cities, how government sees cities and how governments, how cities are structured and built will be really, really important and really defining issue of African economic growth and economic capacity going forward.
Mark: I mean, the numbers are just staggering. Africa is supposed to add about 950 million new urban residents by 2050. The current population of Africa is about 1.1 billion and it’s under 50 percent urbanized. The African urban population is literally tripling over the next 30 years. Being able to ensure that those people have opportunities that their cities are well-planned, well-designed, is crucial, because otherwise people are trapped in slums for generations.
When I went over to your house, you had a book, How Asia Works. Yeah, and you mentioned, and it’s kind of interesting, because it’s in making rounds in some former libertarian circles in terms of industrial policy. How does Asia work and what can African learn from that?
Gyude: Some of the exact same thing that they try to do in Asia with industrial policy and special economic zones, those are tried in Africa, they never worked. It seems that the difference was, in Asia, a level of export-discipline was imposed on those who benefited from industrial policy, that if you couldn’t compete internationally, you will have to die.
Back home, they focused on import substitution. Basically, they shielded this companies from any sort of competition and basically the local market was a captive market. So there was no need to adopt foreign technology. There was no need to be able to improve because there was no export discipline. Because of that, it failed. I think if you look at Ethiopia now, their industrial policy is significantly outward-facing. It’s about export. I think if Ethiopia succeeds and countries can begin to look at Ethiopia and focus, I think that’s the main difference.
The second thing also was that in our iteration of industrial policy, the government tried to pick winners, and picking winners meant people who are connected to the government, sort of just simply received a significant amount of subsidy, cheap foreign exchange. Because there was no export discipline, they had no incentive to actually improve the quality of what they were doing. So it just ended up being more corrupt. Whereas in South Korea, for example, certain companies were allowed to fail or be taken over by their rivals if they didn’t, and by allowing, by accepting that companies would fail, by accepting that companies would be allowed to fail, it imposed a certain amount of discipline to allow them to be able to do it.
I think there’s a lot of lessons to learn from there and if we can apply these lessons, I think we would – I think because of the Continental Free Trade agreement, we have an opportunity to do regional import substitution. I don’t have to build everything in Liberia if I can bring it in from South Africa. Right now, intra-Africa trade is around 16 percent. It’s the lowest in the world for any region. Part of that is just because, first, there are very few connections in terms of infrastructure, but also because the economies are way less diverse. If I’m producing Ghana and Côte d’Ivoire, the two largest producers of cocoa, what are they going to exchange? Cocoa?
I mean, I think if we can discipline – even if the discipline, the export discipline is meant for regional markets, you will see the quality improve. One of the things you would notice back home, and I don’t know if it applies everywhere. I’m just speaking from the experience that I’ve seen in West Africa. You can always tell the difference of what, say, toilet paper, that was produced outside the region and those that were produced in the region, just in terms of the quality.
However, if you bought it in South Africa, it was equal to or better than what you got in Europe. I think that South Africa– maybe because of apartheid, the way they were forced to apply some sort of export discipline and that allowed the industry to develop in ways that it just didn’t work out on the continent. I really like that book. In fact, every three months or so, I just go back and get – in my understanding he is writing another book.
Mark: I think he’s writing it on Africa.
Gyude: Yeah. I’m looking forward to it.
Mark: That will be a good book. You talked a little bit about the African Continental Free Trade agreement. How optimistic are you for it? They ratified it last summer and then six months later, Nigeria closes their boarder with Benin.
Gyude: First of all, I think across the continent areas, there is a realization of how dire things are. So this was the fastest in terms of getting the ratification. It was the fastest ever. It’s going to be the largest in terms of both the population size and the number of countries in the world. I’m cautiously optimistic, and we have to put the emphasis on cautious simply because on paper, we’re probably the most integrated region in the world. We have ECOWAS in West Africa. We have the East African Community. We have SADC. We have 8 RECs, regional economic communities, and if those were functioning, we probably wouldn’t need it.
Simply because you’ve taken it from 15 countries, and now included 54 countries, doesn’t necessarily mean that things changed. On paper, we do really, really well. That’s why it remains to be seen. But the speed at which it was done, it seems there’s a lot of commitment here on the part of the leaders to make sure this works. Obviously, I think I’m not really too worried about Nigeria closing its border. I think there’s going to be growing pains for something like this. I believe if the commitment remains as it is, it’s going to work out.
I’m hopeful for it, because it’s almost impossible for Africa to assert itself globally if we’re balkanized, fragmented. Meaning, city states in terms of the size of the economy. I think as an entire market, then you have a greater say in terms of being able to – even though the US is working really hard to undermine before it even starts. The US is working on a bilateral agreement with Kenya. Here at the moment, when the rest of the continent is saying, “We want to be able to do a single.” So thanks to the US.
Mark: The history of how we met I think is kind of interesting, because I forget exactly why, but I saw you on Twitter and I twitted something like, “Do you like charter cities?” You were one of the few people in DC that actually responded, “Yes, I do,” and then we sort of got lunch and hit it off.
I guess to start, let me just ask – you brought this up a few times on the podcast already, but just what is the core issue of charter cities that appeals so much to you and why do you think it could help Africa as well as the rest of the world?
Gyude I think having been responsible for infrastructure in a low-income country, post-conflict fragile state, and seen the numbers and then having traveled, you go to Addis, you go to Kampala, you go to Nairobi, you go to Accra and everywhere in the city, you just see the teeming numbers of young people. You don’t even have to be a demographer to be able to see what’s happening.
Then having been in the highest level of an African government, one that was struggling with all of these things, whether it’s in the office of the president or in a cabinet, to be able to see difficulty in terms of being able to finance it. I always knew that we had to find a way, a different way, to be able to do this. When I first heard of a charter city, I thought it made sense. I just didn’t get the whole Canada colonizing a piece of – it’s just really saying — like tone deaf.
The way you framed it just made so much sense. It just seemed like this is one of the ways to go. There’s not going to be like a silver bullet to solve this problem, but in terms of the arsenal, all the suite of tools we have, this is an important component.
Mark: Thanks for that. Paul Romer’s idea was you have a high-income country act as a guarantor like Canada in a low-income a country. The argument there is that the high-income country has good rules, plus not just the good rules, but it makes it such that it’s really hard for the host country to change its mind.
One of the risks is that, at least in our approach, we get this mostly by economists ask this question like, “Okay, why if you’re successful, won’t the host country just come and expropriate the charter city and sort of kill the goose that lays the golden eggs?” What are your thoughts on that?
Gyude This is a risk that’s always going to be there, because states are sovereign. Barrick Gold in Tanzania, so the Tanzanian government come and try to take over. I mean, we’ve seen in instances where after significant capital expenditure in infrastructure, especially in extractives, governments try to nationalize. But we’re seeing less and less of that. Governments are becoming more and more rule based. I think it’s going to be difficult to be able to get rid of that risk. The main way that private companies have been able to get around that is that almost all of our agreements now, especially for natural resource extraction, have arbitration clauses and the choice of arbitration is usually in a standard capital.
I can’t imagine why we can’t build some of the same kinds of protections into something like this. I mean, there are people building special economic zones and we’ve always talked about charter cities as SEZs too. I think we have to remember that when you build a charter city, it is still a business and that risk will have to be priced in, in some way and there would be a premium for that risk, and the better we can mitigate the risk, the lower the premium is going to be. I think it’s possible to be able to structure this, based on the current experience we have in a way so that it works.
Mark: Thanks. Yeah. I think that’s right, and that’s one of the things. We recently hired an attorney and we’re looking into some of the sort of concessions that are typically based on resource extraction as frameworks for understanding how to create the legal justification for charter cities as well as the risk mitigation strategies.
Then one final question, we briefly talked about this earlier in reference to China and Belt and Road, but how can charter cities effectively make sure that there is skill sharing amongst the local people and to make sure that they do not just end up being enclaves, but leaning into this broad-based prosperity that I think the world needs?
Gyude: We talked about this. I don’t know if it was on the podcast or during our break, the importance of cities, especially to economies. That’s why most of the US economies is from cities, especially along the coasts.
What’s been happening, since I’ve been here and have been talking about Africa’s response to external actors, especially China, one of the things that comes up again and again and sometimes in fairly sophisticated circles is that while the Chinese are bringing all of the laborers, they’re Chinese. They’re not hiring Africans. I mean, that was true about a decade ago. Not anymore, because the cost of labor in China has actually gone up. It’s more expensive now to bring Chinese people to do it. It’s actually in the interest of Chinese companies on the continent to hire and work with people there.
Second thing also is that there has been a bit of – the Chinese economy is growing more and more into a service economy and some of that low-level manufacturing has been moving, but has been moving closer to China and to Vietnam and Laos and Cambodia, and I think that’s where Ethiopia is trying to get into that. I believe that if charter cities develop, it will be in the interest of actually BRI and Chinese companies following the BRI to actually then invest in those cities. The kind of investment that we’re looking for are investments that bring mass employment and manufacturing, especially like low-level, like garment industry. Those are the kinds of things that you’re looking for first.
I think charter cities will become the catalyst. They will become places where rules are clear and clearly defined. They would be places where infrastructure is provided for and places where there’s a certain amount of predictability to the regulatory environment and predictability that may not exist outside the city, but it can be found there. Now that you’ve built all of this infrastructure and connected places that were not connected before, it becomes something that is leveraged to be able to build the next level over that. I think charter cities are an important piece. And they can play a very important role, in terms of what comes next.
Mark: Well, that’s a great ending. Thanks for coming on the show, Gyude.
Gyude: Thanks man. It’s my pleasure, and good luck with everything.
Mark: Thank you for listening to the Charter Cites podcast. For more information about this episode and our guest, to subscribe to the show or to connect with the Charter Cities Institute, please visit chartercitiesinstitute.org. Follow us on social media. @CCIdotCity on Twitter and Charter Cities Institute on Facebook.