U.S. GOVERNMENT PRINTING OFFICE

61–630 CC WASHINGTON : 2000

S. HRG. 106–258

BARRIERS TO TRADE AND INVESTMENT IN AFRICA

HEARING

BEFORE THE

SUBCOMMITTEE ON AFRICAN AFFAIRS

OF THE

COMMITTEE ON FOREIGN RELATIONS

UNITED STATES SENATE

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

JULY 27, 1999

Printed for the use of the Committee on Foreign Relations

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/senate

COMMITTEE ON FOREIGN RELATIONS

JESSE HELMS, North Carolina, Chairman

RICHARD G. LUGAR, Indiana

PAUL COVERDELL, Georgia

CHUCK HAGEL, Nebraska

GORDON H. SMITH, Oregon

ROD GRAMS, Minnesota

SAM BROWNBACK, Kansas

CRAIG THOMAS, Wyoming

JOHN ASHCROFT, Missouri

BILL FRIST, Tennessee

JOSEPH R. BIDEN, JR., Delaware

PAUL S. SARBANES, Maryland

CHRISTOPHER J. DODD, Connecticut

JOHN F. KERRY, Massachusetts

RUSSELL D. FEINGOLD, Wisconsin

PAUL D. WELLSTONE, Minnesota

BARBARA BOXER, California

ROBERT G. TORRICELLI, New Jersey

STEPHEN E. BIEGUN, Staff Director

EDWIN K. HALL, Minority Staff Director

SUBCOMMITTEE ON AFRICAN AFFAIRS

BILL FRIST, Tennessee, Chairman

ROD GRAMS, Minnesota

SAM BROWNBACK, Kansas

RUSSELL D. FEINGOLD, Wisconsin

PAUL S. SARBANES, Maryland

(II)

CONTENTS

Page

Crocker, Hon. Chester, professor of diplomacy, Georgetown University, Washington, DC ............................................................................................................. 10

Jaycox, Kim, chief executive officer, Africa Infrastructure Fund, Washington,

DC .......................................................................................................................... 8

Kansteiner, Walter, partner, the Scowcroft Group, Washington, DC ................. 13

Mallett, Hon. Robert L., Deputy Secretary of Commerce, Department of Commerce ..................................................................................................................... 4

Sachs, Jeffrey, Ph.D., director, Center for International Development, Harvard University .................................................................................................... 5

(III)

(1)

BARRIERS TO TRADE AND INVESTMENT IN

AFRICA

TUESDAY, JULY 27, 1999

U.S. SENATE, SUBCOMMITTEE ON AFRICAN AFFAIRS, COMMITTEE ON FOREIGN RELATIONS, Washington, DC.

The subcommittee met, pursuant to notice, at 2:20 p.m. in room

SD–419, Dirksen Senate Office Building, Hon. Bill Frist (chairman

of the subcommittee) presiding.

Present: Senators Frist and Feingold.

Senator FRIST. Let me say welcome to everybody. Our format is

going to be different than what we usually do around here. It is

going to be informal, although we set this up as a round table and

I feel like that I am here and we are just like in the hearing. But

the whole purpose of this is really to have a discussion as we go,

as we go forward on what is to me an exciting, exciting topic and

one that as chairman of the Subcommittee on African Affairs is

very important to me, very important to the subcommittee, very

important to the entire Foreign Relations Committee and, expanding out from there, important to the country.

The format is very specifically chosen so that we can be informal.

We will be taking a transcript, not to be made a part of the formal

record, but really to make it available to staff, staff members,

where we obviously have a thousand things going on in the afternoon, but where we can record that. But it is not to be a part of

the official record, just so people do know that. It is really for staff’s

use.

The informal nature of this is just so in a period of an hour and

45 minutes or thereabouts we can cover as much ground as possible without, first of all, having Senators coming and giving long

speeches, but where we can really have an exchange, and a number

of you see each other or know each other directly or indirectly, but

the exchange among you and with me and Senator Feingold, who

will be here shortly, though I told him I was going to go ahead and

start so we could stay in time, is what the real value is.

The real focus is on barriers, what things can we realistically do.

Obviously, my interest is legislatively are there things that we can

or should do from a policy standpoint, are there things that we can

or should do in order to lower those barriers which will facilitate,

really be the focus of our discussion today.

The format I think would be best, I’ll make sort of a brief statement really just to set the stage. Senator Feingold once he arrives

will make a few opening comments. Then we can go from there.

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What I thought we might do is have each of you open with a couple of minutes or, say, less than 5 minutes, just so we can get the

discussion going. But you’re welcome to throw out some topics or

comment on what’s been said. Then after we do that, maybe have

each of you comment on what others have said, and then we’ll just

sort of start throwing questions around. But there’s really no other

agenda laid out.

From time to time I’ll step in with focusing on areas that are of

particular interest to me and to the subcommittee.

Let me formally welcome everybody here today. In fact, why do

I not run through in terms of the introductions, and that way we’ll

be able to move straight down: The Honorable Robert Mallett, Deputy Secretary, U.S. Department of Commerce. Thank you very

much for being with us today. Maybe after I have made my opening statement I will turn to you, Secretary Mallett.

Professor Jeffrey Sachs, director of the Center for International

Development, Harvard University. Thank you very much for being

with us today and making a special effort to be with us today.

Mr. Kim Jaycox, CEO, chief executive officer, of AIG Africa Infrastructure Fund, who formerly headed up Africa for the World

Bank.

Dr. Chester Crocker, Georgetown University, former Assistant

Secretary of State for Africa.

Mr. Walter Kansteiner, partner in the Scowcroft Group, former

head of NSC Africa under Scowcroft.

Welcome to all of you. Thank you for taking this period of your

day out to share with me your thoughts as we go forward.

As for opening comments, let me just really center my remarks

on where I think that we are as a background. Africa, as we all

know, is in the midst of profound changes. Whether we call these

changes a renaissance or not is a point of debate. But we all do recognize that the shifts from the colonial era to the post-colonial and

cold war era and now on into the post-cold war era have all altered

the political and the economic dynamics, as well as the entire landscape of the continent.

Underscoring all of these issues and analyses for what we call

Africa of the post-cold war era are what I see as two common

themes, and they come before the subcommittee again and again

in many different forms, and today focusing on the sort of economic

and economic development, once again they are there. It is crisis

on the one hand and it is opportunity on the other hand.

While the focus of this round table I think is most useful to center on the opportunity aspect of this equation, we must all recognize that all opportunities are clearly and fundamentally related,

especially in this part of the world, to the crises and the human

suffering which dominate at least the public’s view, the reality and

the public’s view, of Africa.

Yet, across the sort of spectrum of crisis to opportunity is the recognition that Africa’s marginalization in an increasingly global

economy must be reversed, and this has increasingly driven the

agenda of Africa policy both here in Washington, in Europe, in Africa, in the multinational, multilateral institutions upon which so

much of Africa’s fortunes seem to depend.

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Undoubtedly, this continent’s marginalization must be reversed

for the sake of Africa in and unto itself. But I think it is clear that

it also must be reversed for the global economy, of which it will always be either an engine of economic growth or a struggling stepchild as the world does progress. Because of that link, the

wellbeing of Africa ultimately is linked, and I would say almost inextricably so, to the national interest of the United States of America, to our policies, and I think that our outlook and our policies

should reflect that fact.

Now, the assumption that is the basis of the initial round table—

and I say initial because I do view this as the beginning of a discussion over several years for me and for the subcommittee as long

as I chair the subcommittee—and of such entities as the Corporate

Council on Africa, the administration’s recent initiatives to promote

robust government to government relationships, and of course the

Africa trade legislation which will be heading our way, is that Africa does hold great potential.

Now, very closely linked to that is that this potential today goes

largely untapped. If you look at the statistics, which we all know,

there is really no doubt about it. The United States exports to Africa 1 percent, imports from Africa 1 percent. Our direct foreign investment, 1 percent. And even if you look at that small amount in

each of these categories, obviously it’s apparent the lack of diversity in the nature of what lies behind those numbers, the few sectors that each one represents.

So the initial question that as a policymaker that I want to address and that I hope that each of you as we go through can help

me understand is why is that potential untapped. Certainly we recognize the broader things, the risks, the ignorance, the lack of infrastructure, the lack of transparency, our own as a nation’s lack

of understanding. We have the crippling poverty which all of us

who have traveled to Africa are so readily aware of. These are

clearly things that will be addressed as we go through the next

hour or so.

Combatting poverty and helping to bring Africa away from the

margins of the world economy and back toward more of the core

by decreasing barriers to trade and investment is a legitimate longterm policy goal that should be considered by our subcommittee on

Africa.

Combatting our own lack of understanding—I think we are making good head way in terms of our subcommittee and the people

who are participating in our hearings and the interest here in

Washington, DC on the topic. But it’s a real challenge and it is

going to really take a sort of frank and sober analysis as we address that nearer term goal, that lack of understanding. We begin

that today formally within the subcommittee.

There will be a lot of different takes on the issues, I think, as

we go forward today. I hope to hear where you think our energies

should be focused, and ultimately I am sure expectations are going

to be different from among all of you and members of the subcommittee. That diversity of outlook, that diversity of analysis, and

that diversity of opinion, I want to tell you in advance, I certainly

appreciate it, as will my colleagues as we move forward. It becomes

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a very useful tool for us as lawmakers and one which I think will

help further us in meeting our common goals.

With that as background, why do we not start in. I am again

going to turn to each of you. Why do I not do it, it is arbitrary, in

the order that I introduced you, for opening comments, thoughts,

principles. Then after that we will start just a general discussion.

Secretary Mallett.

STATEMENT OF HON. ROBERT L. MALLETT, DEPUTY

SECRETARY OF COMMERCE, DEPARTMENT OF COMMERCE

Mr. MALLETT. Thank you, Senator, and I want to thank you for

giving us an opportunity to come before you today. Listening to

your opening comments, you certainly have a very keen understanding about what are some of the challenges and opportunities

that we have with respect to more commercial engagement with Africa.

But I want to be very up front. We do have a problem, and so

do the Africans, which is why it is my belief that we must fix it

together, which is also why the administration believes that the Africa Growth and Opportunity Act that is now pending before the

Senate and has passed the House is a necessary piece of legislation. It may be more symbol than substance, but all the same there

is some substance included and it must be passed.

Just briefly, Senator, Africa is an enormous region of the world

any way you look at it. It is larger than, three times larger than

the lower 48 of the United States. It has endless natural resources:

75 percent of the world’s platinum, 95 percent of the world’s chromium, 68 percent of the world’s cobalt, 40 percent of the world’s

diamonds, 54 percent of the world’s gold, large deposits of uranium,

iron ore, and coal and oil.

Ten percent of the world’s population live within that land mass,

which is, as I said, three times the size of the United States. Yet

we are not truly commercially engaged with Africa. As you suggested, fewer than 1 percent of our exports are shipped to sub-Saharan Africa. That figure is smaller than it was 30 years ago. This

is not progress, no matter which way you cut it.

Yet few people realize this, that American companies export

more to south Africa than they do to Russia and the Newly Independent States in Eastern Europe. We believe there is a significant

market potential in Africa.

Our budget, our aid budget for sub-Saharan Africa, is smaller

than it is for one country in northern Africa, Egypt. The needs of

the continent are indeed enormous. It has a crushing debt burden,

as I am certain members of this panel will talk about, if you want

to, ad infinitum. Its development challenges are quite daunting. Africa has some very significant problems, which only the Africans

will be able to solve.

On average, their trade tariffs are far too high compared to other

regions of the world. Corruption, particularly in some particular

countries, has been a basic disincentive for commercial development. Africans have not reinvested in Africa, though Africans want

others to invest in their region. Its intellectual property protection

regime sometimes is only honored in the breach. It needs to be better developed.

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We cannot discuss Africa in the 1990’s and on the brink of the

21st century without addressing the impact of AIDS and other diseases on the continent. Africa is facing a crisis which makes the

polio epidemic of the 1930’s and 1950’s pale in comparison. Every

single day 11,000 new infections occur on the African continent.

Fifty-five hundred people a day die from AIDS. The large advances

that the Africans have made in terms of increasing life expectancy

are being wiped off the books today because of the AIDS impact.

The impact of AIDS on the commercial development of Africa is

quite extraordinary. I was recently in south Africa, in Nigeria, and

talking with American businesses there about the problems they

are having recruiting and the health needs of some of their employees who are Africans. Companies are having to hire two to three

candidates for every vacancy that they have, just to assure that

they can maintain their production runs.

We must become more engaged with Africa regarding AIDS and

other diseases which are quite old on the continent, malaria for instance.

There are things we can do and we can talk about them as we

move along. And I will not take much longer, but one of the reasons I am very encouraged is that you are having this conversation

today to help fill out our thoughts and round out our thinking on

what we may do to better engage the Africans. This is a necessary

conversation to have and it is quite timely, and I thank you for it.

Senator FRIST. Thank you very much, Secretary Mallett.

Professor Sachs.

STATEMENT OF JEFFREY SACHS, PH.D., DIRECTOR, CENTER

FOR INTERNATIONAL DEVELOPMENT, HARVARD UNIVERSITY

Dr. SACHS. Senator, let me also thank you for the privilege of

being here and also for being able to——

Senator FRIST. Can people hear in the back?

VOICE. No.

Dr. SACHS. I will speak louder.

Senator FRIST. For everybody, these microphones are very directional.

If you start not being able to hear, stand up. One of the advantages of having it informal——

Dr. SACHS. Stand up, but do not walk out.

Senator FRIST. That is right, that is right.

Dr. SACHS. Senator, let me thank you for the chance to be here

and to join you in this round table and to share the panel with

such esteemed individuals who have contributed so much to U.S.-

African relations over the years.

In my own line of work as an economic analyst, I have been trying to figure out what is going on and what is wrong and therefore

how most effectively we might be able to intervene economically to

improve the situation. There is no doubt it is a very complex problem and complex challenge. Africa’s poor growth performance in

economic terms in gross domestic product per capita seems to have

been with us as long as there have been statistics and records.

This is a region which has lagged economic development for two

centuries. It predates the colonial era, it postdates the colonial era.

It is shocking in its extent. It is not an easy subject or an easy task

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for us to remedy. It is also a subject, I fear, where there has been

one magic solution after another over the decades that have been

tried and pushed, and often have proved to be wanting or very limited in scope.

I think there are many things to do and I do think that the general economic environment is much better now than 10 years ago,

for example, because of economic reforms, because of the role of the

World Bank and others in helping to set a better stage.

But I do think we have to start from realizing that this is complex, and if we have only a relatively superficial interest in it in

our country I do not think we are going to be able to really reach

the level of involvement and financial effort that it is going to require to actually make meaningful strides.

I applaud what you are doing, in part because this is the greatest

development and humanitarian challenge in the world, and often

very much neglected, because the economic marginalization is also

kind of social marginalization of this region. It is not paid a lot of

attention to except when extreme crises hit the headlines.

Quite frankly, of course, we have seen how even very modest

steps on trade trigger reactions in this country that are inappropriate and potentially quite damaging for Africa. There have been

a few cases in recent years where some countries have just started

slightly to lift their heads above sea level, if you will, start to make

some headway, and then they found protection in U.S. markets,

antidumping, other safeguard measures, which have just wiped

them out. Kenya is an example of that, a few years ago, a really

dreadful example.

It has to be said that when we are talking about the poorest region in the world, where average incomes are about $300 per capita

in much of sub-Saharan Africa, a hundredth of what they are here,

when you see our ability to do damage inadvertently, because people are looking after their own interests here or what they think

their interests, our capacity to do damage to the very most vulnerable people in the world, it really hurts.

Now, it seems to me that what we have is a very complicated

mix of problems and I hope that the U.S. Government can keep a

complicated approach, because there is no simple magic answer to

this. I would identify for you at least three areas that have to be

part of our agenda.

One is clearly trade. The essence of the African trade situation

is that Africa is almost entirely—and I am speaking of sub-Saharan Africa, I should say, and sub-Saharan Africa excluding South

Africa. So I am thinking about the tropical core of Africa. This region almost with no exception exports primary commodities, and almost without exception faces declining real prices for those commodities over the long haul.

Any country that has achieved economic development needs to

find a way to diversity its exports into something other than oil or

diamonds or gold or other minerals or cocoa, coffee, tea. This is the

first fact that I think we have to face up to. Africa uniquely of all

of the regions of the world has not even been able to break into apparel, which is the first stepping stone out of poverty for every developing region in modern world history.

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Now, of course, when some countries started a little bit of apparel exports, they got hammered over the head by U.S. apparel interests or textile interests. But we have to face up to this basic

point.

Secretary Mallett pointed out all those natural resources. But I

will say that, while that is all absolutely correct, unless Africa can

get into manufactures and service exports in a more serious way

it is going to be condemned to impoverishment in the years ahead.

The natural resources will not do it. Now, we will come back. There

is a lot to discuss about how to promote some real trade, but we

do not have it yet.

The second issue is debt. We have had one initiative after another for canceling unpayable debt over the years. I have been involved in that issue personally and quite intensively for 15 years.

I can give you a very good rule of thumb, Senator, and that is that

the powerful get better deals than the weak. If you happen to be

close to the U.S. border, like Mexico, you get a pretty good deal.

If you happen to be of high foreign policy salience, you get a pretty

good deal. If you happen to have some of your diaspora in our country, like the Polish-Americans—and I was proud to advise the first

post-Communist Polish government—you get a better deal.

If you happen to be absolutely poor, off the radar screen, politically without power, without any real constituency in this country,

you get basically no deal at all. We sit here when the poorest of

the poor of the poor are absolutely starving, literally, by the way,

because malnutrition is absolutely beyond belief. A third of the

children of sub-Saharan Africa are experiencing chronic, pervasive,

life-threatening malnutrition.

We are sitting here saying we do not have the money to do debt

reduction for these countries. I want to come back to that issue also

because it is on the agenda right now. The Cologne Summit initiative on debt relief points somewhat in the right direction, but, as

was true in 1996 with the first so-called HIPC initiative, it is just

remarkably grudging and remarkably small if we tell the truth.

There is absolutely no reason for it since in our own books, as

you know, Senator, we already hold this debt virtually at zero. So

even without much appropriation, we could easily wipe out the

whole thing and call on our partners to do the same thing. But we

do not do it, for some reason.

The third area which I would like to just put on the table for us,

it has already been mentioned. That’s one that, for you as a physician, you will know extremely well, and that is the question of disease. Disease is partly a symptom of poverty, but it is also very

much deeply a cause of poverty as well.

There is no doubt in my mind that, for many intrinsic reasons

related to Africa’s tropical environment, for example, that Africa

has an inherently high and crushing infectious disease burden that

needs to be addressed through using new scientific tools and new

approaches. Malaria is still taking more than a million lives on the

most conservative estimates and up to nearly three million lives a

year on probably more realistic estimates. Two-thirds of the world’s

AIDS deaths are now in sub-Saharan Africa. TB is rampant, of

course, as are a host of other infectious diseases.

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One thing I think is important for us, and that is that we are

living through the greatest technological revolution in history, with

biotechnology leading the way. So that our capacity to address

these diseases is greater than at any time in human history as

well. But it remains shocking to me that the estimated total worldwide effort for malaria vaccine, for example, Senator, is probably

on the order of about $50 million a year.

Something is not right with our calculations about the future

when you have what many, many molecular biologists now say is

a disease that can be solved through new vaccine technology, but

in which the pharmaceutical companies will tell you, very frankly,

there just ain’t no money in it for them, they do not believe it.

So I think that facing up to this reality, facing up to the AIDS

epidemic, which looks to be the worst epidemic in human history

at least since the Plague of 1347–48, we have to be doing better

than this, it seems to me. I would just make a plea that as we

throw around whether we are going to save $800 billion or $500

billion or $300 billion on our taxes that we think a little bit about

how we could use some of this incredible bounty that we are enjoying right now for human good by mobilizing our unparalleled

science for the sake of disease control.

Senator FRIST. Thank you very much.

Mr. Jaycox.

STATEMENT OF KIM JAYCOX, CHIEF EXECUTIVE OFFICER,

AFRICA INFRASTRUCTURE FUND, WASHINGTON, DC

Mr. JAYCOX. Thank you, Senator. I hope you will pardon my

voice. I have come down with some kind of air conditioning condition here in the last couple of days and I am not sure I can actually

sound any better than this.

First of all, thank you for inviting me, and it is really a great

pleasure to be here on this panel, I guess you would call it, with

these very distinguished colleagues of mine.

It is also a pleasure to follow Jeffrey Sachs in saying something

about Africa. I have been passionately involved with Africa for 30

years or more, but I must say what we just heard from Jeffrey

Sachs really just has to be seconded. Quite frankly, I think he has

touched—he certainly said everything I wanted to say and better

than I could probably say it.

I am particularly struck because I think Jeffrey Sachs is a newcomer to looking at Africa, relatively, compared to other parts of

the world he has spent quite a bit of time on. But I think he has

captured actually the problems in a very real way.

A couple things I would add, though. First of all, actually you

have already violated one of my cardinal rules, and that is we do

not talk about Africa as if it is one place and one country and one

people. As a matter of fact, it is 54 countries, very diverse in their

orientation, their historical developments at least quite varied, and

indeed I think as far as the future is concerned they have quite different paths that they are going to have to go down.

Some kind of disaggregation or unbundling of Africa I think is

essential to understanding the continent. Not that we have been

misunderstanding it up to now at all, but I think to get to any kind

of level for solutions or diagnostics you have really got to get to the

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country level, and the regional potential that these countries,

maybe in smaller groups, but rather larger than themselves alone,

constitute the future of Africa.

I think we have a moment in time here where in fact none of the

developments we have been talking about as far as the future is

concerned was feasible 15 years ago in Africa. Africa was in a spiral decline. I am violating the rule again, but I am talking about

that core, that tropical core of Africa, which was certainly in a free

fall, economic free fall.

They barely survived, I would say, on the strength of really quite

remarkable political courage in some quarters, a lot of effort. There

was a lot of suffering, there is no doubt about it. The people of Africa suffered in order to accomplish what they have accomplished.

They have got a lot more to go, a lot more to do. I would say that

the basis for moving in a market economy system direction is there

now in most of, say 25, 30 countries. In fact, easier things have

been done. By that I mean policy change, change the way you manage the monetary system, change the way you handle your trade.

In fact, trade has been liberalized in these 25 or 30 countries to

a very great extent. There are no QR’s, quantitative restrictions on

imports, any more to speak of. There are no taxes on exports to

speak of any more. Tariff rates are coming down. Perhaps the big

exceptions are in north Africa and in South Africa, the Republic of

South Africa.

But the harder things have yet to be done. By this I mean civil

service reform, reforming the judicial systems, providing proper incentives for productive work in both the public and the private sectors, getting infrastructure into some sort of shape, because these

constitute I think the real, on the African side, the real barriers to

trade and investment and development for the future.

As far as the external barriers, I think what Jeff Sachs had to

say about debt and trade, I very much agree with both of those

things. I think that, if anything, the Growth and Opportunity Act

just does not go far enough in these respects. Maybe it is the opening door, it is the first act of its kind, draft legislation, I have ever

seen. But it needs a lot more detail and teeth to it if it is ever going

to accomplish anything like what we are talking about here.

One of the most serious barriers to external finance—by that I

mean private investment—and trade I think has to do with what

has come to be seen as a lack of capacity on the African side to actually deal with the global economy. I think they got into such serious economic trouble because of lack of capacity and reliance on religious formulae for managing their economies.

But the lack of capacity—most of the educated Africans are in

fact not operating in Africa any more. There are more of them in

Chicago and Pittsburgh than there are in cities in Africa. There is

a lack of leadership and a lack of management capability, a lack

of institutional strength coming from those two.

In fact, there is a sort of a psychological deficit in Africa amongst

public leadership, that they have sort of got a victim mentality

which is driving us apart when it comes to making any kind of

transaction. The tables are so unequal in every economic forum

where Africans meet with non-Africans that there is no trust. It is

very difficult to bridge these gaps.

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Now, there is a big exception to all this and that is that in these

25 to 30 countries in fact the progress has been remarkable. We

now have growth rates around 5 or 6, 6 to 7 percent for 5 or 6

years in a row. We have got booming exports. They are the traditional ones. But Africa lost more than half of its market share in

all of the commodities we have been talking about, and they are

just now regaining it in those countries.

In fact, there are economic teams that have been developed over

the last decade in many of these countries. I know that one of the

most celebrated finance ministers in Africa now works with Jeffrey

at Harvard. These economic teams are, I would say, the core of the

future economic management in Africa.

Now, some of these people are on the sidelines because politically

the reformist is always in the minority. The reformist has to win

a few in order to finally get enough winners on his side that he can

in fact win and, as you know, this is not successful first time out,

second time out, even third time out. That has certainly been the

case in Africa. But these people are there or they are ready to go

back to Africa when the conditions change. I think this is one of

the great hopes.

I guess I would like to reemphasize the last point, the point that

Jeffrey made. I do not think that this is a situation for casual observation and casual involvement. If the U.S. wants to make a difference in Africa, it is going to have to really get into it. As we in

the World Bank got all the blood and gore of structural adjustment

all over our aprons, I am hoping that others will join in that operating room, maybe not with the same abandon or hopefully with

more skill. But that is the only way you are going to get anything

done in Africa in my opinion.

Senator FRIST. Thank you very much.

Mr. Crocker.

STATEMENT OF HON. CHESTER CROCKER, PROFESSOR OF

DIPLOMACY, GEORGETOWN UNIVERSITY, WASHINGTON, DC

Ambassador CROCKER. I thank you very much, Senator, and let

me add to my colleagues my expression of delight that you are having this round table discussion.

I would identify myself up front as an Afro-realist, not a pessimist or an optimist. I found an awful lot to agree with in what

the previous speakers have said about some of the key problems.

I will not belabor all those points. The region has a lot of promise.

There have been forward steps, but the barriers remain very substantial.

I do not think there is any single silver bullet here. We are talking about a lot of bullets and a lot of investment of time and the

passion of people on both sides of the relationship to try and do

something about these issues. We have heard the word ‘‘passion’’

already used by several, but I think I would underscore it. It takes

passion to overcome some of the issues, some of the conceptual barriers.

I would like to just identify for our discussion a total of six barriers, and I will start——

Senator FRIST. Pull this up, just pull the mike up. It is very directional, so pull it up just so people can hear in the back.

11

Stand up back there if you cannot hear now.

Ambassador CROCKER. I would like to identify six barriers for

our discussion. I do not have solutions to all of them, Senator. I

hope that, with the help of others around the room, we can maybe

talk about some remedies.

The first on my list is the prevalence of violent conflict still in

Africa. We need to focus on the reality that the renaissance will not

be built in violent conflicts. The new leaders that we celebrate in

most cases have taken their nation to war in the last 12 months,

and that means that the region remains in some parts of it in substantial turmoil. There are 11 conflicts under way at the present

time that are deemed significant by our State Department, involving at least 15 countries.

There are 8 million refugees. You have seen the statistics, Senator; we all have. There are something like 8 million people have

died in Africa’s modern wars. So we are dealing with a very substantial challenge right there, when an AK–47 you can buy for $6

or whatever it is in a number of conflict zones.

Unless we address and resolve these issues, the talk about an African economic takeoff or a takeoff in our bilateral investment and

trade relationships is, to put it mildly, unrealistic.

The second barrier is the fragmentation of African markets,

which I think we look at a map and we say, yes, we see a lot of

lines on the map, it is a balkanized region. It is a huge region, as

Secretary Mallett has said. It is also a balkanized region with,

what, 53, 54 entities on the map. If you add all the sub-Saharan

countries together, you are talking about a marketplace the size of

the market of the State of Ohio, sub-Saharan Africa, the State of

Ohio.

So that is a barrier from the American side because people look

at that and try to figure out, how do you enter a market that has

got all those different pieces, of which 49 are in sub-Saharan Africa? If the whole market is the size of the State of Ohio, where do

you access it, through what door, what gateways? Where do you

put your chips?

It is a difficult conundrum for our investors and our exporters to

figure out. Some of them have. Some American companies are

doing very well, thank you, in Africa. I want to underscore that

point. But there is a limit to it and they tend to be concentrated

in a small number of countries and a small number of sectors.

The third barrier obviously is the huge burden of debt, which has

been very thoroughly identified and mentioned by Jeffrey and by

Kim and by Secretary Mallett previously. I must say I hope we can

do better than finding ways to sell off somebody else’s gold stocks

as a way of dealing with it, because that is not going to work very

well in my view. There have got to be other ways to do it than robbing Peter to pay Paul.

Mali, an up and coming gold producer, is likely to lose twice as

much in gold revenue as it gains from debt reduction under the

most recent remedy suggested at Cologne, for example. So I believe

we can do a lot better than finding ways to sell off IMF gold or individual country gold as a way of remedying this problem. I think

Jeffrey Sachs has already alluded to the possibilities.

12

My fourth barrier that I would identify are issues related to

transparency and the rule of law, where I think in fact we can do

more than we may admit to ourselves, by building relationships, by

doing training, and by engaging the institutions of emerging African countries in everything related to commercial law, to the organization of stock exchanges, to the regulation of banking—any

number of things that we can and I think are already starting to

do, but we can do it more aggressively.

To create a level playing field for the business person, that is

really what it is all about, to put limits on the capricious, arbitrary

acts of government and to empower the entrepreneur, be he or she

African or American.

This relates to my fifth barrier, institutional weaknesses and

lack of financial structures of all kinds. People that are in this

room and around this table have participated, as I have, in discussions of some of these measures. Most African countries, for example, do not enjoy credit ratings, sovereign credit ratings. That is

being looked at by certain individuals and certain institutions, but

it is a slow, long term process.

It is very hard to mobilize institutional and investor capital for

Africa if people do not know how to evaluate the markets into

which they are putting the money. We all know the way the world

really works. People do not want to take risks they do not feel they

have to take. They look at a place that, frankly, looks like a black

hole in terms of a credit rating: I am not putting my money there

because I cannot explain to the boss why I made the decision to

put my money there.

I have seen a lot of folks and I have participated myself in attempting to identify sources of capital for African investment

projects, be they in ongoing manufacturing companies or in infrastructure projects. You run into this obstacle all the time. So it is

very real, but I think more can be done to deal with it.

A final obstacle is that it is hard to mobilize external capital for

Africa when African capital continues to migrate outside the region

to the extent that it does. I am talking about both financial capital

and human capital. People in the world of business are more likely

to listen to other people in the world of business than they are to

listen to governments, and they watch where money is voting with

its feet and they watch where talent is voting with its feet.

There is a tremendous amount of African capital, both financial

and human, that has left. There are indications of a trickle back

in some specific country situations, but it is still very early days.

I am sure there are things we can do, working with African partners, to try and create incentive structures for the return of African

capital. There is a lot out there.

Let me just leave it with those few comments. There obviously

are remedies that we can all talk about, including many that have

been mentioned.

Thank you, Senator.

Senator FRIST. Thank you very much. All these issues we will be

coming back to, but thank you very much.

Mr. Kansteiner.

13

STATEMENT OF WALTER KANSTEINER, PARTNER, THE

SCOWCROFT GROUP, WASHINGTON, DC

Mr. KANSTEINER. Thank you, Senator, very much. I join in the

applause for your concern and interest for this region of the world

that all of us at this table have worked on for quite some time.

It is hard to follow all these guys. I am not sure what I can add,

except to say I think Jeffrey’s three points—trade, debt, disease—

those are pretty good ones to keep our eye on. And Chet, your six

points are very helpful.

As part of that six points and the six barriers that Dr. Crocker

outlined is one that I am particularly involved with and interested

in, and that is foreign direct investment and how some of these

barriers inhibit foreign direct investment. That is what I spend

most of my time and effort in these days doing, is mergers and acquisitions in Africa. Some of my partners think that must be a very

small field to work in and some days I do feel it is pretty limited.

But it is a lot bigger today than it was 10 years ago, and I think

that is the good news.

One comment that a couple of my panel colleagues mentioned

was limiting government powers. That is incredibly important for

the foreign direct investor. If he is going to write the check and

make the investment in sub-Saharan Africa, he has to limit that

risk. That risk undoubtedly comes from the government of the

country that he is investing in nine times out of ten.

Limiting that risk and limiting those government powers are

something that we can in fact help the Africans work out, learn

why it does not need to be the way it is in some countries. I agree

with Kim very much, that there are 25 to 30 countries that are

very attractive for investments. We need to double that number

now.

Return on investment is what it is about for American foreign direct investors. With your help and the U.S. Government’s help,

along with the building of capital markets, another thing that you

mentioned, Chet, I think we can get there. It sure looks better

today than it did 5 years ago.

Why do I not just leave it there and we can start into the discussion.

Senator FRIST. Good, thank you.

I would like to turn to the ranking member, Senator Feingold,

for some opening comments or questions, and we can start in with

comments on each other and address some of these issues in a little

more depth.

Senator Feingold.

Senator FEINGOLD. Thank you, Mr. Chairman.

This round table is another good example of the chairman’s very

sincere interest in Africa, and I greatly enjoy working with him as

chairman of the subcommittee.

I apologize for being late. In a system of strict seniority, I certainly wait until Senator Thurmond is done with his questions at

another proceeding on the Judiciary Committee, and I am sorry

that I missed some of these remarks. But I do want to thank all

the participants for being here today for the discussion.

Today we are exploring some of the barriers to trade and investment in Africa. Recently there has been renewed and encouraging

14

interest in expanding opportunities for U.S. businesses in Africa,

and there can be no doubt that Africa as a continent is much

changed since the years immediately following the end of colonial

rule in most of Africa.

As some of you have said, there has been substantial political

progress in several countries, as there has been some progress on

the human and social development front. Still, many African nations are plagued by authoritarian regimes that deny their citizens’

basic human rights. The economic and political potential of some

nations are being squandered by ruling military juntas. In these

few holdout regimes, corruption, economic mismanagement, and

violent suppression of dissent are the norm.

Though mindful of the current grim realities of Africa, the

United States has to encourage the positive developments that are

already taking place there, not just because we are a generous people, but because Africa is a growing U.S. trading partner. The

United States currently imports some $13.1 billion worth of exports

from sub-Saharan Africa and exports nearly $7 billion. More and

more forward-thinking American companies have their eye on the

vibrant potential markets in Africa.

Yet, as you have all discussed, significant constraints to expanding this market remain. There are tariff and non-tariff barriers to

U.S. exports. There is poorly developed infrastructure and underdeveloped financial and banking systems. There is in some cases

rampant corruption and, as I know has already been mentioned,

there is a health crisis, with thousands, if not millions, dying every

year from AIDS or AIDS-related causes.

But in addition to these more blatant constraints, it is also important to consider the state of the African state, and that is the

lack in many countries, as has just been indicated, of the rule of

law, let alone a functioning judicial system.

Some observers think that we vocal proponents of human rights

do not care about U.S. economic interests, but the opposite is true.

Not only does the United States have a moral obligation to promote

human rights, Africa’s post-colonial history shows us that African

nations with long-term democratic rule are also the nations with

the best long-term economic performance.

The United States should ensure that as it helps to foster economic development it also fosters political and personal freedoms.

Freedom fosters prosperity. The respect a government shows for

human rights can tell us whether that regime will respect its

neighbors, its trading partners, and the world community at large.

The government that does not respect the rights of its people cannot be trusted to honor a trade agreement or a treaty, much less

the rule of law in general. This is as true for Nigeria as it is for

China.

Mr. Chairman, I know we have already heard a lot about and we

will hear more about economic constraints from our panel here this

afternoon. But I just wanted to take my brief time to make a few

points on the political side before we continued.

Again, I thank you and I think this is a very good format for an

exchange.

Senator FRIST. A number of issues put on the table. What I

would like to do is maybe open with one of the three, and that is

15

debt. I would like each of you to, and maybe start at this end of

the table and work down, in terms of the role of debt and I guess

in terms of starting with what you ended with, Mr. Kansteiner. A

company who wants to invest here on the continent of Africa, say

one of the 25 or 30 that have seen growth over the last decade or

so, the debt that they have or relief of that debt has, what impact

on a company here to actually invest there?

Mr. KANSTEINER. I hate to comment and lecture with Jeffrey

Sachs at the end of the table on international debt. But from an

on the ground position, if you have a great deal of sovereign debt

soaking up the capital for that country you have banking situations

that make it very tough for entrepreneurs on the ground. That is,

if the government has basically gone out and borrowed the liquidity

that is there, there is very little left for entrepreneurs and people

that want to start businesses.

When you have little entrepreneurial capability or maneuvering

room for the folks on the ground, it is going to be harder for American companies to come in. They are going to have far fewer joint

venture partners to partner up with. It is going to be a smaller

market to sell their goods or services in. So debt kind of literally

hangs over all of the macro and the microeconomic issues that we

are all facing.

The question of how do we deal with this debt, do we go with

gold sales or not, I think is a very important one and a very current one. I for one would like to hear what this panel thinks about

that.

Senator FRIST. Well, let us talk a little bit first—Secretary

Mallett, right now in terms of debt, how does the administration

view debt in terms of current policy? And then maybe we can get

into projected policy, but then ask the other, I will ask the other

panelists about what sort of policy should we undertake in the future.

Mr. MALLETT. As you know, Senator, the authority on the question in the administration is the Treasury Department, and it has

had, I think it is safe to say, a fairly cautious approach to the question of debt relief. But the President’s initiative with our G–7 partners, the Cologne initiative, looked to expand the HIPC initiative

so that more countries would be included.

It is very clear that the President has indicated that he believes

that debt relief is a question that must be placed on the table in

talking about Africa. How much, to what extent, on what timetable, I think are all concerns that the Treasury Department and

others will be discussing with our economic partners, and will take

some time to do that.

It seems to me that—and I recently returned from the World

Economic Forum and found myself in the embarrassing position of

being a skunk at a picnic in talking to the southern Africans about

regional integration and some of the things that we thought were

very necessary.

The issue of debt relief came up in response to my comments and

that ended up making the news all over south Africa. I certainly

had not intended to make news in that way.

But to amplify my remarks, as I later did, I do not think there

is any question that the administration, the Clinton administraVerDate 11-SEP-98 13:19 Jan 31, 2000 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 61630 SFRELA1 PsN: SFRELA1
16

tion, has committed itself to trying to devise a workable and substantial debt relief program. We have to bring others along with

that.

But in discussing the question of debt relief everything must be

on the table: the repayment of commercial debt, because we find

some Africans paying commercial debt a lot faster than they are

paying sovereign debt; the issue of historically how some loans

have been used by some African leaders. It may well be more myth

than reality, but it is all the same a perception that people have

that someone absconded with money and we must, before we talk

about debt relief, we must have a conversation about what that

means.

Who is entitled to it? It may be a very different question to say

that Mali or Mozambique is entitled to have debt relief and whether or not Nigeria would qualify in the same way, that is quite a

different kind of conversation. Perhaps debt restructuring ought to

be factored into our conversation on the debt question.

There are a number of variables I think that are at play here.

Everybody embraces the idea that Africa’s debt burden is too heavy

and we must find a way to relieve that burden. The timetable, who

qualifies, and under what circumstances I think are the details,

and that is where the devil comes in.

Senator FRIST. Professor Sachs, debt.

Dr. SACHS. We have been at the details much too long. I think

it is actually not that complicated. The problem, the biggest problem with the debt, is that this is debt owed by governments and

the governments are absolutely bankrupt in the literal financial

sense. So that if you want good governance, if you want stability,

if you want governments that can function properly, they have to

get out of bankruptcy.

We hold them in a kind of limbo now because you have a mountain of debt, every year a lot of debt comes due, a certain fraction

of that is postponed in these formal Paris club and such arrangements, a certain part is covered by new loans to repay old loans,

and then a part is paid out of the grants that are given to Africa,

still about $15 billion of so-called official development assistance,

and a lot of that gets rechanneled to repay debt.

So you have governments basically living month to month, waiting for the next IMF mission to come, because what they are trying

to do is stay out of outright default. The IMF mission is the way

to do that because if it is a thumbs-up the next tranche comes in

and then the other donors pour in their money and everything continues. If it is a thumbs-down everything goes to hell because when

the IMF blocks its money then the World Bank is not allowed to

lend in general, the doors stop, and since the government is bankrupt you just open up a morass of instability and arrears.

It is a great game, and the theory of it is that this kind of tight

leash, month to month surveillance being run from Washington

and so forth, is somehow good for development, that we really keep

our hold on this.

The problem is that actually nobody can think, nobody can plan

for the future. There is profound and pervasive instability. You get

a new government in Nigeria, one of the most significant developments in the last 25 years in sub-Saharan Africa, and this guy is

17

pleading for debt relief. And we are saying: Do not worry so much;

we will get around to that later on.

And if the new government goes under we will say: See, you

know, it just did not make sense. The story that I always tell my

class is of the aristocrat walking by the pond, and he hears a man

screaming: Help, help; I cannot swim, I cannot swim. And he looks

down at the man and says: Sir, I cannot swim either, but I do not

make such a fuss about it.

This is what we do with the debt. You have a new President of

Nigeria, the first chance for democratization in more than 10 years.

We do not know in our own government whether this is something

we want to get into or not because there is a lot of debt there. It

happens to be absolutely unpayable, a great proportion of it, but

it is too much for us to face up to at this moment.

Let me put some numbers on it, though, to show how it is really

not so complicated even for us to resolve. There is this list called

the HIPC countries, which are highly indebted poor countries. Depending on who keeps the score, there are either 41 or 42 countries

on the list. Since I am the kind of radical on debt relief, I put all

42 on. That means including Nigeria, basically.

Those countries owe to official creditors, meaning the IMF, the

World Bank, and the bilateral institutions and the regional development banks, those countries owe about $120 billion in so-called

net present value, if you take out the concessionality elements.

About half of that is owed to bilateral creditors, which means governments. Our claims on these 42 HIPC countries are $6 billion.

Of these 42 HIPC countries, roughly 80 percent are in sub-Saharan Africa, and then there is a smattering of very poor countries

in other parts of the world. But the HIPC list is very close to being

an Africa list, so we can think about it in those terms.

In our books, Senator, we do under the Credit Control Act the

scoring for all of this debt, and these are generally F or F-minus

countries, which means that they are already held on our books at

something like 6 or 7 percent of face value. If you were to wipe out

the entire $6 billion owed to the U.S. Government by the 42

HIPC’s, the budgetary outlays would just be the part still on the

books. The rest has disappeared forever.

Those outlays are estimated right now at $635 million to do the

full complete cleanup of the U.S. part. If we aggressively championed 100 percent, the other G–7 would come along, Japan and

France kicking and screaming because they have larger claims, but

they would come along, and we could get about half of this done

for $600 million of outright outlays.

The issue about gold comes up in only one point of this and that

is the IMF’s own claims on these countries. The IMF has claims

of $7.8 billion on the 42 HIPC countries, roughly. Five billion are

what is called ESAF claims, which is a kind of concessional loan,

and about $2.8 billion are what is called standby loans, which are

non-concessional loans. The World Bank has about $37 billion of

claims on these countries, of which about 34 are so-called IDA

money, concessional, and about $3 billion is so-called IBRD money.

The whole issue of gold is basically the IMF’s own piece. The

IMF does not want to take a loss, so it says it has to be made

whole somehow. We said: Well, sell some of your gold, which you

18

are holding on the books at 35 SDR’s or $47 an ounce and you can

get a capital gain and use that toward the relief.

There is another way to do it, which is just make them take a

loss, which is no big issue. It is no big metaphysical issue.

Senator FRIST. How do they carry it on their books?

Dr. SACHS. They have reserve accounts all through their books,

which are basically reserves—they have a special and general reserve account, they have reserve accounts on ESAF, to allow them

to write down debt, because they have cushions.

The World Bank has cushions also. The fact of the matter is, if

we just told these institutions, face up to your bad losses, we could

absorb it, they could absorb it with their own balance sheets.

But everybody in a debt relief game, like a bankruptcy, is ‘‘After

you, Alfonse.’’ You know, the head of the World Bank wants us to

make up their losses dollar for dollar. Well, why?

So my own view is let us go for a very deep solution and force

each holder of claims to absorb within their own means the claims.

Now, the World Bank says that would squeeze future IDA lending

and that is true. But we should separate the old debt issue from

where we would like to put in the new funds, in my opinion. Maybe

the Senate would say, the U.S. Congress would say, we do not want

to put in new funds. I think that would be a tragedy actually. But

if we were to put in new money into Africa, I do not think it should

go through IDA particularly. I would rather see it go through

UNAID’s or the World Health Organization or through UNICEF to

handle directly some of these urgent health problems, for example.

So I would like to disaggregate the various issues and say, if you

made bad debts almost by definition you can afford to write them

down; you just cancel them in your books. Then what do we do

about future programs? Well, that we should face up to once we

have a better strategy for how we are going to help Africa in the

future.

Let me just finish by saying where we are. Where we are, given

all of these interests and all of the limits and the maybe politically

realistic, but in my view not so, resistance of this administration

to come before the Congress and ask for what really is needed—

but I know my friends in the Treasury are afraid to do so, but I

believe that the American people would understand this issue actually. But they do not ask, clearly.

The result of all of this is that we are in a typical minimalist position on this, that we are going to do a little bit, and we are going

to keep them living from month to month and IMF missions coming in to give them the thumbs up or the thumbs down. My own

view is that the American people understand or could understand

what the poorest of the poor face in the world and how, given our

bounty, there is something actually we could do a little bit more

ambitious than that.

I would like to see the administration really take the moment,

to be much more bold in this. It will barely cost us anything, is the

irony of it all. But given all this flux and noise around, as I said

in the introduction, when you are absolutely poor and off the radar

screen, you have no voice in this at all, and the end results turn

out to be remarkably limited.

19

Secretary Mallett knows very well the whole discussion of the

HIPC. We are now 3, 4 years into a program that has produced almost no results. For us it does not matter, but for them it is life

or death day by day when this clock ticks, because you have people

literally dying or literally being unfed or literally not being immunized because of the delay in trying to work out the details.

Mr. MALLETT. Obviously, one of the great things about being a

college professor is you can say what you want to say and you do

not lose your job.

Dr. SACHS. Bravo for tenure.

Senator FRIST. That is right, after that tenure comes.

Mr. MALLETT. As sympathetic as I may be to what Professor

Sachs had to say, obviously that is not the position of the administration. But you ask the questions here, but if I may ask you to

pose a question to Professor Sachs.

Senator FRIST. Oh, yes.

Mr. MALLETT. Whether or not in his scenario that the relief that

he would provide—and it is a very intriguing idea—would it be

conditioned in any way? Are there any conditionalities attached to

it? What reforms, what would have to take place by the countries

benefiting from the initiative? What would we like to see them do?

If you could maybe sort of amplify that question.

Senator FRIST. Basically, the whole purpose is an exchange. Professor Sachs, how would you respond?

Dr. SACHS. I would surely put on conditionality, although I would

do it in a different way from how we do it now. Conditionality now

means waiting for that dread IMF mission to come, and I know it

because I have worked with a lot of governments waiting for this

team to walk off the steps. It is really the thumbs up or thumbs

down of survival.

So what I have in mind always in these matters is trying to engage the best on the other side and saying: We will walk the extra

mile if you will. In the Soviet Union there was the famous slogan

‘‘We pretend to work and they pretend to pay us.’’ When you come

to this situation, it is: They pretend to reform and we pretend to

help.

What I always believe in these matters is that we ought to push

them much harder on the other side, but then say: Look, we will

go all the way; we will wipe this debt off 100 percent, but we want

to see you rise to the occasion as well with something much bolder,

much more thoughtful, on a variety of things.

Now, my experience has been you can energize an incredible response for that kind of offer. I have seen it a couple of times. I saw

it in Poland, I saw it in a few other countries where because of our

politics we made the offer.

If we went to the Africans, went to President Mkapa in Tanzania, went to President Musebene, whom I admire enormously,

and said, we are ready to go the whole way, it barely costs us anything, now let us sit down together and think about what bold response you are ready to go, and then we will go shop that with the

creditors together, you will get a completely different kind of response than we get right now, which is, we are willing to do a little

bit, and everybody knows it is nothing.

20

Uganda went through 3 years to get its HIPC and it made a tiny

dent in its debt service flow. They know it. It made a good headline, but it did not ease debt relief—debt burden.

Senator FEINGOLD. Let me just follow on.

Senator FRIST. Go ahead, go ahead.

Senator FEINGOLD. You are actually right. The challenge here is

to get both Members of Congress and our constituents to understand the importance of this. Maybe you could help us, Dr. Sachs,

or perhaps others by comparing this in some ways to the Asian financial crisis. Are there lessons to be learned from that? Are there

dangers in a cookie cutter type of approach? It would be helpful if

you could elaborate.

Dr. SACHS. I think that the general crisis that Africa faces is not

the same as Asia. Asia faced basically a financial crisis because it

was such a good investment that investors poured in hundreds of

billions of dollars and then one day decided they better take it out.

Africa has not had the good luck of running into such a financial

crisis because no one has poured in so much money, and no one is

likely to in the short term.

Mr. KANSTEINER. Although South Africa did experience some of

the contagion.

Dr. SACHS. It did, of course.

Mr. KANSTEINER. Because in fact it did have the investment that

had come in.

Dr. SACHS. When I say Africa, always again I mean tropical, subSaharan Africa, because the conditions in Morocco, Tunisia, Egypt,

and South Africa are really totally distinct from the rest in disease,

in death, in economic prospects, and so forth, in complexity of the

economy and so on.

So I think Africa is a different challenge. Africa is the hardest

and most urgent development challenge in the world. There is no

place poorer, there is no place having more chronic difficulty overcoming the struggle of daily survival than this part of the world.

I have been speaking to Americans, not my constituents of

course, but I have been speaking to Americans and to Congress

people for many years on this, and I have always found that the

biggest barrier to the aid issue is the pervasive feeling that it is

money down a rat hole, not that there is not the good will in this

country, because I think the good will is actually phenomenal, but

the feeling that it will not work.

So I think the true test is not the test of generosity. The test is

the test of efficacy: How can you show that something is actually

going to work, or how can you get people to make the investment

in trying to having something work, when they have such skepticism?

This is why I am always in favor of bolder approaches than we

usually do, because when you do not engage the hopes and vision

you absolutely engage the cynicism that, well, we have all seen

that that does not go anywhere any more. That is why I believe we

are at the end of the old approach, should be, with the IMF and

so forth, because we have been doing this 20 years and neither side

rises to the occasion with the commitment and the drama that is

possible.

21

I think the right way forward in general is to engage the few

really remarkable political leaders in Africa. There are some and

I would start with them. We do all this issue one-way dialog. We

just give—we go to Cologne and we make an initiative. No one asks

the Africans about any of this. We just told them: OK, we’re going

to lower your targets from a net present value 250 percent of exports to NPV of 150 percent. Then I get finance ministers calling,

asking what does it mean. They do not have a clue. And when I

ask friends at the Treasury they are not so sure what the announcements always mean as well.

But we have done it in a way that absolutely minimizes the

chance of success because it is so grudging and it is so minimalist

and it is so technocratic, and it is without the political commitment

at the very top, which really could engage dramatically the hopes

of populations. We see when President Clinton has gone to Africa

millions of people turn out. The hopes can be engaged and mobilized, but we are not doing that right now. This is partly what I

do not really understand.

What is true is you face a reality which is a very tough one. I

was shocked how the most minimal provisions of the Trade and

Opportunity Act were stopped by the textile lobby. You know, here

you have the poorest place in the world. We are talking about hundreds of jobs perhaps in the U.S. lost, perhaps a few thousand, in

an economy of 130 million plus jobs, the most dynamic economy in

the world, average incomes $30,000 per capita. We are talking

about people starving because they cannot subsist in the countryside or cities overflowing with the migrants from the countryside

who cannot find jobs in the cities. And we are saying you cannot

start a T-shirt factory there because it is not in the U.S. interest.

So from the African side, we are not engaged right now in the

real way. We are just not engaged. We are also therefore not able

to show efficacy, and that is a big problem for the American people.

Senator FRIST. If we put the 635 in and got the cooperation of

other nations, that is bold, if the efficacy there? It comes back to

that initial statement, is that enough of a jump start in and of

itself when governments are still corrupt, when things may be better and we have 25 countries making progress?

Dr. SACHS. First, if we could ever go to an African country and

say that we are going to wipe your debt clean to give you a fresh

start—and not just the U.S., but the G–7 and the overhang of other

sources, which is what the bold proposal would be—first, you would

get such disbelief. But then you would get real mobilization. That

would be a way to trigger things. When you are broke and when

you are desperately poor, money looms very large. It generally does

even when you are rich.

But I can tell you, Mr. Gorbachev, whom I also knew in days

when we were holding back, sold, if I could put it in very crude

terms, was ready to sell the GDR into NATO and into German unification for a very clever bid of Mr. Kohl, of Chancellor Kohl, of

about $7 billion for housing for Soviet officers, because money was

so absolutely central that he actually got response.

What we get is this very bizarre situation where we say, we do

not really have too much leverage in all of this, so we should be

22

very, very cautious, and the other side says, well, there is nothing

there to really talk about, and we just miss this chance.

Now, I think there are many parts of Africa where it is much

more complicated than that, because there is no doubt what Chester says, that when you have the violent conflicts we are not going

to easily solve this through a debt relief operation. There are many

deeper problems.

But I could easily enumerate 15 or 20 countries where, if we just

started a more ambitious dialog, you would be amazed at the quality of the response.

Senator FRIST. Let us go—Mr. Jaycox, Ambassador Crocker, let

us wrap up on debt and then we will move on to some of the other

issues, just in the interest of time. We have about, oh, 30 minutes

or so. But do you have comments on things we have not touched

on or from a different perspective?

Mr. JAYCOX. I just would like to touch on debt.

Senator FRIST. Pull the microphone up just a little bit.

Mr. JAYCOX. Yes. Obviously, it is the governments that are bankrupt. Almost every society that is civilized has bankruptcy laws

which allow life to go on after mistakes are made. We have to do

that. Otherwise there is no hope for Africa at all in my view. The

debt is building as we sit here because the interest cannot be paid

and it is being capitalized.

Now, I do not know whose book this money is going onto, but

they are just obviously fooling their stockholders and whatever,

savers. If there are U.S. agencies that are holding paper in Africa

owned by indebted governments, this is ridiculous. It ought to be

revealed to the American public, because they are broke, too.

Now, this has been one of the major reasons this has not happened, is that people are afraid to show exactly where their money

has gone bad and fix their institutions, their domestic institutions,

accordingly.

HIPC was a great idea. I despair of the idea that we go to 100

percent debt relief when we could not get that miserable thing

called HIPC actually accomplished. I was with Jim Wolfensohn in

Cote d’Ivoire when HIPC was born. We were just sitting there

watching the IDA money. We were raising IDA money and it was

going out the window to pay the debts of Cote d’Ivoire. It was harder to raise the money than it was to forgive it. It was very clear

we were exhausted.

I do not know who has got the short leash, but I can tell you that

the guy at the other end of the leash is certainly tired and exhausted and sick of it, too.

HIPC was born and Wolfensohn provided quite a bit of leadership at the time, and the World Bank was willing to take losses,

write down, IDA and the World Bank, provided everybody else did,

too, and we in fact got to a solution which was viable. This definition of viability was set after a lot of haggling, and I must say in

the wrong direction, raised to 20, 25 percent net present value of

the GDP.

When I first joined the World Bank, 15 percent of exports going

for debt service was considered healthy, provided you were borrowing for the right reasons, et cetera. There is no reason why, if

we could get these economies down to 15 to 20 percent of export

23

proceeds as a debt service obligation, why these economies would

not have a new lease on life, provided they behaved themselves as

they should. Of course, that is the big proviso and that is why the

conditionality and all that.

But that was not accomplished here. You know, people dug in.

They protected the balance sheets of the domestic financial institutions. It is not so that the private sector has not moved on. The

private sector is basically selling their debt for 9, 10 cents on the

dollar. It is only official agencies of governments that are holding

onto this 100 cents on the dollar business.

Mr. KANSTEINER. In fact, there are very few African countries on

the secondary debt market that are at 100 percent of the face

value. The secondary debt market has discounted everything. We

can get Sudanese debt now for 2 cents on the dollar.

Mr. JAYCOX. Two cents on the dollar. You have got to be a big

gambler, but you can get it for 2 cents on the dollar.

The private sector is not sitting around waiting to get paid. In

fact, if you hold a London club meeting on almost any private debt

held in Africa nobody will show up. Nobody would bother to buy

a plane ticket to go to London to talk about it.

So this is a myth. It is only the governments and it is bureaucrats who have failed, have so far stonewalled debt relief in Africa.

But it is a very high thing. Whether you pay at home or pay at

the office, when it comes to the World Bank and IMF, they are

your institutions. You are the major stockholder. You have to decide where you are going to pay, because somebody has got to pay

down the line. If not, the burden will be shifted to the countries

that need these institutions’ help. Either they will borrow at a

higher interest rate or they will not be able to get as much money

as they want. That is just the facts of life. That is just basically

the entropy of the system.

Senator FRIST. Ambassador Crocker, final comments on debt.

Ambassador CROCKER. The final word on debt. I think what this

really boils down to, we have heard a lot of eloquent remarks on

the subject. This has to do with political will and with priorities,

because all the entities that we are talking about that ought to face

facts and recognize that they are not going to ever get paid are in

fact either governmental agencies or intergovernmental agencies,

and you have to get an agreement from the authorities that control

them to recognize the losses in their balance sheets, which is exactly what Professor Sachs was saying about the IMF and the

World Bank.

There is a way to do it by revaluing the gold. That is another

way to do it, so you compensate on their balance sheet. There are

lots of ways to do these things, but it does take two things: It takes

political will, which means that you have got to put—and then priorities. You have got to get Africa on the radar screen, Senator.

That is what this is really all about.

Intermittently it is on our radar screen in this country. I am

pleased to see it is more on the radar screen now than it has been

for a while. That is good. But that has got to translate into transAtlantic phone calls where you get our Japanese counterparts, our

French counterparts, and all the official credit agencies and everybody overseas to say: Let us get around the table and work this

24

problem and work it for a concrete outcome within a specific timeframe.

That means putting Africa up on the top, and that does not happen all the time across the Atlantic.

Senator FRIST. Let us move on. I will turn to my colleague to introduce it, but is there a moral hazards argument to be made, that

we are forgiving all this debt and in some way perpetuating either

unhealthy trends, things that we would like not to perpetuate, corruption? Is that an argument?

Let me turn to my colleague. We will kind of shift gears off that,

but it is a question that I have that over the next 10 or 15 minutes

I would like to answer.

Senator FEINGOLD. Thank you, Mr. Chairman, very much.

First let me say it was a very helpful conversation and as we

consider the Africa trade bill in the Senate I see that as an opportunity to consider some of these debt issues, and I am hoping that

at least the Foreign Relations Committee is a place where that aspect is considered, if not the Finance Committee, which I understand there will be a joint referral of the matter.

I am interested in the corruption issue, working for years on the

issue of corruption and bribery in general. One of my predecessors

from Wisconsin, Senator William Proxmire, was the author of the

Foreign Corrupt Practices Act. I would like to ask any of you to

what extent corruption and bribery are prevalent in Africa, specific

instances of promising opportunity being dropped because of those

constraints, and to what extent you either indirectly or directly

have felt constrained by the fact that our business people are required to follow the Foreign Corrupt Practices Act and many in

other countries are not?

Mr. MALLETT. Well, Senator, to the extent that, if I may, Secretary Daly and I and others deal with this a lot in our bilateral

relationships with other governments, there are a lot of unhealthy

places in the world to do business, a lot of places where bribery,

lack of transparency, is prevalent. All of them are not in Africa.

To that extent, I have often felt, and I think research done by

Professor Sachs’ group demonstrates, that probably Africans have

been penalized more with the perception of corruption than other

regions of the world. Certainly all of us find ourselves very familiar

with some of the practices of Nigeria over the last 12 to 16 years.

Fortunately, we finally have a window of opportunity where we

have a president and a government writ large that has dedicated

itself to trying to eradicate corruption root and branch, trying to

take it out. I mean, it has sort of stopped its contracting practices

so that it can examine all contracts given over the last year going

back 16 years—23 years, when he was last in power, saying that

we are going to get to the bottom of this, land bills that were given

inappropriately.

So I think we do have an opportunity to take up the issue of corruption with the Africans writ large, the Nigerians, the Cote

d’Ivoirians, the southern Africans, west Africans, east Africans.

Certainly we can have that dialog.

One of the things we have wanted to see is sort of to see if we

could have an anti-bribery convention perhaps, to begin to start the

discussion about some kind of anti-bribery convention regionally in

25

Africa, so that we can sort of take away this notion that you cannot

do business in Africa because everybody is corrupt. It just is not

true.

Senator FEINGOLD. What are the prospects for African nations

joining the OECD convention to combat corruption?

Mr. MALLETT. We have had that discussion internally and one of

the issues raised is that it may be better for us to sort of create

a different kind of convention, Africa-specific, because of the perception of the problem of corruption on the African continent. I certainly, I have got to tell you, have no necessary objections to it and

we certainly want to see that spread.

But if you look at the countries on Transparency International’s

sort of list of corrupt countries in the world, you will find that

many regions of the world are well represented on that list. Far too

many of them are on the African continent, but by and large, by

and large, I think—and it is based on data put together by a number of groups, not government-sponsored—Africa is probably penalized more on that basis by the practices of some of its neighboring

countries. Some increase in Africa are more penalized than they

ought to be than others.

Senator FEINGOLD. I appreciate that comment. When I meet with

African leaders, especially in our informal gatherings in the Foreign Relations Committee, like to bring up this subject, and I am

assuming it is consistent with administration policy to ask the

leaders of those countries to at least consider joining that convention. Is that fair?

Mr. MALLETT. It is fair to say that the issue of anti-bribery practices, anti-corrupt practices, often comes up in our conversations.

We often use the OECD anti-bribery convention as a model and

suggest that it be taken up. But I know of no specific instance

where I have been in bilateral meetings where I have asked them

to join that particular convention.

I am always, I suppose probably needlessly, just a little sensitive

about the Americans coming in to tell them that they ought to have

this convention. But it is a conversation about corruption and

transparency that I have incessantly with my counterparts in countries all over the world, not just in Africa. But I do it a lot with

African leaders.

Senator FEINGOLD. Let me agree with that. I certainly do not restrict my urging of this to African leaders.

Let me just follow, Mr. Chairman——

Dr. SACHS. Senator.

Senator FEINGOLD. Yes, please, Dr. Sachs.

Dr. SACHS. There is a conference in September in south Africa

organized by Transparency International, which has gotten the

most remarkable response of African leadership. So I just saw the

roster of attendees planned for September. Obasanjo is going.

Mbeke is the local host. A tremendous response of African leadership.

I think it is fair to say you could get a lot of resonance on the

issue right now. President Obasanjo was a senior international

member of Transparency International. This is really a big issue

for him.

26

I would like to just come back again. To me, the Nigeria situation is so ripe for some serious foreign policy initiative by us. I hope

it is happening. I do not see it happening. But that issue is crucial

for Nigeria. Nigeria is crucial for Africa. I would love to see the two

put together, and the corruption issue is absolutely at the top of

their agenda, not by us forcing it, but by us trying to figure out

how to help them do an extremely difficult thing, which is cleaning

up an army, after all, that has run the country for more than a

decade.

So it is ripe if we can really—but it has got to be, of course, starting at the White House.

Senator FEINGOLD. I would like to talk about that a bit, because

I am delighted that you mentioned Nigeria, both of you. In fact,

that was going to be my next question, to put this in concrete

terms. I have spent the last 61⁄2 years on this committee hoping

that there could be some change in Nigeria. I have authored some

of the main legislation, in fact perhaps the only legislation in the

Senate this year, that tries to set some benchmarks with regard to

what we hope will be improvements and the possibility of further

sanctions if we do not have improvements.

I am hearing good things. I had a very good conversation with

Susan Rice just this past Thursday. I am cautious because of the

record of the past. It affects us in Wisconsin. We have a terrible

problem with these business fraud problems. We have a terrible

problem with heroin coming through Chicago, through Nigeria,

that now on occasion goes through Mitchell Field in Milwaukee,

and the threat to the kids in our State.

So I come to this with a great deal of, I do not want to call it

baggage, but concerns. I do not want to be too quick to just sign

off on this and I will not, but I do want to say that I am encouraged. I understand Obasanjo already was involved in helping, in

making a number of arrests with regard to some of these questionable business practices.

So I do think this is the opportunity. I hope we do not get carried

away, given how serious the problem, the corruption is so deep in

that country, that if just a couple good things happen, we just sign

a blank check and then end up feeling foolish later on and doing

more harm than good. It is in the interest of Nigerians and our

country and our investors to make sure it is a gradual process that

gradually builds confidence.

But I am glad to hear of your emphasis on this, because I do

think Nigeria is probably the key if you had to pick one to this.

Ambassador CROCKER. Senator, there is just one issue of maybe

just diplomacy more than anything. Asking African countries to

sign onto an OECD protocol does not make a whole lot of sense if

they are not members of the OECD. I think what we are talking

about is finding a way to get an African protocol and build toward

a global protocol. That was I think the point that Secretary Mallett

was alluding to. The standards would be hopefully the same, but

there has got to be an ownership of it in each region. I think that

is the point.

Senator FEINGOLD. I think that is fair. There are already five

non-OECD members who are members of that. But I think to make

27

it something that is appealing seems appropriate. I am certainly

willing to explore that.

Dr. SACHS. Senator, could I followup? These moments of transition are so pregnant with opportunity that the tactics that one follows are of the essence. While I agree with you that you do not

want to just jump in as if everything is solved—by no means would

I recommend that—it is crucial in my opinion to set extremely high

targets for both sides early on, even if they do not happen immediately, to set the vision extremely high, so that even if you do not

forgive all the debt next month—and I think that would be a little

bit premature, to say that this could happen, that it really could

happen—let us both sides try to engage in the most ambitious vision of this.

Again, we all appeal to our personal experiences, and mine that

is I find most relevant for this were the events in Poland in 1989

and 1990, where, largely because of our domestic politics and global

politics, we were ready to enter into an incredibly bold discussion

on both sides. Actually, there was a whole heated debate about

whether Poland should get debt cancellation, for example.

A couple things made the difference. One was a lot of PolishAmericans and the second thing that made the difference was the

Germans finally, after a lot of reluctance, came along when it was

reminded to them that in 1953 they got deep debt relief for Nazi

era and pre-World War II debt. The prime minister of Poland handed that to the chancellor and the chancellor said: I cannot argue

with that one; we are on board.

But the point is that there were two competing visions of how to

proceed, one very cautious, step by step, in which the reformers

saw themselves going down and in which they did not see how they

were ever going to pass the thresholds; and the other was the bold

approach. Now, the bold approach ended up taking 3 years to cancel the debt, but soon enough the White House put some pretty

bold things on the table and started telling them this could happen.

We do not know how it is going to happen, but it could happen,

and we are ready to work with you to make it happen.

I think that that—I know that, from Waleca’s point of view,

many key participants, this was crucial in how they comported

themselves, in how they were able to deal with their own internal

constituencies at crucial points.

I feel that my Nigeria is that important in Africa’s future in

terms of scale of solution, in terms of scale of the problem that they

face right now, that we should really be aiming very, very high,

even if we do not jump in entirely at the moment, to lay out an

absolutely bold common vision.

Senator FEINGOLD. Mr. Chairman, you have certainly been generous with the time.

Let me just say I think this is the moment for a bold approach.

I think the Africa trade bill may be the vehicle for such a bold approach to be considered, and let me report to you that in my State

constituents in general, in African-Americans, are expressing to me

the kinds of feelings that the very large Polish population in Wisconsin expressed at the time with regard to your excellent analogy.

I think this is the moment, and I think that is a very powerful and

effective statement.

28

Thank you, Mr. Chairman.

Senator FRIST. Further comments? Yes, sir.

Mr. MALLETT. Mr. Chairman, if I can give you three reasons to

be reasonably optimistic about Nigeria. While I was there 3 weeks

ago, there were three things that happened. Some of them happened before I got there, but two of them happened while I was

there. One was while I was in country President Obasanjo introduced into the legislature there an anti-corruption bill and they

published it in the newspapers. It took them 2 days to publish the

entire text of the bill, but it was published in the newspapers for

everyone to see. Unprecedented in Nigeria. Under consideration by

the legislature, and I met the president of the senate there and

they said they would be passing that legislation.

The second thing that happened while there, President Obasanjo

had committed during his campaign that he would eliminate this

fund that—it is not quite a slush fund. Actually it was the most

well-audited fund that they had in the Nigerian Government. But

it did not go through the legislative budget process. It was something that the government could use to fund road projects and

other kinds of things.

Senator FEINGOLD. Kind of like the Social Security Trust Fund.

Mr. MALLETT. It obviously could be abused and he wanted to

abolish it, and he fired the person who was in charge and said, we

are going to abolish the fund. No disagreement about doing that,

disagreement with the tactic. What the senate decided to do, what

the Nigerian legislature said: We agree to abolish the fund, but the

way you went about doing it we did not agree. And they said you

cannot do it that way, and they then put in a law while I was there

to do what he wanted, but to do it in a way that it comported with

the legislative processes. He did not object.

That was very unusual for Nigeria. That was a democratic experiment at work.

The third thing were a set of things. They happened before I got

there. Before arriving and shortly after his election, President

Obasanjo did three things—four things: he established a commission to review human rights abuses in Nigeria. No one thought he

would have the courage to do it. He did it. That commission is operating, operating. I met a number of people who are members of

it.

Second, he put on hold all contracts that were awarded the year

before he took office. The former military government toward the

end of their term sort of made a number of procurement decisions

that may not quite have been able to stand the test of light, and

he put all of those on hold for review. Those that could stand the

test of light could go forward, those that could not he was canceling.

The third, he would put on review all land deals that the Federal

Government in Nigeria had done. All land deals where people could

acquire government land at sort of little or no cost, he wanted to

review them. Where there was clear abuse, he was going back to

see if the state could take back the land.

Finally, something that no one believed he would do, he decided

that he would look at enrichment of government officials starting

from the time he was last in office in 1976. Everyone thought he

29

would just do the last 16 years of sort of military rule. He went

all the way back to when he was last in office, 1976, and said it

is all on the table. They have a government commissions. It is having hearings all over the country to talk about this.

Now, that for Nigeria, and to hear the Nigerians talking about

it, is an unbelievable breath of fresh air. So you are right, we certainly should not squander this opportunity. So there is some reason to hope that it is moving. It certainly has the right trend and

moving in the right direction, Senator.

Senator FEINGOLD. Thank you, Mr. Chairman.

Senator FRIST. Let us shift gears a little bit.

First of all, people in the audience who have questions, we will

have 4 or 5 minutes if somebody has a specific question that has

come up. There are obviously a number of issues that have been

raised and we cannot touch upon all of them. It is of some advantage to us to go in a little more depth in certain ones than in others. But I want to throw that opportunity open.

Let me just throw out for the discussion to the panel: What do

we have to learn in terms of petroleum investments from the past

that can apply to the future? I mentioned in my opening comments

the lack of diversity and it was mentioned that eventually diversity

is going to be important. As we look back to the past, as we mentioned or as I mentioned, possibly some moral hazards there.

As we look at what has happened in the past with our petroleum

investments, what do we have to learn that we can apply to the

future? Anybody? Yes, Dr. Crocker.

Ambassador CROCKER. On the issue of moral hazard, which I

think you first raised, Senator, in the context of debt relief——

Senator FRIST. Right.

Ambassador CROCKER. I think Professor Sachs in a sense has an

answer for that. The bolder you are in what you are offering, the

bolder you can be in what you are demanding. So I think you deal

with moral hazard at the government to government level, that

way.

The history of petroleum exploitation and exploration in Africa is

an exciting story which has just begun. This is the next Persian

Gulf we are talking about. The west central African littoral is a

very exciting, very prospective area, much more exciting, much

more important in fact in the long scheme of things than the Caspian Basin in my judgment. I am not an engineer, but that is what

my sources tell me.

So I think it is an exciting area. The issue is how do you make

it compatible with the societies in which petroleum companies operate, and I think they are the first to tell us that they are learning,

too. I do not think any of us should be getting on a soap box giving

sermons to industry or to government. I think we should be saying,

look, this has got to be sustainable.

We have seen in Nigeria and other places where sometimes it

has not been so sustainable. So people have to listen. They have

to listen to their constituents.

Senator FRIST. Other comments?

Mr. MALLETT. Senator, our imports from Africa are very concentrated. They are concentrated—six countries account for 88 percent of all of our purchases, six countries: Nigeria, South Africa,

30

Angola, Gabon, Cote d’Ivoire, and Congo-Brazzaville. Five of those

six countries are major oil exporters to the United States. South

Africa is a nonferrous metal exporter to the United States.

We import, the United States, about as much crude oil from subSaharan Africa as we do from all of the Persian Gulf. Nigeria and

Angola are our No. 5 and No. 6 suppliers of crude oil imports.

We obviously have some very substantial interests and we are

often meeting with major companies in the petroleum industry to

talk about this. One of the issues raised in Nigeria with the government while there was that we do understand that there are

some inequities and the relationship, but the Nigerians, given how

critical crude oil development is to their economy, they had to do

something about the crime that was occurring in the delta region

with respect to kidnapping oil executives and taking hostages. It

simply was an unacceptable answer to say, well, you cannot do

anything about it and we cannot get the army in there.

All of us would sort of embrace the idea of trying to diversify

both our exports to and imports from Africa. But if you just look

at the trade flows, it is staggering that only six countries account

for 88 percent of all the purchases that we make, and most of that

is oil.

Mr. KANSTEINER. There are some short and midterm problems

that we are going to be facing, and huge opportunities. As Chet

suggests, Angola, for instance, will probably surpass Nigeria in barrels per day in the next few years and that is all offshore. That is

not even beginning to look at the potential reserves onshore.

The reason that there is not serious consideration of onshore reserves and exploration is another thing that Chet mentioned, and

that is the war. If we could get conflict resolution in a place like

Angola, their proven reserves will become very significant.

Senator FRIST. Question from the audience? Anybody have a specific question they would like to ask our panelists?

[No response.]

We are going to close down in just a few minutes. I want to

give—it is not a very aggressive audience back there.

Why do we not give each of you the opportunity. We have talked

about a number of barriers. Many we have just touched upon.

Again, I cannot tell you how just this level of discussion, how useful it is for us and will be for our colleagues as we share it with

them.

In our sort of closing comments, why do you not—we have identified barriers as we look forward from a policy standpoint. We have

talked about some bold ones in terms of debt relief. What other

specific recommendations you might have as we, having identified

and discussed a little bit these barriers, that we might incorporate,

think about, both sort of inside the box of what we normally do,

but also outside the box in terms of increasing the boldness? Let

me just throw that out and ask each of you to make a few recommendations, and then also if you would like to make any closing

comments as we start.

We can start with anybody who would like. Yes, sir, Mr. Jaycox.

Mr. JAYCOX. Thanks very much, Senator. I would like to make

a pitch for generally capacity building in Africa, starting with primary education, but including all levels of education, training,

31

leadership training, involving NGO’s as well as the USAID and

other agencies of the U.S. Government. It seems to me that this is

the one single area where progress has not been made, even in recent times.

In fact, there has been a general deterioration. With the exception of these economic teams I referred to, I think in general there

are more technical assistance, more dependence, being generated in

Africa than ever before, and that unless there is an internal solution to almost every problem we have raised I do not see it actually

being sustainable.

I think that I do not have the answers for this. The World Bank

and others have given a lot of thought to how this might be done,

but I do not see it as an energizing fact yet in general.

Senator FRIST. Good.

Dr. Sachs, you want to make some closing comments?

Dr. SACHS. I would like to touch on some of the topics that we

have not had a chance to discuss at length, two, actually three, but

two main ones in particular.

First on trade, I mentioned briefly that for most of the region the

tragedy is they trade extremely little in general, these countries. It

is all a few natural resource commodities, and generally no

progress toward export diversification. If you look at the long history of successful development, whether you go back to the east

Asian countries like Korea or Taiwan or now Poland with rapid

growth for the last 10 years or north Africa, Nigeria, Tunisia, or

I would say what is happening now in the Dominican Republic or

in Costa Rica or Mexico, all of those regions that start to achieve

some stable growth are countries that get out of their dependence

on a single resource and become a part of a more complicated international production system.

Generally what happens at the beginning is that multinationals

invest in those countries and use them as export platforms. That

is the way that poor countries get started. So they make T-shirts,

they make shoes, they assemble electronics equipment, and then

the technology rises. All sorts of good things happen when you get

this kind of transformation under way.

This has not happened at all in Africa, anywhere in tropical Africa. There is only one exception in the whole region, which is a

pseudo-exception in a way. It is Mauritius, because it is counted in

the African region. It is an Indian Ocean island which back in 1968

said: We want to do what Taiwan is doing; we want to have some

textile and apparel-based exports. It is the most successful developing country in the region over the last 30 years, by doing this

basic strategy. Now they have reached a quite sophisticated level

and many other things in services, in tourism, and so on.

It is crucial for us to help Africa get started in this. It is a complex topic because one thing we also know from all of this is that

this kind of export zone strategy works in coastal areas, where you

can bring in the port, bring in the goods, reship them and send

them out. Africa, interestingly, has the highest proportion of any

continent’s population away from the coast.

There are all sorts of deep geographical reasons for this, but

mainly because in the tropics people live in the highlands rather

than on the coasts for all sorts of reasons, but disease and agriculVerDate 11-SEP-98 13:19 Jan 31, 2000 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 61630 SFRELA1 PsN: SFRELA1
32

tural productivity and water control and so forth tends to be better

in highlight regions. So you get high population densities in very

unlikely places, like Rwanda and Burundi, rather than at the

coast.

OK, putting these details aside, my shock in looking at Africa

compared to all the other places where I have ever worked is that

the major coastal cities, like Dar es Salaam or Acra or Abijan or

Dakar are not the kind of export-based locations that you would

find in any east Asian city or any Caribbean island now or Central

America, where you have San Pedro Sula in Honduras or San Jose

with Intel and so forth.

So from the strategic development point of view, making Africa’s

urban coastal areas the normal export sites is from a development

specialist point of view where I would put my effort right now.

Now, I say all of this because it comes to the core of the legislation and the core of the controversy over the legislation. The political interests in this country do not care too much about Africa, it

seems, but they did care a lot about any T-shirts coming from Africa. But I just have to say that realistically that is how Africa is

going to get started.

It really is true that creating some thousands of jobs in these sectors is one of the few ways that you can get some manufacturing

going and get out of sisal, jute, coffee, tea, dead end sectors.

So I know it is not easy, but the question of the local content and

whether the fabrics are cut by—are U.S. fabrics, I know this is

near and dear to the hearts of all of us. But these details are going

to make a huge difference, Senator, in whether Dar es Salaam continues to be a magnet for disease and a dead end and dependent

on foreign aid or whether it is a thriving port area doing electronics

assembly, selling shoes abroad, selling shirts to Europe, and so on.

So I just want to put that as a key. It is the most controversial

part of this legislation and I am sorry to go to that, but I think it

is really important to say that this is what makes the difference

over a 10 to 20 year period. It is why Mexico, I believe, really is

turning the corner now fundamentally in development. It is that

we have opened up, and I think it is mutually beneficial. I think

the same thing for Africa.

Last point. I do not mean to filibuster, but I want to say a word

about what we might do about disease, because I hope, with your

leadership, Senator, maybe we could try some creative things in

the future. I have been looking in quite a bit of detail over the past

year at the international efforts on malaria and to some extent on

HIV-AIDS, which is even now, of course, a more explosive killer in

Africa.

In general, we are not doing the biotechnology work that is going

to be needed to deliver what is deliverable, which is vaccine, new

vaccines based on all the new delivery systems and all the new biotechnology, deliverable probably within a 10-year period if there

were a major effort.

When you talk to Merck, SmithKline, Pasteur, and all of the

other—there are not that many, actually—major vaccine firms

these days, they are happy to work on Hep B and HIB and others

because that is rich country markets. But for the poor country diseases, they cannot do it on their own, and there are a hundred barVerDate 11-SEP-98 13:19 Jan 31, 2000 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 61630 SFRELA1 PsN: SFRELA1
33

riers to making a real market out of this, not the least of which

is that they feel that if they ever came up with something UNICEF

would say: OK, we demand it at 50 cents a dose, which is the normal way that vaccines get delivered. And they would say: But we

just spent a billion dollars developing it; where is our market? And

they are right.

So they are afraid. So we are stuck in a dead end right now on

something that American science could really deliver. What I have

been talking with the White House and the Office of Science in the

White House and others around the world—and there have been a

number of discussions about this—is the idea of creating a kind of

contingent purchase fund for malaria or for HIV-AIDS vaccine,

which would say: This does not exist right now, but some day it

might exist, and if it ever did exist we can assure you that the

major countries would stand there ready to be a market for this,

to help the poorest countries be able to afford such vaccines.

The idea is that by making a commitment up front you could

generate a huge private sector mobilization of science now, because

they would see the prize at the other end, bottom line prize, in a

much more clear way. My feeling is it would not cost us a penny

of outlay if it never happened, but all we would be doing is saying

what would absolutely be true, that if it ever did happen we would

be there ready to purchase it.

There are a lot of details, and I would love to share them with

you, on the idea. But my point is that with some creative leadership, my view is we could turn American science strongly in perhaps the most vital direction of all, and that is making these new

technologies reach millions and millions of people. It would be

about the most cost effective assistance program we could ever

have.

You know, the vaccine companies say, and I believe them, it is

probably a couple billion dollars to get a malaria vaccine developed,

and in the scheme of things that just is not anything compared to

the $16 billion that we put in year after year in worldwide development assistance to Africa. But the vaccine companies do not believe

that one penny of the current flow is actually an inducement to

them to do what they could do.

So just to stop on that, it seems to me that if we recognize this

triumvirate of trade, debt, and disease and we go after each one in

a very creative and bold way, in about the most cost effective foreign policy we could have, because we are talking about very poor

places for which even modest amounts can make a difference of life

and death, we could do phenomenal things, I think.

Senator FRIST. Thank you, and that is very well said and I do

look forward to working with you on the disease, public health initiative.

Dr. SACHS. I would love to do it, Senator. It would be a privilege.

Senator FRIST. The incremental effect of that, obviously, would

be—I promised everybody we would be out a little bit ago. Any

final statements?

Mr. MALLETT. Well, Senator, I just want to thank you again for

holding the hearing. Clearly there ought to be a more robust conversation between the administration and Congress about this

question of debt relief. Although we clearly have a position on the

34

subject, I think the President is certainly amenable to having a

more vigorous conversation about it and I think it is time to have

it, speaking from my own parochial vantage point.

As well, in the engagement that we do with the business community about issues related to Africa we are trying at the Commerce

Department to assure more coordination and a fuller conversation

with business people about what we ought to be trying to help

them get accomplished.

The disease conversation that was here, particularly around HIV,

I sort of just associate myself with everything that was said. But

the best thing we can do with respect to the prevention of HIV and

AIDS in Africa is a public education campaign in Africa and let the

Africans help to do that. We have a shining example in Uganda,

which eliminated the growth rate of AIDS in their country by simply the government deciding that it would walk out of the closet

with respect to this question.

The more U.S. companies do there—and U.S. companies are good

citizens on the African continent. The more they do, they more they

can engage in disease prevention, particularly HIV-AIDS, the more

education they can do, the better off that continent is going to be.

There are of course many things that individual agencies around

the U.S. Government can do. I know in my own Department the

Patent and Trademark Office, the Census Bureau, NOAA, our Telecommunications Agency, there are a number of programs we have

that can sort of help in small ways that would be very significant

to the Africans through its technical assistance and through capacity building.

But the one thing we know will work, that is to see if we can

enable a better commercial environment. We have commercial law

development programs that we have sort of developed along with

AID, and we sort of live hand to mouth in those programs. But we

have taken them many different places in Latin America, in Asia,

and in Africa. They are welcomed by governments and the private

sector in those areas. They make a huge difference in institution

building.

If we can sort of do more of that and institutionalize programs

like that, we will do far more than we even will ever know that

we have done if we do that.

Thank you for having us today.

Senator FRIST. Thank you, and I sincerely want to thank everybody for participating, in this format especially, where we really

can flow and we are not stuck in the little categories as we bounce

around. It is a little bit frustrating, I think, for all of us. I do want

to thank all of you for participating, for taking time out.

Senator Feingold, you have the final word.

Senator FEINGOLD. Mr. Chairman, I just want to thank you. The

last thing I want to do is to discourage you, because you have put

an enormous amount of time into this and this is one of the better

conversations I have heard about Africa in the 61⁄2 years that I

have been here. So I want to thank you and just express my appreciation that the last few remarks did have to do with the HIVAIDS situation. I believe that this has to be a significant barrier

to investment if we do not get a handle on it in Africa, and I know

Dr. Frist knows that better than I do.

35

Thank you very much, Mr. Chairman.

Senator FRIST. Thank you all.

We stand adjourned.

[Whereupon, at 4:23 p.m., the subcommittee was adjourned.]

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